item 14 exhibits financial statement schedules reports form 8k consolidated financial statements report independent accountants consolidated statements income years ended december 31 1996 1995 1994 consolidated balance sheets december 31 1996 1995 consolidated statements cash flows years ended december 31 1996 1995 1994 consolidated statements changes shareholders equity years ended december 31 1996 1995 1994 notes consolidated financial statements consolidated financial statement schedules schedule ii valuation qualifying accounts b exhibits 21 agreement plan merger among adt limited apache inc tyco international ltd dated march 17 19976 31 memorandum association altered byelaws adt limited incorporating amendments may 26 19921 32 certified copy resolution approved annual general meeting common shareholders adt limited held october 12 1993 approving increase authorized common share capital adt limited 195 million 220 million4 41 indenture relating senior notes dated august 4 1993 among adt operations issuer adt limited certain subsidiaries adt operations guarantors chase manhattan bank national association trustee form senior note included therein2 42 indenture relating senior subordinated notes dated august 4 1993 among adt operations issuer adt limited guarantor nationsbank georgia national association trustee form senior subordinated note included therein2 43 indenture dated july 1 1995 among adt operations inc adt limited bank montreal trust company trustee form note included therein 5 44 rights agreement adt limited citibank na dated november 6 19969 45 first amendment adt limited citibank na dated march 3 1997 rights agreement adt limited citibank na dated november 6 19969 101 rules adt uk executive share option scheme 1984 amended reflect reverse split common shares effective june 17 19911 102 rules adt international executive share option plan amended reflect reverse split common shares effective june 17 19911 103 rules adt uk international executive share option schemes 1984 new section amended reflect reverse split common shares effective june 17 19911 104 rules adt senior executive share option plan amended reflect reverse split common shares effective june 17 19911 105 us 1990 stock option plan adt limited amended reflect reverse split common shares effective june 17 19911 106 employment agreement dated may 8 1993 adt limited michael anthony ashcroft2 107 amendment employment agreement dated december 18 1996 adt limited michael anthony ashcroft9 108 employment agreement adt limited stephen j ruzika dated february 26 19979 109 employment agreement adt inc ron g lakey dated january 16 19979 1010 agreement adt automotive holdings inc michael j richardson dated january 29 19979 1011 incentive compensation agreement adt inc michael j richardson dated february 10 19979 1012 severance agreement adt security services inc raymond gross dated february 26 19979 1013 consulting agreement adt inc john e danneberg dated august 28 19969 1014 form indemnification agreement9 1015 adt 1993 longterm incentive plan amended february 29 19963 1016 purchase agreement dated june 29 1995 among adt operations inc adt limited merrill lynch co inc related pricing agreement 5 1017 us200000000 credit agreement dated january 9 1997 among adt operations inc borrower certain commercial lending institutions lenders bank nova scotia agent lenders 1018 guaranty dated january 9 1997 made adt limited favor lender parties defined therein 1019 subsidiary guarantor guaranty dated january 9 1997 made subsidiary guarantor defined therein favor lender parties defined therein 1020 pound sterling 90000000 facility agreement dated march 17 1997 among adt finance plc borrower adt uk holdings plc others guarantors bank nova scotia arranger agent others 1021 adt limited guarantee dated march 25 1997 respect pound sterling 90000000 facility made available adt finance plc 1022 pound sterling 27000000 demand facility letter dated january 3 1997 adt finance plc bank nova scotia 1023 adt limited guarantee respect obligations adt finance plc pound sterling 27000000 facility letter dated january 3 1997 1024 agreement dated december 29 1995 among adt uk limited adt holdings bv ruskin limited adt limited loanoption limited integrated transport systems limited sale purchase european auctions7 1025 agreement among adt limited thomas j gibson integrated transport systems limited dated december 29 19958 1026 agreement among adt limited david b hammond integrated transport systems limited dated december 29 19958 1027 common share purchase warrant issued adt limited july 1 1996 republic industries inc10 111 statement regarding computation earnings per common share 211 list subsidiaries adt limited 231 consent independent accountants incorporation reference annual report form s3 forms s8 27 financial data schedule sec use 1 previously filed exhibit registrants annual report form 10k year ended december 31 1992 2 previously filed exhibit registrants quarterly report form 10q quarter ended june 30 1993 3 previously filed exhibit registrants registration statement dated may 16 1996 form s8 filed may 17 1996 4 previously filed exhibit registrants annual report form 10k year ended december 31 1993 5 previously filed exhibit registrants quarterly report form 10q quarter ended june 30 1995 6 previously filed exhibit registrants current report dated march 24 1997 form 8k filed march 25 1997 7 previously filed exhibit registrants current report dated december 29 1995 form 8k filed january 16 1996 8 previously filed exhibit registrants annual report form 10k year ended december 31 1995 9 previously filed exhibit registrants schedule 14d9 dated march 3 1997 10 previously filed exhibit registrants current report dated july 10 1996 form 8k filed july 11 1996 management contract compensatory plan c reports form 8k current reports form 8k filed adt limited september 19 1996 october 21 1996 november 12 1996 regarding acquisition merger automated security holdings plc current report form 8k filed adt limited march 25 1997 regarding agreement plan merger tyco international ltd signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized adt limited stephen j ruzika stephen j ruzika director executive vice president date march 26 1997 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated adt limited index consolidated financial statements consolidated financial statement schedules page consolidated financial statements report independent accountantsf2 consolidated statements income years ended december 31 1996 1995 1994f3 consolidated balance sheets december 31 1996 1995f4 consolidated statements cash flows years ended december 31 1996 1995 1994f5 consolidated statements changes shareholders equity years ended december 31 1996 1995 1994f8 notes consolidated financial statementsf10 consolidated financial statement schedules schedule ii valuation qualifying accountsf78 consolidated financial statements consolidated financial statement schedules approved board directors adt limited march 26 1997 adt limited report independent accountants board directors shareholders adt limited audited consolidated financial statements consolidated financial statement schedules adt limited listed index page consolidated financial statements consolidated financial statement schedules responsibility companys management responsibility express opinion consolidated financial statements consolidated financial statement schedules based audits conducted audits accordance generally accepted auditing standards united states standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall consolidated financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position adt limited december 31 1996 1995 consolidated results operations cash flows three years period ended december 31 1996 conformity generally accepted accounting principles united states addition opinion consolidated financial statement schedules referred considered relation basic consolidated financial statements taken whole present fairly material respects information required included therein discussed note 6 consolidated financial statements effective january 1 1996 company adopted provisions statement financial accounting standards 121 accounting impairment longlived assets longlived assets disposed coopers lybrand hamilton bermuda march 26 1997 adt limited consolidated statements income see notes consolidated financial statements adt limited consolidated balance sheets december 31 1996 1995 notes assets current assets cash equivalents 2159 3509 accounts receivable net 13 2107 1964 inventories 14 392 380 prepaid expenses current assets 15 1170 345 total current assets 5828 6198 property plant equipment net 16 15136 15713 goodwill intangibles net 17 4580 10536 investment loans associate 1834 888 longterm investments 19 1006 20 longterm assets 20 754 842 total assets 27304 34197 liabilities shareholders equity current liabilities shortterm debt 21 2092 449 accounts payable 1380 1120 current liabilities 22 2936 2272 total current liabilities 6408 3841 longterm debt 23 9101 11748 deferred revenue 24 1461 1374 deferred income taxes 25 915 1424 longterm liabilities 26 1821 1352 minority interests 27 156 total liabilities 19706 19895 commitments contingencies 32 convertible redeemable preference shares 28 49 shareholders equity common shares 30 141 139 additional paidin capital share premium 8825 8580 contributed surplus 15631 treasury shares 31 797 accumulated deficit 15988 9034 cumulative currency translation adjustments 214 266 total shareholders equity 7598 14253 total liabilities shareholders equity 27304 34197 see notes consolidated financial statements adt limited consolidated statements cash flows year ended december 31 1996 1995 1994 cash flows operating activities net loss income 6951 212 793 adjustments reconcile net loss income net cash provided operating activities charge impairment longlived assets 7447 depreciation 2062 2090 1890 goodwill intangibles amortization 186 389 377 restructuring nonrecurring charges 2174 327 45 interest vendor note 89 liquid yield option notes discount amortization 203 94 yield maintenance amortization senior notes ash 15 11 06 refinancing costs amortization 37 53 57 deferred income taxes 395 184 249 extraordinary items 84 98 gain disposal property plant equipment 24 17 31 gain loss disposal businesses 17 366 03 gain loss disposal investment associates 12 51 42 gain arising ownership investments 532 01 173 write value associate 307 settlement gain 697 gain currency transactions 97 09 21 loss disposal discontinued operations 37 20 11 26 changes assets liabilities accounts receivable 119 363 143 inventories 33 06 39 assets 117 57 36 accounts payable 113 61 165 deferred revenue 43 27 80 liabilities 214 163 61 net cash provided operating activities 3087 3370 3631 see notes consolidated financial statements cash flows investing activities purchase property plant equipment 3444 3258 2826 disposal property plant equipment 100 80 135 acquisition businesses 255 683 148 purchase customer contracts 346 05 23 purchase investments 68 04 61 disposal businesses 30 2548 100 disposal discontinued operations 46 disposal investment loans associates 154 78 402 disposal investments 541 02 725 04 56 66 net cash utilized investing activities 3284 1186 1716 year ended december 31 1996 1995 1994 cash flows financing activities net receipt repayments shortterm debt 109 1039 262 repayments longterm debt 2099 2169 13 repayment longterm acquisition debt 396 proceeds longterm debt 868 3140 2406 debt refinancing costs 120 10 purchase senior subordinated notes 240 337 proceeds issue common shares 247 70 73 redemption convertible redeemable preference shares 49 4202 dividends paid adt 03 181 dividends paid ash 45 33 03 117 net cash utilized financing activities 1167 902 2339 effect currency translation cash equivalents 14 08 21 net decrease increase cash 1350 1290 403 cash equivalents cash equivalents beginning year 3509 2219 2622 cash equivalents end year 2159 3509 2219 cash payments year interest 773 1035 860 income taxes 89 150 103 noncash investing financing activities exchange liquid yield option notes 04 conversion convertible redeemable preference shares 01 exchange nonvoting exchangeable shares 97 conjunction acquisition businesses net assets liabilities assumed follows goodwill intangibles 103 1230 127 cash paid net cash assumed 255 683 148 net assets liabilities assumed 152 547 21 see notes consolidated financial statements year ended december 31 1996 1995 1994 conjunction disposal businesses net assets disposed follows cash received net cash disposed 30 2548 100 notes received 879 105 ordinary shares received 09 deferred consideration 56 currency translation adjustments transferred disposal businesses 222 gain loss disposal businesses including net unamortized goodwill intangibles cumulative currency translation adjustments 17 366 03 net assets disposed 13 3636 208 conjunction disposal discontinued operations net assets disposed follows cash received net cash disposed 46 loss disposal discontinued operations including net unamortized goodwill intangibles 37 net assets disposed 83 see notes consolidated financial statements adt limited consolidated statements changes shareholders equity see notes consolidated financial statements adt limited consolidated statements changes shareholders equity continued prior companys merger automated security holdings plc ash september 1996 note 3 ash issued outstanding two classes convertible cumulative redeemable preference shares dividends preference shares charged accumulated deficit account relevant periods given terms conditions preference shares holders preference shares received adt common shares time companys merger ash dividends included calculation earnings per common share period presented see notes consolidated financial statements adt limited notes consolidated financial statements note 1 basis consolidated financial statements consolidated financial statements prepared united states dollars accordance generally accepted accounting principles united states described notes 2 3 preparation consolidated financial statements accordance generally accepted accounting principles united states requires management make extensive use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period management estimates include allowance doubtful receivables estimates future cash flows associated assets asset impairments useful lives depreciation amortization loss contingencies income taxes valuation allowances deferred tax assets determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ estimates certain figures december 31 1995 years ended december 31 1995 1994 reclassified conform 1996 presentation note 2 summary significant accounting policies principles consolidation consolidated financial statements incorporate financial statements adt limited adt company incorporated bermuda subsidiaries company adt holding company independent business operations assets investment subsidiaries intercompany balances holdings cash equivalents adts businesses conducted subsidiaries company consolidates companies owns controls fifty per cent voting shares unless control likely temporary results subsidiary companies acquired disposed financial year included consolidated financial statements effective date acquisition date disposal except case pooling interests note 3 significant intercompany balances transactions eliminated consolidation associates investments company owns controls twenty per cent voting shares exerts significant influence operating financial policies equity method accounting used consolidated financial statements investment associates shown consolidated balance sheets companys proportion underlying net assets companies plus goodwill attributable acquisitions less write required permanent diminution value consolidated statements income include companys share net income associates less applicable goodwill amortization currency translation results subsidiaries associates located outside united states account functional currency united states dollars translated united states dollars average rate exchange year assets liabilities subsidiaries associates located outside united states account functional currency united states dollars translated united states dollars rate ruling balance sheet date currency translation adjustments arising use differing exchange rates period included separate component shareholders equity gains losses arising currency transactions included consolidated statements income cash equivalents cash equivalents include cash hand demand deposits highly liquid instruments original maturity three months less result shortterm maturity financial instruments carrying value approximately equal fair market value inventories carried lower cost net realizable value cost includes addition production overheads appropriate determined firstin firstout basis property plant equipment property plant equipment carried cost less accumulated depreciation provided write cost assets estimated useful lives using straight line method following annual rates owned property related improvements 2 4 leased property related improvements term lease subscriber systems shorter actual contract duration 7 10 plant equipment 7 40 repairs maintenance costs expensed incurred gains losses arising disposal property plant equipment included consolidated statements income goodwill intangibles goodwill arises acquisition cost subsidiaries associates exceeds fair values attributable underlying net assets capitalized amortized straight line basis estimated useful life covering periods exceeding forty years goodwill arising acquisition associates included investment associates costs attributable acquisition including costs reorganization arrangements less related income treated reducing value net assets acquired carrying value goodwill evaluated periodically relation operating performance future undiscounted cash flows underlying businesses opinion company permanent diminution value goodwill occurred amount diminution included consolidated statements income intangibles principally comprise customer contracts amortized straight line basis periods exceeding ten years income taxes deferred tax liabilities assets recognized expected future tax consequences events included consolidated financial statements tax returns deferred tax liabilities assets determined based differences consolidated financial statements tax bases assets liabilities using tax rates effect years differences expected reverse share premium contributed surplus accordance bermuda companies act 1981 adt issues shares cash premium par value resulting premium credited share premium account nondistributable reserve adt issues shares exchange shares another company excess fair value shares acquired par value shares issued adt credited applicable contributed surplus subject certain conditions distributable reserve net sales net sales represent invoiced value goods services outside customers net salesrelated taxes revenue recognition revenue services products recognized consolidated statements income services rendered deliveries made service charges consist subscriber billings services yet rendered deferred taken income earned deferred element included longterm liabilities revenue installation electronic security systems recognized installations completed pensions postretirement benefits company operates various pension postretirement benefit plans designed accordance conditions practices countries concerned contributions accruals costs based periodic actuarial valuations charged consolidated statements income systematic basis expected average remaining service lives current employees note 3 merger automated security holdings plc september 1996 adt merged acquired whole issued capital ash united kingdom quoted company ash engaged provision electronic security services north america europe terms transaction ash shareholders received 3 adt common shares every 92 ash ordinary shares 2 adt common shares every 31 ash 5 per cent convertible cumulative redeemable preference shares 2 adt common shares every 31 ash 6 per cent convertible cumulative redeemable preference shares total consideration respect whole issued capital ash consisted issue 7034940 adt common shares note 30i merger acquisition ash adt accounted means pooling interests method accounting pursuant accounting principles board opinion 16 pooling interests method accounting assumes combining companies merged since inception historical consolidated financial statements periods prior consummation merger restated though companies combined since inception accordingly consolidated financial statements give effect transaction means pooling interests restated consolidated financial statements ash previously presented pounds sterling ashs functional currency purposes consolidated financial statements ashs consolidated financial statements translated united states dollars appropriate exchange rates addition ashs financial year end november 30 appropriate quarterly period ends february 28 may 31 august 31 periods yet amended order facilitate timely reporting periods used give effect pooling interests adt certain figures ash periods presented reclassified conform adt presentation combined separate results adt ash periods preceding merger follows adt group ash group adjustments combined six months ended june 30 1996 unaudited net sales 7156 1181 8337 extraordinary items 12 net loss 3477 3289 05i 6761 year ended december 31 1995 net sales 15254 2584 17838 extraordinary items 98 net income loss 415 187 16ii 212 year ended december 31 1994 net sales 13759 2535 16294 net income loss 1110 317 793 income tax adjustment arising preference share dividends accrued ash group payable following merger ii income tax adjustment 06 million credit referred 22 million charge relating cumulative currency translation adjustments disposal businesses associates ash group whose consolidated financial statements prepared pounds sterling functional currency note 4 segment information company engaged two service businesses electronic security services north america europe vehicle auction related services united states companys principal activities electronic security services business electronic monitoring maintenance installed base security systems installation new monitored security systems add installed base companys vehicle auction services business operates network large auction centers provide range vehicle redistribution services organized wholesale marketplace sale purchase used vehicles year ended december 31 1996 1995 1994 net sales electronic security services 14062 13509 12533 vehicle auction services ii 2978 4329 3761 17040 17838 16294 operating loss income electronic security services 7565 1724 1821 vehicle auction services ii 271 702 627 corporate iii 361 418 388 7655 2008 2060 1996 electronic security services operating income stated charge 2325 million 1995 214 million relating restructuring nonrecurring items note 5i charge impairment longlived assets 7317 million note 6i 1996 company disposed european electronic security services business operated ash group net gain disposal 17 million included gain disposal businesses note 7iii november 1995 company disposed entire european electronic article surveillance business net gain disposal 314 million included loss disposal businesses note 7ii 1995 company disposed certain european electronic security services operations businesses operated ash group net loss disposal 22 million included loss disposal businesses note 7iii 1994 company disposed entire australasian electronic security service businesses also disposed certain north american electronic security services operations adt group ash group net loss disposal 03 million included loss disposal businesses note 7iii following information represents amounts included electronic security services business segment information related businesses operations disposed year ended december 31 1996 1995 1994 net sales 07 627 974 operating loss 09 53 10 ii 1996 vehicle auction services operating income stated charge impairment longlived assets 130 million note 6ii december 1995 company disposed interest united kingdom continental european vehicle auction services businesses european auctions notes 18 34 net loss disposal 658 million included loss disposal businesses note 7i following information represents amounts included vehicle auction services business segment information related businesses disposed year ended december 31 1996 1995 1994 net sales 1631 1228 operating income 359 290 iii corporate expenses comprise administrative legal general corporate expenses net income 1996 corporate expenses stated charge 48 million 1995 128 million 1994 45 million relating restructuring nonrecurring items note 5ii 1996 corporate expenses included 113 million related professional transaction costs arising connection merger adt ash terminated merger republic industries inc republic together various refinancing costs incurred ash group prior merger adt 16 million 1995 50 million iv costs incurred producing communicating advertising generally expensed incurred total amount advertising expense year included consolidated statements income amounted 657 million 1995 589 million 1994 471 million year ended december 31 1996 1995 1994 depreciation amortization electronic security services 2092 2219 2025 vehicle auction services 150 254 235 corporate 06 07 2248 2479 2267 capital expenditures electronic security services 3142 2924 2592 vehicle auction services 257 318 231 corporate 45 16 03 3444 3258 2826 identifiable assets electronic security services 18980 25149 23378 vehicle auction services 4651 4381 8098 corporate 3673 4667 2647 27304 34197 34123 net sales north america 13586 12285 11218 europe 3454 5553 4909 australasia 167 17040 17838 16294 operating loss income north america 4836 1530 1568 europe 2819 478 490 australasia 02 7655 2008 2060 identifiable assets north america 23005 25638 22957 europe 4299 8559 11166 27304 34197 34123 note 5 restructuring nonrecurring charges year ended december 31 1996 1995 1994 electronic security services 2325 214 corporate ii 48 128 45 2373 342 45 1995 company commenced strategic review business operations corporate organizational structure view developing business strategy would place company stronger position deal changing business environment challenges facing core service businesses late 1990s 1996 strategic review process continued extended include significantly expanded agenda part strategic review company commenced evaluation administrative accounting management information systems technological infrastructures united states electronic security services division reengineering project reengineering project ongoing intended modify improve entire structure business operations consequence reengineering project incorporating effects acquisition alert centre inc alert fourth quarters 1996 1995 senior executive management approved restructuring plan resulted charge restructuring nonrecurring items united states electronic security services division 1316 million 194 million respectively united states electronic security services division restructuring charge 1996 principally attributable planned technological infrastructure enhancements facilitate consolidation companys entire customer monitoring center network together related operations expected substantially completed december 1997 restructuring charge included write certain property plant equipment 826 million provision idle property leases 189 million termination certain contractual obligations settlement costs 94 million integration restructuring costs 207 million amounts paid charged 1996 provisions termination certain contractual obligations settlement costs integration restructuring costs amounted 48 million 43 million respectively united states electronic security services division restructuring charge 1995 principally attributable closure parsippany new jersey associated corporate offices substantially completed march 1997 full implementation restructuring plan result termination approximately 250 employees approximately 180 employees terminated december 31 1996 employee severance associated costs included restructuring charge amounted 136 million write certain property plant equipment amounted 19 million integration restructuring costs amounted 39 million amounts paid charged 1996 provisions employee severance associated costs integration restructuring costs amounted 71 million 35 million respectively fourth quarter 1996 company commenced strategic detailed review electronic security services businesses acquired part acquisition ash september 1996 december 1996 senior executive management approved restructuring plan intended merge integrate fully ash group adt group december 1997 resulted charge restructuring nonrecurring items united kingdom united states electronic security services divisions 686 million 292 million respectively restructuring charge included write certain property plant equipment 132 million provision idle property leases 225 million termination certain contractual obligations settlement costs 352 million integration restructuring costs 269 million amounts paid charged 1996 provisions termination certain contractual obligations settlement costs integration restructuring costs amounted 72 million 10 million respectively part strategic review 1996 company also commenced evaluation customer monitoring center network canadian electronic security services division resulted charge restructuring nonrecurring items 31 million restructuring charge included write certain property plant equipment 13 million provision idle property leases 18 million 02 million paid charged 1996 part strategic review 1995 company also commenced evaluation management information systems united kingdom electronic security services division resulted charge restructuring nonrecurring items 1995 20 million principally relating write certain property plant equipment ii effects reengineering project merger ash group adt group resulted charge restructuring nonrecurring items corporate level 1996 48 million comprising integration restructuring costs 30 million paid charged 1996 1995 company also evaluated group corporate structure particular united kingdom result fourth quarter 1995 senior executive management approved restructuring plan substantially completed december 1996 resulted charge restructuring nonrecurring items corporate level 128 million corporate restructuring charge included provision idle property leases 56 million termination certain contractual obligations settlement costs 48 million employee severance four executives terminated 1996 associated costs 24 million amounts paid charged 1996 provisions aforementioned categories 06 million 48 million 18 million respectively corporate restructuring charge 1994 45 million principally attributable companys corporate administration united kingdom related provision idle property leases note 6 charge impairment longlived assets year ended december 31 1996 1995 1994 electronic security services 7317 vehicle auction services ii 130 7447 effective january 1 1996 company required adopt statement financial accounting standards 121 accounting impairment longlived assets longlived assets disposed sfas 121 sfas 121 prescribes methodology assessing measuring impairment loss significantly different previous guidelines procedures sfas 121 requires recoverability carrying value longlived assets primarily property plant equipment related goodwill intangible assets reviewed impairment whenever events changes circumstances indicate carrying amount asset may fully recoverable sfas 121 necessary evaluate calculate impairment loss lowest level asset grouping identifiable cash flows sfas 121 asset tested recoverability acquired business combination accounted using purchase method goodwill arose transaction included impairment evaluation asset sfas 121 requires impairment loss recognized carrying amount asset exceeds sum estimated undiscounted future cash flows asset sfas 121 impairment loss calculated difference carrying amount asset including related goodwill estimated fair value carrying amount related goodwill eliminated making reduction carrying amount impaired longlived asset prior adoption sfas 121 companys policy evaluate impairment longlived assets including goodwill aggregate basis business segment management determined within electronic security services division lowest level asset grouping referred determined country basis effect first quarter 1996 split principally terms commercial residential sectors assets principally comprise subscriber systems installed customers premises included property plant equipment related goodwill intangible assets within vehicle auction services division lowest level asset grouping determined principally individual auction center basis assets principally comprise land real estate included property plant equipment related goodwill management estimated fair values referred using analysis estimated discounted future cash flows best available estimate fair value basis calculation companys business strategy plans financial projections appropriate discount factor based companys estimated cost capital following adoption sfas 121 particular change methodology requiring company evaluate assets lowest level asset grouping rather aggregate basis first quarter 1996 company recorded aggregate noncash charge impairment longlived assets 7447 million separate line item consolidated statements income consequential tax credit 108 million 7447 million impairment charge comprised 7317 million relating electronic security services division 130 million relating vehicle auction services division 7317 million impairment charge electronic security services division comprised 3971 million related adt group 3346 million related ash group 3971 million impairment charge electronic security services division adt group related impairment carrying value subscriber systems principally commercial sector including related goodwill principally arose acquisition adt security services 1987 3953 million assets 18 million since 1989 companys electronic security services operations residential sector developed rapid rate based principally internally generated growth consequence companys operations commercial sector acquired principally 1987 complemented significant residential electronic security services operation major factor companys decision commence reengineering project 1995 ongoing context reengineering project changes electronic security services business environment electronic security services operations reorganized along separate commercial residential business lines rather aggregate geographic basis effect first quarter 1996 fully supported management financial reporting systems record results cash flows sector separately financial projections estimated future cash flows commercial sector analyzed separately indicated carrying amount related assets may fully recoverable reflective increased competition pricing factors well changes business environment accordingly upon adoption sfas 121 company evaluated commercial sector assets impairment resultant charge recorded united states impairment charge amounted 3034 million canada business performance continued disappointing impairment charge amounted 567 million europe impairment charge amounted 370 million principally due business performance certain countries meeting previous expectations 3346 million impairment charge electronic security services division ash group related impairment carrying value subscriber systems 1210 million carrying value related goodwill intangibles 2136 million principally arose acquisition certain businesses modern security systems 1989 1990 api security 1989 sonitrol group 1992 impairment charge amounted 2112 million 1234 million united kingdom united states respectively united kingdom united states adoption sfas 121 coincided reorganization commercial residential business sectors address part changes electronic security services business environment performance similar addressed adt group addition aggregate fair value adt common shares issued ash shareholders merger significantly less ashs consolidated net asset value reasons company reviewed assets impairment upon adoption sfas 121 ii 130 million impairment charge vehicle auction services division related impairment carrying value property related improvements including related goodwill principally arose acquisition adt automotive 1987 note 7 gain loss disposal businesses year ended december 31 1996 1995 1994 united kingdom continental european vehicle auction services businesses 658 european electronic article surveillance business ii 314 iii 17 22 03 17 366 03 december 1995 company disposed interest european auctions note 34 aggregate consideration 3349 million note 18 net loss disposal 658 million included 1365 million relating write net unamortized goodwill intangibles note 17ii 232 million charge related cumulative currency translation adjustments ii november 1995 company disposed entire european electronic article surveillance business aggregate consideration 540 million comprising cash 486 million deferred consideration 54 million net gain disposal 314 million included 21 million gain relating cumulative currency translation adjustments iii 1996 company disposed european electronic security services business operated ash group aggregate cash consideration 30 million net gain disposal amounted 17 million 1995 company disposed certain european electronic security services operations businesses operated ash group aggregate consideration 61 million comprising cash 59 million deferred consideration 02 million net loss disposal 22 million included 28 million relating write net unamortized goodwill intangibles note 17ii 11 million charge relating cumulative currency translation adjustments 1994 company disposed entire australasian electronic security services businesses also disposed certain north american electronic security services operations adt group ash group aggregate consideration disposals amounted 216 million comprising cash 111 million notes receivable 105 million net loss disposal 03 million included 107 million relating write net unamortized goodwill intangibles note 8 income less expenses year ended december 31 1996 1995 1994 gains losses arising ownership shortterm investments 30 longterm investments 544 50 185 write value associate ii 307 settlement gain iii 650 gains losses currency transactions 97 09 21 income less expenses net 03 09 30 1288 50 41 realized gains losses arising ownership shortterm longterm investments principally stated carrying costs interest administrative expenses 1996 gains arising ownership longterm investments comprised net gain 534 million relating disposal november 1996 companys entire investment limelight group plc united kingdom quoted company previously valued accounted company nominal amount net gain 12 million relating disposal companys equity investment integrated transport systems limited notes 18 34 net losses 02 million principally arising disposal noncore investments 1995 losses arising ownership longterm investments comprised 51 million relating disposal principally second quarter 1995 companys entire equity investments compagnie generale de protection et securite sa cgps microtech security uk limited microtech held ash group note 18 net gains 01 million principally arising disposal noncore investments net loss disposal 50 million included 73 million relating write net unamortized goodwill intangibles 11 million charge relating cumulative currency translation adjustments 1994 gains arising ownership longterm investments comprised 42 million relating disposal companys entire equity investment nuswift plc united kingdom quoted company net gains 143 million principally arising disposal noncore investments ii write value associate 1994 related companys entire equity investment arius inc arius united states unquoted company held ash group detailed assessment investment arius carried 1994 result net write 307 million recorded 265 million related write net unamortized goodwill intangibles 29 million related provisions 1995 arius went voluntary liquidation iii 1991 lengthy review evaluation businesses assets acquired 1990 respect britannia security group plc britannia undertaken company review revealed time acquisition britannia adt certain assets particularly subscriber systems installed customer premises included consolidated financial statements britannia values materially excess net realizable value 1992 adt commenced legal proceedings britannias auditors time acquisition bdo binder hamlyn bdo seek recovery damages suffered december 1995 high court justice england awarded damages approximately 160 million including interest bdo plus reimbursement certain legal costs incurred connection litigation bdo appealed judgment december 31 1995 adt recognize award damages consolidated statements income deferred certain legal costs incurred connection litigation amounting 111 million order match costs award recognized deferred costs included longterm assets note 20 december 1996 adt bdo entered settlement agreement subject completion certain additional documentation signed february 1997 included payment adt 775 million cash included current assets note 15 together deferred payment 86 million full final settlement aforementioned proceedings including judgment accrued interest costs result settlement bdo withdrawn appeal net gain arising settlement amounted 697 million 650 million included income less expenses 47 million included interest income note 9 income taxes provision income taxes consolidated statements income follows year ended december 31 1996 1995 1994 current income taxes us 65 31 46 non us 112 66 54 177 97 100 deferred income taxes note 25 us principally federal income taxes 209 180 226 non us 186 04 23 395 184 249 218 281 349 us current income taxes 1996 comprise federal state income taxes 1995 1994 principally comprise state income taxes ii loss income taxes included following components year ended december 31 1996 1995 1994 us loss income 4856 595 538 non us loss income 2229 04 637 loss income taxes 7085 591 1175 iii reconciliation notional us federal income taxes statutory rate consolidated loss income taxes companys income tax provision follows year ended december 31 1996 1995 1994 notional us federal income taxes statutory rate 2480 207 411 adjustments reconcile companys income tax provision us state income tax provisions net 31 27 32 non us net losses earnings 706 71 146 sfas 121 impairment 1502 utilization andor recognition tax loss carryforwards items 23 24 52 income tax provision 218 281 349 note 10 loss discontinued operations 1994 company disposed remaining noncore businesses principally insight travel group company longer interests noncore businesses aggregate cash consideration disposals amounted 112 million net loss amounted 37 million included 191 million relating write net unamortized goodwill intangibles net income operations 1994 amounted 04 million net sales 806 million note 11 extraordinary items 1996 1995 company reacquired market certain senior subordinated notes note 23ii financed cash hand extraordinary items included loss arising reacquisition 09 million 1995 09 million write net unamortized deferred refinancing costs 05 million 1995 08 million relating early extinguishment certain amounts outstanding senior subordinated notes stated net applicable income taxes 02 million 1995 02 million september 1996 company repaid full amounts owed ash group senior notes bank credit agreement note 23vi subsequently cancelled financed cash hand loans drawn revolving bank credit agreement extraordinary items included loss arising repayment 42 million write net unamortized deferred refinancing costs 04 million relating early extinguishment amounts outstanding senior notes bank credit agreement owed ash group consequential tax effect december 1996 company gave notice convertible capital bond holders outstanding capital bonds owed ash group would fully redeemed company subsequently cancelled note 23v financed cash hand amounts drawn sterling denominated bank credit facility note 23vii extraordinary items included write net unamortized deferred refinancing costs 16 million relating early extinguishment amounts outstanding convertible capital bonds owed ash group consequential tax effect december 1996 company entered new bank credit agreement subject completion certain additional documentation signed january 1997 replaced full previous bank credit agreement subsequently cancelled note 23iv extraordinary items included write net unamortized deferred refinancing costs 15 million relating early extinguishment amounts outstanding bank credit agreement owed adt group stated net applicable income taxes 05 million july 1995 company repaid full amounts owed adt group previous bank credit agreement subsequently cancelled company funded repayment net proceeds issue liquid yield option notes note 23iii extraordinary items included write net unamortized deferred refinancing costs 128 million relating early extinguishment amounts outstanding previous bank credit agreement owed adt group stated net applicable income taxes 45 million note 12 loss earnings per common share calculation primary loss earnings per common share based weighted average 137114415 1995 138283458 1994 136148361 common shares issue year 1996 allow allotment common shares executive share option schemes considered common stock equivalents effect antidilutive consequence net loss year common stock equivalents included weighted average number common shares issue 1995 1994 2921286 2503059 respectively primary loss earnings per common share continuing operations based adjusted net loss continuing operations available common shareholders 6870 million 1995 307 million net income 1994 693 million net income note 13 accounts receivable net december 31 1996 1995 trade accounts receivable 2292 2134 less allowance doubtful receivables 185 170 2107 1964 note 14 inventories december 31 1996 1995 raw materials consumables 86 88 work process 189 141 finished goods 117 151 392 380 note 15 prepaid expenses current assets december 31 1996 1995 prepaid expenses 109 116 current assets 1061 229 1170 345 december 31 1996 current assets included 775 million settlement gain proceeds note 8iii note 16 property plant equipment net december 31 1996 1995 cost property related improvements 2907 2716 subscriber systems 19775 18740 plant equipment 2148 1990 total cost 24830 23446 accumulated depreciation property related improvements 560 415 subscriber systems 7620 6142 plant equipment 1514 1176 total accumulated depreciation 9694 7733 net book values 15136 15713 note 17 goodwill intangibles net 1996 1995 cost january 1 12906 13452 sfas 121 impairment note 6 8256 acquisitions 449 1230 disposals ii 1741 currency translation adjustments 35 december 31 5099 12906 accumulated amortization january 1 2370 2337 sfas 121 impairment note 6 2037 charge year 186 389 disposals ii 348 currency translation adjustments 08 december 31 519 2370 net book values december 31 4580 10536 february 1996 company acquired remaining 240 per cent outstanding voting share capital alert electronic security services company united states already owned company aggregate cash consideration 255 million financed cash hand amount goodwill arising acquisition 103 million 1996 company purchased intangibles principally customer contracts north america europe aggregate cash consideration 346 million financed cash hand december 1995 company acquired 760 per cent outstanding voting share capital alert aggregate cash consideration 690 million financed cash hand amount goodwill intangibles arising acquisition 801 million 400 million respectively january 1995 company acquired vehicle auction services business belgium aggregate cash consideration 42 million disposed december 1995 part disposal company interest european auctions note 17ii 1995 company also acquired several small electronic security services businesses united states europe aggregate cash consideration 10 million acquisitions accounted using purchase method accordingly respective purchase prices allocated assets acquired liabilities assumed based preliminary estimated fair values allocations resulted goodwill intangibles 449 million arising year 1995 1230 million ii december 1995 company disposed interest european auctions notes 18 34 net unamortized goodwill intangibles disposal 1365 million included loss disposal businesses note 7i 1995 company disposed certain european electronic security services operations businesses operated ash group net unamortized goodwill intangibles disposal 28 million included gain disposal businesses note 7iii iii accumulated cost accumulated amortization net book values goodwill balance included within goodwill intangibles december 31 1996 amounted 4210 million 430 million 3780 million respectively 1995 11201 million 2069 million 9132 million respectively note 18 investment loans associate december 31 1996 1995 vendor note 839 shareholder loan notes 139 978 less unamortized discount 99 879 investment ordinary share capital 09 888 december 1995 company disposed interest european auctions integrated transport systems limited note 34 aggregate consideration 3349 million aggregate consideration received company closing comprised cash 2351 million 1876 million aggregate principal amount maturity subordinated deep discount zero coupon loan note issued maturing march 2004 vendor note 311 million aggregate principal amount maturity subordinated deep discount zero coupon loan notes issued maturing march 2004 shareholder loan notes 431 per cent interest ordinary share capital issue price 20 million vendor note sterling loan note issue price 839 million reflecting yield maturity 100 per cent per annum valued company 746 million periodic payments interest vendor note subordinated noncollateralized obligation transferrable certain conditions december 1998 discount vendor note 93 million amortized basis linked yield maturity life loan note credit interest income represents difference stated yield maturity prevailing market yield maturity approximately 115 per cent per annum similar types loan notes time vendor note issued december 1995 interest yield discount amortization 1996 amounted 86 million 03 million respectively shareholder loan notes transferrable sterling loan notes issue price 139 million reflecting yield maturity 100 per cent per annum valued company 133 million periodic payments interest shareholder loan notes subordinated noncollateralized obligations also subordinated vendor note aggregate fair market value vendor note shareholder loan notes december 31 1995 amounted 879 million based discounting loan notes estimated current sterling interest rates similar term financial instruments 431 per cent interest ordinary share capital valued accounted company 09 million february 1996 company disposed entire interest shareholder loan notes issue price 139 million valued company 133 million net unamortized discount 06 million 331 per cent ordinary share capital valued company 09 million aggregate cash consideration 154 million net gain arising transaction amounted 12 million included income less expenses note 8i result transaction company holds 100 per cent interest ordinary share capital valued accounted company nominal amount together vendor note december 31 1996 disclosed longterm investment note 19 accounted amortized cost movement carrying value investment loans associate since january 1 1995 follows 1996 1995 january 1 888 126 acquisitions 888 disposals 142 126 reclassifications 746 december 31 888 1995 company disposed entire equity investments cgps french unquoted company microtech united kingdom unquoted company aggregate consideration 86 million comprising cash 78 million notes receivable 08 million net loss disposal 51 million including 73 million relating write net unamortized goodwill intangibles 11 million charge relating cumulative currency translation adjustments included income less expenses note 8i note 19 longterm investments december 31 1996 1995 vendor note 18 1020 less unamortized discount 100 920 longterm investments 86 20 1006 20 fair market value vendor note december 31 1996 amounted 897 million based discounting loan note estimated current sterling interest rates similar term financial instruments aggregate fair market value longterm investments december 31 1996 amounted 86 million 1995 20 million based estimates made company note 20 longterm assets december 31 1996 1995 deferred refinancing costs 194 271 longterm assets 560 571 754 842 connection refinancing certain longterm debt obligations company certain fees expenses incurred refinancing costs amortized interest expense consolidated statements income straight line basis terms respective lives companys various longterm debt obligations refinancing costs amortization year amounted 37 million 1995 53 million 1994 57 million year 40 million 1995 136 million 1994 nil net unamortized deferred refinancing costs relating early extinguishment certain amounts outstanding companys longterm debt obligations written extraordinary items consolidated statements income note 11 note 21 shortterm debt december 31 1996 1995 bank acceptance facilities 506 394 current portion longterm debt note 23 1586 55 2092 449 average rate interest shortterm debt outstanding december 31 1996 78 per cent 1995 79 per cent shortterm debt generally repayable demand interest payment date noncollateralized except 05 million bank acceptance facilities 1995 55 million current portion longterm debt 1995 note 22 current liabilities december 31 1996 1995 accruals 706 785 payroll employee benefits 581 535 payments received account 171 101 income taxes 156 120 interest payable 237 254 shortterm restructuring disposition provisions 956 374 current liabilities 129 103 2936 2272 note 23 longterm debt december 31 1996 1995 senior notes 2500 senior subordinated notes ii 2941 3172 liquid yield option notes iii 3268 3068 revolving bank credit agreement iv 830 150 convertible capital bonds v 756 687 bank credit agreement ash vi 1262 senior notes ash vi 568 vii 392 396 10687 11803 less current portion note 21 1586 55 9101 11748 2500 million 825 per cent senior notes due august 2000 issued august 1993 public offering adt operations inc company incorporated united states indirect wholly owned subsidiary adt guaranteed senior basis adt certain subsidiaries adt operations inc senior notes redeemable prior maturity interest payable semiannually indentures governing senior notes contain certain covenants including limitations indebtedness limitations certain payments including dividends companys common shares compliance various financial operating covenants prohibitions certain change control provisions senior notes noncollateralized senior obligations adt operations inc ranking pari passu right payment existing future senior indebtedness adt operations inc including indebtedness revolving bank credit agreement referred iv ii 3500 million 925 per cent senior subordinated notes due august 2003 issued august 1993 public offering adt operations inc guaranteed senior subordinated basis adt senior subordinated notes redeemable whole part option adt operations inc time august 1998 following redemption prices twelve month period beginning august 1998 10375 per cent b august 1999 10250 per cent c august 2000 10125 per cent thereafter 10000 per cent principal amount interest payable semiannually indentures governing senior subordinated notes contain certain covenants set senior notes senior subordinated notes noncollateralized senior subordinated obligations adt operations inc ranking pari passu senior right payment existing future indebtedness adt operations inc expressly subordinated senior indebtedness adt operations inc 1996 company reacquired market 231 million 1995 328 million face value senior subordinated notes purchase cost 240 million 1995 337 million financed cash hand loss arising reacquisition 09 million 1995 09 million related costs 05 million 1995 08 million included extraordinary items note 11 iii july 1995 adt operations inc issued 776250000 aggregate principal amount maturity zero coupon subordinated liquid yield option notes maturing july 2010 net proceeds issue amounted 2874 million used repay full amounts outstanding adt operations incs previous bank credit agreement subsequently cancelled issue price per note 38309 per cent principal amount 1000 per note maturity reflecting yield maturity 65 per cent per annum computed semiannual bond equivalent basis periodic payments interest discount amortization notes charged interest expense consolidated statements income basis linked yield maturity notes discount amortization 1996 amounted 203 million 1995 94 million note exchangeable common shares adt option holder time prior maturity unless previously redeemed otherwise purchased adt operations inc exchange rate 2823 common shares per note 1996 619 notes carrying value 03 million exchanged option holders 17472 adt common shares note 30 note purchased adt operations inc option holder july 2002 purchase price per note 59946 time holder exercises option adt right deliver portion purchase price form common shares adt beginning july 2002 notes redeemable cash time option adt operations inc whole part redemption prices equal issue price plus accrued original issue discount date redemption notes guaranteed subordinated basis adt prior maturity change control holder right require adt operations inc purchase notes change control purchase price iv august 1995 adt operations inc entered new 300 million revolving bank credit agreement replaced full previous bank credit agreement new agreement term five years guaranteed senior basis adt certain subsidiaries adt operations inc amounts available facility available borrowing reborrowing issuance reissuance case letters credit maximum 100 million subject certain conditions time june 2000 time amounts repayable full december 31 1996 830 million 1995 150 million drawn agreement classified current portion longterm debt plus letters credit amounting 811 million 1995 810 million issued terms less one year company utilizes letters credit back certain financing arrangements insurance policies well trade purposes letters credit approximately reflect fair value condition underlying purpose company expects counterparties fully perform terms agreements amounts drawn revolving bank credit agreement bear interest floating rate equal option adt operations inc either alternative base rate plus margin reserve adjusted libo rate plus margin average rate interest december 31 1996 65 per cent 1995 76 per cent revolving bank credit agreement contains certain financial operating covenants including restrictions companys ability incur additional indebtedness limitations certain payments including dividends common shares adt operations inc certain financial covenants including minimum cash flow coverage ratio minimum debt total capitalization ratio minimum level shareholders equity certain change control provisions december 1996 adt operations inc entered new 200 million revolving bank credit agreement subject completion certain additional documentation signed january 1997 replaced full previous bank credit agreement subsequently cancelled new agreement term one year guaranteed senior basis adt certain subsidiaries adt operations inc amounts available new facility available borrowing reborrowing issuance reissuance case letters credit maximum 100 million subject certain conditions time january 1998 time amounts repayable full interest rates financial operating covenants place new facility substantially referred previous bank credit agreement v 95 per cent sterling denominated convertible capital bonds due july 2006 issued ash capital finance jersey limited company incorporated jersey indirect wholly owned subsidiary adt unconditionally irrevocably guaranteed noncollateralized subordinated basis adt interest payable semiannually capital bonds convertible option holder fully paid 20 per cent fixed cumulative dividend exchangeable redeemable preference shares ash capital finance jersey limited nominal value one pence preference shares unconditionally irrevocably guaranteed noncollateralized subordinated basis adt preference shares redeemable paid value pound sterling 1 also exchangeable option holder fully paid common shares adt price pound sterling 7666 per common share price subject adjustment certain circumstances capital bonds unconditionally irrevocably guaranteed noncollateralized subordinated basis ash formerly convertible ordinary shares ash terms issue adt require conversion outstanding capital bond 85 per cent issue previously converted purchased cancelled case bond holders may elect redemption lieu conversion june 1 1996 adt may exercise call option 100 per cent aggregate paid amounts capital bonds outstanding december 1996 ash capital finance jersey limited gave notice bond holders january 1997 would redeem capital bonds outstanding price equating denomination capital bond together accrued interest due accordingly january 1997 capital bonds fully redeemed carrying amount financed cash hand amounts drawn sterling denominated bank credit facility set vii december 31 1996 classified current portion longterm debt vi september 1996 company repaid full amounts owed ash group senior notes bank credit agreement subsequently cancelled financed cash hand loans drawn revolving bank credit agreement loss arising repayment 42 million related costs 04 million included extraordinary items note 11 1994 ash issued 607 million 828 per cent senior notes due january 1998 56 million respect yield maintenance senior notes collateralized obligations ash group yield maintenance amortization senior notes charged interest expense consolidated statements income yield maintenance amortization 1996 amounted 15 million 1995 11 million 1994 06 million effective rate interest including yield maintenance 107 per cent 1995 ash entered bank credit agreement totalling approximately 134 million maturity date january 1998 amounts drawn agreement collateralized obligations ash group bore interest principally libo rate plus margin vii longterm debt principally represents revolving facilities various banks falling due repayment 1999 bearing interest floating rate equal option company either alternative base rate plus margin reserve adjusted libo rate plus margin average rate interest december 31 1996 75 per cent 1995 69 per cent addition december 31 1996 06 million 1995 20 million letters credit issued certain facilities terms less one year january 1997 company entered sterling denominated bank credit facility repayable demand amount drawn facility amounted 26 million used repay part amounts owed convertible capital bonds v facility guaranteed adt certain subsidiaries interest payable libo rate plus margin march 1997 company entered new 154 million sterling denominated bank credit facility 146 million term loan facility 8 million revolving credit facility term loan facility fully drawn part used repay full 26 million drawn sterling denominated bank credit facility referred new facility term five years guaranteed adt certain subsidiaries interest payable libo rate plus margin average rate interest longterm debt year 80 per cent 1995 82 per cent 1994 84 per cent based estimated interest rates currently available company longterm debt similar terms average maturities fair value longterm debt december 31 1996 amounted approximately 1119 million 1995 approximately 1241 million maturities installments respect longterm debt outstanding december 31 1996 follows year ending december 31 1997 1586 1998 09 1999 345 2000 2517 2001 09 thereafter 6221 10687 note 24 deferred revenue deferred revenue comprised subscriber billings services yet rendered note 25 deferred income taxes movement deferred income taxes since january 1 1994 follows 1996 1995 1994 january 1 1424 1235 953 credit charge year note 9i 395 184 249 extraordinary items note 11 07 47 eliminated disposals 33 currency translation adjustments 07 02 reclassifications 100 78 35 december 31 915 1424 1235 significant temporary timing differences tax loss carryforwards gave rise deferred income tax balance december 31 1996 follows us non us total liabilities depreciation 8648 726 9374 69 152 221 8717 878 9595 assets tax operating loss carryforwards 4366 992 5358 provisions estimated costs expenses 1437 572 2009 interest expense 1479 postretirement benefit obligations 786 depreciation 662 8068 2226 10294 valuation allowance 1636 1558 3194 6432 668 7100 gross deferred income tax liability 2285 210 2495 deferred income tax liability statutory tax rates 800 115 915 us tax operating loss carryforwards december 31 1996 expire follows year ending december 31 1999 68 2000 41 2001 242 2002 183 2003 75 2004 864 2005 1444 2006 1072 2007 247 2008 130 4366 provision made deferred income taxes undistributed earnings subsidiaries 6559 million december 31 1996 required finance continuing operations significant temporary timing differences tax loss carryforwards gave rise deferred income tax balance december 31 1995 follows us non us total liabilities depreciation 8579 1244 9823 52 145 197 8631 1389 10020 assets tax operating loss carryforwards 4289 945 5234 provisions estimated costs expenses 692 125 817 interest expense 996 postretirement benefit obligations 665 6642 1070 7712 valuation allowance 1200 493 1693 5442 577 6019 gross deferred income tax liability 3189 812 4001 deferred income tax liability statutory tax rates 1116 308 1424 note 26 longterm liabilities december 31 1996 1995 pensions note 33i 284 206 postretirement benefits pensions note 33iv 482 478 longterm restructuring disposition provisions 746 413 longterm liabilities 309 255 1821 1352 note 27 minority interests december 31 1995 minority interests represent 240 per cent interest outstanding voting share capital alert held minority shareholders alert owned company value based consolidated net assets alert historical cost basis february 1996 following approval alerts shareholders alert merged company result shares held minority shareholders owned company converted right receive cash price paid per share company initial tender offer accordingly minority interest outstanding december 31 1995 eliminated note 28 convertible redeemable preference shares december 31 1996 1995 1994 authorized 225000 5 34 convertible cumulative redeemable preference shares 2002 1 1995 225000 1994 225000 02 500000 6 convertible cumulative redeemable preference shares 2002 1 1995 500000 1994 500000 ii 05 125000000 convertible cumulative redeemable preference shares 1 1995 125000000 1994 125000000 iii 1250 1257 movement convertible redeemable preference shares since january 1 1994 follows 5 34 shares 6 shares number issued outstanding january 1 1994 29738 355 283030 3917 reacquired market purchase cost 25 redeemed 28957 346 278625 3856 reversal redemption premium shares redeemed 01 17 december 31 1994 756 08 4405 44 converted common shares note 30 225 03 december 31 1995 756 08 4180 41 redeemed 756 08 4180 41 december 31 1996 january 1994 adt redeemed 28957 5 34 convertible redeemable preference shares aggregate consideration including redemption premium 346 million company funded redemption cash hand october 1994 adt redeemed 278625 6 convertible redeemable preference shares aggregate consideration including redemption premium 3856 million company funded redemption drawdown 2316 million previous bank credit agreement 1540 million cash hand november 1996 adt redeemed 756 5 34 convertible redeemable preference shares 4180 6 convertible redeemable preference shares aggregate consideration 49 million company funded redemption cash hand dividends convertible redeemable preference shares amounted year ended december 31 1996 1995 1994 5 34 convertible redeemable preference shares 6 convertible redeemable preference shares 03 133 03 133 5 34 convertible cumulative redeemable preference shares 2002 par value 1 april 1987 175000 mandatorily redeemable preference shares issued cash price 1000 period december 31 1996 139262 preference shares converted adt common shares holders preference shares entitled fixed cumulative preferential dividend rate 5 34 per cent per annum preference shares subject redemption option holders january 1994 119625 per cent issue amount adt right require redemption conversion preference shares certain circumstances right exercised november 1996 remaining preference shares redeemed carrying amount ii 6 convertible cumulative redeemable preference shares 2002 par value 1 september 1987 400000 mandatorily redeemable preference shares issued cash price 1000 period december 31 1996 225 preference shares converted adt common shares holders preference shares entitled fixed cumulative preferential dividend rate 6 per cent per annum preference shares subject redemption option holders october 1994 138375 per cent issue amount adt right require redemption conversion preference shares certain circumstances right exercised november 1996 remaining preference shares redeemed carrying amount iii convertible cumulative redeemable preference shares par value 1 november 1996 board directors adt determined 25 million 125 million authorized convertible cumulative redeemable preference shares 1 classified series first preference shares purchase rights pursuant shareholders rights plan referred reserved issuance upon exercise said rights attaching balance 1225 million convertible cumulative redeemable preference shares 1 none issued outstanding dividends return capital redemption conversion voting otherwise may determined adt time allotment november 1996 board directors adt adopted shareholder rights plan adt common shareholder received distribution one right adt common share held right entitles holder purchase adt shares new series first preference shares initial purchase price 90 per one hundredth first preference share rights become exercisable detach common shares specified period time person becomes beneficial owner 15 per cent adts common shares commences tender exchange offer consummated would result person becoming beneficial owner 15 per cent adts common shares rights become exercisable account person beneficial owner 15 per cent adts common shares plan adopted become exercisable person increases beneficial ownership time note 32iv person becomes beneficial owner 15 per cent adts common shares person already beneficial owner 15 per cent adts common shares plan adopted increases beneficial ownership right enable holder acquiring person purchase rights purchase price adt common shares market value twice rights purchase price following acquisition 15 per cent adts common shares adt involved mergers business combinations sells transfers 50 per cent assets earnings power right entitle holder purchase rights purchase price common shares party transaction market value twice rights purchase price adt may redeem rights price 001 per right time prior specified period time person become beneficial owner 15 per cent adts common shares rights expire november 2005 unless exercised redeemed earlier event liquidation adt holders adts convertible redeemable preference shares together entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders note 29 nonvoting exchangeable shares movement nonvoting exchangeable shares since january 1 1994 follows number january 1 1994 925537 150 exchanged common shares held treasury shares note 31 922628 150 december 31 1994 2909 exchanged common shares held treasury shares note 31 2909 december 31 1995 december 31 1996 march 1991 adt finance inc indirect wholly owned canadian subsidiary adt issued 1000000 nonvoting exchangeable shares exchangeable common shares adt option holder time one basis holders nonvoting exchangeable shares entitled dividends equivalent dividends declared paid common shares adt note 30 common shares december 31 1996 1995 1994 authorized 220000000 shares 010 1995 220000000 1994 220000000 220 issued outstanding 141382697 shares 010 1995 138885405 1994 138097754 141 139 138 movement common shares since january 1 1994 follows 1996 1995 1994 number january 1 138885405 138097754 137364915 exercise executive share options ii 2479820 780366 35000 exchange liquid yield option notes note 23iii 17472 conversion convertible preference shares note 28 7285 exercise warrants iii 697839 december 31 141382697 138885405 138097754 number common shares january 1 1994 restated pooling interests ash note 3 number january 1 1994 previously reported 130329975 pooling interests ash note 3 7034940 january 1 1994 restated 137364915 ii adt granted employee share options issued five fixed share option plans schemes reserve common shares issuance companys executives managers majority options granted adt 1993 longterm incentive plan incentive plan incentive plan originally approved shareholders adt october 1993 certain subsequent amendments incentive plan approved shareholders adt april 1996 incentive plan administered remuneration committee board directors adt consists exclusively independent nonexecutive directors adt options generally granted purchase adt common shares prices equate market price common shares date option granted conditions vesting determined time grant certain options granted participants required pay subscription price condition vesting options granted incentive plan date generally vested become exercisable installments three year period date grant maximum term ten years movement executive share options outstanding since january 1 1994 follows 1996 1995 1994 number january 1 13491185 12180778 10410425 granted 6448333 3000000 1975000 exercised 2479820 780366 35000 cancelled purchase note 34 657832 lapsedsurrendered 207298 251395 169647 december 31 17252400 13491185 12180778 number executive share options exercisable available future grant december 31 follows 1996 1995 1994 number exercisable 12787060 5423423 3454935 available future grant 2593335 401668 3385000 weighted average executive share options exercise price information since january 1 1994 follows 1996 1995 1994 outstanding january 1 1152 1108 1132 granted 1532 1197 924 exercised 998 884 893 cancelled purchase note 34 910 lapsedsurrendered 1724 1268 1585 outstanding december 31 1306 1152 1108 exercisable december 31 1321 1238 1259 estimated weighted average fair value executive share options granted 1996 433 date grant using optionpricing model assumptions referred following table summarizes information outstanding exercisable executive share options december 31 1996 company required adopt statement financial accounting standards 123 accounting stockbased compensation sfas 123 sfas 123 allows companies measure compensation cost connection executive share option plans schemes using fair value based method continue use intrinsic value based method generally result compensation cost company decided continue use intrinsic value based method compensation cost recorded fair value based method adopted consistent provisions sfas 123 companys proforma net loss income proforma net loss income per common share years ended december 31 1996 1995 would follows year ended december 31 1996 1995 net loss incomeproforma 7171m 178m net loss income per common shareproforma 523 013 fair value option grant estimated date grant using blackscholes optionpricing model following weighted average assumptions expected stock price volatility 28 per cent risk free interest rate 59 per cent expected dividend yield nil per cent expected life options 37 years effects applying sfas 123 proforma disclosure indicative future amounts sfas 123 apply awards prior 1995 additional awards future years anticipated iii april 1992 issue made common shareholders warrants subscribe adt common shares basis one warrant every six common shares held warrant gave holder right subscribe one common share 1000 per common share period july 1 1992 june 30 1994 warrants exercised june 30 1994 lapsed accordance terms warrants movement warrants since january 1 1994 follows number january 1 1994 18254318 exercised 697839 lapsed 17556479 december 31 1994 december 31 1995 december 31 1996 iv july 1996 part agreement combine republic adt granted republic warrant acquire 15 million common shares adt exercise price 20 per common share following termination agreement combine republic warrant vested exercisable republic six month period commencing september 27 1996 note 32iv march 1997 warrant exercised republic company received 300 million cash v march 1997 company announced entered definitive merger agreement subject shareholder approval customary matters tyco international ltd tyco united states quoted company engaged manufacture industrial commercial products tyco shareholders receive one common share combined company tyco common share adt shareholders reverse stock split receive 048133 common shares combined company adt common share note 31 treasury shares movement treasury common shares held subsidiary adt purchase cost since january 1 1994 follows number january 1 1994 4109324 1029 exchange nonvoting exchangeable shares note 29 922628 231 december 31 1994 3186696 798 exchange nonvoting exchangeable shares note 29 2909 01 treasury shares given employee remuneration 1000 december 31 1995 december 31 1996 3182787 797 note 32 commitments contingencies company leases land buildings motor vehicles equipment various contracts future total minimum rental payments required operating leases remaining noncancelable lease terms excess one year december 31 1996 follows year ending december 31 1997 673 1998 544 1999 390 2000 283 2001 189 thereafter 416 2495 net operating lease rental charge year included consolidated statements income amounted 772 million 1995 753 million 1994 686 million ii financial instruments potentially subject company concentrations credit risk principally consist cash equivalents trade receivables company places cash equivalents high credit quality financial institutions throughout world policy limits amount credit exposure one financial institution companys trade receivables primarily result electronic security services vehicle auction services businesses reflects broad international customer base credit limits ongoing credit evaluation account monitoring procedures utilized minimize risk loss consequence concentrations credit risk limited addition vendor note 19 also subjects company credit risk event nonperformance however company currently expects meet liabilities company terms vendor note iii december 31 1996 company issued guarantor surety bonds 100 million 1995 100 million back insurance policies surety bonds unlimited duration iv december 1996 westar capital inc wci wholly owned subsidiary western resources inc 24 per cent shareholder adt filed complaint subsequently amended us courts adt directors among others complaint alleges among things adt directors breached fiduciary duties wci adts shareholders adopting plan note 28iii b issuing republic warrant note 30iv complaint seeks court order directing adt redeem plan b declaring warrant issued republic null void preventing adt republic exercising rights warrant preventing republic selling transferring warrant shares currently owns complaint also seeks unspecified damages attorneys fees costs accordingly estimate potential loss range possible losses cannot made adt board directors believe allegations wcis complaint adt directors without merit intend vigorously defend december 1996 mr c gachot filed complaint us courts adt certain directors among others complaint brought behalf class shareholders adt alleges among things plan note 28iii warrant issued republic note 30iv improper complaint seeks unspecified monetary relief accordingly estimate potential loss range possible losses cannot made adt board directors believe allegations mr gachots complaint adt certain directors without merit intend vigorously defend march 1997 crandon capital partners ccp filed complaint us courts adt certain current former directors among others complaint brought ccp derivative capacity behalf adt complaint alleges among things adts directors breached fiduciary duties wasted corporate assets connection granting options certain officers adt 1996 b implementation plan note 28iii c issuance republic warrant note 30iv complaint seeks court order directing adts directors establish system internal controls prevent repetition alleged breaches fiduciary duty corporate waste unspecified amount damages accordingly estimate potential loss range possible losses cannot made adt directors believe allegations ccps complaint adt certain directors without merit intend vigorously defend company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect consolidated results operations cash flows consolidated financial position company note 33 pension plans company operates various defined benefit pension plans designed accordance conditions practices countries concerned contributions based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements income systematic basis expected average remaining service lives current employees net pension expense assessed accordance advice professionally qualified actuaries countries concerned based subsequent formal reviews purpose companys united states electronic security services operation noncontributory funded defined benefit pension plan covering substantially employees company two contributory funded defined benefit pension plans united kingdom covering substantially salaried nonsalaried employees details recent independent actuarial valuations formal reviews set united states plan net pension expense united states plan included following components year ended december 31 1996 1995 1994 service costbenefits earned year 65 51 61 interest cost projected benefit obligations 133 129 119 return assets 171 163 161 net amortization deferral 49 08 01 net pension expense 76 09 20 result early retirement plan implemented 1996 curtailment loss 48 million included net amortization deferral component net pension expense year ended december 31 1996 following table sets forth actuarial present value accumulated benefit obligations funded status companys united states plan december 31 1996 1995 accumulated benefit obligations including vested benefits 1554 million 1995 1578 million 1695 1644 total projected benefit obligations 1935 1894 plan assets fair value primarily stocks bonds money market funds 1926 1835 less unrecognized net gain 281 154 plus unrecognized prior service costs 06 07 1651 1688 net pension liability note 26 284 206 benefit cover 99 97 actuarial assumptions expected longterm rate return plan assets weighted average discount rate increase future compensation levels used determining actuarial present value accumulated benefit obligations 1996 100 per cent 75 per cent 40 per cent respectively 1995 100 per cent 70 per cent 40 per cent respectively actuarial valuations united states plan carried kwasha lipton 1996 buck consultants 1995 1994 ii united kingdom plans aggregate net pension income expense united kingdom plans included following components year ended december 31 1996 1995 1994 service costbenefits earned year 36 39 50 interest cost projected benefit obligations 71 88 70 return assets 115 173 net amortization deferral 22 68 97 net pension income expense 30 22 23 result disposal interest european auctions notes 7i 34 curtailment gain 27 million included net amortization deferral component net pension income year ended december 31 1996 following table sets forth aggregate actuarial present value accumulated benefit obligations funded status companys united kingdom plans december 31 1996 1995 accumulated benefit obligations including vested benefits 928 million 1995 824 million 928 824 total projected benefit obligations 1014 916 plan assets fair value primarily stocks bonds money market funds 1333 1167 lessunamortized net assets 130 61 less unrecognized net gain 121 211 plus unrecognized prior service costs 21 1082 916 net pension asset 68 benefit cover 131 127 actuarial assumptions expected longterm rate return plan assets weighted average discount rate increase future compensation levels used determining actuarial present value accumulated benefit obligations 1996 95 per cent 85 per cent 70 per cent respectively 1995 90 per cent 83 per cent 65 per cent respectively actuarial valuations united kingdom plans principally carried william mercer friends provident net pension asset december 31 1996 included longterm assets note 20 iii aggregate net pension expense year respect united states united kingdom plans amounted 46 million 1995 31 million 1994 43 million iv companys united states electronic security services operation sponsors unfunded defined benefit postretirement plan covers salaried nonsalaried employees provides medical benefits postretirement health care plan contributory retiree contributions adjusted annually net postretirement benefit expense included following components year ended december 31 1996 1995 1994 service cost 07 05 06 interest cost 25 24 23 net amortization deferral 12 13 net postretirement benefit expense 20 16 following table sets forth components plans accumulated postretirement benefit obligations benefit liability december 31 1996 1995 retirees 276 228 fully eligible active plan participants 50 77 active plan participants 64 48 accumulated postretirement benefit obligations 390 353 less unrecognized net loss 53 33 plus unrecognized prior service credit 145 158 postretirement benefit liability note 26 482 478 1992 company adopted amendments plan reduced benefits attributable prior service amendments resulted approximately 20 million decrease obligation benefits attributable prior service decrease amortized reduction plan costs actuarially calculated basis period approximately twenty years beginning january 1992 effective january 1995 company implemented defined dollar benefit cap current future retirees regardless age weighted average discount rate used determining accumulated postretirement benefit obligations 75 per cent 1995 70 per cent actuarial valuations plan carried kwasha lipton 1996 buck consultants 1995 1994 note 34 related party transactions december 1995 company entered agreement integrated transport systems limited united kingdom unquoted company wholly owned subsidiaries loanoption limited finance limited company disposed interest european auctions aggregate consideration received company closing comprised cash 2351 million 1876 million vendor note 18 issue price 839 million valued company 746 million 311 million shareholder loan notes note 18 issue price 139 million valued company 133 million 431 per cent interest ordinary share capital issue price 20 million valued company 09 million february 1996 company disposed entire interest shareholder loan notes 331 per cent ordinary share capital aggregate cash consideration 154 million note 18 result company holds 100 per cent interest ordinary share capital valued accounted company nominal amount together vendor note accounted amortized cost mr db hammond mr tj gibson directors mr hammond april 1996 deputy chairman adt mr gibson chief executive officer adt auction group limited mr hammond mr gibson subscribed 104 million 08 million total respectively capital result interested shareholder loan notes issue prices 94 million 07 million respectively 223 per cent 17 per cent respectively ordinary share capital senior management employees european auctions subscribed 37 million capital group interested shareholder loan notes issue price 33 million 80 per cent ordinary share capital addition closing mr ashcroft chairman chief executive officer adt subscribed 70 million capital result interested shareholder loan notes issue price 63 million 150 per cent ordinary share capital interest continues hold mr ashcroft officer director subsidiaries involvement day management subsidiaries upon disposal company interest european auctions adt share options held directors employees european auctions became immediately exercisable adt entered arrangements mr gibson share options held time disposal company interest european auctions purchased adt aggregate economic value totalling 12 million based adts common share price december 19 1995 mr gibson invested 08 million capital referred adt also entered similar arrangements senior management employees european auctions adt purchased share options held aggregate economic value totalling 06 million order enable invest capital addition order enable mr hammond invest capital adt purchased share options aggregate economic value totalling 11 million based adts common share price december 19 1995 would otherwise exercisable march 1996 upon disposal company interest european auctions mr gibson received severance payment 03 million senior management employees european auctions group received severance payments totalling 04 million company controlled mr ashcroft made noncollateralized loans mr hammond companies controlled aggregate 78 million solely purpose enabling mr hammond companies invest capital cash consideration paid company closing obtained group subscription 265 million capital approximately 2097 million drawdown sterling term loans bank credit agreement entered group banks bank credit agreement term seven years obligations thereunder guaranteed collateralized first priority pledge shares assets companies comprising european auctions group closing company entered agreement group whereby company granted subsidiaries permission use adt name certain trademarks period three years total cash consideration paid closing 06 million closing company entered option agreement mr ashcroft exercised would required mr ashcroft purchase company cash fifty days closing shareholder loan notes issue price 82 million 196 per cent ordinary share capital addition closing entered agreement company mr ashcroft agreed use reasonable efforts fortyfive day period closing find unrelated third party investors purchase shareholder loan notes ordinary share capital company mr ashcroft company mr ashcroft agreed certain voting restrictions respect holdings ordinary share capital described february 1996 company mr ashcroft agreed mutual obligations option agreement released december 31 1995 companys investment ordinary share capital accounted unconsolidated subsidiary temporary control due agreement company mr ashcroft limiting voting rights company mr ashcroft 150 per cent voting rights due fact mr hammond seek reelection board directors adt 1996 annual general meeting accordingly december 31 1995 equity method accounting used consolidated financial statements vendor note shareholder loan notes accounted amortized cost opinion regarding fair value transactions described provided independent nonexecutive directors adt leading european investment banking firm transactions approved unanimously independent nonexecutive directors adt note 35 quarterly financial data unaudited notes first quarter 1996 electronic security services operating income stated charge impairment longlived assets 7317 million note 6i fourth quarter 1996 electronic security services operating income stated charge 2325 million relating restructuring nonrecurring items note 5i ii first quarter 1996 vehicle auction services operating income stated charge impairment longlived assets 130 million note 6ii iii second third quarters 1996 corporate expenses included 04 million 109 million respectively related professional transaction costs arising connection merger adt ash terminated merger republic note 4iii fourth quarter 1996 corporate expenses stated charge 48 million relating restructuring nonrecurring items note 5ii iv income less expenses principally comprised net gain arising disposal companys entire investment limelight group plc net settlement gain bdo gains losses currency transactions note 8 v extraordinary items principally comprised losses repayment write net unamortized deferred refinancing costs relating early extinguishment debt note 11 vi primary loss earnings per common share equalled fully diluted loss earnings per common share periods except second quarter 1996 second quarter 1996 fully diluted earnings per common share income extraordinary items extraordinary items net income 021 001 loss 020 respectively note 35 quarterly financial data unaudited continued notes fourth quarter 1995 electronic security services operating income stated charge 214 million relating restructuring nonrecurring items note 5i ii fourth quarter 1995 corporate expenses stated charge 128 million relating restructuring nonrecurring items note 5ii iii fourth quarter 1995 loss disposal businesses principally comprised net loss 658 million arising disposal company interest european auctions net gain 314 million arising disposal entire european electronic article surveillance business notes 7i 7ii iv income less expenses principally comprised net losses arising disposal companys entire equity investments cgps microtech held ash group note 8i v extraordinary items principally comprised write net unamortized deferred refinancing costs relating early extinguishment debt note 11 vi primary earnings loss per common share equalled fully diluted earnings loss per common share periods except third quarter 1995 third quarter 1995 fully diluted earnings per common share income extraordinary items extraordinary items net income 018 005 loss 013 respectively note 36 adt operations inc adt operations inc company incorporated state delaware united states indirect wholly owned subsidiary adt operations inc holding company subsidiaries conducts substantial proportion companys electronic security services businesses united states companys vehicle auction services businesses united states adt operations inc independent business operations assets investment subsidiaries intercompany balances holdings cash equivalents consolidated financial statements presented incorporate financial statements adt operations inc subsidiaries adt operations basis upon consolidated financial statements adt operations prepared summary significant accounting policies applied described notes 1 2 consolidated financial statements adt operations prepared assuming adt operations continue going concern assumption based subordinated noncollateralized debt position adt operations financing structure within adt group companies adt operations financial plans projections consolidated financial statements adt operations affiliates refers certain direct indirect wholly owned subsidiaries adt within adt operations group companies consolidated statements income year ended december 31 1996 1995 1994 notes net sales 12120 10943 9863 cost sales 6052 5375 4910 selling general administrative expenses 4219 3693 3314 restructuring nonrecurring charges ii 1321 194 charge impairment longlived assets iii 3164 operating loss income 2636 1681 1639 interest income affiliates 13 297 interest income nonaffiliates 24 31 26 interest expense affiliates 324 225 491 interest expense nonaffiliates 751 799 664 gain disposal businesses affiliates iv 20 loss disposal businesses nonaffiliates v 04 income less expenses vi 85 67 03 loss income taxes 3569 621 800 income taxes vii 14 190 255 loss income extraordinary items 3555 431 545 extraordinary items net income taxes viii 13 89 net loss income 3568 342 545 consolidated balance sheets december 31 1996 1995 notes assets current assets cash equivalents 829 540 accounts receivable net affiliates 444 289 accounts receivable net nonaffiliates ix 1494 1328 inventories x 216 172 prepaid expenses current assets xi 229 69 total current assets 3212 2398 property plant equipment net xii 11313 10491 goodwill intangibles net xiii 3511 6984 longterm notes receivable affiliates xiv 513 longterm assets xv 312 289 total assets 18861 20162 liabilities shareholders equity current liabilities shortterm debt nonaffiliates xvi 1298 363 accounts payable affiliates 145 96 accounts payable nonaffiliates 918 752 current liabilities nonaffiliatesxvii 1435 1275 total current liabilities 3796 2486 longterm debt affiliates xviii 6901 1302 longterm debt nonaffiliates xix 8772 8954 deferred revenue note 24 724 673 deferred income taxes xx 789 929 longterm liabilities affiliates xxi 1174 1298 longterm liabilities nonaffiliates xxii 1194 963 minority interests note 27 156 total liabilities 23350 16761 commitments contingencies xxiv shareholders equity common shares xxiii contributed surplus 8585 accumulated deficit 13074 5184 total shareholders equity 4489 3401 total liabilities shareholders equity 18861 20162 consolidated statements cash flows year ended december 31 1996 1995 1994 cash flows operating activities net loss income 3568 342 545 adjustments reconcile net loss income net cash provided operating activities charge impairment longlived assets 3164 depreciation 1440 1202 1046 goodwill intangibles amortization 117 182 185 restructuring nonrecurring charges 1220 184 interest longterm notes receivable affiliates 13 liquid yield option notes discount amortization 203 94 refinancing costs amortization 32 49 53 deferred income taxes 43 165 220 extraordinary items 13 89 gain disposal property plant equipment 22 12 08 gain disposal businesses affiliates 20 loss disposal businesses nonaffiliates 04 gain customer contract transactions affiliates 181 gain arising ownership investments 32 23 changes assets liabilities accounts receivable affiliates 75 146 04 accounts receivable nonaffiliates 105 293 39 inventories 35 36 43 assets 110 04 11 accounts payable affiliates 75 52 74 accounts payable nonaffiliates 147 166 77 deferred revenue 31 27 09 liabilities 56 88 35 net cash provided operating activities 2096 1964 1985 cash flows investing activities purchase property plant equipment 2932 2214 1758 disposal property plant equipment 69 39 54 longterm notes receivable affiliates 500 3188 acquisition businesses nonaffiliates 255 640 purchase customer contracts 41 disposal businesses nonaffiliates 102 disposal assets affiliates 732 disposal investments nonaffiliates 197 disposal trademarks affiliates 1500 17 16 52 net cash utilized provided investing activities 2944 2831 3231 cash flows financing activities net receipt repayments shortterm debt affiliates 1453 net repayments shortterm debt nonaffiliates 114 196 259 repayments longterm debt affiliates 4304 proceeds longterm debt affiliates 343 330 1999 repayments longterm debt nonaffiliates 150 2096 02 repayment longterm acquisition debt 396 proceeds longterm debt nonaffiliates 830 3124 2316 debt refinancing costs 120 10 dividends paid 3525 22 37 net cash provided utilized financing activities 1137 624 5275 net increase decrease cash equivalents 289 243 59 cash equivalents beginning year 540 783 842 cash equivalents end year 829 540 783 cash payments year interest affiliates 313 217 493 interest nonaffiliates 520 665 577 income taxes 26 23 40 conjunction acquisition businesses affiliates net assets assumed follows goodwill intangibles 54 notes issued 700 net assets assumed 646 conjunction acquisition businesses nonaffiliates net assets liabilities assumed follows goodwill intangibles 103 1210 cash paid net cash assumed 255 640 net assets liabilities assumed 152 570 year ended december 31 1996 1995 1994 conjunction disposal businesses affiliates net assets disposed follows shortterm receivable 80 gain disposal businesses including net unamortized goodwill intangibles 20 net assets disposed 60 conjunction disposal businesses nonaffiliates net assets disposed follows cash received net cash disposed 102 loss disposal businesses including net unamortized goodwill intangibles 04 net assets disposed 106 consolidated statements changes shareholders equity common contributed accumulated shares surplus deficit total january 1 1994 8585 2546 6039 net income 545 cash dividends 3525 december 31 1994 8585 5526 3059 net income 342 december 31 1995 8585 5184 3401 net loss 3568 dividends 4322 december 31 1996 8585 13074 4489 dividend 4322 million paid adt operations inc december 1996 consideration assignment adt operations incs immediate parent loan note owed adt operations inc subsidiary note xviii note segment information year ended december 31 1996 1995 1994 net sales electronic security services 9142 8245 7330 vehicle auction services 2978 2698 2533 12120 10943 9863 operating loss income electronic security services 2899 1352 1356 vehicle auction services b 271 343 337 corporate c 08 14 54 2636 1681 1639 1996 electronic security services operating income stated charge 1316 million 1995 194 million relating restructuring nonrecurring items note ii charge impairment longlived assets 3034 million note iii december 1996 adt operations disposed certain electronic security services operations sonitrol franchises affiliate net gain disposal 20 million included gain disposal businesses affiliates note iv 1994 adt operations disposed certain electronic security services operations puerto rico us virgin islands net loss disposal 04 million included loss disposal businesses nonaffiliates note v following information represents amounts included electronic security services business segment information related operations disposed year ended december 31 1996 1995 1994 net sales 61 127 operating income 02 04 25 b 1996 vehicle auction services operating income stated charge impairment longlived assets 130 million note iii c corporate expenses comprise administrative legal general corporate expenses net income 1996 corporate expenses stated charge 05 million relating restructuring nonrecurring items note ii costs incurred producing communicating advertising generally expensed incurred total amount advertising expense year included consolidated statements income amounted 583 million 1995 497 million 1994 381 million year ended december 31 1996 1995 1994 depreciation amortization electronic security services 1405 1236 1088 vehicle auction services 150 147 142 corporate 02 01 1557 1384 1231 capital expenditures electronic security services 2647 2011 1618 vehicle auction services 257 189 140 corporate 28 14 2932 2214 1758 identifiable assets electronic security services 12890 15134 12846 vehicle auction services 4677 4403 4253 corporate 1294 625 903 18861 20162 18002 note ii restructuring nonrecurring charges year ended december 31 1996 1995 1994 electronic security services 1316 194 corporate 05 1321 194 consequence reengineering project incorporating effects acquisition alert fourth quarters 1996 1995 senior executive management approved restructuring plan resulted charge restructuring nonrecurring items 1316 million 194 million respectively note 5i effects reengineering project resulted charge restructuring nonrecurring items corporate level 1996 05 million note 5ii note iii charge impairment longlived assets effective january 1 1996 adt operations required adopt sfas 121 following adoption sfas 121 first quarter 1996 adt operations recorded aggregate noncash charge impairment longlived assets 3164 million separate line item consolidated statements income consequential tax effect note 6 3034 million impairment charge electronic security services division comprised 3024 million relating goodwill intangibles 10 million relating assets 130 million impairment charge vehicle auction services division related goodwill intangibles note iv gain disposal businesses affiliates december 1996 adt operations disposed certain electronic security services operations sonitrol franchises affiliate aggregate consideration disposal amounted 80 million financed shortterm receivable affiliate net gain disposal 20 million included 18 million relating write net unamortized goodwill intangibles note xiii note v loss disposal businesses nonaffiliate 1994 adt operations disposed certain electronic security services operations puerto rico us virgin islands aggregate cash consideration disposal amounted 106 million net loss disposal 04 million included 48 million relating write net unamortized goodwill intangibles note vi income less expenses year ended december 31 1996 1995 1994 net gain arising customer contract transactions affiliates 181 management fees net affiliates 96 67 35 gains losses arising ownership longterm investments 32 85 67 03 note vii income taxes provision income taxes consolidated statements income follows year ended december 31 1996 1995 1994 current income taxes us principally state income taxes 29 25 35 deferred income taxes note xx us principally federal income taxes 43 165 220 14 190 255 b reconciliation notional us federal income taxes statutory rate consolidated loss income taxes adt operations income tax provision follows year ended december 31 1996 1995 1994 notional us federal income taxes statutory rate 1249 217 280 adjustments reconcile adt operations income tax provision us state income tax provisions net 29 25 32 sfas 121 impairment 1107 utilization andor recognition tax loss carryforwards items 99 52 57 income tax provision 14 190 255 note viii extraordinary items 1996 1995 affiliates adt operations reacquired market certain adt operations incs senior subordinated notes note xixa financed cash hand extraordinary items included write net unamortized deferred refinancing costs 05 million 1995 08 million stated net applicable income taxes 02 million 1995 02 million december 1996 adt operations inc entered new bank credit agreement subject completion certain additional documentation signed january 1997 replaced full previous bank credit agreement subsequently cancelled note xixc extraordinary items included write net unamortized deferred refinancing costs 15 million relating early extinguishment amounts outstanding revolving bank credit agreement stated net applicable income taxes 05 million july 1995 adt operations inc repaid full amounts owed previous bank credit agreement subsequently cancelled adt operations inc funded repayment net proceeds issue liquid yield option notes note xixb extraordinary items included write net unamortized deferred refinancing costs 128 million relating early extinguishment amounts outstanding previous bank credit agreement stated net applicable income taxes 45 million note ix accounts receivable net nonaffiliates december 31 1996 1995 trade accounts receivable 1602 1447 less allowance doubtful receivables 108 119 1494 1328 note x inventories december 31 1996 1995 raw materials consumables 60 65 work process 114 74 finished goods 42 33 216 172 note xi prepaid expenses current assets december 31 1996 1995 prepaid expenses 45 41 current assets 184 28 229 69 note xii property plant equipment net december 31 1996 1995 cost property related improvements 2785 2540 subscriber systems 13369 10981 plant equipment 1567 1361 total cost 17721 14882 accumulated depreciation property related improvements 503 359 subscriber systems 4806 3308 plant equipment 1099 724 total accumulated depreciation 6408 4391 net book values 11313 10491 note xiii goodwill intangibles net 1996 1995 cost january 1 8412 7202 sfas 121 impairment note iii 4291 acquisitions 198 1210 disposals b 411 december 31 3908 8412 accumulated amortization january 1 1428 1246 sfas 121 impairment note iii 1137 charge year 117 182 disposals b 11 december 31 397 1428 net book values december 31 3511 6984 february 1996 adt operations acquired remaining 240 per cent outstanding voting share capital alert electronic security services company already owned adt operations aggregate cash consideration 255 million financed cash hand amount goodwill arising acquisition 103 million 1996 adt operations purchased intangibles principally customer contracts aggregate cash consideration 41 million financed cash hand december 1996 adt operations acquired electronic security services business net assets affiliate aggregate consideration 700 million financed longterm loan affiliate amount goodwill arising acquisition 54 million december 1995 adt operations acquired 760 per cent outstanding voting share capital alert aggregate cash consideration 690 million financed 540 million cash hand longterm loan affiliates 150 million amount goodwill intangibles arising acquisition 801 million 400 million respectively 1995 adt operations also acquired several small electronic security services businesses aggregate cash consideration 09 million acquisitions accounted using purchase method accordingly respective purchase prices allocated assets acquired liabilities assumed based preliminary estimated fair values allocations resulted goodwill intangibles 198 million arising year 1995 1210 million b 1996 adt operations disposed certain customer contracts affiliate aggregate cash consideration disposal amounted 745 million net gain disposal 363 million included income less expenses note vi december 1996 adt operations disposed certain electronic security services operations sonitrol franchises affiliate net unamortized goodwill intangibles disposal 18 million included gain disposal businesses affiliates note iv c accumulated cost accumulated amortization net book values goodwill balance included within goodwill intangibles december 31 1996 amounted 3857 million 391 million 3466 million respectively 1995 8012 million 1428 million 6584 million respectively note xiv longterm notes receivable affiliates september 1996 adt operations subscribed 738 million aggregate principal amount maturity subordinated deep discount zero coupon loan notes issued affiliate maturing september 2001 periodic payments interest notes issued price 500 million reflecting yield maturity 79 per cent per annum adt operations funded subscription loans drawn revolving bank credit agreement interest yield 1996 amounted 13 million note xv longterm assets december 31 1996 1995 deferred refinancing costs 195 247 longterm assets 117 42 312 289 connection refinancing certain longterm debt obligations adt operations certain fees expenses incurred refinancing costs amortized interest expense consolidated statements income straight line basis terms respective lives adt operations various longterm debt obligations refinancing costs amortization year amounted 32 million 1995 49 million 1994 53 million year 20 million 1995 136 million 1994 nil net unamortized deferred refinancing costs relating early extinguishment certain amounts outstanding adt operations longterm debt obligations written extraordinary items consolidated statements income note viii note xvi shortterm debt nonaffiliates december 31 1996 1995 bank acceptance facilities 468 361 current portion longterm debt note xix 830 02 1298 363 average rate interest shortterm debt nonaffiliates outstanding december 31 1996 68 per cent 1995 79 per cent shortterm debt nonaffiliates generally repayable demand interest payment date noncollateralized except 02 million current portion longterm debt 1995 note xvii current liabilities nonaffiliates december 31 1996 1995 accruals 233 241 payroll employee benefits 409 417 payments received account 125 89 income taxes 23 20 interest payable 209 213 shortterm restructuring disposition provisions 379 253 current liabilities 57 42 1435 1275 note xviii longterm debt affiliates december 31 1996 1995 interest bearing noncollateralized subordinated loan notes 6342 974 senior subordinated notes held affiliates note xixa 559 328 6901 1302 average rate interest noncollateralized subordinated notes december 31 1996 108 per cent 1995 108 per cent average rate interest noncollateralized subordinated loan notes year 106 per cent 1995 111 per cent 1994 94 per cent loan notes repayable december 1999 1320 million december 2001 700 million august 2003 4322 million note xix longterm debt nonaffiliates december 31 1996 1995 senior notes 2500 senior subordinated notes 2941 3172 liquid yield option notes b 3268 3068 revolving bank credit agreement c 830 150 63 66 9602 8956 less current portion note xvi 830 02 8772 8954 august 1993 adt operations inc issued public offering 2500 million 825 per cent senior notes due august 2000 guaranteed senior basis adt certain subsidiaries adt operations inc note 23i 3500 million 925 per cent senior subordinated notes due august 2003 guaranteed senior subordinated basis adt note 23ii 1996 affiliates adt operations reacquired market 231 million 1995 328 million face value senior subordinated notes classified longterm debt affiliates note xviii b july 1995 adt operations inc issued 776250000 aggregate principal amount maturity zero coupon subordinated liquid yield option notes maturing july 2010 note 23iii net proceeds issue amounted 2874 million used repay full amounts outstanding adt operations incs previous bank credit agreement subsequently cancelled notes discount amortization 1996 amounted 203 million 1995 94 million 1996 619 notes carrying value 03 million exchanged option holders 17472 adt common shares note 30 c august 1995 adt operations inc entered new 300 million revolving bank credit agreement replaced full previous bank credit agreement new agreement term five years guaranteed senior basis adt certain subsidiaries adt operations inc note 23iv december 31 1996 830 million 1995 150 million drawn agreement classified current portion longterm debt plus letters credit amounting 811 million 1995 810 million issued terms less one year average rate interest december 31 1996 65 per cent 1995 76 per cent december 1996 adt operations inc entered new 200 million revolving bank credit agreement subject completion certain additional documentation signed january 1997 replaced full previous bank credit agreement note 23iv average rate interest longterm debt nonaffiliates year 79 per cent 1995 82 per cent 1994 87 per cent based estimated interest rates currently available adt operations longterm debt nonaffiliates similar terms average maturities fair value longterm debt nonaffiliates december 31 1996 amounted approximately 1010 million 1995 approximately 960 million maturities installments respect longterm debt nonaffiliates outstanding december 31 1996 follows year ending december 31 1997 830 1998 09 1999 16 2000 2517 2001 09 thereafter 6221 9602 terms indenture governing senior subordinated notes payment blockage prevents adt operations inc guarantor subsidiaries adt making payment principal interest premium senior subordinated notes purchasing redeeming otherwise acquiring senior subordinated notes continuance payment blockage period payment blockage currently effect december 31 1996 adt operations inc 4141 million senior indebtedness comprised 830 million senior indebtedness related loans revolving bank credit agreement 811 million senior indebtedness related letters credit issued terms revolving bank credit agreement 2500 million senior indebtedness related senior notes case defined senior subordinated note indenture december 31 1996 adt guarantor senior indebtedness defined senior note indenture excluding indebtedness respect guarantees issued adt debt adt operations inc subsidiaries december 31 1996 subsidiary guarantors 532 million guarantor senior indebtedness defined senior note indenture case ranking pari passu right payment senior note guarantees subsidiary guarantors senior notes revolving bank credit agreement direct indirect wholly owned subsidiaries adt operations inc separate financial statements disclosures subsidiary guarantors included herein subsidiary guarantors guaranteed senior notes joint several basis aggregate assets liabilities earnings equity subsidiary guarantors substantially equivalent assets liabilities earnings equity adt operations inc consolidated basis separate financial statements disclosures considered material investors note xx deferred income taxes movement deferred income taxes since january 1 1994 follows 1996 1995 1994 january 1 929 745 525 credit charge year note viia 43 165 220 extraordinary items note viii 07 47 assumed acquisitions affiliates 90 reclassifications 66 december 31 789 929 745 significant temporary timing differences tax loss carryforwards gave rise deferred income tax balance follows december 31 1996 1995 liabilities depreciation 8610 7339 69 52 8679 7391 assets tax operating loss carryforwards 4067 3313 provisions estimated costs expenses 1210 594 interest expense 1479 996 postretirement benefit obligations 786 665 7542 5568 valuation allowance 1118 832 6424 4736 gross deferred income tax liability 2255 2655 deferred income tax liability statutory tax rate 789 929 tax operating loss carryforwards december 31 1996 expire follows year ending december 31 1999 68 2000 41 2001 242 2002 183 2003 75 2004 802 2005 1232 2006 1072 2007 231 2008 121 4067 note xxi longterm liabilities affiliates december 31 1996 1995 deferred gain 1174 1298 1994 adt operations assigned interest trademarks service marks associated goodwill affiliate aggregate consideration 1500 million view fact assignment affiliate taking account terms transaction net gain 1417 million arising assignment deferred 1996 124 million 1995 119 million deferred gain credited consolidated statements income offset license fee payments made adt operations affiliate calculated fixed percentage net sales use trademarks service marks referred note xxii longterm liabilities nonaffiliates december 31 1996 1995 pensions note 33i 284 206 postretirement benefits pensions note 33iv 482 478 longterm restructuring disposition provisions 278 150 longterm liabilities 150 129 1194 963 note xxiii common shares december 31 1996 1995 1994 number authorized common shares 010 10000 issued outstanding common shares 010 1820 movement authorized issued outstanding common shares since january 1 1994 note xxiv commitments contingencies adt operations leases land buildings motor vehicles equipment various contracts future total minimum rental payments required operating leases remaining noncancelable lease terms excess one year december 31 1996 follows year ending december 31 1997 375 1998 352 1999 283 2000 203 2001 127 thereafter 122 1462 net operating lease rental charge year included consolidated statements income amounted 434 million 1995 441 million 1994 378 million b financial instruments potentially subject adt operations concentrations credit risk principally consist cash equivalents trade receivables adt operations places cash equivalents high credit quality financial institutions policy limits amount credit exposure one financial institution adt operations trade receivables primarily result electronic security services vehicle auction services businesses reflects broad customer base credit limits ongoing credit evaluation account monitoring procedures utilized minimize risk loss consequence concentrations credit risk limited c adt operations defendant number pending legal proceedings incidental present former operations acquisitions dispositions adt operations expect outcome proceedings either individually aggregate material adverse effect consolidated results operations cash flows consolidated financial position adt operations note xxv pension plans adt operations united states electronic security services operation noncontributory funded defined benefit pension plan covering substantially employees details pension plan provided note 33i b adt operations united states electronic security services operation sponsors unfunded defined benefit postretirement plan covers salaried nonsalaried employees provides medical benefits details postretirement plan provided note 33iv adt limited consolidated financial statement schedules schedule ii valuation qualifying accounts adt operations inc consolidated financial statement schedules schedule ii valuation qualifying accounts caption exhibit index 21 agreement plan merger among adt limited apache inc tyco international ltd dated march 17 19976 31 memorandum association altered byelaws adt limited incorporating amendments may 26 19921 32 certified copy resolution approved annual general meeting common shareholders adt limited held october 12 1993 approving increase authorized common share capital adt limited 195 million 220 million4 41 indenture relating senior notes dated august 4 1993 among adt operations issuer adt limited certain subsidiaries adt operations guarantors chase manhattan bank national association trustee form senior note included therein2 42 indenture relating senior subordinated notes dated august 4 1993 among adt operations issuer adt limited guarantor nationsbank georgia national association trustee form senior subordinated note included therein2 43 indenture dated july 1 1995 among adt operations inc adt limited bank montreal trust company trustee form note included therein 5 44 rights agreement adt limited citibank na dated november 6 19969 45 first amendment adt limited citibank na dated march 3 1997 rights agreement adt limited citibank na dated november 6 19969 101 rules adt uk executive share option scheme 1984 amended reflect reverse split common shares effective june 17 19911 102 rules adt international executive share option plan amended reflect reverse split common shares effective june 17 19911 103 rules adt uk international executive share option schemes 1984 new section amended reflect reverse split common shares effective june 17 19911 104 rules adt senior executive share option plan amended reflect reverse split common shares effective june 17 19911 105 us 1990 stock option plan adt limited amended reflect reverse split common shares effective june 17 19911 106 employment agreement dated may 8 1993 adt limited michael anthony ashcroft2 107 amendment employment agreement dated december 18 1996 adt limited michael anthony ashcroft9 108 employment agreement adt limited stephen j ruzika dated february 26 19979 109 employment agreement adt inc ron g lakey dated january 16 19979 1010 agreement adt automotive holdings inc michael j richardson dated january 29 19979 1011 incentive compensation agreement adt inc michael j richardson dated february 10 19979 1012 severance agreement adt security services inc raymond gross dated february 26 19979 1013 consulting agreement adt inc john e danneberg dated august 28 19969 1014 form indemnification agreement9 1015 adt 1993 longterm incentive plan amended february 29 19963 1016 purchase agreement dated june 29 1995 among adt operations inc adt limited merrill lynch co inc related pricing agreement 5 1017 us200000000 credit agreement dated january 9 1997 among adt operations inc borrower certain commercial lending institutions lenders bank nova scotia agent lenders 1018 guaranty dated january 9 1997 made adt limited favor lender parties defined therein 1019 subsidiary guarantor guaranty dated january 9 1997 made subsidiary guarantor defined therein favor lender parties defined therein 1020 pound sterling 90000000 facility agreement dated march 17 1997 among adt finance plc borrower adt uk holdings plc others guarantors bank nova scotia arranger agent others 1021 adt limited guarantee dated march 25 1997 respect pound sterling 90000000 facility made available adt finance plc 1022 pound sterling 27000000 demand facility letter dated january 3 1997 adt finance plc bank nova scotia 1023 adt limited guarantee respect obligations adt finance plc pound sterling 27000000 facility letter dated january 3 1997 1024 agreement dated december 29 1995 among adt uk limited adt holdings bv ruskin limited adt limited loanoption limited integrated transport systems limited sale purchase european auctions7 1025 agreement among adt limited thomas j gibson integrated transport systems limited dated december 29 19958 1026 agreement among adt limited david b hammond integrated transport systems limited dated december 29 19958 1027 common share purchase warrant issued adt limited july 1 1996 republic industries inc10 111 statement regarding computation earnings per common share 211 list subsidiaries adt limited 231 consent independent accountants incorporation reference annual report form s3 forms s8 27 financial data schedule sec use 1 previously filed exhibit registrants annual report form 10k year ended december 31 1992 2 previously filed exhibit registrants quarterly report form 10q quarter ended june 30 1993 3 previously filed exhibit registrants registration statement dated may 16 1996 form s8 filed may 17 1996 4 previously filed exhibit registrants annual report form 10k year ended december 31 1993 5 previously filed exhibit registrants quarterly report form 10q quarter ended june 30 1995 6 previously filed exhibit registrants current report dated march 24 1997 form 8k filed march 25 1997 7 previously filed exhibit registrants current report dated december 29 1995 form 8k filed january 16 1996 8 previously filed exhibit registrants annual report form 10k year ended december 31 1995 9 previously filed exhibit registrants schedule 14d9 dated march 3 1997 10 previously filed exhibit registrants current report dated july 10 1996 form 8k filed july 11 1996 management contract compensatory planitem 14 exhibits financial statement schedules reports form 10k 1 2 financial statements schedules see item 8 b exhibits 1 incorporated reference exhibit registrants annual report form 10k year ended december 31 1992 2 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 1993 3 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 1995 4 incorporated reference exhibit former tycos current report dated march 17 1997 form 8k filed march 25 1997 5 incorporated reference exhibit registrants current report dated december 29 1995 form 8k filed january 16 1996 6 incorporated reference exhibit registrants annual report form 10k year ended december 31 1995 7 incorporated reference exhibit registrants schedule 14d9 dated march 3 1997 8 incorporated reference exhibit registrants current report dated july 2 1997 form 8k filed july 10 1997 9 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 1997 10 incorporated reference exhibit registrants annual report form 10k year ended december 31 1996 management contract compensatory plan c reports form 8k current report form 8k filed registrant july 10 1997 regarding merger former tyco company consummated july 2 1997 current report form 8k filed registrant september 19 1997 regarding change fiscal year end december 31 september 30 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd mark h swartz mark h swartz executive vice president chief financial officer principal financial accounting officer date december 24 1997 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated report independent accountants board directors shareholders tyco international ltd audited consolidated balance sheets tyco international ltd company formerly known adt limited september 30 1997 december 31 1996 related consolidated statements operations stockholders equity cash flows related consolidated financial statement schedule nine months ended september 30 1997 two years period ended december 31 1996 financial statements responsibility companys management responsibility express opinion financial statements financial statement schedule based upon audits audit financial statements tyco international us inc formerly known tyco international ltd prior merger adt limited whollyowned subsidiary december 31 1996 year ended december 31 1996 year ended june 30 1995 statements reflect total assets constituting 614 consolidated total assets december 31 1996 net sales constituting 706 656 consolidated net sales years ended december 31 1996 1995 respectively keystone international inc wholly ownedsubsidiary december 31 1996 two years period ended december 31 1996 statements reflect total assets constituting 64 consolidated total assets december 31 1996 net sales constituting 84 86 consolidated net sales years ended december 31 1996 1995 respectively statements audited auditors whose reports furnished us opinion insofar relates data included consolidated financial statements entities based solely reports auditors conducted audits accordance generally accepted auditing standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits reports auditors provide reasonable basis opinion based upon audits reports auditors financial statements referred present fairly material respects consolidated financial position tyco international ltd september 30 1997 december 31 1996 consolidated results operations cash flows nine months ended september 30 1997 two years period ended december 31 1996 conformity generally accepted accounting principles addition opinion consolidated financial statement schedule referred considered relation basic consolidated financial statements taken whole presents fairly material respects information required included therein coopers lybrand hamilton bermuda november 21 1997 report independent accountants board directors shareholders tyco international ltd audited consolidated balance sheet tyco international ltd since renamed tyco international us inc december 31 1996 related consolidated statements income shareholders equity cash flows related consolidated financial statement schedule years ended december 31 1996 june 30 1995 presented separately herein financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion subsequent balance sheet date company merged became whollyowned subsidiary adt limited subsequently renamed tyco international ltd opinion financial statements referred present fairly material respects consolidated financial position tyco international ltd december 31 1996 consolidated results operations cash flows years ended december 31 1996 june 30 1995 conformity generally accepted accounting principles addition opinion consolidated financial statement schedule referred considered relation basic consolidated financial statements taken whole presents fairly material respects information required included therein coopers lybrand llp boston massachusetts july 10 1997 report independent public accountants shareholders board directors keystone international inc audited consolidated balance sheet keystone international inc texas corporation subsidiaries december 31 1996 related consolidated statements income changes shareholders investment cash flows two years period ended included herein consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position keystone international inc subsidiaries december 31 1996 results operations cash flows two years period ended conformity generally accepted accounting principles arthur andersen llp january 31 1997 houston texas tyco international ltd consolidated balance sheets see notes consolidated financial statements tyco international ltd consolidated statements operations see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity see notes consolidated financial statements tyco international ltd consolidated statements cash flows see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 summary significant accounting policies basis presentation consolidated financial statements prepared united states dollars accordance generally accepted accounting principles united states described fully note 2 july 2 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd former tyco upon consummation merger adt surviving corporation changed name tyco international ltd company tyco former tyco became whollyowned subsidiary company changed name tyco international us inc tyco us addition fully described note 2 tyco merged inbrand corporation inbrand keystone international inc keystone august 27 1997 august 29 1997 respectively transactions referred herein mergers consolidated financial statements include consolidated accounts tyco company incorporated bermuda subsidiaries prepared following pooling interests method accounting mergers therefore reflect combined financial position operating results cash flows adt former tyco keystone combined periods presented restated combined financial statements include financial position operating results cash flows inbrand prior january 1 1997 due immateriality accordance pooling interests method accounting fiscal 1997 beginning accumulated deficit earnings balance consolidated statement shareholders equity restated record merger inbrand prior mergers adt keystone calendar year ends former tyco june 30 fiscal year end consolidated balance sheets statements operations shareholders equity cash flows year ended december 31 1996 reflect combination calendar year end consolidated financial position results operations cash flows adt keystone former tyco consolidated statements operations shareholders equity cash flows year ended december 31 1995 reflect combination calendar year end financial position results operations cash flows adt keystone june 30 1995 fiscal year end financial position results operations cash flows former tyco results operations cash flows former tyco july 1 1995 december 31 1995 excluded consolidated financial statements reflected adjustments 1996 consolidated statements shareholders equity cash flows principles consolidation tyco holding company whose assets consist investments subsidiaries intercompany balances holdings cash equivalents businesses consolidated group conducted companys subsidiaries company consolidates companies owns controls fifty percent voting shares unless control likely temporary results companies acquired disposed fiscal year included consolidated financial statements effective date acquisition date disposal except case pooling interests see note 2 significant intercompany balances transactions eliminated consolidation change year end september 1997 company changed fiscal year end december 31 september 30 change year end resulted short fiscal year covering nine month transition period january 1 september 30 1997 references fiscal 1997 1996 1995 throughout consolidated financial statements refer nine months ended september 30 1997 calendar years ended december 31 1996 1995 respectively cash equivalents highly liquid investments purchased maturity three months less considered cash equivalents inventories recorded lower cost primarily first market value tyco international ltd notes consolidated financial statements continued property plant equipment property plant equipment principally recorded cost less accumulated depreciation maintenance repair expenditures charged expense incurred straightline method depreciation used estimated useful lives related assets follows gains losses arising disposal property plant equipment included consolidated statements operations associates investments company owns controls twenty percent voting shares exerts significant influence operating financial policies equity method accounting used consolidated statements operations include companys share net income associates less applicable goodwill amortization goodwill intangible assets goodwill amortized straightline basis periods ranging 10 40 years accumulated amortization amounted 3325 million september 30 1997 2751 million december 31 1996 impairment goodwill measured periodically basis whether anticipated undiscounted operating cash flows generated acquired businesses recover recorded net goodwill balances remaining amortization period intangible assets include patents trademarks customer contracts items amortized straightline basis lives ranging 2 30 years september 30 1997 december 31 1996 accumulated amortization amounted 769 million 609 million respectively revenue recognition revenue sale services products recognized services rendered shipments made subscriber billings services yet rendered deferred taken income earned deferred element included current liabilities revenue installation electronic security systems recognized installations completed contract sales installation fire protection systems construction related projects recorded percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable contract sales installation underwater cable systems also recorded percentageofcompletion method accounts receivable include amounts billed retainage provisions fire protection contracts retention balances 292 million september 30 1997 become due upon contract completion acceptance expected substantially collected fiscal year ending september 30 1998 fiscal 1998 share premium contributed surplus accordance bermuda companies act 1981 company issues shares cash premium par value resulting premium credited share premium account nondistributable reserve company issues shares exchange shares another company excess fair value shares acquired par value shares issued company credited applicable contributed surplus subject certain conditions distributable reserve income taxes deferred tax liabilities assets recognized expected future tax consequences events included consolidated financial statements tax returns deferred tax tyco international ltd notes consolidated financial statements continued liabilities assets determined based differences consolidated financial statements tax basis assets liabilities using tax rates effect years differences expected reverse valuation allowance required offset net deferred tax assets based upon available evidence likely deferred tax assets realized research development research development expenditures expensed incurred translation foreign currency assets liabilities companys subsidiaries operating outside united states account functional currency us dollars operating highly inflationary environments translated us dollars using yearend exchange rates revenues expenses translated average exchange rates effective year foreign currency translation gains losses included separate component shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments operations included net loss income gains losses resulting foreign currency transactions amounts material included net loss income interest rate swaps currency options contracts time company enters variety interest rate swaps interest rate locks future fundings currency options crosscurrency swaps management interest costs foreign currency exposures interest rate swaps interest rate locks hedge interest rates certain indebtedness involve exchange fixed floating rate interest payment obligations life related agreement without exchange notional amount interest differentials paid received interest rate swaps locks recognized life underlying agreement indebtedness respectively adjustment interest expense currency options acquired purpose hedging foreign operating income generally periods exceeding twelve months marked market realized unrealized gains losses reflected selling general administrative expenses crosscurrency swaps hedge certain net foreign investments changes valuation recorded currency translation adjustment account interest differentials swaps recorded interest expense use estimates preparation consolidated financial statements conformity generally accepted accounting principles requires management make extensive use certain estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reported periods significant estimates consolidated financial statements include allowances doubtful accounts receivable estimates future cash flows associated assets asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories estimated contract revenues related costs environmental liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ estimates net loss income per share net loss income per share calculated basis net loss income available common shareholders divided weighted average number shares outstanding includes common equivalents shares reflect stock options warrants using treasury stock method except effect would antidilutive accounting pronouncements february 1997 financial accounting standards board fasb issued statement financial accounting standards sfas 128 earnings per share tyco international ltd notes consolidated financial statements continued effective fiscal years ending december 15 1997 including interim periods earlier adoption permitted statement requires restatement prior period earnings per share data presented effective date sfas 128 specifies computation presentation disclosure requirements earnings per share substantially similar standard recently issued international accounting standards committee entitled international accounting standards earnings per share company adopt sfas 128 fiscal 1998 impact expected material june 1997 fasb issued two additional statements sfas 130 reporting comprehensive income sfas 131 disclosures segments enterprise related information effective years beginning december 15 1997 adoption standards expected impact financial results company reclassifications certain prior year amounts reclassified conform current year presentation 2 mergers tycos merger keystone august 29 1997 tyco consummated merger keystone international inc shareholders keystone received 048726 shares tyco common stock exchange share keystone outstanding total approximately 174 million shares issued prior effect twoforone stock split described note 10 tycos merger inbrand august 27 1997 tyco merged inbrand corporation shareholders inbrand received 043 shares tyco common stock exchange share inbrand outstanding total approximately 51 million shares issued prior effect twoforone stock split adts merger former tyco july 2 1997 whollyowned subsidiary adt merged former tyco shareholders adt reverse stock split received 048133 shares companys common stock share adt common stock outstanding former tyco shareholders received one share companys common stock share former tyco common stock outstanding total approximately 1684 million shares issued prior effect twoforone stock split three merger transactions discussed qualifies pooling interests accounting treatment intended present single interest common shareholder interests previously independent historical consolidated financial statements periods prior consummation combination restated though companies combined periods discussed note 1 consolidated financial statements periods prior january 1 1997 include inbrand due immateriality addition historical common share per share data company retroactively restated reflect reverse stock split twoforone stock split discussed aggregate fees expenses related three mergers discussed integration combined companies expensed accompanying consolidated statement operations nine months ended september 30 1997 required pooling interests accounting method includes transaction costs approximately 2398 million relating legal printing accounting financial advisory services severance costs payable effective time merger direct expenses also includes charges approximately 6780 million reflect combination four companies including severance costs integration costs associated elimination excess facilities satisfaction certain liabilities addition company recorded charge 1484 million impairment longlived assets see notes 11 15 consolidated financial statements tyco international ltd notes consolidated financial statements continued combined separate results adt former tyco keystone inbrand periods preceding merger follows restated combined financial statements periods prior january 1 1997 include inbrand due immateriality see note 1 ii prior mergers adt keystone calendar year ends former tyco june 30 fiscal year end historical results combined using calendar year end adt former tyco keystone year ended december 31 1996 1995 results reflect combination adt keystone calendar year end former tyco june 30 fiscal year end net sales net income former tyco period july 1 1995 december 31 1995 results included historical combined results 246 billion 1364 million respectively adts merger automated security holdings plc ash september 1996 adt merged acquired whole issued capital ash united kingdom quoted company ash merger ash engaged provision electronic security services north america europe total consideration respect whole issued capital ash consisted issue 6772255 adt common shares ash merger accounted pooling interests consolidated financial statements ash previously presented pounds sterling ashs functional currency purposes consolidated financial statements ashs consolidated financial statements translated united states dollars appropriate exchange rates addition ashs fiscal year end november 30 ash accounted pooling interests results combined adts using november year end results operations cash flows ash month december 1996 excluded consolidated financial statements reflected adjustments 1997 consolidated statements shareholders equity cash flows tyco international ltd notes consolidated financial statements continued combined separate results adt ash periods preceding adt ash merger follows income tax adjustment arising preference share dividends accrued ash group payable following merger ii income tax adjustment 06 million credit referred 22 million charge relating cumulative currency translation adjustments disposal businesses associates ash group whose consolidated financial statements prepared pounds sterling functional currency fees expenses related ash merger expensed required pooling interests accounting method fees expenses amounted 88 million 1996 former tycos merger kendall international inc october 19 1994 whollyowned subsidiary former tyco merged kendall international inc kendall shareholders kendall received 129485 shares former tyco common stock share kendall common stock transaction accounted pooling interests accordingly historical financial statements former tyco kendall periods prior consummation combination restated though companies combined periods revenues net income quarter ended september 30 1994 recent interim period prior pooling 8276 million 326 million respectively former tyco 2266 million 207 million respectively kendall fees expenses related kendall merger integration combined companies expensed required pooling interests accounting method fees expenses amounted 372 million 1995 3 acquisitions divestitures addition mergers discussed note 2 fiscal 1997 company acquired companies business segments aggregate 136 billion including 134 billion cash assumption approximately 157 million debt cash portion acquisitions made utilizing cash hand funding equity offering 6452 million well borrowings companys uncommitted lines credit acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions approximately 5317 million goodwill intangibles net write purchased inprocess research development recorded company reflects adjustments necessary allocate individual purchase prices fair value assets acquired liabilities assumed additional purchase liabilities recorded additional purchase liabilities recorded include approximately 138 million transaction direct costs 422 million severance related costs 206 million costs associated shut consolidation tyco international ltd notes consolidated financial statements continued certain acquired facilities september 30 1997 liabilities approximately 22 million transaction costs 197 million severance costs 155 million facility related costs remained balance sheet connection acquisition atts submarine systems business company allocated 3610 million purchase price inprocess research development projects reached technological feasibility probable alternative future uses company expects termination employees consolidation facilities related acquisitions substantially complete end fiscal 1998 following unaudited pro forma data summarize results operations periods indicated acquisitions completed january 1 1996 pro forma data give effect actual operating results prior acquisitions adjustments interest expense goodwill amortization income taxes pro forma amounts purport indicative results would actually obtained acquisitions occurred january 1 1996 may obtained future pro forma data give effect acquisitions completed subsequent september 30 1997 1996 company acquired companies business segments aggregate 11 billion including 8226 million cash 35 million shares companys common stock valued 1304 million assumption approximately 1550 million debt cash acquisitions made utilizing cash hand proceeds approximately 300 million 6 12 public notes well borrowings companys uncommitted lines credit acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions approximately 8592 million goodwill recorded company reflects adjustments necessary allocate individual purchase prices fair value assets acquired liabilities assumed additional purchase liabilities recorded additional purchase liabilities recorded include approximately 270 million transaction direct costs 440 million severance related costs 235 million costs associated shut consolidation certain acquired facilities september 30 1997 liabilities approximately 11 million transaction costs 104 million severance costs 109 million facility related costs remained balance sheet company expects complete termination employees consolidation facilities fiscal 1998 1996 gains arising ownership longterm investments comprised net gain 534 million relating disposal november 1996 companys entire investment limelight group plc united kingdom quoted company net gain included income note 12 1995 company acquired companies flow control products disposable specialty products fire safety services segments aggregate 2180 million cash acquisitions accounted purchases results operations acquired companies included consolidated results company respective acquisition dates effect transactions companys financial position results operations year acquisition significant 1995 company disposed interest united kingdom continental european vehicle auction services businesses european auctions entire european electronic article surveillance business certain european electronic security services operations net cash proceeds 2548 million tyco international ltd notes consolidated financial statements continued notes receivable 879 million shares received 09 million deferred consideration 56 million loss sale businesses 366 million european auctions sold integrated transport systems result transaction company holds 100 interest ordinary share capital valued accounted company nominal amount together subordinated noncollateralized deep discount zero coupon loan note issued maturing 2004 vendor note vendor note 1876 million aggregate principal amount maturity issue price 839 million reflecting yield maturity 100 per annum originally valued company 746 million periodic payments interest september 30 1997 vendor note included longterm investments balance sheet accounted amortized cost 946 million fair market value vendor note september 30 1997 amounted 834 million december 29 1995 company sold certain assets including trademarks patents curadr futuror consumer healthcare products business owned kendall subsidiary agreements kendall continue manufacture certain curadr futuror products buyer longterm supply agreements company received net cash proceeds 498 million sale brand names certain domestic assets company continue receive payments including payments royalty noncompete agreements 2000 company also granted buyer options acquire certain additional trademarks patents international assets 1991 lengthy review evaluation businesses assets acquired 1990 respect britannia security group plc britannia undertaken company review revealed time acquisition britannia adt certain assets particularly subscriber systems installed customer premises included consolidated financial statements britannia values materially excess net realizable value 1992 company commenced legal proceedings britannias auditors time acquisition bdo binder hamlyn bdo seek recovery damages suffered december 1995 high court justice england awarded damages approximately 160 million including interest bdo plus reimbursement certain legal costs incurred connection litigation bdo appealed judgment december 1996 company bdo entered settlement agreement subject completion certain additional documentation signed february 1997 included payment company 775 million cash together deferred payment 486 million full final settlement aforementioned proceedings including judgment accrued interest costs result settlement bdo withdrawn appeal net gain arising settlement amounted 697 million 650 million included income 47 million included interest income 1996 tyco international ltd notes consolidated financial statements continued 4 indebtedness longterm debt follows june 1997 former tyco renegotiated 300 million credit agreement group commercial banks increased 175 billion giving right borrow 500 million december 1997 b 750 million june 1998 c 500 million june 2002 principal amounts outstanding due payable times interest payable borrowings variable based upon former tycos option selecting eurodollar rate plus margins ranging 0175 0195 certificate deposit rate plus margins ranging 030 032 base rate defined july 1997 former tyco borrowed 600 million new credit agreement partially fund acquisitions discussed note 3 also july 1997 former tyco borrowed 800 million new credit agreement fund debt tenders discussed weighted average interest rate borrowings 593 repayment amounts outstanding agreement guaranteed tyco subsequent fiscal year end former tyco terminated 500 million component agreement due december 1997 balance outstanding repaid issuance 475 million private placement notes 225 million due march 1998 250 million due june 1998 notes bear interest libor plus 025 475 million private placement notes addition remainder 14 billion credit agreement become due fiscal 1998 classified long term liabilities based companys ability intent refinance obligations long term basis specific terms refinancing finalized fiscal 1997 adt operations inc whollyowned subsidiary company canceled 200 million senior revolving bank credit agreement tyco international ltd notes consolidated financial statements continued ii uncommitted lines credit borrowings tyco us commercial banks offered basis borrowings repayments occur daily contain specific terms due dates interest rates due dates generally range overnight 90 days interest rates approximate available tyco uss credit agreement weighted average interest rate 60 september 30 1997 iii may 1997 tyco subsidiary entered l60 million term loan due march 1998 bank refinance certain intercompany loans external debt interest payable borrowings variable based upon uk libor plus 035 interest rate september 30 1997 760 iv july 1997 tyco us tendered 1450 million 8125 public notes due 1999 2000 million 95 public debentures due 2022 adt operations inc tendered 2500 million 825 senior notes due 2000 2941 million 925 senior subordinated notes due 2003 percentage debt tendered 928 8125 notes 755 95 debentures 962 825 notes 952 925 notes two companies paid aggregate amount including accrued interest approximately 9008 million note holders 8000 million financed new credit agreement discussed connection tender company recorded aftertax charge approximately 583 million net related income tax benefit 330 million primarily representing unamortized debt issuance fees premium paid reported extraordinary loss note 13 2500 million 825 senior notes due august 2000 issued august 1993 public offering adt operations inc guaranteed senior basis company certain subsidiaries adt operations inc senior notes redeemable prior maturity 2941 million 925 senior subordinated notes due august 2003 issued august 1993 public offering adt operations inc guaranteed senior subordinated basis company notes redeemable whole part option adt operations inc time august 1998 following redemption prices twelve month period beginning august 1998 10375 b august 1999 10250 c august 2000 10125 thereafter 10000 principal amount 1996 company reacquired market 231 million face value senior subordinated notes purchase cost 240 million financed cash hand loss arising reacquisition 09 million related costs 05 million included extraordinary items note 13 conjunction tenders described adt operations inc consent holders senior subordinated notes eliminated indentures pursuant notes issued certain restrictive covenants provisions references restrictive covenants b certain events default extent relating restrictive covenants c certain definitions extent relating restrictive covenants events default v october 1996 tyco us issued 3000 million principal amount 65 notes due 2001 net proceeds used redeem debt assumed acquisition carlisle plastics inc well reduce certain amounts outstanding tyco us credit agreement uncommitted lines credit vi march 1997 adt finance entered sterling denominated bank credit facility 1375 million l85 million term loan facility 8 million revolving credit facility term loan facility fully drawn used repay part 26 million drawn another sterling denominated bank credit facility entered january 1997 new facility term five years guaranteed company certain subsidiaries interest payable libor plus margin interest rate september 30 1997 773 vii december 1996 ash capital finance jersey limited gave notice bond holders january 1997 would redeem capital bonds outstanding price equating denomination capital bond together accrued interest due accordingly january 1997 capital bonds fully redeemed carrying amount financed cash hand amounts drawn sterling denominated bank credit facility tyco international ltd notes consolidated financial statements continued viii july 1995 adt operations inc issued 7763 million aggregate principal amount maturity zero coupon subordinated liquid yield option notes lyons maturing july 2010 net proceeds issue amounted 2874 million used repay full amounts outstanding adt operations incs previous bank credit agreement subsequently canceled issue price per lyon 38309 principal amount 1000 per lyon maturity reflecting yield maturity 65 per annum computed semiannual bond equivalent basis discount amortization lyons charged interest expense consolidated statements operations basis linked yield maturity lyons discount amortization fiscal 1997 amounted 159 million 1996 203 million 1995 94 million lyon exchangeable common shares company option holder time prior maturity unless previously redeemed otherwise purchased adt operations inc exchange rate 27176 common shares per lyon 1997 1996 respectively 188290 619 notes carrying values 830 03 million exchanged 5116923 16820 common shares company lyon purchased adt operations inc option holder july 2002 purchase price per lyon 59946 time holder exercises option company right deliver portion purchase price form common shares company beginning july 2002 lyons redeemable cash time option adt operations inc whole part redemption prices equal issue price plus accrued original issue discount date redemption lyons guaranteed subordinated basis company prior maturity change control defined holder right require adt operations inc purchase lyons change control purchase price defined average rate interest longterm debt nine months ended september 30 1997 76 1996 80 1995 83 aggregate amounts total debt maturing next five years follows millions 2500 fiscal 1998 9326 fiscal 1999 935 fiscal 2000 8171 fiscal 2001 569 fiscal 2002 september 30 1997 company interest rate swap agreement financial institution total notional amount 50 million effectively converts fixed rate debt variable rate debt agreement company receive payments average fixed rate 556 make payments based six month libor september 30 1997 584 agreement expires march 1998 impact companys interest rate swap activities weighted average borrowing rate material year impact reported interest reduction 08 million reduction 18 million increase 10 million fiscal 1997 1996 1995 respectively september 30 1997 company interest rate lock agreements financial institution total notional amount 500 million instruments hedge cost indebtedness resulting interest differentials paid received recognized term indebtedness september 30 1997 fair value interest rate locks 123 million excess notional amount 5 sale accounts receivable company agreement one operating subsidiaries sells defined pool trade accounts receivable limited purpose subsidiary company subsidiary separate corporate entity owns assets sells participating interests accounts receivable creditors turn purchase receive ownership security interests assets collections reduce accounts receivable included pool operating subsidiary sells new receivables limited purpose subsidiary risk credit loss receivables accordingly full amount allowance doubtful tyco international ltd notes consolidated financial statements continued accounts retained companys consolidated balance sheet september 30 1997 300 million available program fully utilized december 31 1996 225 million available program fully utilized proceeds sales used reduce borrowings uncommitted lines credit reported operating cash flows companys consolidated statement cash flows proceeds sale less face amount accounts receivable sold amount approximates purchasers financing costs issuing commercial paper backed accounts receivable discount face amount accounted loss sale receivables 104 million 121 million 82 million fiscal 1997 1996 1995 respectively included selling general administrative expense companys consolidated statement operations operating subsidiary servicing agent purchaser retains collection administrative responsibilities participating interests defined pool 6 financial instruments companys financial instruments consist primarily cash banks temporary investments accounts receivable debt company also currency options notional amount 540 million well interest rate swaps september 30 1997 december 31 1996 fair value interest rate swaps approximated book value fair value longterm debt approximately 24826 million book value 24806 million based current interest rates fair value financial instruments included working capital approximated book value none companys financial instruments represent concentration credit risk company deals variety major banks worldwide accounts receivable spread among number major industries customers geographic areas none companys offbalance sheet financial instruments would result significant loss company counterparty failed perform according terms agreement 7 income taxes benefit provision income taxes reconciliation notional united states federal income taxes statutory rate consolidated loss income taxes companys income tax provision follows tyco international ltd notes consolidated financial statements continued provisions fiscal 1997 1996 1995 included 1011 million 453 million 388 million respectively nonus income taxes nonus component loss income taxes 1839 million 1177 million 695 million fiscal 1997 1996 1995 respectively accordance accounting principals board opinion 23 provision 641 million made undistributed earnings subsidiaries remaining earnings expected permanently reinvested deferred income tax balance sheet accounts result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset follows september 30 1997 company approximately 2236 million net operating loss carryforwards certain nonus jurisdictions 2041 million expiration remaining 195 million expire future years 2004 us operating loss carryforwards september 30 1997 approximately 5788 million expire future years 2011 valuation allowance provided operating loss carryforwards expected utilized fiscal 1997 company 378 million reduction valuation allowance result change estimate realization corresponding reduction intangible assets normal course company subsidiaries income tax returns examined regulatory tax authorities connection examinations significant assessments could arise 1995 united states internal revenue service irs examined former tycos 1991 1992 income tax returns connection examination one item currently review irs national office could result significant assessment additional taxes ultimate resolution matter expected material adverse effect companys financial position results operations liquidity tyco international ltd notes consolidated financial statements continued 8 key employee loan program loans made former tyco employees company former tyco 1983 key employee loan program payment taxes upon vesting shares granted former tycos restricted stock ownership plans loans unsecured bear interest payable annually rate approximates former tycos incremental shortterm borrowing rate loans generally repayable ten years except earlier payments required certain circumstances loans program 123 million 153 million september 30 1997 december 31 1996 respectively 9 convertible redeemable preference shares company authorized 225000 5 34 convertible cumulative redeemable preference shares 1 b 500000 6 convertible cumulative redeemable preference shares 1 c 125000000 convertible cumulative redeemable preference shares 1 none outstanding september 30 1997 december 31 1996 125000000 convertible cumulative redeemable preference shares authorized 7500000 classified series first preference shares reserved issuance pursuant shareholder rights plan described rights dividends return capital redemption conversion voting otherwise remaining 117500000 convertible cumulative redeemable preference shares 1 none issued outstanding may determined company time allotment november 1996 board directors adt adopted shareholder rights plan amended march 1997 july 1997 plan common shareholder received distribution rights common share held giving effect exchange ratio related merger adt former tyco twoforone stock split distributed october 22 1997 number rights associated common share 103879 right entitles holder purchase company shares new series first preference shares initial purchase price 90 per onehundredth first preference share rights become exercisable detach common shares specified period time person becomes beneficial owner 15 companys common shares commences tender exchange offer consummated would result person becoming beneficial owner 15 companys common shares exerciseable right entitle holder acquiring person purchase rights purchase price common shares market value twice rights purchase price following acquisition 15 companys common shares company involved mergers business combinations sells transfers 50 assets earnings power right entitle holder purchase rights purchase price common shares party transaction market value twice rights purchase price merger adt former tyco see note 2 specifically excluded provisions amendment plan july 1997 company may redeem rights price 001 per right time prior specified period time person become beneficial owner 15 companys common shares rights expire november 2005 unless exercised redeemed earlier event liquidation company holders companys convertible redeemable preference shares together entitled payment amount preference shares subscribed unpaid dividend prior payment common shareholders tyco international ltd notes consolidated financial statements continued 10 shareholders equity last quarter fiscal 1997 board directors declared twoforone stock split effected form 100 stock dividend companys common shares per share amounts share data retroactively adjusted reflect stock split january 1997 former tyco filed shelf registration enable offer time unsecured debt securities shares common stock combination foregoing aggregate initial offering price exceed 900 million march april 1997 former tyco sold aggregate 23000000 shares common stock shelf 2888 per share net proceeds sale 6452 million used repay indebtedness incurred previous acquisitions prior merger adt former tyco shareholders adt approved consolidating 010 par value common shares new 020 par value common shares increase number authorized common shares 750000000 per share amounts per share data retroactively adjusted reflect consolidation new par value shares information respect adt common shares options retroactively restated connection merger july 2 1997 reflect reverse stock split ratio 048133 share adt share option outstanding issuance one share former tyco outstanding see note 2 information respect keystone inbrand common shares options retroactively restated connection mergers tyco reflect applicable merger exchange ratios 048726 043 respectively treasury shares held retired fiscal 1997 restricted stock former tycos 1978 restricted stock ownership plan 1978 plan provided award 9600000 shares common stock key employees november 30 1988 1978 plan 9547400 shares granted net surrenders 1983 restricted stock ownership plan 1983 plan provided award 13600000 shares common stock key employees october 18 1993 1983 plan 13465200 shares awarded net surrenders former tycos 1994 restricted stock ownership plan 1994 plan assumed company provides award initial amount shares common stock plus amount equal onehalf one percent total shares outstanding beginning fiscal year september 30 1997 5858268 shares available 2744424 shares granted common shares awarded subject certain restrictions vesting varying periods ten years grants vest based certain specified performance criteria fair market value shares date vesting expensed period performance criteria measured grants vest passage time fair market value shares time grant amortized net tax benefit expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients restricted shares right vote shares receive dividends income tax benefits resulting vesting restricted shares including deduction excess fair market value restricted shares time vesting fair market value time grants payment dividends unvested shares credited contributed surplus keystone also issued restricted shares incentive stock plans shares issued stock grant plans owned employees time grant subject certain restrictions principally continued employment keystone period set committee typically ranging one ten years upon consummation merger tyco keystone restrictions keystone restricted stock grants lapsed tyco international ltd notes consolidated financial statements continued total compensation cost expensed stockbased compensation awards 485 million 158 million 93 million fiscal 1997 1996 1995 respectively including 296 million fiscal 1997 related accelerated vesting connection changes control provisions tyco stock options company granted employee share options issued five fixed share option plans schemes reserve common shares issuance companys executives managers majority options granted tyco international ltd long term incentive plan formerly known adt 1993 longterm incentive plan incentive plan incentive plan originally approved shareholders adt october 1993 certain subsequent amendments incentive plan approved shareholders adt april 1996 july 1997 incentive plan administered compensation committee board directors company consists exclusively independent nonexecutive directors company options generally granted purchase company common shares prices equate market price common shares date option granted conditions vesting determined time grant certain options granted participants required pay subscription price condition vesting options granted incentive plan date generally vested become exercisable installments three year period date grant maximum term ten years company reserved 440 million common shares issuance incentive plan september 30 1997 10869346 shares available future grant connection mergers occurring fiscal 1997 see note 2 options outstanding former tyco keystone inbrand stock option plans assumed tycos incentive plan options administered incentive plan retain rights terms conditions respective plans originally granted 1995 former tyco established stock option plan certain employees excluding officers directors granted options purchase common stock price equal fair market value date grant options vest prorata basis five years 50 becoming exercisable end third year remaining exercisable end fifth year grants periods generally excess ten years keystone granted share options incentive stock option plans benefit key employees directors stock options generally issued exercise prices less fair market value date grant options vest one five years expire five ten years date grant 1993 inbrand adopted inbrand corporation stock incentive plan inbrand incentive plan awards inbrand incentive plan form qualified nonqualified stock options andor stock appreciation rights sars grants inbrand incentive plan could made employee inbrand director company person compensation committee determines making grant best interests company inbrand incentive plan provides performancebased stock option format governs vesting option awards inbrand incentive plan provided exercise price shall less fair market value common stock determination grant date option granted exercisable term fixed compensation committee term ending five ten years grant date option holder still employed company thirty days prior options expiration date options fully vest inbrand incentive plan contains provisions restrict transferability grants limit exercise event termination employment disability death grantee tyco international ltd notes consolidated financial statements continued movement share options outstanding plans since january 1 1995 follows following table summarizes information outstanding exercisable options september 30 1997 stockbased compensation 1996 company required adopt sfas 123 accounting stockbased compensation sfas 123 sfas 123 allows companies measure compensation cost connection executive share option plans schemes using fair value based method continue use intrinsic value based method generally result compensation cost company decided continue use intrinsic value based method compensation cost tyco international ltd notes consolidated financial statements continued recorded fair value based method adopted consistent provisions sfas 123 companys proforma net loss income proforma net loss income per common share fiscal 1997 1996 1995 would follows estimated weighted average fair value tyco former tyco inbrand options granted fiscal 1997 1215 955 3717 respectively date grant using optionpricing model assumptions referred stock option grants keystone fiscal 1997 fair value option grant estimated date grant using blackscholes optionpricing model following weighted average assumptions used fiscal 1997 following weighted average assumptions used 1996 1995 effects applying sfas 123 proforma disclosure indicative future amounts sfas 123 apply awards prior 1995 additional awards future years anticipated stock warrants company outstanding warrants purchase common stock per share exercise prices 299 warrants 398 b warrants respectively together warrants expire july 7 1999 fiscal 1997 36532 warrants 25000 b warrants exercised 1996 30240 warrants 25120 b warrants exercised 1995 5198256 warrants 5438868 b warrants exercised september 30 1997 234136 warrants 150542 b warrants outstanding july 1996 part agreement combine republic industries inc republic adt granted republic warrant acquire 14439900 common shares company exercise price 2078 per common share following termination agreement combine republic warrant vested exercisable republic six month period commencing september 27 1996 march 1997 warrant exercised republic company received 300 million cash dividends third quarter fiscal 1997 company declared cash dividend 0025 per share dividend paid november 11 1997 shareholders record october 1 1997 former tyco declared cash dividends 0025 per former tyco common share first two quarters fiscal 1997 preceding merger former tyco declared cash dividends 010 per former tyco international ltd notes consolidated financial statements continued common share 1996 1995 adt paid dividends common shares fiscal 1997 1996 1995 keystone declared quarterly dividends 019 per share three quarters fiscal 1997 076 per share 1996 1995 11 charge impairment longlived assets charges impairment longlived assets follows effective january 1 1996 company adopted statement financial accounting standards 121 accounting impairment longlived assets disposed sfas 121 sfas 121 requires recoverability carrying value longlived assets primarily property plant equipment related goodwill intangible assets reviewed impairment whenever events changes circumstances indicate carrying amount asset may fully recoverable sfas 121 impairment losses recognized expected future cash flows less assets carrying value indicators impairment present carrying values assets evaluated relation operating performance future undiscounted cash flows underlying business net book value underlying assets adjusted sum expected future cash flows less book value 1997 charges company recorded charges 1484 million impairment longlived assets fiscal 1997 fire security services group recorded charge 1188 million includes 988 million related subscriber security systems installed customers premises united states canada determined following review carrying value assets also includes impairment carrying value goodwill 200 million resulting combination adts electronic security business former tyco flow control products group recorded charge 296 million reflecting impairment carrying value goodwill resulting combination keystones valve manufacturing distribution business former tyco 1996 charges following adoption sfas 121 particular change methodology requiring company evaluate assets lowest level asset grouping rather aggregate basis company recorded charge 7317 million fire security services segment relating electronic security services business adt assets principally comprise subscriber systems installed customers premises included property plant equipment related goodwill intangible assets charge 3971 million related impairment carrying value subscriber systems principally commercial sector including related goodwill principally arose acquisition adt security services 1987 since 1989 companys electronic security services operations residential sector developed rapid rate based principally internally generated growth consequence companys operations commercial sector acquired principally 1987 tyco international ltd notes consolidated financial statements continued complemented significant residential electronic security services operation operations reorganized along separate commercial residential business lines rather aggregate geographic basis financial projections estimated cash flows commercial sector analyzed separately indicated carrying value related assets may fully recoverable impairment charge amounted 3034 million united states 567 million canada 370 million europe remaining 3346 million impairment charge relates electronic security services ash group principally arose acquisition certain businesses modern security systems 1989 1990 api security 1989 sonitrol group 1992 review carrying value subscriber systems related goodwill intangibles connection reorganization commercial residential business sectors address part changes electronic security services business environment performance similar addressed adt group impairment charge carrying values assets recorded addition aggregate fair value adt common shares issued ash shareholders significantly less ashs consolidated net asset value reasons company reviewed assets impairment upon adoption sfas 121 impairment charge amounted 2112 million united kingdom 1234 million united states impairment charge 130 million recorded companys vehicle auction business included disposable specialty products segment relating impairment carrying value property related improvements including related goodwill principally arose acquisition adt automotive 1987 1995 charges connection divestiture underperforming assets associated 1995 restructuring charge see note 15 keystone recognized charge 82 million relating impairment certain longlived assets held sale part divestiture 12 income less expenses income less expenses consists following realized gains losses arising ownership shortterm longterm investments stated carrying costs interest administrative expenses 1996 gains arising ownership longterm investments comprised net gain 534 million relating disposal november 1996 adts entire investment limelight group plc united kingdom quoted company previously valued accounted adt nominal amount net gain 12 million relating disposal adts equity investment integrated transport systems limited notes 3 18 net losses 02 million principally arising disposal noncore investments tyco international ltd notes consolidated financial statements continued 1995 losses arising ownership longterm investments comprised 51 million relating disposal principally second quarter 1995 adts entire equity investments compagnie general de protection et securite sa cgps microtech security uk limited microtech held ash group net gains 01 million principally arising disposal investments 13 extraordinary items fiscal 1997 1996 1995 company reacquired market certain senior subordinated public notes financed cash hand new credit agreements see note 4 extraordinary items included loss arising reacquisition notes 797 million 1996 09 million 1995 09 million write net unamortized deferred refinancing costs related fees 116 million 1996 05 million 1995 08 million relating early extinguishment certain amounts outstanding senior subordinated notes stated net applicable income taxes 330 million 1996 02 million 1995 02 million september 1996 adt repaid full amounts owed ash group senior notes bank credit agreement subsequently canceled financed cash hand loans drawn revolving bank credit agreement extraordinary items included loss arising repayment 42 million write net unamortized deferred refinancing costs 04 million relating early extinguishment amounts outstanding senior notes bank credit agreement owed ash group consequential tax effect december 1996 adt gave notice convertible capital bond holders outstanding capital bonds owed ash group would fully redeemed adt subsequently canceled financed cash hand amounts drawn sterling denominated bank credit facility extraordinary items included write net unamortized deferred refinancing costs 16 million relating early extinguishment amounts outstanding convertible capital bonds owed ash group consequential tax effect december 1996 adt entered new bank credit agreement subject completion certain additional documentation signed january 1997 replaced full previous bank credit agreement subsequently canceled extraordinary items included write net unamortized deferred refinancing costs 15 million relating early extinguishment amounts outstanding bank credit agreement owed adt group stated net applicable income taxes 05 million july 1995 adt repaid full amounts owed adt group previous bank credit agreement subsequently canceled adt funded repayment net proceeds issue liquid yield option notes extraordinary items included write net unamortized deferred refinancing costs 128 million relating early extinguishment amounts outstanding previous bank credit agreement owed adt group stated net applicable income taxes 45 million connection refinancing kendalls subordinated notes former tyco recorded charge 43 million 26 million aftertax representing unamortized debt issuance fees call premium extraordinary loss 1995 14 loss earnings per common share calculation primary loss earnings per common share based weighted average 519487853 1996 475552956 1995 469626634 common shares issue year fiscal 1997 1996 allow allotment common shares executive share option tyco international ltd notes consolidated financial statements continued restricted stock plans considered common stock equivalents effect antidilutive consequence net loss years common stock equivalents included weighted average number common shares issue 1995 90 million primary loss earnings per common share continuing operations based adjusted net loss continuing operations available common shareholders 7768 million 1996 2970 million net loss 1995 2672 million net income 15 merger restructuring nonrecurring charges merger restructuring nonrecurring charges follows 1997 charges connection mergers consummated fiscal 1997 note 2 company recorded merger restructuring nonrecurring charges 9178 million transaction costs 2398 million effect mergers relate legal accounting financial advisory services severance costs payable effective time mergers well direct expenses expensed required pooling interests accounting method also incurred costs required combine adts electronic security business keystones valve manufacturing distribution business inbrands disposable medical products business related businesses former tyco costs include cost workforce reductions 1303 million including elimination approximately 4000 positions combination certain facilities 1942 million involving closure 18 manufacturing facilities consolidation sales service offices electronic security system monitoring centers warehouses locations disposing excess equipment assets 1335 million costs 2200 million relating consolidation certain product lines satisfaction certain liabilities nonrecurring charges approximately 4564 million accrued merger restructuring costs included current liabilities 845 million noncurrent liabilities september 30 1997 company currently anticipates restructurings substantially completed september 30 1998 except certain longterm contractual obligations 1996 charges 1995 adt commenced strategic review electronic security services business operation adts related corporate organizational structure view developing business strategy would place adt stronger position deal changing electronic security business environment challenges facing electronic security service businesses late 1990s 1996 strategic review process continued extended include significantly expanded agenda including evaluation administrative accounting management information systems technological infrastructures united states electronic security businesses ongoing project intended modify improve entire structure business operations 1996 charge recorded principally attributable planned technological infrastructure enhancements facilitate consolidation adts entire united states monitoring center network together related operations charge amounted 1364 million included writeoff certain property plant equipment 826 million provision idle property leases 189 tyco international ltd notes consolidated financial statements continued million termination certain contractual obligations settlement costs 94 million integration restructuring costs 255 million also 1996 adt commenced strategic detailed review electronic security services businesses acquired part acquisition ash september 1996 review intended integrate fully ash group adts existing electronic security service businesses united kingdom united states restructuring charge 978 million recorded included write certain property plant equipment 132 million provision idle property leases 225 million termination certain contractual obligations settlement costs 352 million integration restructuring costs 269 million part strategic review adt also commenced evaluation customer monitoring network canadian electronic security services business resulted charge restructuring nonrecurring items 31 million included writeoff certain property plant equipment 13 million provision idle property leases 18 million approximately 618 million costs related charges included current noncurrent liabilities september 30 1997 restructurings anticipated completed september 30 1998 fees expenses related ash merger expensed required pooling interests accounting method fees expenses amounted 88 million 1996 1995 charges 1995 adt recorded restructuring charge united states electronic security businesses principally attributable closure parsippany new jersey facility associated corporate offices charge amounted 194 million included employee severance associated costs 136 million writeoff certain property plant equipment 19 million integration restructuring costs 39 million 1995 adt also evaluated group corporate structure particularly united kingdom recorded restructuring charge 128 million included provision idle property leases 56 million employee severance four executives associated costs 24 million certain contractual obligations settlement costs 48 million adt also commenced evaluation management information systems united kingdom electronic security services business resulted charge restructuring nonrecurring items 20 million principally relating writeoff certain property plant equipment 1995 keystone recorded charge 228 million restructuring severance related costs connection worldwide workforce reduction keystone restructuring plans aimed streamlining operations divestiture underperforming assets charge includes severance related costs 177 million write certain assets totaling 27 million costs associated divesting assets 24 million keystone also recorded plant closure costs 29 million connection closure manufacturing facility indiana actions completed 1996 1997 approximately 101 million costs related charges included current noncurrent liabilities september 30 1997 restructurings substantially complete fees expenses related merger former tyco kendall expensed required pooling interests accounting method fees expenses amounted 372 million 1995 tyco international ltd notes consolidated financial statements continued 16 commitments contingencies company occupies certain facilities leases expire various dates year 2021 rental expense leases equipment 1535 million 1788 million 1518 million fiscal 1997 1996 1995 respectively september 30 1997 minimum lease payment obligations noncancelable operating leases follows 1992 million fiscal 1998 1640 million fiscal 1999 1055 million fiscal 2000 965 million fiscal 2001 536 million fiscal 2002 aggregate 1492 million years fiscal 2003 2021 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations company involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods based upon companys experience foregoing environmental matters company concluded least reasonable possibility remedial costs incurred respect sites aggregate amount range 98 million 380 million september 30 1997 company concluded probable amount incurred within range 176 million amount included caption accrued expenses current liabilities accompanying consolidated balance sheet based upon information available company sites allocation liability cleanup costs among number parties including company liability could joint several management believes probable responsible parties fully pay cost allocated except respect one site company assumed one identified responsible parties unable pay cost apportioned partys cost reapportioned among remaining responsible parties view companys financial position reserves environmental matters 176 million company concluded payment estimated amounts material effect financial position results operations liquidity company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations liquidity tyco international ltd notes consolidated financial statements continued 17 retirement plans defined benefit pension plans company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned contributions based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current employees net pension expense assessed accordance advice professionally qualified actuaries countries concerned based subsequent formal reviews purpose companys funding policy make annual contributions extent contributions tax deductible actuarially determined benefits defined benefit plans based years service compensation net periodic pension cost defined benefit pension plans includes following components accrued prepaid pension cost september 30 1997 defined benefit plans follows tyco international ltd notes consolidated financial statements continued accrued prepaid pension cost december 31 1996 defined benefit plans follows pursuant provisions sfas 87 employers accounting pensions company recorded liabilities additional minimum pension liability adjustment 110 million 106 million september 30 1997 december 31 1996 respectively representing amount accumulated benefit obligation exceeded fair value plan assets plus accrued amounts previously recorded additional liability offset intangible asset included goodwill intangible assets extent previously unrecognized prior service cost amount excess previously unrecognized prior service cost recorded net related deferred tax benefit reduction shareholders equity amount 19 million september 30 1997 25 million december 31 1996 respectively fiscal 1997 1996 1995 company terminated certain defined benefit pension plans distributed plans assets participants gains losses resulting terminations material addition company recognized liabilities certain plans related business acquisitions years presented amounts material total plan obligations fiscal 1997 53 relate us plans 47 relate nonus plans 1996 55 45 respectively average discount rate used determining actuarial present value projected benefit obligation weighted relation plan obligations 75 september 30 1997 75 85 december 31 1996 average rate increase future compensation levels 48 september 30 1997 40 70 december 31 1996 weighted average longterm rate return assets 96 september 30 1997 95 100 december 31 1996 plan assets invested principally equity fixed income instruments former tyco also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 15 million 20 million 25 million fiscal 1997 1996 1995 respectively defined contribution retirement plans company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing stock tyco international ltd notes consolidated financial statements continued bonus retirement plans pension expense defined contribution plans computed percentage participants compensation 280 million 312 million 235 million fiscal 1997 1996 1995 respectively 1995 former tyco established unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 22 million 17 million 04 million fiscal 1997 1996 1995 respectively postretirement benefit plans company generally provide postretirement benefits pensions employees adts electronic security services operation united states sponsors unfunded defined benefit postretirement plan covers salaried nonsalaried employees provides medical benefits postretirement health care plan contributory retiree contributions adjusted annually addition certain former tycos acquired operations provide benefits employees eligible date acquisition net periodic postretirement benefit cost reflects following components accrued postretirement benefit obligation unfunded follows measurement purposes fiscal 1997 93 composite annual rate increase per capita cost covered health care benefits assumed rate assumed decrease gradually 475 year 2008 remain level thereafter health care cost trend rate assumption may significant effect amounts reported illustrate increasing assumed health care cost trend rate one percentage point would increase accumulated postretirement benefit obligation september 30 1997 52 million aggregate service interest cost component net periodic postretirement benefit cost year ended 03 million weighted average discount rate used determining accumulated postretirement benefit obligation 75 september 30 1997 75 775 december 31 1996 1992 adt adopted amendments plan reduced benefits attributable prior service amendments resulted approximately 20 million decrease obligation benefits attributable prior service decrease amortized reduction plan costs actuarially calculated basis tyco international ltd notes consolidated financial statements continued period approximately twenty years beginning january 1992 effective january 1995 adt implemented defined dollar benefit cap current future retirees adt plan regardless age 18 related party transactions december 1995 adt entered agreement integrated transport systems limited united kingdom unquoted company whollyowned subsidiaries loanoption limited finance limited adt disposed interest european auctions see note 3 aggregate consideration received closing comprised cash 2351 million 1876 million vendor note issue price 839 million valued 746 million 311 million shareholder loan notes issue price 139 million valued 133 million 431 interest ordinary share capital issue price 20 million valued 09 million february 1996 adt disposed entire interest shareholder loan notes 331 ordinary share capital aggregate cash consideration 154 million result company holds 100 interest ordinary share capital valued accounted company nominal amount together vendor note accounted amortized cost db hammond tj gibson directors mr hammond april 1996 deputy chairman adt mr gibson chief executive officer adt auction group limited mr hammond mr gibson subscribed 104 million 08 million total respectively capital result interested shareholder loan notes issue prices 94 million 07 million respectively 223 17 respectively ordinary share capital senior management employees european auctions subscribed 37 million capital group interested shareholder loan notes issue price 33 million 80 ordinary share capital addition closing ashcroft july 1997 chairman chief executive officer adt subscribed 70 million capital result interested shareholder loan notes issue price 63 million 150 ordinary share capital upon disposal adt interest european auctions adt share options held directors employees european auctions became immediately exercisable adt entered arrangements mr gibson share options held time disposal company interest european auctions purchased adt aggregate economic value totaling 12 million based adts common share price december 19 1995 mr gibson invested 08 million capital referred adt also entered similar arrangements senior management employees european auctions adt purchased share options held aggregate economic value totaling 06 million order enable invest capital addition order enable mr hammond invest capital adt purchased share options aggregate economic value totaling 11 million based adts common share price december 19 1995 would otherwise exercisable march 1996 upon disposal adt interest european auctions mr gibson received severance payment 03 million senior management employees european auctions group received severance payments totaling 04 million company controlled mr ashcroft made noncollateralized loans mr hammond companies controlled aggregate 78 million solely purpose enabling mr hammond companies invest capital cash consideration paid adt closing obtained group subscription 265 million capital approximately 2097 million drawdown sterling term loans bank credit agreement entered group banks bank tyco international ltd notes consolidated financial statements continued credit agreement term seven years obligations thereunder guaranteed collateralized first priority pledge shares assets companies comprising european auctions group closing adt entered agreement group whereby adt granted subsidiaries permission use adt name certain trademarks period three years total cash consideration paid closing 06 million closing adt entered option agreement mr ashcroft exercised would required mr ashcroft purchase adt cash fifty days closing shareholder loan notes issue price 82 million 196 ordinary share capital addition closing entered agreement adt mr ashcroft agreed use reasonable efforts fortyfive day period closing find unrelated third party investors purchase shareholder loan notes ordinary share capital adt mr ashcroft adt mr ashcroft agreed certain voting restrictions respect holdings ordinary share capital described february 1996 adt mr ashcroft agreed mutual obligations option agreement released december 31 1995 adts investment ordinary share capital accounted unconsolidated subsidiary temporary control due agreement adt mr ashcroft limiting voting rights adt mr ashcroft 150 voting rights due fact mr hammond seek reelection board directors adt 1996 annual general meeting accordingly december 31 1995 equity method accounting used consolidated financial statements vendor note shareholder loan notes accounted amortized cost opinion regarding fair value transactions described provided independent nonexecutive directors adt leading european investment banking firm transactions approved unanimously independent nonexecutive directors adt ra gilleland former president kendall company director sold 870140 595112 shares respectively common stock former tyco 1324 1311 per share respectively shares fair market value aggregate purchase price 193 million pursuant rights kendall restricted stock grant provide required income tax withholdings 19 consolidated segment data selected information industry segment presented tyco international ltd notes consolidated financial statements continued 1 includes charges 1313 million related merger restructuing nonrecurring charges connection inbrand merger 2 includes charges 5303 million related merger restructuring nonrecurring charges 1188 million related impairment longlived assets connection merger adt former tyco 3 includes charges 2562 million related merger restructuring nonrecurring charges 296 million related impairment longlived assets connection keystone merger 4 includes charge 3610 million related write purchased research development costs connection acquisition tyco international ltd notes consolidated financial statements continued 5 includes charge 130 million related impairment longlived assets adts vehicle auction services operations 6 includes charges 7317 million related impairment longlived assets 2373 million relating restructuring nonrecurring items adts electronic security services operations 88 million related professional transaction costs connection ash merger 7 includes loss 658 million disposal european auto auctions business 8 includes charges 342 million related restructuring nonrecurring items adts electronic security services operations 9 includes charges 228 million restructuring severance costs 82 million impairment assets held sale 29 million related plant closures related costs connection keystones work force reduction divestiture underperforming assets 1995 10 includes charge 372 million related professional transaction costs connection kendall merger 20 consolidated geographic data selected information geographic area presented tyco international ltd notes consolidated financial statements continued 21 supplementary balance sheet information selected supplementary balance sheet information presented 22 supplementary income statement information selected supplementary income statement information presented tyco international ltd notes consolidated financial statements continued 23 comparative results unaudited change year end resulted short fiscal year covering nine month transition period january 1 1997 september 30 1997 following unaudited financial information nine months ended september 30 1996 presented provide comparative interim results fiscal 1997 included accompanying statement operations millions except per share amounts 24 summarized quarterly financial data unaudited summarized quarterly financial data presented 1 includes charges 96 million first quarter 470 million second quarter 8612 million third quarter related merger restructuring nonrecurring charges primarily connection merger adt former tyco keystone inbrand mergers tyco international ltd notes consolidated financial statements continued 2 includes charge impairment longlived assets 1484 million 3610 million writeoff purchased inprocess research development costs 3 includes charge 7447 million related impairment longlived assets 4 includes charge 07 million first quarter 13 million second quarter 109 million third quarter related professional transaction costs arising connection merger adt ash terminated merger republic refinancing charges incurred ash prior merger 5 extraordinary items comprised principally losses repayment write net unamoritized deferred refinancing costs relating early extinguishment debt 6 includes charge 2373 million 1996 related restructuring nonrecurring charges adts electronic security services corporate operations 7 includes net gain arising sale adts investment limelight group plc 534 million net gain litigation settlement 650 million 25 subsequent events company entered agreement acquire sherwooddavis geck sherwood division american home products corporation ahp cash 177 billion sherwood manufacturer medical surgical devices catheters needles syringes sutures thermometers specialized disposable medical products annual revenues approximately 10 billion company intends account acquisition purchase acquisition subject approval various regulatory agencies certain conditions transaction approved tycos ahps respective boards directors expected close second quarter fiscal 1998 acquisition financed initially bank debt new credit facility currently arranged company terms conditions expected similar former tycos existing 175 billion agreement company expects promptly file 20 billion universal shelf registration statement securities exchange commission used refinance purchase price acquisition combination equity public debt managements discussion analysis financial condition operating results introduction july 2 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd former tyco upon consummation merger adt surviving corporation changed name tyco international ltd company tyco august 1997 company acquired keystone international inc inbrand corporation three transactions accounted pooling interests accordingly consolidated financial statements reflect combined financial position results operations cash flows adt former tyco keystone inbrand periods presented except consolidated financial statements periods prior january 1 1997 include inbrand due immateriality see notes 1 2 consolidated financial statements addition fiscal 1997 1996 company completed several acquisitions accounted purchases results operations acquisitions included consolidated results company respective acquisition dates see note 3 consolidated financial statements results operations information periods presented reflects grouping companys businesses four business segments consisting disposable specialty products fire security services flow control products electrical electronic components september 1997 company changed fiscal year end december 31 september 30 references fiscal 1997 1996 1995 refer transitional nine month fiscal year ended september 30 1997 calendar years ended december 31 1996 1995 respectively discussions results operations fiscal 1997 compare nine months ended september 30 1997 nine months ended september 30 1996 unaudited overview loss extraordinary item 7768 million 150 per share fiscal 1997 compared 3648 million 076 per share nine months ended september 30 1996 excluding 132 billion 254 per share aftertax charge merger transaction costs write offs integration costs associated acquisitions see notes 2 3 consolidated financial statements income extraordinary item rose 428 5430 million 098 per share increase attributable margin improvements strong earnings results acquired companies companys business segments sales increased 29 fiscal 1997 759 billion 587 billion nine months ended september 30 1996 sales disposable specialty products group increased 5803 million 20 billion 41 due increased sales kendall tyco plastics adt automotive kendall tyco plastics increase sales resulted principally inbrand carlisle acquisitions respectively well internal growth kendalls healthcare polyken businesses sales fire security services group increased 4732 million 18 315 billion due increased sales geographic region companys fire protection operations primarily result increase volume service business well increases companys electronic security services businesses earth tech additionally results include thorn security thorn acquired july 1996 sales flow control products group increased 2668 million 168 billion 19 reflecting higher volume european flow control including businesses acquired last quarter 1996 first quarter fiscal 1997 mueller including businesses acquired third quarter 1996 well increased volume existing businesses allied including businesses acquired first quarter fiscal 1997 grinnells distribution operations sales increased due price increases sales relatively unchanged keystone growth international operations offset reduced us dollar equivalents due currency fluctuations sales electrical electronic components group increased 3964 million 7547 million 111 resulting principally acquisition atts submarine systems business july 1997 increased sales simplex increased sales printed circuit group businesses largely due acquisition electrostar january 1997 increased unit volume allieds electrical conduit operations also increased sales increased 17 calendar 1996 810 billion 692 billion calendar 1995 sales disposable specialty products group increased 1813 million 20 billion 10 increased sales kendall tyco plastics partially offset kendalls sale futuro december 1995 kendalls sales include sales professional medical products inc acquired first quarter fiscal 1996 sales adt automotive decreased result disposal european auctions business december 1995 excluding impact sale sales us auction business increased due volume vehicles sold sales fire security services group increased 6406 million 369 billion 21 due increased sales north american european including thorn asiapacific contracting businesses offset slight decline due exclusion sales european electronic article surveillance operation certain businesses ash group disposed 1995 increased sales resulted acquisition alert december 1995 earth tech first quarter 1996 sales flow control products group increased 3173 million 20 193 billion reflecting higher volume allied including businesses acquired allied second half 1995 well grinnells distribution operations keystone mueller european flow control sales electrical electronic components group increased 489 million 4790 million 11 resulting principally higher sales undersea communications cables simplex well printed circuit group businesses allieds electrical conduit operations loss income taxes extraordinary item pretax loss extraordinary item 5898 million fiscal 1997 1598 million nine months ended september 30 1996 pretax income increased 405 excluding acquisition related nonrecurring charges fiscal 1997 results include pretax charges 143 billion costs associated acquisitions charges include 9178 million merger transaction costs restructuring integration costs related consolidation businesses 1484 million related impairment longlived assets 3610 million write offs purchased inprocess research development see notes 11 15 consolidated financial statements following adoption sfas 121 1996 adt recorded nonrecurring charge impairment longlived assets 7447 million primarily related goodwill intangibles electronic security services business addition 1996 company incurred 2461 million related merger restructuring nonrecurring costs following analysis presented exclusive amounts better portray comparability recurring operations operating profits disposable specialty products group increased 524 million 3287 million fiscal 1997 19 reflecting higher earnings kendall including improved manufacturing efficiencies earnings inbrand tyco plastics addition internal growth volume prices includes results carlisle september 1996 adt automotive operating profits fire security services group increased 779 million 3367 million 30 due higher margins geographic region companys fire protection operations electronic security businesses earth tech well inclusion thorn higher margins fire protection result higher mix service work within contracting business operating profits flow control products group increased 472 million 1937 million 32 resulting principally increases companys operations results businesses acquired fiscal 1997 increases companys european flow control businesses primarily due increased margins well inclusion acquisitions increases allied mueller combination stronger operating profits resulting improved operating efficiencies well inclusion acquisitions operating profits electrical electronic components group increased 699 million 1364 million 105 due increased earnings tssl principally due acquisition atts submarine systems business increased operating levels earnings also printed circuit group businesses including electrostar allieds electrical conduit operations impact consolidated sales results operations changes foreign exchange rates relative value us dollar fiscal 1997 compared nine months ended september 30 1996 material operating profits disposable specialty products group increased 405 million 3719 million calendar 1996 12 primarily due increases kendall tyco plastics partially offset disposition european auctions discussed operating profits fire security services group rose 751 million 3565 million 27 due higher margins fire protection operations geographic region well inclusion earnings alert acquired december 1995 earth tech acquired first quarter 1996 operating profits flow control products group increased 375 million 1980 million 23 resulting increased earnings principally allied mueller lesser extent groups operating units operating profits electrical electronic components group increased 126 million 890 million 17 due increased earnings simplex printed circuit group businesses allieds electrical conduit operations impact consolidated sales results operations changes foreign exchange rates relative us dollar 1996 compared 1995 material corporate expenses rose 448 million fiscal 1997 314 million nine months ended september 30 1996 due principally higher compensation expense companys incentive compensation plans corporate expenses rose 434 million 290 million calendar 1995 due principally higher compensation expense companys incentive compensation plans increase expense associated companys accounts receivable financing program discount accounts receivable included selling general administrative expense excluded interest expense see note 5 consolidated financial statements interest expense interest expense decreased 75 million 1375 million fiscal 1997 compared nine months ended september 30 1996 due lower average interest rates partially offset higher average debt balances result monies borrowed make acquisitions interest expense increased 58 million 1933 million 1996 due higher average debt levels partially offset lower average interest rates extraordinary items extraordinary items fiscal 1997 1996 1995 included net losses amounting 583 million 12 million 15 million respectively arising reacquisition certain companys senior subordinated public notes details provided notes 4 13 consolidated financial statements september 1996 adt repaid full amounts owed ash group senior subordinated notes bank credit agreement details net loss amounting 46 million arose transactions provided notes 4 13 consolidated financial statements december 1996 adt gave notice would redeem full amounts outstanding convertible capital bond holders owed ash group details net loss amounting 16 million arose transaction provided notes 4 13 consolidated financial statements december 1996 july 1995 adt repaid full canceled certain bank credit agreements part refinancing arrangements time details net losses amounting 10 million 1996 83 million 1995 arose transactions provided notes 4 13 consolidated financial statements income tax expense income tax expense 1870 million fiscal 1997 2050 million nine months ended september 30 1996 see note 7 consolidated financial statements liquidity capital resources presented consolidated statement cash flows net cash provided operating activities 7774 million fiscal 1997 significant changes working capital 5428 million increase accounts payable accruals liabilities primarily related accrued restructuring costs 2693 million increase income taxes payable 1597 million increase contracts progress 1101 million increase accounts receivable 750 million proceeds sale accounts receivable impact fiscal 1997 strengthened dollar foreign currency denominated net working capital material working capital requirements anticipated increase substantially fiscal 1998 fiscal 1997 company used cash 13448 million acquire companies business segments 5191 million purchase property plant equipment 379 million pay dividends shareholders level capital expenditures expected increase moderately fiscal 1998 primary source funds expenditures expected cash operations expenditures environmental matters expected material effect company fiscal 1998 see note 16 consolidated financial statements september 30 1997 companys total debt 27306 million compared 24663 million december 31 1996 company utilized borrowings former tycos 175 billion credit agreement funding equity offering 6452 million well uncommitted lines credit partially finance acquisitions fiscal 1997 company believes funding sources adequate anticipated requirements including acquisition sherwood second quarter fiscal 1998 expected cash flow operations established financing arrangements accessing equity markets pending bank funded facilities shareholders equity 34294 million 639 per share september 30 1997 compared 32886 million 683 per share december 31 1996 decrease due principally 7768 million net loss extraordinary items includes acquisition related charges aftertax extraordinary item 583 million related tendering certain former tyco adt public debt partially offset increase related issuance 230 million shares common stock total debt company percent total capitalization total debt shareholders equity 44 september 30 1997 43 december 31 1996 backlog september 30 1997 amounted 23 billion compared 15 billion december 31 1996 increased backlog due increases companys four business segments increase backlog fire security services segment primarily due increased orders united states asiapacific fire protection businesses well increase funded backlog earth tech increase flow control products primarily due increases keystone companys european flow control operations within electrical electronic components segment increase principally due acquisition submarine systems business att july 1997 tssl normally sells undersea cable communications systems longterm multimillion dollar contracts amount backlog particular date affected contract issuance major systems timing completion systems accounting technical pronouncements february 1997 financial accounting standards board fasb issued statement financial accounting standards sfas 128 earnings per share effective fiscal years ending december 31 1997 including interim periods earlier adoption permitted however statement permits disclosure pro forma earnings per share amounts computed sfas 128 notes financial statements periods prior adoption statement requires restatement prior period earnings per share data presented effective date sfas 128 specifies computation presentation disclosure requirements earnings per share substantially similar standards recently issued international accounting standards committee entitled international accounting standards earnings per share company adopt sfas 128 fiscal 1998 impact expected material june 1997 fasb issued two additional statements sfas 130 reporting comprehensive income sfas 131 disclosures segments enterprise related information effective years beginning december 15 1997 adoption standards expected impact financial results company financial reporting release 48 issued securities exchange commission requires certain quantitative qualitative disclosures market risks derivative financial instruments potential near term losses cash flows earnings derivative financial instruments held company september 30 1997 would material impact companys financial position results operations liquidity forward looking information certain statements form 10k forward looking statements within meaning private securities litigation reform act 1995 forward looking statements involve risks uncertainties particular statements contained herein regarding consummation benefits future acquisitions well expectations respect future sales operating efficiencies product expansion subject known unknown risks uncertainties contingencies many beyond control company may cause actual results performance achievements differ materially anticipated results performance achievements factors might affect forward looking statements include among things overall economic business conditions demand companys goods services competitive factors industries company competes changes government regulations timing impact uncertainties future acquisitions tyco international ltd schedule ii valuation qualifying accounts millions 1 deducted assets 2 writeoff accounts receivable considered uncollectibleitem 14 exhibits financial statement schedules reports form 8k 1 2 financial statements schedulessee item 8 b exhibits management contract compensatory plan 1 incorporated reference exhibit registrants annual report form 10k year ended december 31 1992 2 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 1993 3 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 1995 4 incorporated reference exhibit former tycos current report dated march 17 1997 form 8k filed march 25 1997 5 incorporated reference exhibit registrants form 8a dated november 12 1996 6 incorporated reference exhibit registrants current report dated july 2 1997 form 8k filed july 10 1997 7 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 1997 8 incorporated reference exhibit registrants quarterly report form 10q quarter ended december 31 1997 9 incorporated reference exhibit registrants current report dated february 27 1998 form 8k filed march 11 1998 10 incorporated reference exhibit registrants current report dated may 25 1998 form 8k filed june 24 1998 11 incorporated reference exhibit registrants registration statement form s3 filed april 23 1998 current report dated september 10 1999 form 8k filed september 14 1999 12 incorporated reference exhibit registrants tigs coregistration statement form s3 file nos 33350855 3335085501 filed june 9 1998 13 incorporated reference exhibit registrants tigs coregistration statement form s4 filed january 29 1999 14 incorporated reference exhibit registrants quarterly report form 10q quarter ended december 31 1998 15 incorporated reference exhibit registrants registration statement form s3 filed march 2 1999 16 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 1999 filed december 13 1999 c reports form 8k current report form 8k filed july 21 1999 containing press release tyco dated july 20 1999 announcing third quarter earnings sale certain flow control products businesses twoforone stock split current report form 8k filed august 27 1999 containing press releases tyco dated august 12 1999 august 18 1999 announcing consummation acquisition raychem corporation results proration merger consideration raychem shareholders respectively current report form 8k filed september 14 1999 containing approved increase number authorized tyco common shares amendment rights agreement tyco international ltd citibank na dated november 6 1996 current report form 8k filed october 22 1999 announcing fourth quarter earnings distribution twoforone stock split current report form 8k filed november 9 1999 containing amendment 1 agreement plan merger dated august 23 1999 among general acquisition tyco acquisition corp xxiii successor assignment general sub acquisition corp delaware corporation whollyowned subsidiary general acquisition general surgical innovations inc current report form 8k filed november 22 1999 containing amendment 1 agreement plan merger dated august 31 1999 among tyco nv tyco acquisition corp xxii delaware corporation whollyowned subsidiary tyco nv afc cable systems inc delaware corporation current report form 8k filed december 9 1999 containing company press release announcing secs inquiry relating charges reserves taken connection companys acquisitions current report form 8k filed december 10 1999 disclosing wire reports shareholder class actions seeking damages company certain officers current report form 8k filed january 20 2000 containing press releases announcing first quarter earnings fiscal 2000 approval board directors repurchase additional 20 billion common shares tycos plans build advanced global undersea fiber optic network report independent accountants board directors shareholders tyco international ltd opinion based upon audits reports auditors accompanying consolidated balance sheets related consolidated statements operations shareholders equity cash flows present fairly material respects financial position tyco international ltd subsidiaries september 30 1999 1998 results operations cash flows years ended september 30 1999 1998 nine months ended september 30 1997 conformity accounting principles generally accepted united states addition opinion accompanying financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements consolidated financial statements financial statement schedule responsibility companys management responsibility express opinion consolidated financial statements financial statement schedule based audits audit financial statements amp incorporated wholly owned subsidiary september 30 1998 year ended september 30 1998 nine months ended september 30 1997 statements reflect total assets constituting 201 consolidated total assets september 30 1998 net sales constituting 290 336 consolidated net sales year ended september 30 1998 nine months ended september 30 1997 respectively audit financial statements united states surgical corporation wholly owned subsidiary nine months ended september 30 1997 statements reflect net sales constituting 68 consolidated net sales nine months ended september 30 1997 statements audited auditors whose reports thereon furnished us opinion expressed herein insofar relates amounts included amp incorporated united states surgical corporation periods described based solely reports auditors conducted audits statements accordance auditing standards generally accepted united states require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits reports auditors provide reasonable basis opinion expressed discussed heading revision note 1 accompanying consolidated financial statements fiscal year ended september 30 1999 revised adjust merger restructuring nonrecurring charges impairment longlived assets timing classification certain charges pricewaterhousecoopers hamilton bermuda october 21 1999 except information presented heading revision note 1 june 12 2000 independent auditors report shareholders board directors united states surgical corporation audited consolidated statements operations changes stockholders equity cash flows united states surgical corporation subsidiaries nine month period ended september 30 1997 related financial statement schedule nine month period ended september 30 1997 included herein financial statements responsibility united states surgical corporations management responsibility express opinion consolidated financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects consolidated results operations cash flows united states surgical corporation subsidiaries nine month period ended september 30 1997 conformity generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth herein deloitte touche llp stamford connecticut september 30 1998 report independent public accountants shareholders board directors amp incorporated audited consolidated balance sheet amp incorporated pennsylvania corporation subsidiaries september 30 1998 related consolidated statements income shareholders equity cash flows year ended september 30 1998 nine months ended september 30 1997 included herein financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position amp incorporated subsidiaries september 30 1998 consolidated results operations cash flows year ended september 30 1998 nine months ended september 30 1997 conformity generally accepted accounting principles explained note 1 consolidated financial statements effective january 1 1997 company changed method accounting costing inventories audit made purpose forming opinion basic financial statements taken whole schedule ii included herein presented purposes complying securities exchange commission rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp philadelphia pennsylvania february 12 1999 except respect matter disclosed note 18merger tyco international ltd date april 2 1999 tyco international ltd consolidated balance sheets millions except share data see notes consolidated financial statements tyco international ltd consolidated statements operations millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 summary significant accounting policies businessthe company manages business based following four operating segments telecommunications electronics companys telecommunications electronics segment comprised tyco electronics including amp incorporated amp designs manufactures electrical connectors interconnection systems touch screens wireless systems raychem corporation raychem develops manufactures highperformance electronic components tyco submarine systems ltd tssl designs manufactures installs services undersea communications cable systems tyco printed circuit group designs manufactures multilayer printed circuit boards backplane assemblies similar components healthcare specialty products companys healthcare specialty products segment comprised tyco healthcare group manufactures distributes wide variety disposable medical products including woundcare products syringes needles sutures surgical staplers incontinence products electrosurgical instruments laparoscopic instruments tyco plastics adhesives manufactures flexible plastic packaging plastic bags sheeting coated laminated packaging materials tapes adhesives plastic garment hangers adt automotive provides auto redistribution services fire security services companys fire security services segment designs installs services broad line fire detection prevention suppression systems worldwide provides electronic security installation monitoring services manufactures services fire extinguishers related products flow control products companys flow control products segment manufactures distributes pipe fittings valves valve actuators couplings related products used transport control measure flow liquids gases manufactures distributes fire sprinkler devices specialty valves plastic pipe fittings used commercial residential industrial fire protection systems provides engineering consulting services focusing design construction operation water wastewater facilities basis presentationthe consolidated financial statements prepared united states dollars accordance generally accepted accounting principles united states described tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued fully note 2 july 2 1997 whollyowned subsidiary formerly called adt limited bermuda company adt merged tyco international ltd massachusetts corporation former tyco upon consummation merger adt continuing public company changed name tyco international ltd company tyco former tyco became whollyowned subsidiary company changed name tyco international us inc tyco us addition fully described note 2 tyco merged inbrand corporation inbrand keystone international inc keystone united states surgical corporation ussc amp august 27 1997 august 29 1997 october 1 1998 april 2 1999 respectively transactions referred herein mergers consolidated financial statements include consolidated accounts tyco company incorporated bermuda subsidiaries prepared following pooling interests method accounting mergers therefore reflect combined financial position operating results cash flows adt former tyco keystone inbrand ussc amp combined periods presented principles consolidationtyco holding company whose assets consist investments subsidiaries intercompany balances holdings cash equivalents businesses consolidated group conducted companys subsidiaries company consolidates companies owns controls fifty percent voting shares unless control likely temporary results companies acquired disposed fiscal year included consolidated financial statements effective date acquisition date disposal except case mergers accounted pooling interests note 2 significant intercompany balances transactions eliminated consolidation change year endin september 1997 company changed fiscal year end december 31 september 30 change year end resulted short fiscal year covering ninemonth transition period january 1 september 30 1997 references fiscal 1999 fiscal 1998 fiscal 1997 throughout consolidated financial statements twelve months ended september 30 1999 1998 nine months ended september 30 1997 respectively cash equivalentsall highly liquid investments purchased maturity three months less considered cash equivalents inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipmentproperty plant equipment principally recorded cost less accumulated depreciation maintenance repair expenditures charged expense incurred straightline method depreciation used estimated useful lives related assets follows gains losses arising disposal property plant equipment included consolidated statements operations material tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued goodwill intangible assetsgoodwill amortized straightline basis periods ranging 10 40 years 106393 million 61041 million net september 30 1999 1998 respectively accumulated amortization amounted 6156 million september 30 1999 4997 million september 30 1998 intangible assets 15196 million 10014 million net september 30 1999 1998 respectively amounts include patents trademarks customer contracts items amortized straightline basis lives ranging 2 40 years september 30 1999 1998 accumulated amortization amounted 3195 million 2071 million respectively investmentsthe company accounts longterm investments represent less twenty percent ownership using statement financial accounting standards 115 accounting certain investments debt equity securities standard requires certain debt equity securities adjusted market value end accounting period unrealized market gains losses charged earnings securities traded shortterm profit otherwise unrealized gains losses charged credited shareholders equity management determines proper classification investments obligations fixed maturities marketable equity securities time purchase reevaluates designations balance sheet date realized gains losses sales investments determined specific identification basis included consolidated statements operations material equity investmentsfor investments company owns controls twenty percent voting shares exerts significant influence operating financial policies equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented longlived assetsthe company periodically evaluates net realizable value longlived assets including goodwill intangible assets property plant equipment relying number factors including operating results business plans economic projections anticipated future cash flows impairment carrying value asset assessed undiscounted expected future operating cash flows derived asset less carrying value revenue recognitionrevenue sale services products recognized services rendered shipments made subscriber billings services yet rendered deferred taken income earned deferred element included current liabilities revenue installation electronic security systems recognized installations completed contract sales installation fire protection systems underwater cable systems construction related projects recorded percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable accounts receivable include amounts billed retainage provisions primarily fire protection contracts retention balances 333 million september 30 1999 become due upon contract completion acceptance expected substantially collected fiscal year ending september 30 2000 fiscal 2000 share premium contributed surplusin accordance bermuda companies act 1981 company issues shares cash premium par value resulting premium tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued credited share premium account nondistributable reserve company issues shares exchange shares another company excess fair value shares acquired par value shares issued company credited applicable contributed surplus subject certain conditions distributable reserve income taxesdeferred tax liabilities assets recognized expected future tax consequences events included consolidated financial statements tax returns deferred tax liabilities assets determined based differences consolidated financial statements tax basis assets liabilities using tax rates effect years differences expected reverse valuation allowance provided offset net deferred tax assets based upon available evidence likely deferred tax assets realized research developmentresearch development expenditures expensed incurred included cost sales consolidated statements operations advertisingadvertising costs expensed incurred translation foreign currencyassets liabilities companys subsidiaries operating outside united states account functional currency us dollars operating highly inflationary environments translated us dollars using yearend exchange rates revenues expenses translated average exchange rates effective year foreign currency translation gains losses included component accumulated comprehensive income loss within shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments operations included net income loss gains losses resulting foreign currency transactions amounts material included net income loss financial instrumentsfrom time company enters variety forward foreign currency exchange contracts crosscurrency swaps currency options forward commodity contracts interest rate swaps management foreign currency commodity exposures interest costs forward foreign currency exchange contracts crosscurrency swaps mitigate impact changes currency exchange rates intercompany crossborder obligations accounted consistent related intercompany transactions crosscurrency swaps principally hedge certain net foreign currency denominated investments changes valuation included currency translation adjustment component accumulated comprehensive income loss within shareholders equity interest differentials crosscurrency swaps included interest expense forward foreign currency exchange contracts currency options acquired purpose reducing exposure currency fluctuations associated expected cash flows denominated currencies functional currencies marked market realized unrealized gains losses reflected selling general administrative expenses tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued forward commodity contracts hedge anticipated purchases certain metals materials used manufacturing operations payments received paid based differential contract price actual price underlying commodity gains losses forward commodity contracts recorded adjustments value purchased commodity interest rate swaps hedge interest rates certain indebtedness involve exchange fixed floating rate interest payment obligations life related agreement without exchange notional amount interest differentials paid received interest rate swaps recognized life underlying agreement indebtedness respectively adjustment interest expense receivables payables related unrealized increases decreases values derivative financial instruments included current assets current liabilities respectively material use estimatesthe preparation consolidated financial statements conformity generally accepted accounting principles requires management make extensive use certain estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reported periods significant estimates consolidated financial statements include merger restructuring nonrecurring charges purchase accounting reserves allowances doubtful accounts receivable estimates future cash flows associated assets asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories estimated contract revenues related costs environmental liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ estimates accounting pronouncementsin june 1998 fasb issued sfas 133 accounting derivative instruments hedging activities statement establishes accounting reporting standards requiring every derivative instrument recorded balance sheet either asset liability measured fair value sfas 133 also requires changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met june 1999 fasb issued sfas 137 defers effective date sfas 133 fiscal years beginning june 15 2000 company currently analyzing new standard reclassificationscertain prior year amounts reclassified conform current year presentation stock splitsper share amounts share data retroactively restated give effect reverse stock split effected connection merger adt former tyco referred note 2 twoforone stock splits distributed october 22 1997 october 21 1999 effected form stock dividend see note 10 discussion tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued revisionthe company revised consolidated financial statements fiscal year ended september 30 1999 following limited review accounting staff division corporation finance us securities exchange commission changes impact previously reported net sales net cash provided operating activities amendment financial statements filed reclassify certain charges adjust merger restructuring nonrecurring charges periods due timing underlying events follows reclassify 1725 million charges incurred amp prior merger tyco related writeoff goodwill fixed assets exited businesses consolidated statement operations merger restructuring nonrecurring charges line charge impairment longlived assets line reclassify 275 million inventory related restructuring costs consolidated statement operations merger restructuring nonrecurring charges line cost sales line eliminate 260 million merger restructuring nonrecurring charges originally recorded fiscal 1999 related primarily severance facility closings subsequent reversal charge recorded credit merger restructuring nonrecurring credits charges taken first quarter fiscal 2000 record credit fiscal 1999 reversal 169 million merger restructuring nonrecurring charges originally recorded fiscal 1997 related primarily facility closings lease termination costs credit previously recorded first quarter fiscal 2000 report certain nonrecurring costs related integration ussc suture business originally recorded first quarter fiscal 1999 costs later periods activity completed deferring 111 million merger restructuring nonrecurring charges originally recorded fiscal 1999 fiscal 2000 update various disclosures primarily related purchase accounting liabilities merger restructuring nonrecurring charges tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued impact consolidated statements operations consolidated balance sheet result adjustments follows millions except per share data 2 pooling interests transactions april 2 1999 october 1 1998 august 29 1997 august 27 1997 tyco merged amp ussc keystone inbrand respectively total approximately 3292 million 1184 million 696 million 204 million tyco common shares respectively issued former shareholders companies july 2 1997 whollyowned subsidiary adt merged former tyco shareholders adt reverse stock split received 048133 shares 192532 giving effect subsequent stock splits companys common stock share adt common stock outstanding former tyco shareholders received one share four shares giving effect subsequent stock splits companys common stock share former tyco common stock outstanding postsplit basis total approximately 6736 million tyco common shares issued shareholders former tyco merger five merger transactions discussed accounted pooling interests accounting method presents single interest common shareholder interests previously independent historical consolidated financial statements periods prior consummation combination restated though companies combined periods aggregate fees expenses related mergers integration combined companies expensed consolidated statements operations period transaction consummated required pooling interests method accounting see notes 12 16 discussion tyco international ltd notes consolidated financial statements continued 2 pooling interests transactions continued combined separate results tyco ussc amp periods preceding mergers follows includes merger restructuring nonrecurring charges 4146 million impairment charges 760 million primarily related merger ussc restructuring nonrecurring charges 2753 million 552 million included cost sales impairment charges 2367 million related amps profit improvement plan also includes credit 83 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals ii includes restructuring nonrecurring charges 1644 million primarily related amps profit improvement plan 925 million principally related costs incurred ussc exit certain businesses iii includes merger restructuring nonrecurring charges 9178 million impairment charges 1484 million primarily related mergers integration adt former tyco keystone inbrand charge 3610 million writeoff purchased inprocess research development related acquisition att corps submarine systems business also includes charges 243 million litigation related costs 58 million restructuring charges usscs operations iv result combination tyco amp income tax adjustment recorded conform tax accounting tyco international ltd notes consolidated financial statements continued 2 pooling interests transactions continued combined separate results adt former tyco keystone inbrand periods preceding mergers follows includes merger restructuring nonrecurring charges 314 million incurred adt 252 million incurred inbrand connection ussc merger company assumed operating lease usscs north facilities december 1998 company assumed debt related north property approximately 211 million assumption debt combined settlement certain obligations amount 23 million resulted company acquiring ownership north property total cost 234 million company also assumed usscs agreement potentially pay approximately 700 million common stock september 30 1998 additional purchase price consideration relative acquisition consummated ussc 1997 certain additional milestones sales objectives achieved march april 1999 total 140002 tyco common shares valued approximately 52 million issued pursuant agreement matter subject pending litigation company expect issue material amount additional shares pursuant agreement 3 acquisitions divestitures fiscal 1999 addition pooling interests transactions discussed note 2 fiscal 1999 company purchased businesses four business segments aggregate cost 69233 million consisting 45468 million cash net cash acquired issuance 324 million common shares valued 14496 million assumption 9269 million debt addition 3544 million cash paid year purchase accounting liabilities related current prior years acquisitions cash portions acquisition costs funded utilizing cash hand issuance longterm debt borrowings companys commercial paper program acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates connection acquisitions company recorded purchase accounting liabilities 5254 million transaction costs integrating acquired companies within various tyco business segments details regarding purchase accounting liabilities set forth time purchase acquisition made company records asset acquired liability assumed estimated fair value amount subject future adjustment appraisals information obtained excess total consideration paid acquired tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued company b fair value assets acquired less liabilities assumed purchase accounting liabilities recorded goodwill result acquisitions completed fiscal 1999 adjustments fair values assets liabilities purchase accounting liabilities recorded acquisitions completed prior fiscal 1999 company recorded approximately 58079 million goodwill intangibles following table shows fair values assets liabilities purchase accounting liabilities recorded purchase acquisitions completed fiscal 1999 adjusted reflect changes fair values assets liabilities purchase accounting liabilities recorded acquisitions completed prior fiscal 1999 millions tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued thus fiscal 1999 company spent total 49012 million cash related acquisition businesses consisting 45468 million cash purchase price businesses net cash acquired plus 3544 million cash paid year purchase accounting liabilities related current prior years acquisitions fiscal 1999 purchase acquisitions include among others acquisition graphic controls corporation graphic controls october 1998 entergy security corporation entergy january 1999 alarmguard holdings inc alarmguard february 1999 certain subsidiaries metals processing division glynwed international plc glynwed march 1999 telecomunicaciones marinas sa temasa whollyowned subsidiary telefonica sa may 1999 raychem corporation raychem august 1999 graphic controls leading designer manufacturer marketer distributor disposable medical products purchased approximately 460 million including assumption certain outstanding debt integrated within healthcare specialty products segment entergy alarmguard purchased aggregate approximately 430 million integrated within electronic security services business fire security services segment glynwed engaged production steel tubing steel electrical conduit similar products purchased approximately 236 million integrated within flow control products segment temasa installs maintains undersea cable systems purchased approximately 280 million temasa integrated tssl within telecommunications electronics segment raychem leading international designer manufacturer distributor highperformance electronic products oem businesses broad range specialized telecommunications energy industrial applications purchased total approximately 14459 million cash issuance approximately 324 million tyco common shares valued approximately 14496 million plus assumption approximately 5808 million debt raychem integrated tyco electronics within telecommunications electronics segment following table summarizes purchase accounting liabilities recorded connection fiscal 1999 purchase acquisitions millions purchase accounting liabilities recorded fiscal 1999 consist 1163 million transaction direct costs including pension employee related costs writeoff nonfacility assets costs 2343 million severance related costs 1748 million costs associated shut consolidation certain acquired facilities including unfavorable leases lease terminations related fees asset writedowns costs purchase accounting liabilities relate primarily acquisitions graphic controls entergy alarmguard glynwed temasa raychem company still process finalizing business plan exiting activities involuntary termination relocation employees connection acquisition integration raychem accrued costs associated plan estimates tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued connection fiscal 1999 purchase acquisitions company began formulate plans date acquisition workforce reductions closure consolidation aggregate 183 facilities company communicated employees acquired companies announce terminations benefit arrangements even though individuals specifically told termination costs employee termination benefits relate elimination approximately 3440 positions united states 1220 positions europe 730 positions asiapacific region 230 positions canada latin america primarily consisting manufacturing distribution administrative technical sales marketing personnel facilities designated closure include 78 facilities asiapacific region 67 facilities united states 27 facilities europe 11 facilities canada latin america primarily consisting manufacturing plants sales offices corporate administrative facilities research development facilities approximately 3230 employees terminated approximately 95 facilities closed consolidated september 30 1999 connection purchase acquisitions consummated fiscal 1999 liabilities approximately 703 million transaction direct costs 1784 million severance related costs 1266 million shutdown consolidation acquired facilities remained balance sheet september 30 1999 company expects termination employees consolidation facilities related acquisitions substantially complete within two years related dates acquisition except certain longterm contractual obligations fiscal 1999 company reduced estimate purchase accounting liabilities 900 million accordingly goodwill related deferred tax assets reduced equivalent amount changes primarily resulted costs less originally anticipated acquisitions consummated prior fiscal 1999 addition connection integration ussc company modified plans relative terminating certain employees closing certain facilities acquired purchases certain healthcare companies completed fiscal 1998 net effect changes 1150 less employees terminated four less facilities shut see table fiscal 1998 section fiscal 1999 company sold certain businesses net proceeds approximately 9268 million cash primarily consist certain businesses within flow control products segment including mueller company portions grinnell supply sales manufacturing certain businesses within healthcare specialty products segment aggregate net gain recognized sale businesses material connection flow control divestiture company granted nonexclusive license buyer use certain intellectual property entitled receive future royalties equal percentage net sales businesses sold company also granted option buyer purchase certain intellectual property future fair market value tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued following unaudited pro forma data summarize results operations periods indicated fiscal 1999 acquisitions divestitures completed beginning periods presented pro forma data give effect actual operating results prior acquisitions divestitures adjustments interest expense goodwill amortization income taxes related fiscal 1999 acquisitions reflected pro forma data effect given cost reductions operating synergies presentation pro forma amounts purport indicative results would actually obtained acquisitions divestitures occurred beginning periods presented may obtained future fiscal 1998 fiscal 1998 company acquired companies business segments aggregate cost 45594 million consisting 41548 million cash assumption approximately 260 million debt issuance 765544 common shares valued 192 million 1254 subsidiary preference shares valued 1254 million cash portions acquisition costs funded utilizing cash hand borrowings bank credit agreements proceeds approximately 12450 million sale common shares borrowings companys uncommitted lines credit acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions company recorded approximately 39470 million goodwill intangibles tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued connection acquisitions company recorded purchase accounting liabilities 4987 million transaction costs integrating acquired companies within various tyco business segments details regarding purchase accounting liabilities set forth fiscal 1998 company spent total 42518 million cash related acquisition businesses consisting 41548 purchase price net cash acquired plus 970 million cash purchase accounting liabilities related current prior years acquisitions following table summarizes purchase accounting liabilities recorded connection fiscal 1998 purchase acquisitions millions purchase accounting liabilities recorded fiscal 1998 consist 601 million transaction direct costs 1597 million severance related costs 2789 million costs associated shut consolidation certain acquired facilities 1597 million severance related costs covers employee termination benefits approximately 4800 employees located throughout world consisting primarily manufacturing employees terminated result shut consolidation production facilities lesser extent technical sales administrative employees september 30 1999 approximately 2650 employees terminated 389 million severance related costs remained balance sheet company expects remaining employee terminations completed fiscal 2000 2789 million exit costs associated closure consolidation facilities involving approximately 90 facilities located primarily united states europe facilities include manufacturing plants warehouses office buildings sales offices included within costs accruals noncancelable leases associated certain facilities approximately 73 facilities mainly office buildings sales offices shut september 30 1999 remaining facilities primarily include large manufacturing plants expected shut fiscal 2000 expenses connection closure remaining facilities well expiration noncancelable leases less expected sublease income facilities already closed comprise approximately 1464 million facility related costs remaining balance sheet september 30 1999 july 1998 company acquired us operations crosby valve inc exchange 1254 cumulative dividend preference shares newly created subsidiary valued 1254 million subsidiary authorized 2000 cumulative dividend preference shares holders preference shares option require company repurchase preference shares par value plus unpaid dividends time july 2001 outstanding preference shares issued 100000 par value classified longterm liabilities consolidated balance sheets tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued cash dividends accumulate preferred basis whether earned declared rate 3750 per share per annum upon liquidation holders shares entitled receive amount equal 100000 per share plus unpaid dividends preference shares may redeemed subsidiary time december 31 2008 price per share 100000 plus unpaid dividends adjusted certain increases value tycos stock defined fiscal 1997 addition mergers discussed note 2 fiscal 1997 company acquired companies business segments aggregate 15237 million consisting 14152 million cash issuance approximately 38 million common shares valued 928 million assumption approximately 157 million debt cash portions acquisition costs funded utilizing cash hand net proceeds sale common shares 6452 million borrowings companys uncommitted lines credit acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions approximately 7087 million goodwill intangibles net writeoff purchased inprocess research development recorded company connection acquisition att corps submarine systems business company allocated 3610 million purchase price inprocess research development projects reached technological feasibility probable alternative future uses september 30 1999 payout employee severance consolidation facilities related acquisitions substantially complete 1995 result sale business united kingdom company holds subordinated noncollateralized zero coupon loan note maturing 2004 vendor note together 10 interest ordinary share capital issuer vendor note l1208 million 1992 million aggregate principal amount maturity issue price 839 million reflecting yield maturity 100 per annum originally valued company 746 million september 30 1999 vendor note included longterm investments consolidated balance sheet accounted amortized cost 1205 million approximates fair value fair value vendor note estimated based companys calculation appropriate fair value interest rate discount rate determined based evaluation current uk market conditions private placement rates discussions financial sources etc continued risk margin associated deep discount debentures 4 indebtedness longterm debt follows tyco international ltd notes consolidated financial statements continued 4 indebtedness continued january 1999 tyco international group sa tig whollyowned subsidiary company initiated commercial paper program could initially issue notes aggregate face value 175 billion june 1999 tig increased borrowing capacity commercial paper program 390 billion notes fully unconditionally guaranteed company proceeds sale notes used working capital corporate purposes tig required maintain available unused balance bank credit agreement sufficient support amounts outstanding commercial paper program ii february 1999 tig renegotiated 225 billion credit agreement group commercial banks giving right borrow 340 billion february 11 2000 option extend february 11 2001 borrow additional 05 billion february 12 2003 tyco international ltd notes consolidated financial statements continued 4 indebtedness continued tig also option increase 340 billion part credit facility 40 billion interest payable borrowings variable based upon tigs option select euro rate plus margins ranging 041 043 certificate deposit rate plus margins ranging 0535 0555 base rate defined outstanding principal amount loans equals exceeds 25 commitments euro certificate deposit margins increased 0125 obligations tig credit agreement fully unconditionally guaranteed company tig using credit agreement fully support commercial paper program discussed therefore expects facility remain largely undrawn company required meet certain covenants bank credit agreement none considered restrictive operations company iii december 1995 ussc entered five year 325 million syndicated credit agreement maturity january 2001 syndicated credit facility provided choice interest rates based upon banks cd rate prime rate london interbank offered rate libor us dollar borrowings tokyo interbank offered rate tibor yen borrowings actual interest charges paid determined pricing schedule considered ratio consolidated debt calendar quarter end consolidated earnings interest taxes depreciation amortization trailing twelve months third quarter 1996 ussc entered additional conditional committed bank term loan facility 175 million similar terms conditions subsequent merger ussc credit facilities terminated effective interest rate amounts outstanding september 30 1998 591 iv international overdrafts demand loans represent borrowings amp various banks holders overdrafts loans mature within one year balance sheet date weightedaverage interest rate international overdrafts demand loans fiscal 1999 fiscal 1998 53 42 respectively v july 1997 tyco us tendered 1450 million 8125 public notes due 1999 2000 million 95 public debentures due 2022 adt operations inc whollyowned subsidiary company tendered 2500 million 825 senior notes due 2000 2941 million 925 senior subordinated notes due 2003 percentage debt tendered 928 8125 notes 755 95 debentures 962 825 notes 952 925 notes two companies paid aggregate amount including accrued interest approximately 9008 million debt holders 8000 million financed previously existing credit agreement connection tenders company recorded aftertax charge approximately 583 million net related income tax benefit 330 million primarily representing unamortized debt issuance fees premium paid reported extraordinary loss note 13 2500 million 825 senior notes due august 2000 issued august 1993 public offering adt operations inc guaranteed senior basis company certain subsidiaries adt operations inc senior notes redeemable prior maturity 2941 million 925 senior subordinated notes due august 2003 issued august 1993 adt operations inc public offering guaranteed senior subordinated basis company notes became redeemable august 1998 10375 adt operations inc redeemed notes tyco international ltd notes consolidated financial statements continued 4 indebtedness continued conjunction tenders described adt operations inc consent holders 825 senior 925 senior subordinated notes eliminated indentures pursuant notes issued certain restrictive covenants provisions references restrictive covenants b certain events default extent relating restrictive covenants c certain definitions extent relating restrictive covenants events default vi august 1999 tig issued 500 million floating rate notes due 2000 500 million floating rate notes due 2001 1 billion 6 78 notes due 2002 10 billion approximately 897 million 057 notes due 2000 500 million floating rate notes bear interest libor plus 06 2000 notes libor plus 07 2001 notes net proceeds approximately 20803 million used repay borrowings tigs 390 billion commercial paper program discussed connection 1 billion 6 78 notes tig entered interest rate swap agreement expiring september 2002 tig receive fixed rate 6 78 pay floating rate based average two different libo rates defined plus 3755 connection yen denominated 057 notes tig entered crosscurrency swap expiring september 2000 tig receive payment 10 billion plus accrued interest rate 057 make quarterly us dollar payments based libor plus 060 well final payment maturity approximately 897 million vii june 1998 tig issued 750 million 6 18 notes due 2001 750 million 6 38 notes due 2005 750 million 6 14 dealer remarketable securities drs due 2013 500 million 70 notes due 2028 public offering interest payable semiannually june december terms drs remarketing dealer option remarket drs june 2003 exercised would subject drs mandatory tender remarketing dealer reset interest rate adjusted fixed rate june 2013 remarketing dealer exercise option drs required tendered company june 2003 repayment amounts outstanding debt securities fully unconditionally guaranteed tyco note 25 net proceeds approximately 27445 million ultimately used repay borrowings tigs bank credit agreement uncommitted lines credit december 1998 tig terminated two interest rate swap agreements notional amounts 650 million entered june 1998 financial institution hedge portion fixed rate terms public notes viii october 1998 tig issued 800 million debt private placement offering consisting two series restricted notes 400 million 5875 notes due november 2004 400 million 6125 notes due november 2008 notes fully unconditionally guaranteed tyco net proceeds approximately 7917 million used repay borrowings tigs bank credit agreement time tig also entered interest rate swap agreement notional amount 400 million hedge fixed rate terms 6125 notes due 2008 agreement expires november 2008 tig receive payments fixed rate 6125 make floating rate payments based libor subsequently third fourth quarters fiscal 1999 tig exchanged 400 million 5875 private placement notes due 2004 400 million 6125 private placement notes due 2008 public notes note 25 form terms public notes series identical material respects form terms outstanding private placement notes corresponding series except public notes subject restrictions transfer united states securities laws tyco international ltd notes consolidated financial statements continued 4 indebtedness continued ix october 1998 raychem issued notes amount 400 million notes mature october 15 2008 bear interest rate 72 per annum x march 1998 ussc issued 300 million 725 senior notes due march 2008 redeemable prior maturity require semiannual interest payments february 1999 company completed tender offer 292 million 300 million principal amount notes outstanding purchased xi january 1999 tig issued 400 million 6125 notes due 2009 800 million 6875 notes due 2029 public offering notes fully unconditionally guaranteed tyco note 25 net proceeds approximately 11737 million used repay borrowings tigs bank credit agreement time tig also entered interest rate swap agreement hedge fixed rate terms 400 million notes due 2009 agreement expires january 2009 tig receive payments fixed rate 6125 make floating rate payments based average three different libo rates defined plus spread xii july 1995 adt operations inc issued 7763 million aggregate principal amount maturity zero coupon subordinated liquid yield option notes lyons maturing july 2010 net proceeds issue amounted 2874 million used repay full amounts outstanding adt operations incs previous bank credit agreement subsequently canceled issue price per lyon 38309 principal amount 1000 per lyon maturity reflecting yield maturity 65 per annum computed semiannual bond equivalent basis discount amortization lyons charged interest expense consolidated statements operations basis linked yield maturity lyons discount amortization amounted 60 million fiscal 1999 110 million fiscal 1998 159 million fiscal 1997 lyon exchangeable common shares company option holder time prior maturity unless previously redeemed otherwise purchased adt operations inc exchange rate 54352 common shares per lyon fiscal 1999 fiscal 1998 respectively 147418 342752 notes carrying values 723 million 1553 million exchanged 8012468 18629198 common shares company lyon purchased adt operations inc option holder july 2002 purchase price per lyon 59946 time holder exercises option company right deliver portion purchase price form common shares company beginning july 2002 lyons redeemable cash time option adt operations inc whole part redemption prices equal issue price plus accrued original issue discount date redemption lyons guaranteed subordinated basis company xiii international bank loans represent term borrowings amp various commercial banks borrowings repayable varying amounts 2013 weightedaverage interest rate international bank loans september 30 1999 1998 39 50 respectively xiv financing lease obligation relates usscs european headquarters office building distribution center complex elancourt france french franc denominated financing lease requires principal amortization varying amounts eleven year term lease balloon payment approximately 42 million french francs 7 million end lease interest payable rate approximately 14 paris interbank offered rate pibor effective interest rate financing lease debt approximately 40 455 per annum september 30 1999 1998 respectively tyco international ltd notes consolidated financial statements continued 4 indebtedness continued fiscal 1999 company also completed tender offer 120 senior subordinated notes due 2005 issued graphic controls 75 million principal amount notes outstanding purchased weightedaverage rate interest longterm debt 62 64 72 fiscal 1999 fiscal 1998 fiscal 1997 respectively impact companys interest rate swap activities weightedaverage borrowing rate material year impact reported interest expense reduction 09 million 19 million 08 million fiscal 1999 fiscal 1998 fiscal 1997 respectively aggregate amounts total debt maturing next five years follows millions 10128 fiscal 2000 27770 fiscal 2001 13952 fiscal 2002 562 fiscal 2003 1908 fiscal 2004 5 sale accounts receivable company agreement several operating subsidiaries sell defined pool trade accounts receivable limited purpose subsidiary company subsidiary separate corporate entity owns assets sells participating interests accounts receivable financiers turn purchase receive ownership security interests assets collections reduce accounts receivable included pool operating subsidiaries sell new receivables limited purpose subsidiary limited purpose subsidiary risk credit loss receivables accordingly full amount allowance doubtful accounts retained consolidated balance sheets fiscal 1999 availability program increased 500 million 300 million september 30 1999 1998 350 million 300 million respectively program utilized proceeds sales used reduce borrowings uncommitted lines credit reported operating cash flows consolidated statements cash flows proceeds sale less face amount accounts receivable sold amount approximates cost limited purpose subsidiary would incur issue commercial paper backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative expenses companys consolidated statements operations discount aggregated 157 million 173 million 104 million 56 58 57 weighted average balance receivables outstanding fiscal 1999 fiscal 1998 fiscal 1997 respectively operating subsidiaries retain collection administrative responsibilities participating interests defined pool 6 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable longterm investments accounts payable debt derivative financial instruments notional amounts derivative financial instruments follows tyco international ltd notes consolidated financial statements continued 6 financial instruments continued companys intention terminate derivative financial instruments fair values estimated based quotes brokers market rates represented amounts company would receive pay instruments terminated balance sheet dates fair values indicated termination forward foreign currency exchange contracts crosscurrency swap agreements currency options forward commodity contracts interest rate swaps september 30 1999 would resulted 527 million loss 270 million loss 07 million loss 130 million gain 669 million loss respectively september 30 1998 would resulted 76 million loss 223 million gain 14 million loss 42 million loss 131 million gain respectively september 30 1999 1998 book values derivative financial instruments recorded consolidated balance sheets approximated fair values fair value cash equivalents accounts receivable longterm investments accounts payable approximated book value september 30 1999 1998 fair value debt approximately 101204 million book value 101222 million 66318 million book value 62397 million september 30 1999 1998 respectively based discounted cash flow analyses using current interest rates companys financial instruments present certain market credit risks however concentrations credit risk mitigated company deals variety major banks worldwide accounts receivable spread among number major industries customers geographic areas none companys financial instruments offbalance sheet risk would result significant loss company counterparty failed perform according terms agreement company require collateral security furnished counterparties financial instruments company however maintain reserves potential credit losses financial instruments losses within managements expectations 7 income taxes provision benefit income taxes reconciliation notional united states federal income taxes statutory rate consolidated income loss taxes companys income tax provision follows tyco international ltd notes consolidated financial statements continued 7 income taxes continued provisions fiscal 1999 fiscal 1998 fiscal 1997 included 2639 million 2105 million 1300 million respectively nonus income taxes nonus component income loss income taxes 13763 million 6406 million 675 million fiscal 1999 fiscal 1998 fiscal 1997 respectively deferred income tax balance sheet accounts result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset follows september 30 1999 company approximately 370 million net operating loss carryforwards certain nonus jurisdictions 255 million expiration remaining 115 million expire future years 2014 us operating loss carryforwards september 30 1999 approximately 842 million expire future years 2019 valuation allowance provided operating loss carryforwards expected utilized normal course company subsidiaries income tax returns examined various regulatory tax authorities connection examinations substantial tax deficiencies proposed however company contesting proposed deficiencies ultimate resolution matters expected material adverse effect companys financial position results operations liquidity tyco international ltd notes consolidated financial statements continued 8 key employee loan program loans made employees company former tyco 1983 key employee loan program payment taxes upon vesting shares granted former tycos restricted stock ownership plans loans unsecured bear interest payable annually rate approximates companys incremental shortterm borrowing rate loans generally repayable ten years except earlier payments required certain circumstances fiscal 1999 maximum amount outstanding program 916 million loans receivable program 186 million 222 million september 30 1999 1998 respectively 9 preference shares company authorized 125000000 preference shares 1 none outstanding september 30 1999 1998 rights dividends return capital redemption conversion voting otherwise may determined company time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders november 1996 board directors adt adopted shareholder rights plan common shareholder received distribution rights common share held right entitled holder purchase company certain preference shares purchase company common shares one half market value upon occurrence certain events including person becoming beneficial owner 15 companys common shares august 9 1999 board directors amended plan accelerate plans expiration date september 30 1999 rights granted plan expired date 10 shareholders equity last quarter fiscal 1999 company announced board directors declared twoforone stock split form 100 stock dividend common shares split payable october 21 1999 shareholders record october 1 1999 addition last quarter fiscal 1997 board directors declared twoforone stock split effected form 100 stock dividend companys common shares distributed october 22 1997 per share amounts share data retroactively adjusted reflect stock splits change par value number authorized shares result stock splits third quarter fiscal 1999 conjunction approval merger amp shareholders approved increase number authorized common shares 1503750000 2500000000 second quarter fiscal 1998 shareholders approved increase number authorized common shares 750000000 1503750000 december 1997 company filed shelf registration enable offer time unsecured debt securities shares common stock combination foregoing aggregate initial offering price exceed 20 billion march 1998 company sold 506 million common shares 2538 per share net proceeds sale approximately 12450 million used repay indebtedness incurred previous acquisitions april 1997 ussc redeemed issued outstanding shares series convertible preferred stock issuing approximately 128 million shares common stock march april 1997 tyco international ltd notes consolidated financial statements continued 10 shareholders equity continued former tyco sold aggregate 46 million shares common stock 1444 per share net proceeds sale 6452 million used repay indebtedness incurred previous acquisitions prior merger adt former tyco shareholders adt approved consolidating 010 par value common shares new 020 par value common shares increase number authorized common shares 750000000 per share amounts per share data retroactively adjusted reflect consolidation new par value shares information respect adt common shares options retroactively restated connection merger july 2 1997 reflect reverse stock split ratio 048133 share 192532 giving effect subsequent stock splits adt share option outstanding issuance one share four shares giving effect subsequent stock splits share former tyco outstanding see note 2 information respect keystone inbrand ussc amp common shares options retroactively restated connection mergers tyco reflect applicable merger per share exchange ratios 048726 043 07606 07507 respectively 194904 172 15212 15014 respectively giving effect subsequent stock splits total compensation cost expensed stockbased compensation awards discussed 969 million 371 million 599 million fiscal 1999 fiscal 1998 fiscal 1997 respectively restricted stockthe company maintains restricted stock ownership plan provides award initial amount common shares plus amount equal onehalf one percent total shares outstanding beginning fiscal year september 30 1999 22946562 shares authorized plan 8191800 shares granted common shares awarded subject certain restrictions vesting varying periods ten years grants vest based certain specified performance criteria fair market value shares date vesting expensed period performance criteria measured grants vest passage time fair market value shares time grant amortized net tax benefit expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients restricted shares right vote shares receive dividends income tax benefits resulting vesting restricted shares including deduction excess fair market value restricted shares time vesting fair market value time grants payment dividends unvested shares credited contributed surplus employee stock purchase plansubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee stock purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker stock optionsthe company granted employee share options issued five fixed share option plans schemes reserve common shares issuance companys directors executives managers majority options granted tyco international ltd long term incentive plan formerly known adt 1993 longterm incentive planthe incentive plan incentive plan administered compensation committee board directors company consists exclusively independent directors company options generally tyco international ltd notes consolidated financial statements continued 10 shareholders equity continued granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant certain options granted prior years participants required pay subscription price condition vesting options granted incentive plan date generally vested become exercisable periods five years date grant maximum term ten years company reserved 1400 million common shares issuance incentive plan awards company becomes obligated make assumption substitution outstanding awards previously granted acquired company assumed administered incentive plan count limit september 30 1999 approximately 462 million shares available future grant incentive plan october 1998 broadbased option plan nonofficer employees tyco longterm incentive plan ii ltip ii approved board directors company reserved 500 million common shares issuance ltip ii terms conditions plan similar incentive plan september 30 1999 approximately 359 million shares available future grant ltip ii connection acquisitions raychem fiscal 1999 cipe sa holmes protection fiscal 1998 options outstanding respective stock option plans companies assumed incentive plan connection mergers occurring fiscal 1999 fiscal 1997 see note 2 options outstanding former tyco keystone inbrand ussc amp stock option plans assumed incentive plan options administered incentive plan retain rights terms conditions respective plans originally granted share option activity plans since january 1 1997 follows tyco international ltd notes consolidated financial statements continued 10 shareholders equity continued following table summarizes information outstanding exercisable options september 30 1999 result merger ussc approximately 142 million options previously exercisable became immediately exercisable october 1 1998 upon consummation merger amp april 2 1999 approximately 78 million options became immediately exercisable due change ownership amp resulting merger stockbased compensationsfas 123 accounting stockbased compensation sfas 123 allows companies measure compensation cost connection executive share option plans schemes using fair value based method continue use intrinsic value based method generally result compensation cost company decided continue use intrinsic value based method recognize compensation expense issuance options exercise price equal greater market price time grant fair value based method adopted consistent provisions sfas 123 companys pro forma net income loss pro forma net income loss per common share fiscal 1999 fiscal 1998 fiscal 1997 would follows tyco international ltd notes consolidated financial statements continued 10 shareholders equity continued estimated weighted average fair value tyco amp options granted fiscal 1999 1213 711 respectively date grant using optionpricing model assumptions referred estimated weighted average fair value tyco ussc amp options granted fiscal 1998 824 679 598 respectively date grant using optionpricing model assumptions referred estimated weighted average fair value tyco former tyco inbrand ussc amp options granted fiscal 1997 608 478 1859 715 927 respectively date grant using optionpricing model assumptions referred stock option grants keystone fiscal 1997 fair value option grant estimated date grant using blackscholes optionpricing model following weighted average assumptions used fiscal 1999 following weighted average assumptions used fiscal 1998 following weighted average assumptions used fiscal 1997 effects applying sfas 123 pro forma disclosure indicative effects may future years sfas 123 apply awards prior 1995 additional awards future years anticipated stock warrantsduring 1999 company outstanding warrants purchase common stock per share exercise prices 149 warrants 199 b warrants respectively together warrants expired july 7 1999 time 6960 warrants 4638 b warrants remaining outstanding forfeited fiscal 1999 175464 warrants 128494 b warrants exercised fiscal 1998 62794 warrants 29078 b warrants exercised fiscal 1997 73064 warrants 50000 b warrants exercised tyco international ltd notes consolidated financial statements continued 10 shareholders equity continued july 1996 part agreement combine republic industries inc republic adt granted republic warrant republic warrant acquire 28879800 common shares company exercise price 1039 per common share following termination agreement combine republic warrant vested exercisable republic six month period commencing september 27 1996 march 1997 republic warrant exercised republic company received 300 million cash treasury sharesfrom time company subsidiaries purchases shares open market satisfy certain stockbased compensation arrangements treasury shares recorded cost consolidated balance sheets fiscal 1998 certain executives sold approximately 52 million common shares company shares fair market value executives used aftertax proceeds sale primarily repay loans company made executives payment taxes due vesting grants executives shares restricted stock dividendstyco paid quarterly cash dividend 00125 per common share since july 1997 prior merger adt former tyco paid quarterly cash dividend 00125 fiscal 1997 adt paid dividends common shares fiscal 1997 ussc paid quarterly dividends 004 per share fiscal 1998 fiscal 1997 amp paid dividends 027 per share first two quarters fiscal 1999 026 per share first quarter fiscal 1998 027 per share last three quarters fiscal 1998 026 per share three quarters fiscal 1997 11 comprehensive income first quarter fiscal 1999 company adopted statement financial accounting standards sfas 130 reporting comprehensive income sfas 130 establishes standards reporting display comprehensive income loss components financial statements purpose reporting comprehensive income loss report measure changes equity transactions shareholders total comprehensive income loss included consolidated statements shareholders equity components accumulated comprehensive income loss follows tyco international ltd notes consolidated financial statements continued 11 comprehensive income continued certain prior year amounts within shareholders equity reclassified accumulated comprehensive income loss comply reporting requirements sfas 130 12 charge impairment longlived assets charges impairment longlived assets follows effective january 1 1996 company adopted statement financial accounting standards 121 accounting impairment longlived assets longlived assets disposed sfas 121 sfas 121 requires recoverability carrying value longlived assets primarily property plant equipment related goodwill intangible assets reviewed impairment whenever events changes circumstances indicate carrying amount asset may fully recoverable sfas 121 impairment losses recognized expected future cash flows less assets carrying value indicators impairment present carrying values assets evaluated relation operating performance future undiscounted cash flows underlying business net book value underlying assets adjusted fair value sum expected future undiscounted cash flows less book value fair values based quoted market prices assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk 1999 charges telecommunications electronics segment recorded charge 4315 million fiscal 1999 includes 3501 million related writedown property plant equipment primarily manufacturing administrative facilities associated facility closures throughout amps worldwide operations connection profit improvement plan combination facilities result merger company also includes impairment value goodwill intangibles 814 million company evaluated profitability anticipated customer demand various products found certain product lines underperforming compared expectations result analysis performed connection amps profit improvement plan book value goodwill intangibles deemed impaired written fair value healthcare specialty products segment recorded charge 760 million fiscal 1999 primarily relating writedown property plant equipment principally administrative facilities associated consolidation facilities usscs operations united states europe result merger company 1997 charges fire security services segment recorded charge 1188 million fiscal 1997 includes 988 million related subscriber security systems installed customers premises united tyco international ltd notes consolidated financial statements continued 12 charge impairment longlived assets continued states canada determined following review carrying value assets also includes impairment carrying value goodwill 200 million resulting combination adts electronic security business former tyco flow control products segment recorded charge 296 million fiscal 1997 reflecting impairment carrying value goodwill resulting combination keystones valve manufacturing distribution business former tyco 13 extraordinary items extraordinary item fiscal 1999 457 million net tax benefit 180 million primarily relates writeoff net unamortized deferred financing costs related companys debt tender offers note 4 extraordinary item fiscal 1998 24 million net tax benefit 12 million writeoff unamortized deferred financing costs related lyons note 4 fiscal 1997 company reacquired market certain longterm debt financed cash hand borrowings companys credit agreements extraordinary items fiscal 1997 583 million net tax benefit 330 million included loss resulting reacquisition notes writeoff unamortized deferred refinancing costs related fees 14 cumulative effect accounting changes cumulative effect accounting changes fiscal 1997 155 million net tax 74 million related amp changing accounting practices used develop inventory costs including standardizing globally definition capacity used determining overhead rates changing inventory costing methodology include manufacturing engineering costs inventory costs 15 earnings loss per common share first quarter fiscal 1998 company adopted sfas 128 earnings per share sfas 128 specifies computation presentation disclosure requirements earnings per share substantially similar standards issued international accounting standards committee entitled international accounting standards earnings per share prior period earnings per common share data restated accordance provisions statement reconciliations basic diluted earnings loss per common share follows tyco international ltd notes consolidated financial statements continued 15 earnings loss per common share continued computation diluted income per common share fiscal 1999 fiscal 1998 excludes effect assumed exercise approximately 31 million 238 million stock options respectively outstanding september 30 1999 1998 effect would antidilutive effect diluted loss per common share fiscal 1997 resulting assumed exercise outstanding stock options warrants exchange outstanding lyons antidilutive 16 merger restructuring nonrecurring charges merger restructuring nonrecurring charges follows includes 1064 million related writedown inventory included cost sales 1999 charges telecommunications electronics segment recorded merger restructuring nonrecurring charges 6433 million primarily related merger amp costs associated amps profit improvement plan following table provides information charges millions cost announced workforce reductions 4337 million includes elimination 8585 positions united states 4216 positions europe 2019 positions asiapacific region 1319 positions canada latin america consisting primarily manufacturing distribution administrative research development sales marketing personnel included severance charges 4337 million enhanced pension postretirement benefit costs 1362 million provided terminated employees cost facility closures 686 million consists primarily shutdown consolidation 60 facilities united states 16 facilities europe 6 facilities asiapacific region 5 facilities canada latin america consisting primarily manufacturing plants distribution centers administrative buildings research development facilities sales offices also includes 183 million related writedown inventory included cost sales september 30 1999 8410 employees terminated 45 facilities shut tyco international ltd notes consolidated financial statements continued 16 merger restructuring nonrecurring charges continued charges 1410 million consist transaction costs 679 million legal printing accounting financial advisory services direct expenses related amp merger 881 million related writedown inventory discussed lease termination costs following merger 96 million credit 500 million related litigation settlement alliedsignal inc note 26 costs 254 million relating consolidation certain product lines nonrecurring charges related amp merger part integration amps electronics business amps profit improvement plan company evaluated profitability anticipated customer demand various products result evaluation management decided exit certain product lines andor businesses underperforming compared expectations inventory held company related exited activities deemed impaired written estimated fair value total writedown 881 million recorded charge cost sales discontinued product lines represented approximately 150 million historical net sales amp annualized basis remaining balance september 30 1999 2519 million consists 2060 million current liabilities 459 million noncurrent liabilities company currently anticipates restructuring nonrecurring activities charges relate substantially completed within fiscal 2000 except certain longterm contractual obligations healthcare specialty products segment recorded merger restructuring nonrecurring charges 4191 million consisting 4238 million charge primarily related merger ussc 47 million credit representing revision estimates related tycos 1997 restructuringnonrecurring accruals discussed following table provides information charges millions cost announced workforce reductions 1248 million includes elimination 932 positions united states 470 positions europe 34 positions canada latin america 31 positions asiapacific region consisting primarily manufacturing distribution sales marketing administrative research development personnel cost facility closures 518 million includes shutdown consolidation 25 facilities europe 9 facilities united states 8 facilities asiapacific region 3 facilities canada latin america consisting primarily manufacturing plants distribution centers sales offices administrative buildings research development facilities september 30 1999 1282 employees terminated 20 facilities shut charges 2472 million consist transaction costs 533 million legal printing accounting financial advisory services direct expenses related ussc merger lease termination costs following merger 1568 million costs 371 million relating consolidation certain product lines nonrecurring charges primarily related ussc tyco international ltd notes consolidated financial statements continued 16 merger restructuring nonrecurring charges continued merger lease termination costs 1568 million relate ussc north facility purchased tyco subsequent merger see note 2 remaining balance september 30 1999 886 million included current liabilities company currently anticipates restructuring nonrecurring activities charges relate substantially completed within fiscal 2000 except certain longterm contractual obligations company recorded credit 319 million including 272 million fire security services segment 47 million healthcare specialty products segment referred representing revision estimates related tycos 1997 restructuring nonrecurring accruals actions tycos 1997 restructuring nonrecurring plans completed near completion resulted total estimated costs less originally anticipated 1998 charges fourth quarter fiscal 1998 amp recorded charges 1858 million associated profit improvement plan includes reduction support staff throughout business units consolidation manufacturing plants facilities addition certain sales growth initiatives charges include cost staff reductions 1721 million involving voluntary retirement involuntary termination approximately 2700 staff support personnel 700 direct manufacturing employees cost consolidation certain facilities 137 million relating six plant facility closures consolidations september 30 1999 restructuring activities substantially completed see note 18 discussion voluntary early retirement program first quarter fiscal 1998 amp recorded credit 214 million merger restructuring nonrecurring charges representing revision estimates related 1996 restructuring activities completed fiscal 1998 fourth quarter fiscal 1998 ussc recorded certain charges 805 million charges include 709 million costs exit certain businesses representing write assets earlier purchases technology minimal commercial application adjustment net realizable value certain assets addition merger costs 96 million recorded represent legal insurance costs related merger consummated first quarter fiscal 1999 first quarter fiscal 1998 ussc recorded restructuring charges 120 million related employee severance costs facility disposals asset writedowns part usscs cost cutting program ussc substantially completed 1998 restructuring activities fiscal 1999 1997 charges connection mergers consummated fiscal 1997 note 2 company recorded merger restructuring nonrecurring charges 9178 million charges include transaction costs 2398 million legal accounting financial advisory services severance direct costs related mergers also included costs required combine adts electronic security business keystones valve manufacturing distribution business inbrands disposable medical products business related businesses former tyco costs consist cost workforce reductions 1303 million including elimination approximately 4000 positions costs combining certain facilities 1942 million involving closure 18 manufacturing facilities consolidation sales service tyco international ltd notes consolidated financial statements continued 16 merger restructuring nonrecurring charges continued offices electronic security system monitoring centers warehouses locations costs disposing excess equipment assets 1335 million costs 2200 million relating consolidation certain product lines satisfaction certain liabilities nonrecurring charges approximately 346 million accrued merger restructuring costs included current liabilities 411 million noncurrent liabilities september 30 1999 restructurings substantially complete remaining accruals primarily relate future payments noncancellable lease obligations fiscal 1997 ussc recorded restructuring charges 58 million related primarily employee severance costs associated consolidation manufacturing certain marketing operations substantially completed fiscal 1998 ussc also recorded charges 243 million fiscal 1997 litigation related costs relative patent infringement litigation settled september 30 1999 17 commitments contingencies company occupies certain facilities leases expire various dates year 2030 rental expense leases equipment 3810 million 3317 million 2429 million fiscal 1999 fiscal 1998 fiscal 1997 respectively september 30 1999 minimum lease payment obligations noncancelable operating leases follows 4053 million fiscal 2000 2116 million fiscal 2001 1513 million fiscal 2002 1173 million fiscal 2003 826 million fiscal 2004 aggregate 3479 million fiscal years 2005 2030 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations company involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods based upon companys experience environmental remediation matters company concluded least reasonable possibility remedial costs incurred respect sites aggregate amount range 356 million 1248 million september 30 1999 company concluded probable amount incurred within range 537 million 294 million amount included accrued expenses current liabilities 243 million included longterm liabilities consolidated balance sheet based upon information available company sites allocation liability cleanup costs among number parties including company liability could joint several management believes probable responsible parties fully pay cost allocated except respect one site company assumed one identified responsible parties unable pay cost apportioned partys cost reapportioned among remaining responsible parties view companys financial position reserves environmental matters 537 million company concluded payment estimated amounts material effect financial position results operations liquidity tyco international ltd notes consolidated financial statements continued 17 commitments contingencies continued company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations liquidity 18 retirement plans company adopted sfas 132 employers disclosures pensions postretirement benefits revises financial statement disclosure requirements pension postretirement benefit plans change measurement recognition plans defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned contributions based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current employees net pension expense assessed accordance advice professionally qualified actuaries countries concerned based subsequent formal reviews purpose companys funding policy make annual contributions extent contributions tax deductible actuarially determined benefits defined benefit plans based years service compensation voluntary early retirement programsin fourth quarter fiscal 1998 amp offered enhanced retirement benefits targeted groups employees cost benefits totaled 1383 million recorded part amps fourth quarter restructuring charge amount included determination net periodic pension cost presented net periodic pension income cost us nonus defined benefit pension plans includes following components tyco international ltd notes consolidated financial statements continued 18 retirement plans continued curtailmentsettlement gains fiscal 1999 relate primarily termination employees amp freezing amps pension plan curtailmentsettlement gains fiscal 1998 relate primarily freezing adt pension plan curtailmentsettlement gains recorded selling general administrative expenses tyco international ltd notes consolidated financial statements continued 18 retirement plans continued net pension cost recognized september 30 1999 1998 us nonus defined benefit plans follows tyco international ltd notes consolidated financial statements continued 18 retirement plans continued projected benefit obligation accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 1867 million 1734 million 1307 million respectively september 30 1999 7674 million 6437 million 5580 million respectively september 30 1998 projected benefit obligation accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 5635 million 5171 million 3146 million respectively september 30 1999 4309 million 3960 million 2654 million respectively september 30 1998 company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 75 million 17 million 15 million fiscal 1999 fiscal 1998 fiscal 1997 respectively defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing stock bonus retirement plans pension expense defined contribution plans computed percentage participants compensation 732 million 571 million 431 million fiscal 1999 fiscal 1998 fiscal 1997 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 69 million 37 million 22 million fiscal 1999 fiscal 1998 fiscal 1997 respectively postretirement benefit plansthe company generally provide postretirement benefits pensions employees certain former tycos acquired operations provide benefits employees eligible date acquisition addition adts electronic security services operation united states sponsors unfunded defined benefit postretirement plan covers salaried nonsalaried employees provides medical benefits postretirement health care plan contributory retiree contributions adjusted annually tyco international ltd notes consolidated financial statements continued 18 retirement plans continued company recorded gain 88 million related curtailment plan fiscal 1998 included selling general administrative expenses amp provides postretirement health care coverage qualifying us retirees result merger tyco 137 million adjustment recorded conform amps accounting method postretirement benefits tycos method regarding initial recognition benefits upon adoption sfas 106 employers accounting postretirement benefits pensions second quarter fiscal 1999 amp offered enhanced postretirement benefits terminated employees totaling 160 million recorded part amps second quarter restructuring charge amount included determination net periodic benefit cost presented net periodic postretirement benefit cost reflects following components accrued postretirement benefit obligation unfunded follows tyco international ltd notes consolidated financial statements continued 18 retirement plans continued measurement purposes fiscal 1999 85 composite annual rate increase per capita cost covered health care benefits assumed rate assumed decrease gradually 475 year 2008 remain level thereafter health care cost trend rate assumption may significant effect amounts reported onepercentagepoint change assumed healthcare cost trend rates would following effects combined weighted average discount rate used determining accumulated postretirement benefit obligation 775 september 30 1999 675 september 30 1998 19 consolidated segment data company adopted sfas 131 disclosures segments enterprise related information establishes standards way companies report information operating segments companys reportable segments strategic business units offer different products services managed separately segment data presented basis consistent business activities reported internally management prior year amounts reclassified conform sfas 131 primary change relates certain flow control products business lines previously included telecommunications electronics fire security services segments certain corporate expenses allocated operating segments operating income loss based generally net sales factors additional information including description products services included segment see note 1 selected information industry segment presented tyco international ltd notes consolidated financial statements continued 19 consolidated segment data continued 1 includes merger restructuring nonrecurring charges 6433 million 1064 million included cost sales charges impairment longlived assets 4315 million primarily related merger amp amps profit improvement plan tyco international ltd notes consolidated financial statements continued 19 consolidated segment data continued 2 includes merger restructuring nonrecurring charges 4238 million charges impairment longlived assets 760 million primarily related merger ussc credit 47 million representing revision estimates related tycos 1997 restructuring nonrecurring accruals 3 includes credit 272 million representing revision estimates related tycos 1997 restructuring nonrecurring accruals 4 includes restructuring nonrecurring charges recorded amp 1858 million related profit improvement plan credit 214 million restructuring charges representing revision estimates related amps 1996 restructuring activities 5 includes nonrecurring charges 805 million primarily related business exit costs restructuring charges 120 million related usscs operations 6 includes charge 3610 million related writeoff purchased research development costs connection acquisition 7 includes charges 1313 million related merger restructuring nonrecurring charges connection inbrand merger 243 million litigation related costs 58 million restructuring charges usscs operations 8 includes charges 5303 million related merger restructuring nonrecurring charges 1188 million related impairment longlived assets connection merger adt former tyco 9 includes charges 2562 million related merger restructuring nonrecurring charges 296 million related impairment longlived assets connection keystone merger 10 excludes 2340 million related purchase leased property connection merger ussc tyco international ltd notes consolidated financial statements continued 20 consolidated geographic data selected information geographic area presented 21 supplementary balance sheet information selected supplementary balance sheet information presented tyco international ltd notes consolidated financial statements continued 22 supplementary income statement information selected supplementary income statement information presented decrease research development expenses fiscal 1999 compared fiscal 1998 due exiting certain research projects noncore businesses ussc well consolidation closing selected research development facilities amp ussc connection integration company fiscal 1999 23 comparative results unaudited change year end resulted fiscal 1997 covering nine month period ended september 30 1997 following unaudited financial information twelve months ended september 30 1997 presented provide comparative results fiscal 1998 included consolidated statement operations tyco international ltd notes consolidated financial statements continued 24 summarized quarterly financial data unaudited summarized quarterly financial data presented 1 includes merger restructuring nonrecurring charges 4126 million charges impairment longlived assets 760 million primarily related merger ussc restructuring nonrecurring charges 1165 million 283 million included cost sales charges impairment longlived assets 656 million related amps profit improvement plan also includes credit 30 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals 2 includes restructuring nonrecurring charges 1588 million 269 million included cost sales charges impairment longlived assets 1711 million related amps profit improvement plan also includes restructuring nonrecurring charges 20 million related merger ussc credit 53 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals tyco international ltd notes consolidated financial statements continued 24 summarized quarterly financial data unaudited continued 3 includes merger restructuring nonrecurring charges 3680 million 512 million included cost sales charges impairment longlived assets 1948 million related merger amp amps profit improvement plan also includes restructuring nonrecurring charges 28 million related merger ussc credit 197 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals 4 includes restructuring nonrecurring charges 64 million related merger ussc also includes credit 39 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals 5 includes charges 120 million restructuring charges usscs operations 214 million credit restructuring charges representing revision estimates related amps 1996 restructuring activities 6 includes nonrecurring charges 805 million primarily related business exit costs usscs operations charges 1858 million related amps profit improvement plan 7 extraordinary items relate principally companys debt tender offers write net unamortized deferred refinancing costs relating early extinguishment debt 25 tyco international group sa tyco international group sa tig whollyowned subsidiary company indirectly owns substantial portion operating subsidiaries company fiscal 1999 fiscal 1998 tig issued public debt securities note 4 fully unconditionally guaranteed company included separate financial statements footnotes tig full unconditional guarantee company companys belief information material holders debt securities following presents unaudited consolidated summary financial tyco international ltd notes consolidated financial statements continued 25 tyco international group sa continued information tig subsidiaries tig current organizational structure place periods presented 1 income extraordinary items fiscal 1999 includes credit 319 million representing revision estimates related tycos 1997 restructuring nonrecurring accruals merger restructuring nonrecurring charges 4238 million charges impairment longlived assets 760 million primarily related ussc merger 2 income extraordinary items fiscal 1998 includes nonrecurring charges 805 million restructuring charges 120 million related usscs operations 3 loss extraordinary items fiscal 1997 includes charges related merger restructuring nonrecurring costs 8168 million impairment longlived assets 1484 million primarily related mergers integration adt former tyco keystone inbrand fiscal 1997 also includes charge 3610 million writeoff purchased inprocess research development costs charges 243 million litigation related costs 58 million restructuring charges related usscs operations 4 extraordinary items relate principally companys debt tender offers writeoff net unamortized deferred refinancing costs relating early extinguishment debt 26 unsolicited tender offer defense august 1998 alliedsignal inc announced intention commence offer purchase outstanding shares amps common stock offer rejected board directors amp alliedsignals offer amended twice september 1998 reduce number shares sought purchased amp incurred 159 million fees defending alliedsignals bid relating primarily legal public relations financial consulting costs april 1999 alliedsignal converted amp stock tyco common shares reached settlement tyco amp alliedsignal paid 50 million amp parties released claims related amp amount recorded credit merger restructuring nonrecurring charges line consolidated statement operations fiscal 1999 see note 16 tyco international ltd notes consolidated financial statements continued 26 unsolicited tender offer defense continued addition september 1998 amps board directors authorized establishment flexitrust grantor trust hold shares amps common stock amp expected sell flexitrust aggregate 25 million authorized unissued shares common stock amp also announced intention commence selftender offer 30 million shares common stock amp estimated total funds required complete selftender would approximately 17 billion amp intended source proposed 26 billion credit facility november 1998 amp announced intention merge tyco time amps board directors rescinded authorization selftender offer establishment flexitrust addition debt intended fund selftender never used 27 subsequent events unaudited november 3 1999 company announced board directors authorized company reacquire 20 million common shares november 22 1999 company consummated acquisition afc cable systems inc afc cable manufacturer prewired armor cable afc cable shareholders received one tyco share afc cable company issued approximately 128 million common shares transaction valued approximately 5626 million afc cable integrated within companys flow control products segment company accounting acquisition purchase november 23 1999 company consummated acquisition siemens electromechanical components gmbh co kg siemens ec siemens ag approximately 11 billion cash siemens ec annual sales approximately 9000 million world market leader relays one worlds leading providers components communications automotive consumer general industry sectors siemens ec integrated within companys telecommunications electronics segment company accounting acquisition purchase january 14 2000 company announced entered agreement sell adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 1 billion cash sale subject customary regulatory review complete expected generate onetime pretax gain company approximately 300 million january 17 2000 company announced undersea fiber optics business design build install operate maintain global undersea fiber optic communications network known tycom global networktm company intends offer 10 percent undersea fiber optic cable business sale initial public offering tycom ltd filed registration statement sec yet declared effective january 18 2000 company announced board directors company authorized expenditure additional 20 billion repurchase shares company timing actual amount repurchases subject market conditions factors february 11 2000 tig renewed increased 34 billion portion credit facility group commercial banks giving right borrow 45 billion february 9 2001 option extend facility one additional year increase 45 billion 50 billion additional 05 billion portion tigs credit facility continues available february 12 2003 february 23 2000 tig increased commercial paper program 39 billion 45 billion tig plans tyco international ltd notes consolidated financial statements continued 27 subsequent events unaudited continued principally use 45 billion portion credit facility fully support borrowings commercial paper program april 2000 tig issued euro600 million 5714 million 6125 notes due april 2007 private placement offering notes fully unconditionally guaranteed tyco net proceeds approximately 5659 million used repay borrowings tigs commercial paper program may 2000 company announced agreed acquire electronic oem business thomas betts 750 million cash agreement subject regulatory approval electronic oem business thomas betts manufactures electronic connectors telecommunications computer automotive industries integrated within tyco electronics group company intends account acquisition purchase tyco international ltd managements discussion analysis financial condition results operations results operations information periods presented reflects grouping companys businesses four business segments consisting telecommunications electronics healthcare specialty products fire security services flow control products september 1997 company changed fiscal year end december 31 september 30 references fiscal 1999 fiscal 1998 fiscal 1997 twelve month fiscal years ended september 30 1999 1998 transitional ninemonth fiscal period ended september 30 1997 respectively discussion results operations compare fiscal 1999 fiscal 1998 fiscal 1998 twelve months ended september 30 1997 unaudited fiscal 1999 company consummated two mergers accounted pooling interests method accounting merger united states surgical corporation closed october 1 1998 merger amp incorporated closed april 2 1999 required generally accepted accounting principles company restated financial statements ussc amp always part company recorded expenses fiscal 1999 costs directly associated ussc amp mergers costs terminating employees closing consolidating facilities result mergers company also expensed fiscal 1999 costs staff reductions facility closings amp undertook part plan improve profitability unrelated companys merger amp fiscal 1998 company expensed charges staff reductions facility closings amp profit improvement plan charges ussc incurred exit certain businesses discussed detail liquidity capital resources overview sales increased 180 fiscal 1999 224965 million 190617 million fiscal 1998 sales fiscal 1998 increased 144 compared twelve months ended september 30 1997 income loss extraordinary items cumulative effect accounting changes 10677 million fiscal 1999 compared 11686 million fiscal 1998 3005 million twelve months ended september 30 1997 income extraordinary items fiscal 1999 included aftertax net charge 13048 million 15427 million pretax primarily related mergers ussc amp costs associated amps profit improvement plan income extraordinary items fiscal 1998 included aftertax charge 1920 million 2569 million pretax primarily related amps profit improvement plan costs incurred ussc exit certain businesses loss extraordinary items cumulative effect accounting changes twelve months ended september 30 1997 included aftertax charge 14855 million 16704 million pretax merger transaction costs writeoffs integration costs primarily associated mergers adt former tyco keystone inbrand following table details companys sales earnings fiscal 1999 fiscal 1998 twelve months ended september 30 1997 amount sum operating income companys four business segments set forth segment discussion less certain corporate expenses merger restructuring nonrecurring charges impairment longlived assets writeoff purchased inprocess research development amortization goodwill ii restructuring charges amount 1064 million related writedown inventory deducted part cost sales consolidated statement operations fiscal 1999 however deducted part cost sales purpose calculating operating income certain charges table charges instead included total merger restructuring nonrecurring charges iii amount consists 650 million related litigation settlement 534 million related disposal equity investment adt fiscal 1999 company taken merger restructuring nonrecurring charges impairment longlived assets respect amp ussc companys restructuring integration programs company terminates employees closes facilities made redundant reduction manpower facilities comes manufacturing distribution administrative functions addition company discontinues disposes product lines fit longterm strategy respective businesses company separately track impact financial results restructuring integration programs however company estimates overall cost structure reduced approximately 1 billion annualized basis due impact associated charges september 30 1999 company believes approximately 750 million benefits annualized basis realized significant decreases selling general administrative expenses cost sales company expects restructuring plans continue improve cost structure throughout fiscal 2000 operating income margins companys four business segments presented accordance generally accepted accounting principles following discussion supplemented discussion operating income margins stated deductions merger restructuring nonrecurring charges related business combinations accounted pooling interests method accounting charges impairment longlived assets inprocess research development charges supplemental discussion operating results certain charges considered alternative operating net income indicator performance companys business alternative cash flows operating activities measure liquidity case determined accordance generally accepted accounting principles operating income improved segments fiscal 1999 fiscal 1998 exception healthcare specialty products segment fiscal 1998 reasons discussed operating improvements result increased revenues enhanced margins increased revenues result organic growth acquisitions accounted purchase method accounting company enhances margins improved productivity cost reductions ordinary course business unrelated acquisition divestiture activities company regards charges incurs reduce costs ordinary course business recurring charges reflected cost sales selling general administrative expenses consolidated statements operations company makes acquisition acquired company immediately integrated companys existing operations consequently company separately track financial results acquired companies yeartoyear sales comparisons presented include estimates yeartoyear sales growth exclude effects acquisitions estimates assume acquisitions made beginning relevant fiscal periods sales operating income telecommunications electronics companys telecommunications electronics segment comprised tyco submarine systems ltd tssl designs manufactures installs maintains undersea fiber optic communications cable systems tyco electronics including amp designs manufactures connectors interconnection systems touch screens wireless systems raychem develops manufactures highperformance electronic components tyco printed circuit group designs manufactures printed circuits backplanes similar components amp merger occurred april 1999 required pooling interests method accounting amps results included periods presented following table sets forth sales operating income margins telecommunications electronics segment 91 increase sales fiscal 1999 fiscal 1998 telecommunications electronics segment resulted part acquisitions included acquisition may 1999 telecomunicaciones marinas sa temasa included tssl acquisition august 1999 raychem included tyco electronics acquisition july 1998 sigma circuits inc whose results included tyco printed circuit group fiscal 1999 final quarter fiscal 1998 excluding impact temasa raychem sigma circuits sales increased estimated 51 121 increase sales fiscal 1998 twelve months ended september 30 1997 predominantly due acquisition att corps submarine systems business results business included companys operations fiscal 1998 july 1997 date acquisition 1997 period excluding impact acquisition sales increased estimated 19 telecommunications electronics segment also experienced organic growth sales fiscal 1999 fiscal 1998 tssl tyco printed circuit group growth offset part decreased sales amp prior companys merger amp amps sales decreased every quarter compared corresponding quarter prior year since quarter ended june 1997 amps preacquisition sales six months ended march 31 1999 26755 million compared sales 28436 million six months ended september 30 1999 405 increase operating income certain charges fiscal 1999 compared fiscal 1998 due improved margins amp acquisition raychem higher sales volume tssl tyco printed circuit group improved operating margins certain charges fiscal 1999 compared fiscal 1998 primarily due implementation amps profit improvement plan initiated fourth quarter fiscal 1998 cost reduction programs associated amp merger pension curtailmentsettlement gain acquisition raychem information implementation amp profit improvement plan cost reduction programs related amp merger see note 16 1999 charges 1998 charges consolidated financial statements improvements partially offset 2534 million certain costs fiscal 1999 amp prior merger tyco including costs defend alliedsignal inc tender offer writeoff inventory balance sheet writeoffs adjustments addition items discussed operating income margins certain charges decreased due merger restructuring impairment charges 10748 million fiscal 1999 compared net restructuring nonrecurring charges 1644 million fiscal 1998 233 increase operating income certain charges fiscal 1998 compared twelve months ended september 30 1997 predominantly attributable inclusion operating results att corps submarine systems business fiscal 1998 final three months 1997 period increase operating margins certain charges fiscal 1998 compared 1997 period reflects higher incremental margins increased sales tyco printed circuit group offset part slightly decreased margins tssl amp addition increase operating income margins due net restructuring nonrecurring charges 1644 million fiscal 1998 compared restructuring nonrecurring charges 980 million writeoff purchased inprocess research development costs 3610 million twelve months ended september 30 1997 healthcare specialty products companys healthcare specialty products segment comprised tyco healthcare manufactures wide variety disposable medical products including woundcare products syringes needles sutures surgical staples incontinence products electrosurgical instruments laparoscopic instruments tyco plastics adhesives manufactures flexible plastic packaging plastic bags sheeting coated laminated packaging materials tapes adhesives plastic garment hangers adt automotive provides auto redistribution services companys merger ussc included tyco healthcare occurred october 1998 required pooling interests method accounting usscs results included periods presented following table sets forth sales operating income margins healthcare specialty products segment 229 increase sales fiscal 1999 fiscal 1998 251 increase fiscal 1998 twelve months ended september 30 1997 primarily result increased sales tyco healthcare lesser extent tyco plastics adhesives adt automotive increases tyco healthcare due acquisitions lesser extent organic growth acquisitions primarily responsible sales increase fiscal 1999 included valleylab acquired january 1998 included results fiscal 1999 part fiscal 1998 sherwooddavis geck sherwood acquired february 1998 included results fiscal 1999 part fiscal 1998 confab acquired april 1998 included results fiscal 1999 part fiscal 1998 graphic controls corporation acquired october 1998 excluding contributions valleylab sherwood confab graphic controls sales segment increased estimated 51 fiscal 1999 fiscal 1998 fiscal 1998 acquisitions primarily responsible sales increase included sherwood confab excluding impact acquisitions sales increase fiscal 1998 twelve months ended september 30 1997 58 substantial increase operating income operating margins certain charges fiscal 1999 fiscal 1998 due improved margins increased sales volume tyco healthcare whose margins depressed fiscal 1998 increase fiscal 1999 also reflected higher sales volume better margins tyco plastics adhesives adt automotive fiscal 1998 margins tyco healthcare brought fourth quarter results ussc lowered sales higher margin products reduce excess inventory levels distributors recorded increased costs principally 1058 million accrual special hospital education programs excluding effects management estimates increase operating income fiscal 1999 fiscal 1998 would 486 operating margin segment fiscal 1998 would 196 increase margins fiscal 1999 196 level primarily attributable effects cost reduction programs associated ussc merger including termination 1282 employees consolidation closure 20 facilities effect exiting businesses tyco healthcare significantly impact operating margins income information cost reduction programs related ussc merger see note 16 consolidated financial statements addition items discussed increase operating income margins offset net merger restructuring impairment charges 4951 million fiscal 1999 compared restructuring nonrecurring charges 925 million fiscal 1998 decrease operating income margins certain charges fiscal 1998 twelve months ended september 30 1997 reflects decreased margins ussc particularly result factors impacting fiscal 1998 fourth quarter ussc referred decreased ussc margins partially offset fiscal 1998 acquisition sherwood fixed cost reductions due integration sherwood increased volume margins tyco plastics adhesives adt automotive excluding effects sales costs fiscal 1998 fourth quarter ussc management estimates operating income would increased 537 fiscal 1998 compared 1997 period addition decrease operating income margins partially offset restructuring nonrecurring charges 925 million fiscal 1998 compared merger restructuring nonrecurring charges 1614 million twelve months ended september 30 1997 fire security services companys fire security services segment designs installs services broad line fire detection prevention suppression systems worldwide provides electronic security installation monitoring services manufactures services fire extinguishers related products following table sets forth sales operating income loss margins fire security services segment 260 increase sales fiscal 1999 fiscal 1998 reflected increased sales worldwide companys electronic security services fire protection businesses increases due higher volume recurring service revenues effects acquisitions security services business acquisitions included holmes protection acquired february 1998 included results fiscal 1999 part fiscal 1998 cipe sa wells fargo alarm acquired may 1998 included results fiscal 1999 part fiscal 1998 entergy security corporation alarmguard holdings acquired january february 1999 respectively excluding impact acquisitions sales increase segment fiscal 1999 estimated 154 147 sales increase fiscal 1998 twelve months ended september 30 1997 due increased worldwide sales electronic security services business higher sales volume north american fire protection businesses increases reflect higher volume recurring service revenues lesser extent impact fiscal 1998 acquisitions excluding effects holmes cipe wells fargo sales increase segment fiscal 1998 estimated 73 438 increase operating income certain credits fiscal 1999 fiscal 1998 reflects worldwide increase service volume security services fire protection including higher margins associated recurring monitoring revenue increase operating margins certain credits fiscal 1999 principally due increased volume higher margin service inspection work north american fire protection operations increased volume due economic improvements asiapacific region higher incremental margins european security operations additions customer base cost reductions related acquisitions addition items discussed operating income margins increased due restructuring nonrecurring credit 272 million fiscal 1999 529 increase operating income certain charges fiscal 1998 twelve months ended september 30 1997 due increases service volume including recurring monitoring revenue security operations worldwide fire protection operations north america increase operating margins certain charges fiscal 1998 due principally higher margins security business worldwide lesser extent improved margins european fire protection business cost reductions related acquisitions addition items discussed operating income margins increased fiscal 1998 due merger restructuring impairment charges 8865 million twelve months ended september 30 1997 flow control products companys flow control products segment manufactures distributes pipe fittings valves valve actuators couplings related products used transport control measure flow liquids gases manufactures distributes fire sprinkler devices specialty valves plastic pipe fittings used commercial residential industrial fire protection systems provides engineering consulting services focusing design construction operation water wastewater facilities following table sets forth sales operating income margins flow control products segment 198 sales increase fiscal 1999 fiscal 1998 reflects increased demand valve products europe increased sales earth tech impact acquisitions included crosby valve acquired july 1998 included results fiscal 1999 part fiscal 1998 rust environmental infrastructure inc acquired earth tech september 1998 included results fiscal 1999 less month fiscal 1998 certain subsidiaries metals processing division glynwed international plc acquired march 1999 august 1999 company completed sale certain businesses within segment including mueller company manufacturer fire hydrants waterworks valves components portions grinnell supply sales manufacturing manufacturer distributor commodity fittings related products excluding impacts acquisitions divestitures sales increased estimated 113 51 sales increase fiscal 1998 twelve months ended september 30 1997 reflects increased demand valve products north america europe higher volume pipe products including sold grinnell lesser extent acquisition crosby valve excluding effect acquisition sales increase segment fiscal 1998 estimated 47 325 increase operating income fiscal 1999 fiscal 1998 primarily due increased sales european flow control operations north american valve products earth tech increase operating margins principally due cost containment programs improved margins companys north american pipe products business worldwide valve operations gain sale businesses segment significantly impact operating profits margins fiscal 1999 225 increase operating income certain charges fiscal 1998 twelve months ended september 30 1997 due primarily increased volume north american european valve product operations lesser extent north american pipe products business increase operating margins certain charges principally due cost containment programs improved margins north american european valve operations addition items discussed operating income margins increased fiscal 1998 due merger restructuring impairment charges 2858 million twelve months ended september 30 1997 effect changes foreign exchange rates fiscal 1999 fiscal 1998 twelve months ended september 30 1997 material companys sales operating income corporate expenses corporate expenses 1229 million fiscal 1999 compared 683 million fiscal 1998 568 million twelve months ended september 30 1997 increases due principally higher compensation expense companys equitybased incentive compensation plans due part increase market value companys stock price fiscal 1999 increase corporate staffing support monitor companys expanding businesses operations amortization goodwill amortization goodwill noncash charge increased 843 million 2161 million fiscal 1999 compared fiscal 1998 fiscal 1998 amortization goodwill increased 1318 million 900 million twelve months ended september 30 1997 increase amortization goodwill due 69233 million consideration paid acquisitions acquisition related costs fiscal 1999 resulted goodwill intangibles 58079 million 45594 million consideration paid acquisitions acquisition related costs fiscal 1998 resulted goodwill intangibles 39470 million interest expense net interest expense net increased 2403 million 4856 million fiscal 1999 compared fiscal 1998 increased 749 million 2453 million fiscal 1998 compared twelve months ended september 30 1997 increases due higher average debt balances result monies borrowed pay acquisitions partially offset lower average interest rates weighted average rate interest longterm debt fiscal 1999 fiscal 1998 fiscal 1997 62 64 72 respectively extraordinary items extraordinary items fiscal 1999 fiscal 1998 twelve months ended september 30 1997 included net losses amounting 457 million 24 million 609 million respectively relating primarily companys tender offers debt writeoff net unamortized deferred financing costs related lyons details provided notes 4 13 consolidated financial statements cumulative effect accounting changes cumulative effect accounting changes fiscal 1997 155 million related change accounting practices used amp develop inventory costs including standardizing globally definition capacity used determining overhead rates changing inventory costing methodology include manufacturing engineering costs inventory costs income tax expense effective income tax rate excluding impact related merger restructuring nonrecurring charges 270 fiscal 1999 compared 306 fiscal 1998 323 twelve months ended september 30 1997 decreases effective income tax rates primarily due higher earnings tax jurisdictions lower income tax rates management believes company generate sufficient future income realize tax benefits related deferred tax assets valuation allowance maintained due continued uncertainties realization certain tax benefits primarily tax loss carryforwards see note 7 consolidated financial statements liquidity capital resources following table shows sources companys cash flow operating activities use portion cash companys operations fiscal 1999 management refers net amount cash generated operating activities less capital expenditures dividends free cash flow 1 amount sum operating income four business segments set forth less certain corporate expenses merger restructuring nonrecurring charges impairment longlived assets goodwill amortization 2 amount sum depreciation tangible property 9796 million amortization intangible property goodwill 1155 million 3 amount net 500 million received sale accounts receivable 4 amount sum cash paid merger restructuring nonrecurring charges connection business combinations accounted pooling interests basis b restructuring nonrecurring charges taken pooled companies prior combination company addition fiscal 1999 company paid 3544 million cash charged reserves established connection acquisitions accounted purchase accounting method amount included acquisition businesses net cash acquired consolidated statement cash flows business combinations accounted either pooling interests basis purchase accounting method fiscal 1999 company made two business combinations ussc amp required accounted pooling interests basis pooling interests accounting merged companies treated always part company financial statements included companys consolidated financial statements periods presented time pooling interests transaction company establishes reserve transaction costs company expects incur integrating merged company within relevant tyco business segment integrating merged companies companys existing businesses company expects realize operating synergies longterm cost savings integration costs relate primarily termination employees closure facilities made redundant detailed note 16 consolidated financial statements reserves merger restructuring nonrecurring items taken charge current earnings time reserves established amounts expended merger restructuring nonrecurring costs charged reserves paid amount reserves proves greater costs actually incurred excess credited merger restructuring nonrecurring charges consolidated statement operations period determination made fiscal 1999 company established merger restructuring nonrecurring reserves 4238 million connection merger ussc 6433 million connection merger amp beginning fiscal year existed merger restructuring nonrecurring reserves 3037 million related pooling interests transactions consummated prior years restructuring charges taken merged companies prior combination company fiscal 1999 company paid 6336 million cash incurred 3060 million noncash charges charged reserves also fiscal 1999 company determined 319 million merger restructuring nonrecurring reserves established prior years needed deducted amount merger restructuring nonrecurring charges fiscal 1999 september 30 1999 remained 3993 million merger restructuring nonrecurring reserves companys consolidated balance sheet 3123 million included current liabilities 870 million included longterm liabilities company expects pay approximately 3100 million cash fiscal 2000 merger restructuring nonrecurring expenses charged reserves business combination transactions completed fiscal 1999 required accounted purchase accounting method time purchase acquisition made company establishes reserve transaction costs integrating purchased company within relevant tyco business segment amounts reserves established fiscal 1999 detailed note 3 consolidated financial statements amounts charged current earnings treated additional purchase price consideration effect increasing amount goodwill recorded connection respective acquisition indeed management views costs equivalent additional purchase price consideration considers making acquisition amount reserves proves excess costs actually incurred excess goes reduce goodwill account established time acquisition made fiscal 1999 company made acquisitions accounted purchase accounting method aggregate cost 69233 million amount 45468 million paid cash net cash acquired 14496 million paid form tyco common shares company assumed 9269 million debt connection acquisitions company established purchase accounting reserves 5254 million transaction integration costs beginning fiscal 1999 purchase accounting reserves 5056 million result purchase accounting transactions made prior years fiscal 1999 company paid 3544 million cash incurred 163 million noncash charges reserves established prior fiscal 1999 also fiscal 1999 company determined 900 million purchase accounting reserves related acquisitions prior fiscal 1999 needed reversed amount goodwill september 30 1999 remained 5703 million purchase accounting reserves companys consolidated balance sheet 4080 included current liabilities 1623 million included longterm liabilities company expects pay approximately 3500 million cash fiscal 2000 charged purchase accounting reserves following details fiscal 1999 capital expenditures depreciation segment excludes 2340 million related purchase leased property connection merger ussc company continues fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards level capital expenditures fire security services segment significantly exceeded expected continue significantly exceed depreciation due large volume growth new residential subscriber systems capitalized level capital expenditures segments expected increase moderately fiscal 2000 source funds capital expenditures expected cash operating activities provision income taxes consolidated statement operations fiscal 1999 6375 million amount income taxes paid net refunds year 2097 million adjustment deferred income taxes acquired companies items net increase deferred income taxes 3516 million increase deferred income taxes attributable primarily current utilization deductions restructuring nonrecurring charges purchase accounting spending timing differences book tax recognition income expense utilization net operating loss credit carryforwards tax benefits stock option exercises net change working capital net effects acquisitions divestitures increase 1226 million changes set forth detail consolidated statement cash flows increase working capital accounts attributable higher level business activity fiscal 1999 reflected increased sales prior year management focuses maximizing cash flow operating businesses attempts keep working capital employed businesses minimum level required efficient operations addition company used 2340 million cash purchase ussc north facilities 6378 million purchase common shares company repurchases shares time open market satisfy certain stockbased compensation arrangements exercise stock options november 1999 company announced authorization board directors reacquire 20 million common shares open market company received proceeds 9268 million sale certain businesses flow control products healthcare specialty products segments 8724 million exercise common share options source cash used acquisitions primarily increase total debt cash flows operations goodwill intangible assets 121589 million september 30 1999 compared 71055 million september 30 1998 september 30 1999 companys total debt 101222 million compared 62397 million september 30 1998 increase resulted principally borrowings companys commercial paper program net proceeds approximately 7917 million issuance private placement notes october 1998 net proceeds received approximately 11737 million issuance public debt january 1999 net proceeds received approximately 20803 million issuance notes august 1999 increase partially offset companys tender offers outstanding debt instruments higher interest rates repayment indebtedness bank credit agreement full discussion debt activity see note 4 consolidated financial statements shareholders equity 123693 million 732 per share september 30 1999 compared 99018 million 611 per share september 30 1998 increase shareholders equity due primarily issuance approximately 324 million common shares valued approximately 14496 million acquisition raychem net income 10220 million proceeds 8724 million exercise options warrants total debt percent total capitalization total debt shareholders equity 45 september 30 1999 39 september 30 1998 net debt total debt less cash equivalents percent total capitalization 37 september 30 1999 32 september 30 1998 company believes cash flow operations together existing credit facilities credit arrangements adequate fund operations backlog september 30 1999 company backlog unfilled orders approximately 75811 million compared backlog approximately 51182 million september 30 1998 backlog industry segment follows millions backlog increased companys business segments within telecommunications electronics segment backlog increased principally due contracts awarded tssl due continually increasing demands undersea fiber optic cable capacity within flow control products segment backlog increased principally due increase backlog earth tech related water wastewater facilities contracts within fire security services segment backlog increased principally due increase backlog companys worldwide security european fire protection businesses within healthcare specialty products segment increase resulted principally increase demand products sold tyco plastics adhesives quantitative qualitative disclosures market risk company subject market risk associated changes interest rates foreign currency exchanges rates certain commodity prices order manage volatility relating significant market risks company enters forward foreign currency exchange contracts crosscurrency swaps foreign currency options commodity swaps interest rate swaps company anticipate material changes primary market risk exposures fiscal 2000 company utilizes risk management procedures controls executing derivative financial instrument transactions company execute transactions hold derivative financial instruments trading purposes derivative financial instruments related interest rate sensitivity debt obligations intercompany crossborder transactions anticipated nonfunctional currency cash flows well commodity price exposures used goal mitigating significant portion exposures cost effective counterparties derivative financial instruments limited financial institutions least aa longterm credit rating interest rate sensitivity table provides information companys financial instruments sensitive changes interest rates including longterm investments debt obligations interest rate swaps currency swaps longterm investments table presents cash flows principal payments millions related subordinated noncollateralized zero coupon loan note based amortized cost investment september 30 1999 associated fair value interest rate discount debt obligations table presents cash flows principal repayment millions weighted average interest rates interest rate swaps crosscurrency swaps table presents notional amounts millions weighted average interest rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars weighted average variable interest rates based applicable rates september 30 1999 per terms contracts related financial instruments ii march 1994 amp entered crosscurrency swap financial institution hedge portion net investment japanese subsidiary iii fair values crosscurrency swaps included table reflect portion fair values contracts attributable interest component contracts exchange rate sensitivity table provides information companys financial instruments sensitive foreign currency exchange rates instruments include longterm investments debt obligations crosscurrency swaps forward foreign currency exchange contracts currency options longterm investments table presents cash flows principal payments millions related subordinated noncollateralized zero coupon loan note based amortized cost investment september 30 1999 associated fair value interest rate discount debt obligations table presents cash flows principal repayment millions weighted average interest rates crosscurrency swaps forward foreign currency exchange contracts table presents notional amounts millions weighted average contractual exchange rates currency options table presents notional amounts millions weighted average contractual strike prices notional amounts used calculate contractual payments exchanged contract amounts included table us dollars weighted average variable interest rates based applicable rates september 30 1999 per terms contracts related financial instruments ii march 1994 amp entered crosscurrency swap financial institution hedge portion net investment japanese subsidiary iii fair values crosscurrency swaps included table reflect portion fair values contracts attributable foreign currency component contracts commodity price sensitivity table provides information companys financial instruments sensitive changes commodities prices total contract dollar amounts millions notional quantity amounts presented forward commodity contracts contract amounts used calculate contractual payments quantity commodity exchanged contracts year 2000 compliance year 2000 compliance programs systems modifications initiated company fiscal 1997 attempt ensure systems key processes remain functional company assessed potential impact year 2000 datesensitive information computer software programs operating systems product development financial business systems administrative functions implementing strategies avoid adverse implications objective expected achieved either modifying present systems using existing internal external programming resources installing new systems monitoring supplier customer thirdparty readiness review systems affecting company progressing company continuing implementation strategy costs companys year 2000 program date material company anticipate costs required modifications information technology embedded technology systems material adverse effect financial position results operations liquidity event company material third parties fail complete year 2000 compliance programs successfully time companys ability operate businesses service customers bill collect revenues purchase products timely manner could adversely affected although assurance conversion companys systems successful companys key thirdparty relationships successful conversion programs management expect failure would material adverse effect financial position results operations liquidity company daytoday operational contingency plans management updated plans possible year 2000 specific operational requirements accounting technical pronouncements june 1998 fasb issued sfas 133 accounting derivative instruments hedging activities statement establishes accounting reporting standards requiring every derivative instrument recorded balance sheet either asset liability measured fair value sfas 133 also requires changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met june 1999 fasb issued sfas 137 defers effective date sfas 133 fiscal years beginning june 15 2000 company currently analyzing new standard september 1999 fasb issued exposure draft accounting business combinations intangible assets provisions exposure draft currently written issued new accounting standard company would longer able use pooling interests method accounting future acquisition activity would accounted using purchase method could result increase goodwill associated amortization goodwill current levels conversion euro january 1 1999 11 european countries began using euro single currency still continuing use notes coins cash transactions banknotes coins denominated euros expected put circulation local notes coins cease legal tender 2002 tyco conducts significant amount business countries introduction euro resulted material adverse impact upon company forward looking information certain statements report forward looking statements within meaning private securities litigation reform act 1995 forward looking statements involve risks uncertainties particular statement contained herein press releases written statements documents filed securities exchange commission companys communications discussions investors analysts normal course business meetings phone calls conference calls regarding consummation benefits future acquisitions well expectations respect future sales earnings cash flows operating efficiencies product expansion subject known unknown risks uncertainties contingencies many beyond control company may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forward looking statements include among things overall economic business conditions demand companys goods services competitive factors industries company competes changes government regulation changes tax requirements including tax rate changes new tax laws revised tax law interpretations results litigation interest rate fluctuations capital market conditions including foreign currency rate fluctuations economic political conditions international markets including governmental changes restrictions ability transfer capital across borders ability achieve anticipated synergies cost savings connection acquisitions timing impact uncertainties future acquisitions timing construction successful operation tycom global network companys ability customers suppliers ability replace modify upgrade computer programs order adequately address year 2000 issue tyco international ltd schedule iivaluation qualifying accounts millionsitem 14 exhibits financial statement schedules reports form 8k 1 2 financial statements schedulessee item 8 b exhibits current report form 8k filed july 14 2000 containing press release tyco dated july 13 2000 announcing advised informal inquiry conducted staff division enforcement securities exchange commission since december 1999 terminated current report form 8k filed november 1 2000 containing press release tyco dated november 1 2000 announcing consummation acquisition mallinckrodt inc current report form 8k filed november 15 2000 containing press releases tyco dated november 13 14 2000 announcing private offering zerocoupon convertible debt securities signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date december 21 2000 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated report independent accountants board directors shareholders tyco international ltd opinion based upon audits report auditors accompanying consolidated balance sheets related consolidated statements operations shareholders equity cash flows present fairly material respects financial position tyco international ltd subsidiaries september 30 2000 1999 results operations cash flows three years period ended september 30 2000 conformity accounting principles generally accepted united states america addition opinion accompanying financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits audit financial statements amp incorporated wholly owned subsidiary september 30 1998 year ended september 30 1998 statements reflect total assets 201 related consolidated total assets september 30 1998 net sales 290 related consolidated total sales year ended september 30 1998 statements audited auditors whose report thereon furnished us opinion expressed herein insofar relates amounts included amp incorporated period described based solely report auditors conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion pricewaterhousecoopers hamilton bermuda october 24 2000 except note 25 december 4 2000 report independent public accountants shareholders board directors amp incorporated audited consolidated balance sheet amp incorporated pennsylvania corporation subsidiaries september 30 1998 related consolidated statements income shareholders equity cash flows year ended september 30 1998 included herein financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position amp incorporated subsidiaries september 30 1998 consolidated results operations cash flows year ended september 30 1998 conformity accounting principles generally accepted united states audit made purpose forming opinion basic financial statements taken whole schedule ii included herein presented purposes complying securities exchange commission rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp philadelphia pennsylvania february 12 1999 except respect matter disclosed note 18merger tyco international ltd date april 2 1999 tyco international ltd consolidated balance sheets millions except share data see notes consolidated financial statements tyco international ltd consolidated statements operations millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements cash flows millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 summary significant accounting policies businesstyco international ltd company tyco manages business following five operating segments electronics segments products services include designing engineering manufacturing electronic connector systems fiber optic components wireless devices heat shrink products power components wire cable relays sensors touch screens identification labeling products switches battery assemblies designing manufacturing multilayer printed circuit boards backplane assemblies electronic modules similar components telecommunications companys 86 owned subsidiary tycom ltd tycom leading independent provider transoceanic fiber optic networks services tycoms products services include design engineering manufacture installation undersea cable communications systems service maintenance major undersea cable networks design manufacture installation global undersea fiber optic network known tycom global networktm tgn tycom plans operate maintain sell bandwidth capacity tgn healthcare specialty products healthcare specialty products segments products services include wide variety disposable medical products including wound care products syringes needles sutures surgical staplers incontinence products electrosurgical instruments laparoscopic instruments flexible plastic packaging plastic bags sheeting coated laminated packaging materials tapes adhesives plastic garment hangers adt automotives auto redistribution services see note 25 fire security services fire security services segments products services include designing installing servicing broad line fire detection prevention suppression systems providing electronic security installation monitoring services manufacturing servicing fire extinguishers related products flow control products services flow control products services segments products services include full line valves related products industrial process control pipe tubular products electrical raceway products fire sprinkler devices tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued broad range consulting engineering construction management operating services water wastewater environmental transportation infrastructure markets basis presentationthe consolidated financial statements prepared united states dollars accordance generally accepted accounting principles united states described fully note 2 tyco merged united states surgical corporation ussc amp incorporated amp october 1 1998 april 2 1999 respectively transactions referred herein mergers consolidated financial statements include consolidated accounts tyco company incorporated bermuda subsidiaries prepared following pooling interests method accounting mergers therefore reflect combined financial position operating results cash flows ussc amp combined periods presented principles consolidationtyco holding company whose assets consist investments subsidiaries intercompany balances holdings cash equivalents businesses consolidated group conducted companys subsidiaries company consolidates companies owns controls fifty percent voting shares unless control likely temporary results companies acquired disposed fiscal year included consolidated financial statements effective date acquisition date disposal except case mergers accounted pooling interests see note 2 significant intercompany balances transactions eliminated consolidation cash equivalentsall highly liquid investments purchased maturity three months less considered cash equivalents inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipmentproperty plant equipment principally recorded cost less accumulated depreciation maintenance repair expenditures charged expense incurred years ended september 30 2000 1999 1998 company capitalized interest 108 million 87 million 90 million respectively straightline method depreciation used estimated useful lives related assets follows gains losses arising disposal property plant equipment included consolidated statements operations material goodwill intangible assetsgoodwill amortized straightline basis periods ranging 10 40 years 137230 million 106393 million net september 30 2000 1999 respectively accumulated amortization amounted 9593 million september 30 2000 6156 million september 30 1999 intangible assets 26096 million 15196 million net september 30 2000 1999 respectively amounts include patents trademarks customer contracts items amortized straightline basis lives ranging 2 40 years tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued september 30 2000 1999 accumulated amortization amounted 5252 million 3195 million respectively investmentsthe company accounts longterm investments represent less twenty percent ownership using statement financial accounting standards 115 accounting certain investments debt equity securities standard requires certain debt equity securities adjusted market value end accounting period unrealized market gains losses charged earnings securities traded shortterm profit otherwise unrealized gains losses charged credited shareholders equity management determines proper classification investments obligations fixed maturities marketable equity securities time purchase reevaluates designations balance sheet date realized gains losses sales investments determined specific identification basis included consolidated statements operations material september 30 2000 company availableforsale equity investments fair market value 13203 million cost basis 2187 million gross unrealized gains 11180 million gross unrealized losses 164 million recorded net deferred taxes 181 million included separate component shareholders equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting company periodically evaluates carrying value investments accounted cost method accounting september 30 2000 1999 investments recorded lower cost estimated net realizable value investments company owns controls twenty percent voting shares exerts significant influence operating financial policies equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented investments included assets consolidated balance sheets longlived assetsthe company periodically evaluates net realizable value longlived assets including goodwill intangible assets property plant equipment relying number factors including operating results business plans economic projections anticipated future cash flows impairment carrying value asset assessed undiscounted expected future operating cash flows derived asset less carrying value revenue recognitionrevenue sale services products recognized services rendered shipments made subscriber billings services yet rendered deferred taken income earned deferred element included current liabilities revenue installation electronic security systems recognized installations completed contract sales installation fire protection systems underwater cable systems construction related projects recorded percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable accounts receivable include amounts billed retainage provisions primarily fire protection electronic contracts retention balances 566 million 333 million september 30 tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued 2000 1999 respectively become due upon contract completion acceptance balance september 30 2000 expected substantially collected fiscal year ending september 30 2001 share premium contributed surplusin accordance bermuda companies act 1981 company issues shares cash premium par value resulting premium credited share premium account nondistributable reserve company issues shares exchange shares another company excess fair value shares acquired par value shares issued company credited applicable contributed surplus subject certain conditions distributable reserve income taxesdeferred tax liabilities assets recognized expected future tax consequences events included consolidated financial statements tax returns deferred tax liabilities assets determined based differences consolidated financial statements tax basis assets liabilities using tax rates effect years differences expected reverse valuation allowance provided offset net deferred tax assets based upon available evidence likely deferred tax assets realized research developmentresearch development expenditures expensed incurred included cost sales consolidated statements operations advertisingadvertising costs expensed incurred issuance stock subsidiarygains issuance common shares subsidiary included net income translation foreign currencyassets liabilities companys subsidiaries operating outside united states account functional currency us dollars operating highly inflationary environments translated us dollars using yearend exchange rates revenues expenses translated average exchange rates effective year foreign currency translation gains losses included component accumulated comprehensive income loss within shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments operations included net income gains losses resulting foreign currency transactions amounts material included net income financial instrumentsfrom time company enters variety forward foreign currency exchange contracts crosscurrency swaps currency options forward commodity contracts interest rate swaps management foreign currency commodity exposures interest costs forward foreign currency exchange contracts crosscurrency swaps used mitigate impact changes currency exchange rates intercompany crossborder obligations accounted consistent related intercompany transactions crosscurrency swaps principally hedge certain net foreign currency denominated investments changes valuation included currency translation adjustment component accumulated comprehensive income loss within shareholders equity interest differentials crosscurrency swaps included interest expense forward foreign currency exchange contracts currency options acquired purpose tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued reducing exposure currency fluctuations associated expected cash flows denominated currencies functional currencies marked market realized unrealized gains losses reflected selling general administrative expenses forward commodity contracts hedge anticipated purchases certain metals materials used manufacturing operations payments received paid based differential contract price actual price underlying commodity gains losses forward commodity contracts recorded adjustments value purchased commodity interest rate swaps hedge interest rates certain indebtedness involve exchange fixed floating rate interest payment obligations life related agreement without exchange notional amount interest differentials paid received interest rate swaps recognized life underlying agreement indebtedness respectively adjustment interest expense receivables payables related unrealized increases decreases values derivative financial instruments included current assets current liabilities respectively material use estimatesthe preparation consolidated financial statements conformity generally accepted accounting principles requires management make extensive use certain estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reported periods significant estimates consolidated financial statements include merger restructuring nonrecurring credits charges purchase accounting reserves allowances doubtful accounts receivable estimates future cash flows associated assets asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories estimated contract revenues related costs environmental liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ estimates accounting pronouncementsin june 1998 june 2000 fasb issued sfas 133 accounting derivative instruments hedging activities sfas 138 accounting certain derivative instruments certain hedging activities statements establish accounting reporting standards requiring every derivative instrument recorded balance sheet either asset liability measured fair value sfas nos 133 138 also require changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met sfas nos 133 138 effective fiscal years beginning june 15 2000 company expect adoption new standards material impact companys earnings financial position december 1999 securities exchange commission sec issued staff accounting bulletin 101 revenue recognition financial statements sab 101 clarifies certain existing accounting principles timing revenue recognition classification financial statements june 2000 sec delayed required implementation date sab 101 result sab 101 effective company quarter ended september 30 2001 october 2000 sec issued guidance interpretations included sab 101 company currently analyzing impact staff accounting bulletin tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued september 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilitiesa replacement fasb statement 125 sfas 140 sfas 140 revises standards accounting securitizations transfers financial assets collateral requires certain disclosures carries sfas 125s provisions without reconsideration statement effective transfers servicing financial assets extinguishments liabilities occurring march 31 2001 statement effective recognition reclassification collateral disclosures relating securitization transactions collateral fiscal years ending december 15 2000 company currently analyzing new standard reclassificationscertain prior year amounts reclassified conform current year presentation stock splitsper share amounts share data retroactively restated give effect twoforone stock splits distributed october 22 1997 october 21 1999 effected form stock dividend see note 10 2 pooling interests transactions april 2 1999 october 1 1998 tyco merged amp ussc respectively total approximately 3292 million 1184 million tyco common shares respectively issued former shareholders companies merger transactions discussed accounted pooling interests accounting method presents single interest common shareholder interests previously independent historical consolidated financial statements periods prior consummation combination restated though companies combined periods aggregate fees expenses related mergers integration combined companies expensed consolidated statements operations period transaction consummated required pooling interests method accounting see notes 12 16 tyco international ltd notes consolidated financial statements continued 2 pooling interests transactions continued combined separate results tyco ussc amp periods preceding mergers follows millions includes merger restructuring nonrecurring charges 4146 million impairment charges 760 million primarily related merger ussc restructuring nonrecurring charges 2753 million 552 million included cost sales impairment charges 2367 million related amps profit improvement plan also includes credit 83 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals ii includes restructuring nonrecurring charges 1644 million primarily related amps profit improvement plan 925 million principally related costs incurred ussc exit certain businesses iii result combination tyco amp income tax adjustment recorded conform tax accounting connection ussc merger company assumed operating lease usscs north facilities december 1998 company assumed debt related north property approximately 211 million assumption debt combined settlement certain obligations amount 23 million resulted company acquiring ownership north property total cost 234 million tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures fiscal 2000 fiscal 2000 company purchased businesses aggregate cost 51620 million consisting 42465 million cash net cash acquired issuance approximately 156 million common shares valued 6714 million assumption 2441 million debt addition 5442 million cash paid year purchase accounting liabilities related current prior years acquisitions cash portions acquisition costs funded utilizing cash hand issuance longterm debt borrowings companys commercial paper program acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates connection acquisitions company recorded purchase accounting liabilities 4262 million transaction costs integrating acquired companies within various tyco business segments details regarding purchase accounting liabilities set forth time purchase acquisition made company records asset acquired liability assumed estimated fair value amount subject future adjustment appraisals information obtained excess total consideration paid acquired company b fair value assets acquired less liabilities assumed purchase accounting liabilities recorded goodwill result acquisitions completed fiscal 2000 adjustments fair values assets liabilities purchase accounting liabilities recorded acquisitions completed prior fiscal 2000 company recorded approximately 52068 million goodwill intangibles following table shows fair values assets liabilities purchase accounting liabilities recorded purchase acquisitions completed fiscal 2000 adjusted reflect changes fair values assets liabilities purchase accounting liabilities recorded acquisitions completed prior fiscal 2000 millions tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued thus fiscal 2000 company spent total 47907 million cash related acquisition businesses consisting 42465 million cash purchase price businesses net cash acquired plus 5442 million cash paid year purchase accounting liabilities related current prior years acquisitions fiscal 2000 purchase acquisitions include among others acquisition general surgical innovations inc gsi afc cable systems inc afc cable siemens electromechanical components gmbh co kg siemens ec november 1999 praegitzer industries inc praegitzer december 1999 critchley group plc critchley march 2000 electronic oem business thomas betts july 2000 gsi manufacturer distributor balloon dissectors related devices minimally invasive surgery purchased issuance approximately 28 million tyco common shares valued 1086 million integrated within healthcare specialty products segment afc cable manufacturer prewired armor cable purchased issuance approximately 128 million tyco common shares valued 5628 million integrated within flow control products services segment siemens ec world market leader relays one worlds leading providers components communications automotive consumer general industry sectors purchased 11658 million cash integrated within electronics segment praegitzer provider printed circuit board interconnect solutions oems contract manufacturers communications computer industrial consumer electronics industries purchased 722 million cash integrated within electronics segment critchley world leader cable identification products purchased 1850 million cash integrated within electronics segment electronic oem business thomas betts manufacturer electronic connectors telecommunications computer automotive industries purchased 7500 million cash integrated within electronics segment following table summarizes purchase accounting liabilities recorded connection fiscal 2000 purchase acquisitions millions purchase accounting liabilities recorded fiscal 2000 consist 2430 million severance related costs 876 million costs associated shut consolidation certain acquired facilities including unfavorable leases lease terminations related fees costs 956 million transaction direct costs including pension employee related costs purchase accounting liabilities relate primarily acquisitions gsi afc cable siemens ec praegitzer critchley electronics oem business thomas betts connection fiscal 2000 purchase acquisitions company began formulate plans date acquisition workforce reductions closure consolidation aggregate 102 facilities company communicated employees acquired companies tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued announce benefit arrangements costs employee termination benefits relate elimination 2895 positions united states 2434 positions europe 1135 positions canada latin america 751 positions asiapacific region primarily consisting manufacturing distribution administrative technical sales marketing personnel facilities designated closure include 43 facilities united states 32 facilities europe 24 facilities asiapacific region 3 facilities canada primarily consisting manufacturing plants sales offices corporate administrative facilities research development facilities september 30 2000 4023 employees terminated 53 facilities closed consolidated connection purchase acquisitions consummated fiscal 2000 liabilities approximately 968 million severance related costs 533 million shutdown consolidation acquired facilities 483 million transaction direct costs remained balance sheet september 30 2000 company expects termination employees consolidation facilities related acquisitions substantially complete within one year plan finalization except certain longterm contractual obligations fiscal 2000 company reduced estimate purchase accounting liabilities related acquisitions prior years 1178 million accordingly goodwill related deferred tax assets reduced equivalent amount changes primarily resulted costs less originally anticipated certain acquisitions addition company finalized business plan exiting activities involuntary termination employees connection 1999 acquisition integration raychem result recorded 900 million purchase accounting liabilities fiscal 2000 company sold certain businesses net proceeds approximately 744 million cash consist primarily certain businesses within healthcare specialty products segment following unaudited pro forma data summarize results operations periods indicated fiscal 2000 acquisitions divestitures completed beginning periods presented pro forma data give effect actual operating results prior acquisitions divestitures adjustments interest expense goodwill amortization income taxes related fiscal 2000 acquisitions reflected pro forma data effect given cost reductions operating synergies presentation pro forma amounts purport indicative results would actually obtained acquisitions divestitures occurred beginning periods presented may obtained future tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued fiscal 1999 addition pooling interests transactions discussed note 2 fiscal 1999 company purchased businesses aggregate cost 69233 million consisting 45468 million cash net cash acquired issuance 324 million common shares valued 14496 million assumption 9269 million debt addition 3544 million cash paid year purchase accounting liabilities related 1999 prior years acquisitions cash portions acquisition costs funded utilizing cash hand issuance longterm debt borrowings companys commercial paper program acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates connection acquisitions company recorded purchase accounting liabilities 5254 million transaction costs integrating acquired companies within various tyco business segments details regarding purchase accounting liabilities set forth fiscal 1999 company spent total 49012 million cash related acquisition businesses consisting 45468 million purchase price net cash acquired plus 3544 million cash paid year purchase accounting liabilities related 1999 prior years acquisitions following table summarizes purchase accounting liabilities recorded connection fiscal 1999 purchase acquisitions millions purchase accounting liabilities recorded fiscal 1999 consist 2343 million severance related costs 1748 million costs associated shut consolidation certain acquired facilities 1163 million transaction direct costs 2343 million severance related costs covers employee termination benefits approximately 5620 employees located throughout world consisting primarily manufacturing distribution employees terminated result shut consolidation production facilities lesser extent administrative technical sales marketing personnel september 30 2000 5199 employees terminated 428 million severance related costs remained consolidated balance sheet company expects remaining employee terminations completed fiscal 2001 1748 million exit costs associated closure consolidation facilities involving 183 facilities located primarily asiapacific region united states facilities include manufacturing plants sales offices corporate administrative facilities research development facilities included within costs accruals noncancelable leases associated tyco international ltd notes consolidated financial statements continued 3 acquisitions divestitures continued certain facilities approximately 176 facilities closed consolidated september 30 2000 remaining facilities include primarily large manufacturing plants expected shut fiscal 2001 expenses connection closure remaining facilities well expiration noncancelable leases less expected sublease income facilities already closed comprise approximately 701 million facility related costs remaining consolidated balance sheet september 30 2000 fiscal 1999 company reduced estimate purchase accounting liabilities relating primarily fiscal 1998 acquisitions 900 million accordingly goodwill related deferred tax assets reduced equivalent amount changes primarily resulted costs less originally anticipated acquisitions consummated prior fiscal 1999 fiscal 1999 company sold certain businesses net proceeds approximately 9268 million cash consist primarily certain businesses within flow control products services segment including mueller company portions grinnell supply sales manufacturing certain businesses within healthcare specialty products segment aggregate net gain recognized sale businesses material connection flow control divestiture company granted nonexclusive license buyer use certain intellectual property entitled receive future royalties equal percentage net sales businesses sold company also granted option buyer purchase certain intellectual property future fair market value fiscal 1998 fiscal 1998 company acquired companies aggregate cost 45594 million consisting 41548 million cash assumption approximately 260 million debt issuance 765544 common shares valued 192 million 1254 subsidiary preference shares valued 1254 million cash portions acquisition costs funded utilizing cash hand borrowings bank credit agreements proceeds approximately 12450 million sale common shares borrowings companys uncommitted lines credit acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions company recorded approximately 39470 million goodwill intangibles september 30 2000 143 million employee severance principally payments employees previously severed 287 million facility related costs principally expiration noncancelable leases vacant premises remained consolidated balance sheet july 1998 company acquired us operations crosby valve inc exchange 1254 cumulative dividend preference shares newly created subsidiary valued 1254 million subsidiary authorized 2000 cumulative dividend preference shares holders preference shares option require company repurchase preference shares par value plus unpaid dividends time july 2001 outstanding preference shares issued 100000 par value classified longterm liabilities consolidated balance sheets cash dividends accumulate preferred basis whether earned declared rate 3750 per share per annum upon liquidation holders shares entitled receive amount equal 100000 per share plus unpaid dividends preference shares may redeemed subsidiary time december 31 2008 price per share 100000 plus unpaid dividends october 2000 company redeemed preference shares 1287 million tyco international ltd notes consolidated financial statements 4 indebtedness longterm debt follows millions january 1999 tyco international group sa tig whollyowned subsidiary company initiated commercial paper program aggregate face value 175 billion february 2000 tig increased borrowing capacity commercial paper program 45 billion notes fully unconditionally guaranteed company proceeds sale notes used working capital corporate purposes tig required maintain available unused balance bank credit agreement sufficient support amounts outstanding commercial paper program february 2000 tig renegotiated revolving credit agreement group commercial banks giving right tyco international ltd notes consolidated financial statements continued 4 indebtedness continued borrow 45 billion february 9 2001 option extend february 9 2002 tig option increase 45 billion credit facility 50 billion tig also 05 billion multiyear revolving credit facility expires february 12 2003 interest payable borrowings two facilities variable based upon tigs option select euro rate plus margins ranging 041 043 base rate defined outstanding principal amount loans equals exceeds 25 commitments euro margins increased 0125 obligations tig credit agreements fully unconditionally guaranteed company tig using credit agreements fully support commercial paper program therefore expects facilities remain largely undrawn company required meet certain covenants credit agreements none considered restrictive operations company ii june 2000 tig initiated european commercial paper program could initially issue notes aggregate face value e 300 million september 2000 tig increased borrowing capacity european commercial paper program e 500 million notes fully unconditionally guaranteed company proceeds sale notes used working capital corporate purposes iii international overdrafts demand loans represent borrowings amp various banks holders overdrafts loans mature within one year balance sheet date weightedaverage interest rate international overdrafts demand loans fiscal 2000 fiscal 1999 51 53 respectively iv august 1999 tig issued 500 million floating rate notes due 2000 500 million floating rate notes due 2001 1 billion 6875 notes due 2002 10 billion approximately 897 million 057 notes due 2000 500 million floating rate notes bear interest libor plus 06 2000 notes libor plus 07 2001 notes fully unconditionally guaranteed tyco see note 24 net proceeds approximately 20803 million used repay borrowings tigs 45 billion commercial paper program discussed connection 1 billion 6875 notes tig entered interest rate swap agreement expiring september 2002 tig receive fixed rate 6875 pay floating rate based average two different libo rates defined plus 3755 june 2000 tig offered exchange 1 billion 6875 private placement notes due 2002 public notes form terms public notes identical material respects form terms outstanding private placement notes corresponding series except public notes subject restrictions transfer united states securities laws connection yen denominated 057 notes tig entered crosscurrency swap expiring september 2000 tig received payment 10 billion plus accrued interest rate 057 made quarterly us dollar payments based libor plus 060 well final payment maturity approximately 897 million v june 1998 tig issued 750 million 6125 notes due 2001 750 million 6375 notes due 2005 750 million 625 dealer remarketable securities drs due 2013 500 million 70 notes due 2028 public offering interest payable semiannually june december terms drs remarketing dealer option remarket drs june 2003 exercised would subject drs mandatory tender remarketing dealer reset interest rate adjusted fixed rate june 2013 remarketing dealer exercise option drs required tendered company june 2003 repayment amounts outstanding debt securities fully tyco international ltd notes consolidated financial statements continued 4 indebtedness continued unconditionally guaranteed tyco see note 24 net proceeds approximately 27445 million ultimately used repay borrowings tigs bank credit agreement uncommitted lines credit december 1998 tig terminated two interest rate swap agreements notional amounts 650 million entered june 1998 financial institution hedge portion fixed rate terms public notes vi july 2000 tig issued e 75 million floating rate note due 2002 bears interest euribor plus 042 vii october 1998 tig issued 800 million debt private placement offering consisting two series restricted notes 400 million 5875 notes due november 2004 400 million 6125 notes due november 2008 notes fully unconditionally guaranteed tyco net proceeds approximately 7917 million used repay borrowings tigs bank credit agreement time tig also entered interest rate swap agreement notional amount 400 million hedge fixed rate terms 6125 notes due 2008 agreement expires november 2008 tig receive payments fixed rate 6125 make floating rate payments based libor subsequently third fourth quarters fiscal 1999 tig exchanged 400 million 5875 private placement notes due 2004 400 million 6125 private placement notes due 2008 public notes see note 24 form terms public notes series identical material respects form terms outstanding private placement notes corresponding series except public notes subject restrictions transfer united states securities laws viii april 2000 tig issued e600 million approximately 5657 million 6125 notes due 2007 private placement offering notes fully unconditionally guaranteed tyco net proceeds used repay borrowings tigs commercial paper program september 2000 tig offered exchange e600 million approximately 5657 million 6125 notes due 2007 public notes form terms public notes identical material respects form terms outstanding private placement notes corresponding series except public notes subject restrictions transfer united states securities laws ix october 1998 raychem issued notes amount 400 million notes mature october 15 2008 bear interest rate 72 per annum x march 1998 ussc issued 300 million 725 senior notes due march 2008 redeemable prior maturity require semiannual interest payments february 1999 company completed tender offer 292 million 300 million principal amount notes outstanding purchased xi january 1999 tig issued 400 million 6125 notes due 2009 800 million 6875 notes due 2029 public offering notes fully unconditionally guaranteed tyco see note 24 net proceeds approximately 11737 million used repay borrowings tigs bank credit agreement time tig also entered interest rate swap agreement hedge fixed rate terms 400 million notes due 2009 agreement expires january 2009 tig receive payments fixed rate 6125 make floating rate payments based average three different libo rates defined plus spread tyco international ltd notes consolidated financial statements continued 4 indebtedness continued xii july 1995 adt operations inc issued 7763 million aggregate principal amount maturity zero coupon subordinated liquid yield option notes lyons maturing july 2010 issue price per lyon 38309 principal amount 1000 per lyon maturity reflecting yield maturity 65 per annum computed semiannual bond equivalent basis discount amortization lyons charged interest expense consolidated statements operations basis linked yield maturity lyons discount amortization amounted 24 million fiscal 2000 60 million fiscal 1999 110 million fiscal 1998 lyon exchangeable common shares company option holder time prior maturity unless previously redeemed otherwise purchased adt operations inc exchange rate 54352 common shares per lyon fiscal 2000 fiscal 1999 respectively 32169 147418 lyons carrying values 164 million 723 million exchanged 1748442 8012468 common shares company lyon purchased adt operations inc option holder july 2002 purchase price per lyon 59946 time holder exercises option company right deliver portion purchase price form common shares company beginning july 2002 lyons redeemable cash time option adt operations inc whole part redemption prices equal issue price plus accrued original issue discount date redemption lyons guaranteed subordinated basis company xiii international bank loans represent term borrowings tyco electronics various commercial banks borrowings repayable varying amounts 2013 weightedaverage interest rate international bank loans september 30 2000 1999 33 39 respectively xiv financing lease obligation relates usscs european headquarters office building distribution center complex elancourt france french franc denominated financing lease requires principal amortization varying amounts eleven year term lease balloon payment approximately 42 million french francs 6 million end lease interest payable rate approximately 14 paris interbank offered rate pibor effective interest rate financing lease debt approximately 50 40 per annum september 30 2000 1999 respectively weightedaverage rate interest longterm debt 65 62 fiscal 2000 fiscal 1999 respectively weightedaverage rate interest variable longterm debt 65 56 september 30 2000 1999 respectively impact companys interest rate swap activities weightedaverage borrowing rate material year impact reported interest expense reduction 66 million 09 million 19 million fiscal 2000 fiscal 1999 fiscal 1998 respectively aggregate amounts total debt maturing next five years follows millions 15372 fiscal 2001 40755 fiscal 2002 539 fiscal 2003 1294 fiscal 2004 11616 fiscal 2005 tyco international ltd notes consolidated financial statements continued 5 sale accounts receivable company agreement several operating subsidiaries sell defined pool trade accounts receivable limited purpose subsidiary company subsidiary separate corporate entity holds receivables sells participating interests accounts receivable financiers turn purchase receive ownership security interests receivables collections reduce accounts receivable included pool operating subsidiaries sell new receivables limited purpose subsidiary limited purpose subsidiary risk credit loss receivables accordingly full amount allowance doubtful accounts retained consolidated balance sheets availability program 500 million september 30 2000 1999 450 million 350 million respectively utilized program proceeds sales used reduce borrowings tigs commercial paper program reported operating cash flows consolidated statements cash flows proceeds sale less face amount accounts receivable sold amount approximates cost limited purpose subsidiary would incur issue commercial paper backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative expenses consolidated statements operations discount aggregated 257 million 157 million 173 million 66 56 58 weightedaverage balance receivables outstanding fiscal 2000 fiscal 1999 fiscal 1998 respectively operating subsidiaries retain collection administrative responsibilities participating interests defined pool 6 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable longterm investments accounts payable debt derivative financial instruments notional amounts derivative financial instruments follows millions companys intention terminate derivative financial instruments fair values estimated based market rates quotes brokers represented amounts company would receive pay instruments terminated balance sheet dates fair values indicated termination forward foreign currency exchange contracts crosscurrency swap agreements currency options forward commodity contracts interest rate swaps september 30 2000 would resulted 2790 million gain 153 million loss zero gain 111 million gain 957 million loss respectively september 30 1999 would resulted 527 million loss 270 million loss 07 million loss 130 million gain 669 million loss respectively september 30 2000 1999 book values derivative financial instruments recorded consolidated balance sheets approximated fair values tyco international ltd notes consolidated financial statements continued 6 financial instruments continued fair value cash equivalents accounts receivable longterm investments accounts payable approximated book value september 30 2000 1999 fair value debt approximately 108516 million book value 109990 million 101204 million book value 101222 million september 30 2000 1999 respectively based discounted cash flow analyses using current interest rates companys financial instruments present certain market credit risks however concentrations credit risk mitigated company deals variety major banks worldwide accounts receivable spread among number major industries customers geographic areas none companys financial instruments offbalance sheet risk would result significant loss company counterparty failed perform according terms agreement company require collateral security furnished counterparties financial instruments company however maintain reserves potential credit losses financial instruments 7 income taxes provision income taxes reconciliation notional united states federal income taxes statutory rate consolidated income taxes companys income tax provision follows millions provisions fiscal 2000 fiscal 1999 fiscal 1998 included 6486 million 2639 million 2105 million respectively nonus income taxes nonus component income taxes 33436 million 13763 million 6406 million fiscal 2000 fiscal 1999 fiscal 1998 respectively tyco international ltd notes consolidated financial statements continued 7 income taxes continued deferred income tax balance sheet accounts result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset follows millions september 30 2000 company approximately 370 million net operating loss carryforwards certain nonus jurisdictions 230 million expiration remaining 140 million expire future years 2010 us operating loss carryforwards september 30 2000 approximately 692 million expire future years 2020 valuation allowance provided operating loss carryforwards expected utilized normal course company subsidiaries income tax returns examined various regulatory tax authorities connection examinations substantial tax deficiencies proposed however company contesting proposed deficiencies ultimate resolution matters expected material adverse effect companys financial position results operations liquidity 8 key employee loan program loans made employees company former tyco 1983 key employee loan program payment taxes upon vesting shares granted former tycos restricted stock ownership plans loans unsecured bear interest payable annually rate approximates companys incremental shortterm borrowing rate loans generally repayable ten years except earlier payments required certain circumstances fiscal 2000 maximum amount outstanding program 260 million loans receivable program 114 million 186 million september 30 2000 1999 respectively tyco international ltd notes consolidated financial statements continued 9 preference shares company authorized 125000000 preference shares 1 none issued outstanding fiscal 2000 1999 1998 rights dividends return capital redemption conversion voting otherwise may determined board directors company time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders 10 shareholders equity last quarter fiscal 1999 company announced board directors declared twoforone stock split form 100 stock dividend common shares split payable october 21 1999 shareholders record october 1 1999 addition last quarter fiscal 1997 board directors declared twoforone stock split effected form 100 stock dividend companys common shares distributed october 22 1997 per share amounts share data retroactively adjusted reflect stock splits change par value number authorized shares result stock splits third quarter fiscal 1999 conjunction approval merger amp shareholders approved increase number authorized common shares 1503750000 2500000000 second quarter fiscal 1998 shareholders approved increase number authorized common shares 750000000 1503750000 december 1997 company filed shelf registration enable offer time unsecured debt securities common shares combination foregoing aggregate initial offering price exceed 20 billion march 1998 company sold 506 million common shares 2538 per share net proceeds sale approximately 12450 million used repay indebtedness incurred previous acquisitions august 2000 company filed additional shelf registration enable offer time unsecured debt securities preference shares depositary shares common shares combination foregoing aggregate initial offering price exceed 25 billion availability shelf registration statement incorporates remaining availability shelf registration filed december 1997 information respect ussc amp common shares options retroactively restated connection mergers tyco reflect applicable merger per share exchange ratios 07606 07507 respectively 15212 15014 respectively giving effect subsequent stock splits total compensation cost expensed stockbased compensation awards discussed 1374 million 969 million 371 million fiscal 2000 fiscal 1999 fiscal 1998 respectively restricted stockthe company maintains restricted stock ownership plan provides award initial amount common shares plus amount equal onehalf one percent total shares outstanding beginning fiscal year september 30 2000 31397856 shares authorized plan 10954383 shares granted common shares awarded subject certain restrictions vesting varying periods ten years tyco international ltd notes consolidated financial statements continued 10 shareholders equity continued grants vest based certain specified performance criteria fair market value shares date vesting expensed period performance achievement criteria deemed probable grants vest passage time fair market value shares time grant amortized net tax benefit expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients restricted shares right vote shares receive dividends income tax benefits resulting vesting restricted shares including deduction excess fair market value restricted shares time vesting fair market value time grants payment dividends unvested shares credited contributed surplus employee stock purchase plansubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee stock purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker share optionsthe company granted employee share options issued five fixed share option plans reserve common shares issuance companys directors executives managers majority options granted tyco international ltd longterm incentive plan incentive plan incentive plan administered compensation committee board directors company consists exclusively independent directors company options granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant options granted incentive plan date generally vested become exercisable periods five years date grant maximum term ten years company reserved 1400 million common shares issuance incentive plan awards company becomes obligated make assumption substitution outstanding awards previously granted acquired company assumed administered incentive plan count limit september 30 2000 approximately 370 million shares available future grant incentive plan october 1998 broadbased option plan nonofficer employees tyco longterm incentive plan ii ltip ii approved board directors company reserved 500 million common shares issuance ltip ii terms conditions plan similar incentive plan september 30 2000 approximately 172 million shares available future grant ltip ii connection acquisitions raychem fiscal 1999 cipe sa holmes protection fiscal 1998 options outstanding respective stock option plans companies assumed incentive plan connection mergers occurring fiscal 1999 see note 2 options outstanding ussc amp stock option plans assumed incentive plan options administered incentive plan retain rights terms conditions respective plans originally granted tyco international ltd notes consolidated financial statements continued 10 shareholders equity continued share option activity tyco plans since september 30 1997 follows following table summarizes information outstanding exercisable tyco options september 30 2000 tyco international ltd notes consolidated financial statements continued 10 shareholders equity continued result merger ussc approximately 142 million options previously exercisable became immediately exercisable october 1 1998 upon consummation merger amp april 2 1999 approximately 78 million options became immediately exercisable due change ownership amp resulting merger tycom two option plans employee stock purchase plan exercise price options granted plans equal fair market value date grant tycom common shares tycom options outstanding exercisable september 30 2000 21607050 26250 respectively prices ranging 3200 4462 per share stockbased compensationsfas 123 accounting stockbased compensation sfas 123 allows companies measure compensation cost connection executive share option plans using fair value based method continue use intrinsic value based method generally result compensation cost company tycom decided continue use intrinsic value based method recognize compensation expense issuance options exercise price equal greater market price time grant fair value based method adopted tyco tycom tycos pro forma net income pro forma net income per common share fiscal 2000 fiscal 1999 fiscal 1998 would follows estimated weightedaverage fair value tyco tycom options granted fiscal 2000 1626 1747 respectively estimated weightedaverage fair value tyco amp options granted fiscal 1999 1213 711 respectively date grant using optionpricing model assumptions referred estimated weightedaverage fair value tyco ussc amp options granted fiscal 1998 824 679 598 respectively date grant using optionpricing model assumptions referred fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions used fiscal 2000 tyco international ltd notes consolidated financial statements continued 10 shareholders equity continued following weightedaverage assumptions used fiscal 1999 following weightedaverage assumptions used fiscal 1998 effects applying sfas 123 pro forma disclosure indicative effects may future years sfas 123 apply awards prior 1995 additional awards future years anticipated treasury sharesin november 1999 board directors authorized company reacquire 20 million common shares open market completed quarter ended march 31 2000 january 2000 board directors authorized company reacquire additional 20 billion common shares open market company excess 09 billion remaining september 30 2000 time company subsidiaries also purchases shares open market satisfy certain stockbased compensation arrangements treasury shares recorded cost consolidated balance sheets dividendstyco paid quarterly cash dividend 00125 per common share since july 1997 ussc paid quarterly dividends 004 per share fiscal 1998 amp paid dividends 027 per share first two quarters fiscal 1999 026 per share first quarter fiscal 1998 027 per share last three quarters fiscal 1998 11 comprehensive income purpose reporting comprehensive income loss report measure changes equity transactions shareholders total comprehensive income loss included tyco international ltd notes consolidated financial statements continued 11 comprehensive income continued consolidated statements shareholders equity components accumulated comprehensive income loss follows millions 12 charge impairment longlived assets company reviews recoverability carrying value longlived assets primarily property plant equipment related goodwill intangible assets impairment whenever events changes circumstances indicate carrying amount asset may fully recoverable impairment losses recognized expected future undiscounted cash flows less assets carrying value indicators impairment present carrying values assets evaluated relation operating performance future undiscounted cash flows underlying business net book value underlying assets adjusted fair value sum expected future undiscounted cash flows less book value fair values based quoted market prices assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk 2000 charges healthcare specialty products segment recorded charge 990 million primarily related impairment goodwill intangible assets associated company exiting interventional cardiology business ussc 1999 charges electronics segment recorded charge 4315 million fiscal 1999 includes 3501 million related writedown property plant equipment primarily manufacturing administrative facilities associated facility closures throughout amps worldwide operations connection profit improvement plan combination facilities result merger company approximately 1436 million taken part amp profit improvement plan prior acquisition tyco also includes impairment value goodwill intangibles 814 million company evaluated profitability tyco international ltd notes consolidated financial statements continued 12 charge impairment longlived assets continued anticipated customer demand various products found certain product lines underperforming compared expectations result analysis performed connection amps profit improvement plan book value goodwill intangibles deemed impaired written fair value healthcare specialty products segment recorded charge 760 million fiscal 1999 primarily relating writedown property plant equipment principally administrative facilities associated consolidation facilities usscs operations united states europe result merger company 13 extraordinary items extraordinary item fiscal 2000 02 million net tax benefit 01 million relates writeoff unamortized deferred financing costs related lyons see note 4 extraordinary item fiscal 1999 457 million net tax benefit 180 million relates primarily writeoff net unamortized deferred financing costs related companys debt tender offers see note 4 extraordinary item fiscal 1998 24 million net tax benefit 12 million writeoff unamortized deferred financing costs related lyons see note 4 14 earnings per common share reconciliations basic diluted earnings per common share follows millions except per share data computation diluted earnings per common share fiscal 2000 fiscal 1999 fiscal 1998 excludes effect assumed exercise approximately 73 million 31 million 238 million stock options respectively outstanding september 30 2000 1999 1998 respectively effect would antidilutive tyco international ltd notes consolidated financial statements continued 15 tycom ltd august 2000 tycom ltd subsidiary company completed initial public offering tycom ipo 70300000 common shares price 3200 per share net proceeds tycom ipo deducting underwriting discount commissions direct costs approximately 21 billion amount tycom paid 200 million dividend company prior tycom ipo companys ownership tycoms outstanding common shares 100 september 30 2000 companys ownership tycoms outstanding common shares approximately 86 result tycom ipo company recognized pretax gain investment tycom approximately 176 billion 101 billion aftertax included gain issuance common shares subsidiary consolidated statement operations 16 merger restructuring nonrecurring charges credits merger restructuring nonrecurring charges credits net follows millions includes 09 million charge related writedown inventory included cost sales credit 63 million also included cost sales ii includes 64 million charge related writedown inventory included cost sales iii includes 1064 million charge related writedown inventory included cost sales 2000 charges credits electronics segment recorded net merger restructuring nonrecurring credit 909 million consists credits 1078 million charges 169 million merger restructuring nonrecurring credit 1078 million 63 million included cost sales related merger amp costs associated amps profit improvement plan 1078 million credit consists revision estimates severance reserves 552 million facility reserves 78 million reserves 448 million see table page 60 fiscal 2000 revision estimates related fiscal 1999 charges restructuring nonrecurring charges 169 million 09 million included cost sales related restructuring activities amps brazilian operations wireless communications business following table tyco international ltd notes consolidated financial statements continued 16 merger restructuring nonrecurring charges credits continued provides information restructuring nonrecurring charges related electronics segment recorded fiscal 2000 millions cost announced workforce reductions 49 million includes elimination 941 positions primarily brazil cost facility closures 48 million consists shutdown consolidation 3 facilities september 30 2000 97 employees terminated 3 facilities shut remaining facility reserves primarily payments noncancellable lease obligations charges 72 million consist writeoff nonfacility assets direct costs healthcare specialty products segment recorded net merger restructuring nonrecurring credit 109 million 109 million net credit consists charges 111 million related usscs suture business charges 79 million 64 million included cost sales related exiting usscs interventional cardiology business substantially restructuring activities completed year also recorded credit 299 million representing revision estimates prior years merger restructuring nonrecurring accruals 197 million related primarily merger ussc 102 million related companys 1997 restructuring accruals 197 million credit relates revision estimates severance reserves 42 million facility reserves 45 million reserves 110 million see table page 61 fiscal 2000 revision estimates related fiscal 1999 charges fire security services segment recorded restructuring nonrecurring credits 112 million related revision estimates companys 1997 restructuring activities amounts lower originally recorded actions companys 1997 restructuring plans substantially completed telecommunications segment recorded nonrecurring charge 131 million incurred connection tycom ipo addition segment credits charges company recorded nonrecurring charges 2750 million reserve certain claims relating merged company healthcare business 12 million nonrecurring charges remains current liabilities consolidated balance sheet september 30 2000 1999 charges credits electronics segment recorded net merger restructuring nonrecurring charges 6433 million primarily related merger amp costs associated amps profit tyco international ltd notes consolidated financial statements continued 16 merger restructuring nonrecurring charges credits continued improvement plan following table provides information charges addition revision estimates fiscal 1999 charges millions cost announced workforce reductions 4337 million includes elimination 16139 positions primarily united states europe consisting primarily manufacturing distribution administrative research development sales marketing personnel cost facility closures 686 million consists primarily shutdown consolidation 87 facilities primarily united states europe consisting primarily manufacturing plants distribution centers administrative buildings research development facilities sales offices also includes 183 million related writedown inventory included cost sales september 30 2000 10072 employees terminated 62 facilities shut charges 1410 million consist transaction costs 679 million legal printing accounting financial advisory services direct expenses related amp merger 881 million related writedown inventory discussed lease termination costs following merger 96 million credit 500 million related litigation settlement alliedsignal inc costs 254 million relating consolidation certain product lines nonrecurring charges related amp merger part integration amps electronics business amps profit improvement plan company evaluated profitability anticipated customer demand various products result evaluation management decided exit certain product lines andor businesses underperforming relative expectations inventory held company related exited activities deemed impaired written estimated fair value total writedown 881 million recorded charge cost sales discontinued product lines represented approximately 150 million historical net sales amp annualized basis healthcare specialty products segment recorded net merger restructuring nonrecurring charges 4191 million consisting 4238 million charge primarily related merger ussc 47 million credit representing revision estimates related tycos 1997 restructuring nonrecurring accruals discussed following table provides tyco international ltd notes consolidated financial statements continued 16 merger restructuring nonrecurring charges credits continued information charges addition revision estimates fiscal 1999 charges millions cost announced workforce reductions 1248 million includes elimination 1467 positions primarily united states europe consisting primarily manufacturing distribution sales marketing administrative research development personnel cost facility closures 518 million includes shutdown consolidation 45 facilities primarily europe united states consisting primarily manufacturing plants distribution centers sales offices administrative buildings research development facilities september 30 2000 1373 employees terminated 37 facilities shut charges 2472 million consist transaction costs 533 million legal printing accounting financial advisory services direct expenses related ussc merger lease termination costs following merger 1568 million costs 371 million relating consolidation certain product lines nonrecurring charges primarily related ussc merger lease termination costs 1568 million relate ussc north facility purchased tyco subsequent merger see note 2 remaining balance september 30 2000 248 million included current liabilities consolidated balance sheet company currently anticipates restructuring nonrecurring activities charges relate completed within fiscal 2001 fiscal 1999 company recorded credit 319 million including 272 million fire security services segment 47 million healthcare specialty products segment referred representing revision estimates related tycos 1997 restructuring nonrecurring accruals actions tycos 1997 restructuring nonrecurring plans completed near completion resulted total estimated costs less originally anticipated 1998 charges credit fourth quarter fiscal 1998 amp recorded charges 1858 million associated profit improvement plan includes reduction support staff throughout business units consolidation manufacturing plants facilities addition certain sales growth initiatives charges include cost staff reductions 1721 million involving voluntary retirement involuntary termination approximately 2700 staff support personnel 700 direct manufacturing employees cost consolidation certain facilities 137 million tyco international ltd notes consolidated financial statements continued 16 merger restructuring nonrecurring charges credits continued relating six plant facility closures consolidations september 30 1999 restructuring activities substantially completed see note 18 discussion voluntary early retirement program first quarter fiscal 1998 amp recorded credit 214 million merger restructuring nonrecurring charges representing revision estimates related 1996 restructuring activities completed fiscal 1998 fourth quarter fiscal 1998 ussc recorded certain charges 805 million charges include 709 million costs exit certain businesses representing write assets earlier purchases technology minimal commercial application adjustment net realizable value certain assets addition merger costs 96 million recorded represent legal insurance costs related merger consummated first quarter fiscal 1999 first quarter fiscal 1998 ussc recorded restructuring charges 120 million related employee severance costs facility disposals asset writedowns part usscs cost cutting program ussc substantially completed 1998 restructuring activities fiscal 1999 17 commitments contingencies company occupies certain facilities leases expire various dates year 2030 rental expense leases equipment 4427 million 3810 million 3317 million fiscal 2000 fiscal 1999 fiscal 1998 respectively september 30 2000 minimum lease payment obligations noncancelable operating leases follows 4357 million fiscal 2001 3354 million fiscal 2002 2395 million fiscal 2003 1704 million fiscal 2004 1427 million fiscal 2005 aggregate 4314 million fiscal years 2006 2030 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations company involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods based upon companys experience environmental remediation matters company concluded least reasonable possibility remedial costs incurred respect sites aggregate amount range 329 million 952 million september 30 2000 company concluded probable amount incurred within range 683 million 354 million amount included accrued expenses current liabilities 329 million included longterm liabilities consolidated balance sheet based upon information available company sites allocation liability cleanup costs among number parties including company liability could joint several management believes probable responsible parties fully pay cost allocated except respect one site company assumed one identified responsible parties unable pay cost allocated partys cost reapportioned among remaining responsible parties view companys financial position reserves tyco international ltd notes consolidated financial statements continued 17 commitments contingencies continued environmental matters 683 million company concluded payment estimated amounts material effect financial position results operations liquidity company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations liquidity 18 retirement plans defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned contributions based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current employees net pension expense assessed accordance advice professionally qualified actuaries countries concerned based subsequent formal reviews purpose companys funding policy make annual contributions extent contributions tax deductible actuarially determined benefits defined benefit plans based years service compensation voluntary early retirement programsin fourth quarter fiscal 1998 amp offered enhanced retirement benefits targeted groups employees cost benefits totaled 1383 million recorded part amps fourth quarter restructuring charge amount included determination net periodic pension cost presented net periodic pension income cost us nonus defined benefit pension plans includes following components millions tyco international ltd notes consolidated financial statements continued 18 retirement plans continued curtailmentsettlement gains fiscal 1999 relate primarily termination employees amp freezing amps pension plan curtailmentsettlement gains fiscal 1998 relate primarily freezing adt pension plan curtailmentsettlement gains recorded selling general administrative expenses net pension cost recognized september 30 2000 1999 us nonus defined benefit plans follows millions tyco international ltd notes consolidated financial statements continued 18 retirement plans continued projected benefit obligation accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 303 million 293 million 93 million respectively september 30 2000 1867 million 1734 million 1307 million respectively september 30 1999 tyco international ltd notes consolidated financial statements continued 18 retirement plans continued projected benefit obligation accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 5438 million 4640 million 2561 million respectively september 30 2000 5635 million 5171 million 3146 million respectively september 30 1999 company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multi employer plans 82 million 75 million 17 million fiscal 2000 fiscal 1999 fiscal 1998 respectively defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans pension expense defined contribution plans computed percentage participants compensation 1327 million 732 million 571 million fiscal 2000 fiscal 1999 fiscal 1998 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 108 million 69 million 37 million fiscal 2000 fiscal 1999 fiscal 1998 respectively postretirement benefit plansthe company generally provide postretirement benefits pensions employees certain former tycos acquired operations provide benefits employees eligible date acquisition addition adts electronic security services operation united states sponsors unfunded defined benefit postretirement plan covers salaried nonsalaried employees provides medical benefits postretirement health care plan contributory retiree contributions adjusted annually company recorded gain 88 million related curtailment plan fiscal 1998 included selling general administrative expenses amp provides postretirement health care coverage qualifying us retirees result merger tyco 137 million adjustment recorded conform amps accounting method postretirement benefits tycos method regarding initial recognition benefits upon adoption sfas 106 employers accounting postretirement benefits pensions second quarter fiscal 1999 amp offered enhanced postretirement benefits terminated employees totaling 160 million recorded part amps second quarter restructuring charge amount included determination net periodic benefit cost presented net periodic postretirement benefit cost reflects following components millions tyco international ltd notes consolidated financial statements continued 18 retirement plans continued components accrued postretirement benefit obligation unfunded follows millions measurement purposes fiscal 2000 815 composite annual rate increase per capita cost covered health care benefits assumed rate assumed decrease gradually 500 year 2008 remain level thereafter health care cost trend rate assumption may significant effect amounts reported onepercentagepoint change assumed healthcare cost trend rates would following effects millions combined weighted average discount rate used determining accumulated postretirement benefit obligation 800 september 30 2000 775 september 30 1999 19 consolidated segment data companys reportable segments strategic business units operate different industries managed separately segment data presented basis consistent business activities reported internally management certain corporate expenses allocated operating segments operating income based generally net sales factors additional information including description products services included segment see note 1 tyco international ltd notes consolidated financial statements continued 19 consolidated segment data continued selected information industry segment presented millions tyco international ltd notes consolidated financial statements continued 19 consolidated segment data continued 1 includes restructuring charge 169 million 09 million included cost sales related amps brazilian operations wireless communications business credit 1078 million 63 million included cost sales primarily representing revision estimates merger restructuring nonrecurring accruals related merger amp amps profit improvement plan 2 includes nonrecurring charge 131 million incurred connection tycom ipo 3 includes charges impairment longlived assets 990 million restructuring nonrecurring charges 79 million 64 million included cost sales related exiting usscs interventional cardiology business includes restructuring nonrecurring charges 111 million related usscs suture business also includes credit 299 million representing revision estimates merger restructuring nonrecurring accruals consisting 197 million related primarily merger ussc 102 million related companys 1997 restructuring accruals 4 includes merger restructuring nonrecurring credit 112 million representing revision estimates related companys 1997 restructuring accruals 5 includes nonrecurring charges 2750 million reserve certain claims relating merged company healthcare business nonrecurring charges 12 million 6 includes merger restructuring nonrecurring charges 6433 million 1064 million included cost sales charges impairment longlived assets 4315 million primarily related merger amp amps profit improvement plan 7 includes merger restructuring nonrecurring charges 4238 million charges impairment longlived assets 760 million primarily related merger ussc credit 47 million representing revision estimates related tycos 1997 restructuring nonrecurring accruals 8 includes credit 272 million representing revision estimates related tycos 1997 restructuring nonrecurring accruals 9 includes restructuring nonrecurring charges recorded amp 1858 million related profit improvement plan credit 214 million restructuring charges representing revision estimates related amps 1996 restructuring activities 10 includes nonrecurring charges 805 million primarily related business exit costs restructuring charges 120 million related usscs operations 11 includes 1111 million spending construction tycom global network 12 excludes 2340 million related purchase property previously leased ussc tyco international ltd notes consolidated financial statements continued 20 consolidated geographic data selected information geographic area presented millions 21 supplementary balance sheet information selected supplementary balance sheet information presented millions tyco international ltd notes consolidated financial statements continued 22 supplementary income statement information selected supplementary income statement information presented millions 23 summarized quarterly financial data unaudited summarized quarterly financial data presented millions except per share data 1 includes charges impairment longlived assets 990 million restructuring nonrecurring charges 79 million 64 million included cost sales related exiting usscs interventional cardiology business restructuring nonrecurring charges 77 million related usscs suture business restructuring charge 65 million related amps brazilian operations also includes credit 947 million representing revision estimates merger restructuring nonrecurring accruals consisting 578 million related merger amp amps profit improvement plan 155 million related primarily merger ussc 214 million related companys 1997 restructuring accruals 2 includes merger restructuring nonrecurring charges 104 million 09 million included cost sales primarily related activities amps wireless tyco international ltd notes consolidated financial statements continued 23 summarized quarterly financial data unaudited continued communications business restructuring nonrecurring charges 05 million related usscs suture business also includes credit 127 million 63 million included cost sales primarily representing revision estimates merger restructuring nonrecurring accruals related merger amp amps profit improvement plan 3 includes restructuring nonrecurring charges 29 million related usscs suture business also includes merger restructuring nonrecurring credit 98 million representing revision estimates merger restructuring nonrecurring accruals related merger amp amps profit improvement plan 4 includes nonrecurring charges 2750 million reserve certain claims relating merged company healthcare business 131 million related nonrecurring charge incurred connection tycom ipo 12 million nonrecurring charges also includes credits 275 million 42 million representing revision estimates merger restructuring nonrecurring accruals related merger amp amps profit improvement plan merger ussc respectively 5 includes merger restructuring nonrecurring charges 4126 million charges impairment longlived assets 760 million primarily related merger ussc restructuring nonrecurring charges 1165 million 283 million included cost sales charges impairment longlived assets 656 million related amps profit improvement plan also includes credit 30 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals 6 includes restructuring nonrecurring charges 1588 million 269 million included cost sales charges impairment longlived assets 1711 million related amps profit improvement plan also includes restructuring nonrecurring charges 20 million related merger ussc credit 53 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals 7 includes merger restructuring nonrecurring charges 3680 million 512 million included cost sales charges impairment longlived assets 1948 million related merger amp amps profit improvement plan also includes restructuring nonrecurring charges 28 million related merger ussc credit 197 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals 8 includes restructuring nonrecurring charges 64 million related merger ussc also includes credit 39 million representing revision estimates related tycos 1997 merger restructuring nonrecurring accruals 9 extraordinary items relate principally companys debt tender offers writeoff net unamortized deferred refinancing costs relating early extinguishment debt tyco international ltd notes consolidated financial statements continued 24 tyco international group sa fiscal 2000 fiscal 1999 tyco international group sa tig whollyowned subsidiary company issued public debt securities see note 4 fully unconditionally guaranteed tyco accordance sec rules promulgated august 2000 following presents condensed consolidating financial information tig subsidiaries tig current organizational structure place periods presented condensed financial information tyco tig standalone basis presented using equity method accounting subsidiaries owns controls twenty percent voting shares consolidating balance sheet september 30 2000 tyco international ltd notes consolidated financial statements continued 24 tyco international group sa continued consolidating balance sheet september 30 1999 tyco international ltd notes consolidated financial statements continued 24 tyco international group sa continued consolidating statement operations year ended september 30 2000 1 operating income includes net charge 1763 million 10 million included cost sales restructuring nonrecurring charges 990 million impairment longlived assets related company exiting interventional cardiology business ussc net charge comprised charges 3252 million 73 million included cost sales primarily nonrecurring claims related merged company healthcare business restructuring activities amps brazilian operations wireless communications business nonrecurring charge incurred connection tycoms initial public offering credits 1489 million 63 million included cost sales primarily related revision estimates associated amp merger amps profit improvement plan companys 1997 restructuring plan merger ussc income continuing operations includes onetime pretax gain 17600 million related issuance common shares subsidiary 2 extraordinary items relate principally writeoff net unamortized deferred refinancing costs relating early extinguishment debt tyco international ltd notes consolidated financial statements continued 24 tyco international group sa continued consolidating statement operations year ended september 30 1999 1 operating income includes merger restructuring nonrecurring charges 6433 million 1064 million included cost sales charges impairment longlived assets 4315 million primarily related merger amp amps profit improvement plan also included merger restructuring nonrecurring charges 4238 million charges impairment longlived assets 760 million primarily related ussc merger credit 319 million representing revision estimates related tycos 1997 restructuring nonrecurring accruals 2 extraordinary items relate principally companys debt tender offers writeoff net unamortized deferred refinancing costs relating early extinguishment debt consolidating statement operations year ended september 30 1998 1 operating income includes restructuring nonrecurring charges recorded amp 1858 million related profit improvement plan credit 214 million restructuring charges representing revision estimates related amps 1996 restructuring activities also included nonrecurring charges 805 million restructuring charges 120 million related usscs operations 2 extraordinary items relate principally writeoff net unamortized deferred refinancing costs relating early extinguishment debt tyco international ltd notes consolidated financial statements continued 24 tyco international group sa continued consolidating statement cash flows year ended september 30 2000 tyco international ltd notes consolidated financial statements continued 24 tyco international group sa continued consolidating statement cash flows year ended september 30 1999 tyco international ltd notes consolidated financial statements continued 24 tyco international group sa continued consolidating statement cash flows year ended september 30 1998 tyco international ltd notes consolidated financial statements continued 25 subsequent events october 4 2000 company entered agreement acquire innerdyne inc innerdyne manufacturer distributor patented radial dilating access devices used minimally invasive medical surgical procedures purchase price approximately 180 million payable tyco common shares innerdyne integrated within tycos healthcare business tyco intends account acquisition purchase october 6 2000 company sold adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 1 billion cash sale expected generate onetime pretax gain company excess 300 million first quarter fiscal 2001 october 17 2000 company acquired mallinckrodt inc mallinckrodt global healthcare company products used primarily respiratory care diagnostic imaging pain relief company issued approximately 648 million common shares valued approximately 32 billion assumed approximately 10 billion debt mallinckrodt integrated within companys healthcare business company accounting acquisition purchase november 13 2000 company agreed acquire lucent power systems lps business unit lucent technologies inc 25 billion cash lps provides full line energy solutions power products telecommunications service providers computer industry integrated within electronics segment lps products include acdc dcdc switching power supplies batteries power supplies backup power systems acquisition subject customary regulatory approvals november 17 2000 company completed private placement offering 4657500000 principal maturity zerocoupon debt securities due 2020 aggregate net proceeds approximately 3374000000 1000 principal amount maturity security issued 74165 principal amount maturity acretes rate 15 per annum convertible 103014 tyco common shares certain conditions met company may required repurchase securities accreted value option holders november 17 2001 2003 2005 2007 2014 proceeds offering used finance lps acquisition repay commercial paper december 4 2000 company agreed acquire simplex time recorder co simplex approximately 115 billion cash simplex manufactures fire security products communications systems including control panels detection devices system software simplex also installs monitors services fire alarms security systems access control systems integrated within fire security services segment acquisition subject customary regulatory approvals tyco international ltd managements discussion analysis financial condition results operations results operations information periods presented reflects grouping tycos businesses five business segments consisting electronics telecommunications healthcare specialty products fire security services flow control products services fiscal 1999 consummated two mergers accounted pooling interests method accounting merger united states surgical corporation closed october 1 1998 merger amp incorporated closed april 2 1999 required generally accepted accounting principles united states gaap restated financial statements ussc amp always part tyco recorded expenses fiscal 1999 costs directly associated ussc amp mergers costs terminating employees closing consolidating facilities result mergers also expensed fiscal 1999 costs staff reductions facility closings amp undertook part plan improve profitability unrelated merger amp fiscal 1998 expensed charges staff reductions facility closings amp profit improvement plan charges ussc incurred exit certain businesses discussed detail liquidity capital resources overview sales increased 286 fiscal 2000 289319 million 224965 million fiscal 1999 sales fiscal 1999 increased 180 compared fiscal 1998 income extraordinary items 45201 million fiscal 2000 compared 10677 million fiscal 1999 11686 million fiscal 1998 income extraordinary items fiscal 2000 included aftertax net credit 7937 million 14847 million pretax consisting restructuring nonrecurring impairment charges 3273 million 4242 million pretax primarily nonrecurring claims related merged company exiting usscs interventional cardiology business offset credit 1136 million 1489 million pretax representing revision estimates merger restructuring nonrecurring accruals gain 10074 million 17600 million pretax issuance common shares connection tycoms initial public offering income extraordinary items fiscal 1999 included aftertax net charge 13048 million 15427 million pretax primarily related mergers ussc amp costs associated amps profit improvement plan income extraordinary items fiscal 1998 included aftertax charge 1920 million 2569 million pretax primarily related amps profit improvement plan costs incurred ussc exit certain businesses following table details tycos sales earnings fiscal 2000 fiscal 1999 fiscal 1998 millions amount sum operating income tycos five business segments set forth segment discussion less certain corporate expenses merger restructuring nonrecurring charges impairment longlived assets amortization goodwill ii net restructuring charges amount 10 million 1064 million related writedown inventory deducted part cost sales consolidated statements operations fiscal 2000 1999 respectively however deducted part cost sales purpose calculating operating income certain charges table charges instead included merger restructuring nonrecurring charges fiscal 2000 1999 took merger restructuring nonrecurring charges impairment longlived assets respect amp ussc restructuring integration programs terminate employees close facilities made redundant reduction manpower facilities comes manufacturing distribution sales administrative functions addition discontinue dispose product lines fit longterm strategy respective businesses separately track impact financial results restructuring integration programs however estimate overall cost structure reduced approximately 10000 million annualized basis due impact associated charges significant decreases selling general administrative expenses cost sales operating income margins five business segments presented accordance gaap following discussion supplemented discussion operating income margins stated deductions merger restructuring nonrecurring charges related business combinations accounted pooling interests method accounting charges impairment longlived assets supplemental discussion operating results certain charges considered alternative operating net income indicator performance business alternative cash flows operating activities measure liquidity case determined accordance gaap operating income improved segments fiscal 2000 fiscal 1999 operating improvements result increased revenues segments enhanced margins one segment fiscal 2000 increased revenues result organic growth acquisitions accounted purchase method accounting enhance margins improved productivity cost reductions ordinary course business unrelated acquisition divestiture activities regard charges incur reduce costs ordinary course business recurring charges reflected cost sales selling general administrative expenses consolidated statements operations make acquisition acquired company immediately integrated existing operations consequently separately track financial results acquired companies yeartoyear sales comparisons presented include estimates yeartoyear sales growth exclude effects acquisitions accounted purchase method accounting estimates assume acquisitions made beginning relevant fiscal periods sales operating income electronics tycos electronics segments products services include designing engineering manufacturing electronic connector systems fiber optic components wireless devices heat shrink products power components wire cable relays sensors touch screens identification labeling products switches battery assemblies designing manufacturing multilayer printed circuit boards backplane assemblies electronic modules similar components amp merger occurred april 1999 required pooling interests method accounting amps results included periods presented following table sets forth sales operating income loss margins electronics segment millions 628 increase sales fiscal 2000 fiscal 1999 electronics segment resulted primarily acquisitions lesser extent increased organic growth acquisitions included acquisition august 1999 raychem corporation acquisition november 1999 siemens electromechanical components gmbh co kg acquisition december 1999 praegitzer industries inc acquisition march 2000 critchley group plc acquisition july 2000 electronic oem business thomas betts excluding impact acquisitions sales increased estimated 151 52 increase sales fiscal 1999 fiscal 1998 predominantly due acquisition raychem august 1999 sigma circuits inc july 1998 excluding impact acquisitions sales remained relatively stable substantial increase operating income margins certain credits charges fiscal 2000 compared fiscal 1999 primarily due acquisitions raychem siemens improved margins amp tyco printed circuit group improved operating margins certain charges fiscal 2000 compared fiscal 1999 resulted increased volume improved pricing continuing cost reduction programs following amp merger addition items discussed substantial increase operating income margins certain credits charges due merger restructuring nonrecurring net credit 909 million fiscal 2000 compared restructuring nonrecurring charge 10748 million fiscal 1999 496 increase operating income certain credits charges fiscal 1999 compared fiscal 1998 due improved margins amp acquisition raychem higher sales volume tyco printed circuit group improved operating margins certain credits charges fiscal 1999 compared fiscal 1998 primarily due implementation amps profit improvement plan initiated fourth quarter fiscal 1998 cost reduction programs associated amp merger pension curtailmentsettlement gain acquisition raychem improvements partially offset 2534 million certain costs fiscal 1999 amp prior merger tyco including costs defend alliedsignal inc tender offer writeoff inventory balance sheet writeoffs adjustments addition decrease operating income margins certain credits charges due merger restructuring impairment charges 10748 million fiscal 1999 compared net restructuring impairment charges 1644 million fiscal 1998 telecommunications tycos 86 owned subsidiary tycom ltd tycom leading independent provider transoceanic fiber optic networks services tycoms products services include design engineering manufacture installation undersea cable communications systems service maintenance major undersea cable networks design manufacture installation global undersea fiber optic network known tycom global networktm tgn tycom plans operate maintain sell bandwidth capacity tgn following table sets forth sales operating income margins telecommunications segment millions 564 increase sales fiscal 2000 fiscal 1999 telecommunications segment resulted primarily increased demand thirdparty sales tycom systems much lesser extent acquisition may 1999 telecomunicaciones marinas sa temasa excluding effect temasa sales increase segment fiscal 2000 estimated 540 269 increase sales fiscal 1999 fiscal 1998 telecommunications segment due primarily higher industry demand driving backlog project activity lesser extent acquisition temasa may 1999 excluding impact temasa sales increased estimated 255 substantial increase operating income certain charges fiscal 2000 compared fiscal 1999 primarily due higher sales volume lesser extent temasa acquisition increase operating income certain charges offset nonrecurring charge 131 million incurred connection tycom initial public offering 212 increase operating income fiscal 1999 compared fiscal 1998 due higher project service revenues increased bandwidth capacity sales commissions offset part one lower margin project construction transatlantic portion tgn began fourth quarter fiscal 2000 revenues operating income may decrease period operating expenses expected increase due building tycoms infrastructure including network operations sales marketing research development administration healthcare specialty products tycos healthcare specialty products segments products services include wide variety disposable medical products including wound care products syringes needles sutures surgical staples incontinence products electrosurgical instruments laparoscopic instruments flexible plastic packaging plastic bags sheeting coated laminated packaging materials tapes adhesives plastic garment hangers adt automotives auto redistribution services see note 25 tycos merger ussc included tyco healthcare occurred october 1998 required pooling interests method accounting usscs results included periods presented following table sets forth sales operating income margins healthcare specialty products segment millions 126 increase sales fiscal 2000 fiscal 1999 primarily result increased sales tyco plastics adhesives tyco healthcare lesser extent adt automotive increases tyco healthcare due organic growth lesser extent acquisitions primarily responsible sales increase fiscal 2000 included graphic controls corporation sunbelt plastics acquired november 1998 included results fiscal 2000 part fiscal 1999 batts inc acquired april 1999 general surgical innovations inc acquired november 1999 radionics acquired january 2000 fiberlam acquired march 2000 excluding impact acquistions sales segment increased estimated 82 fiscal 2000 fiscal 1999 229 increase sales fiscal 1999 fiscal 1998 primarily result increased sales tyco healthcare lesser extent tyco plastics adhesives adt automotive fiscal 1999 acquisitions primarily responsible sales increase included valleylab sherwood davis geck confab graphic controls corporation excluding impact acquisitions sales increase fiscal 1999 fiscal 1998 51 102 increase operating income certain credits charges fiscal 2000 fiscal 1999 due increased sales volume tyco healthcare tyco plastics adhesives lesser extent adt automotive slightly offset lower operating margin percentage tyco healthcare principally due higher raw materials costs addition items discussed substantial increase operating income margins certain credits charges due net merger restructuring nonrecurring impairment charges 881 million fiscal 2000 compared net merger restructuring nonrecurring charges 4951 million fiscal 1999 substantial increase operating income operating margins certain credits charges fiscal 1999 fiscal 1998 due improved margins increased sales volume tyco healthcare whose margins depressed fiscal 1998 increase fiscal 1999 also reflected higher sales volume better margins tyco plastics adhesives adt automotive fiscal 1998 margins tyco healthcare brought fourth quarter results ussc lowered sales higher margin products reduce excess inventory levels distributors recorded increased costs principally 1058 million accrual special hospital education programs excluding effects management estimates increase operating income fiscal 1999 fiscal 1998 would 486 operating margin segment fiscal 1998 would 196 increase margins fiscal 1999 196 level primarily attributable effects cost reduction programs associated ussc merger including termination 1282 employees consolidation closure 20 facilities effect exiting businesses tyco healthcare significantly impact operating margins income addition items discussed increase operating income margins offset net merger restructuring impairment charges 4951 million fiscal 1999 compared restructuring nonrecurring charges 925 million fiscal 1998 october 6 2000 sold adt automotive business performed auto redistribution services fire security services tycos fire security services segments products services include designing installing servicing broad line fire detection prevention suppression systems providing electronic security installation monitoring services manufacturing servicing fire extinguishers related products following table sets forth sales operating income margins fire security services segment millions 98 increase sales fiscal 2000 fiscal 1999 resulted primarily increased sales worldwide electronic security services business higher sales volume fire protection operations north america asia australia increases due primarily higher volume recurring service revenues lesser extent effects acquisitions security services business acquisitions included entergy security corporation entergy acquired january 1999 alarmguard holdings alarmguard acquired february 1999 included results fiscal 2000 part fiscal 1999 excluding impact acquisitions sales increase segment fiscal 2000 estimated 89 260 sales increase fiscal 1999 fiscal 1998 reflected increased sales worldwide electronic security services fire protection businesses increases due higher volume recurring service revenues effects fiscal 1999 acquisitions security services business acquisitions included cipe sa wells fargo alarm entergy alarmguard excluding effects acquisitions increase sales segment fiscal 1999 estimated 154 135 increase operating income certain credits fiscal 2000 fiscal 1999 reflects increased service volume security operations united states fire protection businesses north america asia increase operating margins certain credits due increased sales volume security services fire protection offset slightly case security services costs reorganization security services dealer program internal sales force first two quarters fiscal 2000 438 increase operating income certain credits fiscal 1999 fiscal 1998 reflects worldwide increase service volume security services fire protection including higher margins associated recurring monitoring revenue increase operating margins certain credits fiscal 1999 principally due increased volume higher margin service inspection work north american fire protection operations increased volume due economic improvements asiapacific region higher incremental margins european security operations additions customer base cost reductions related acquisitions addition items discussed operating income margins certain credits reflect restructuring nonrecurring credit 112 million fiscal 2000 272 million fiscal 1999 flow control products services tycos flow control products services segments products services include full line valves related products industrial process control including butterfly gate globe check ball plug safety relief knifegate instrumentation sampling valves well actuators positioners couplings related products used transport control sample liquids gases powders substances pipe tubular products made primarily steel ductile iron plastic utilized mechanical tubing construction automotive water distribution fencing products markets electrical raceway products including steel conduit prewired armored cable flexible conduit steel support systems fasteners cable tray cable ladder broad range consulting engineering construction management operating services water wastewater environmental transportation infrastructure markets fire sprinkler devices specialty valves steel pipe plastic pipe fittings pipe couplings used commercial residential industrial fire protection systems following table sets forth sales operating income margins flow control products services segment millions 122 sales increase fiscal 2000 fiscal 1999 primarily due increased volume allied tube conduit increased demand valve products asiapacific region europe increased sales earth tech lesser extent impact acquisitions included glynwed international plc glynwed acquired march 1999 central sprinkler corporation acquired august 1999 afc cable systems inc acquired november 1999 flow control technologies acquired february 2000 august 1999 sold certain businesses within segment including mueller company mueller portions grinnell supply sales manufacturing grinnell excluding impacts acquisitions divestitures sales increased estimated 119 198 sales increase fiscal 1999 fiscal 1998 reflects increased demand valve products europe increased sales earth tech impact acquisitions included crosby valve rust environmental infrastructure inc glynwed excluding effect acquisitions divestitures mueller grinnell sales increase segment fiscal 1999 estimated 113 234 increase operating income fiscal 2000 fiscal 1999 primarily due increased volume allied tube conduit increased volume improved margins north american european valve operations earth tech also royalty licensing fee income certain intellectual property associated divested businesses offset portion operating income lost divestitures increased operating margins fiscal 2000 resulted primarily royalty licensing fee income margin improvement north american european valve operations earth tech 325 increase operating income fiscal 1999 fiscal 1998 primarily due increased sales european flow control operations north american valve products earth tech increase operating margins principally due cost containment programs improved margins north american pipe products business worldwide valve operations gain sale mueller portions grinnell segment significantly impact operating profits margins fiscal 1999 foreign currency effect changes foreign exchange rates fiscal 2000 fiscal 1999 fiscal 1998 material sales operating income corporate expenses corporate expenses excluding nonrecurring charges 2750 million reserve certain claims relating merged company healthcare business nonrecurring charges 12 million 1874 million fiscal 2000 compared 1229 million fiscal 1999 683 million fiscal 1998 increases due principally higher compensation expense equitybased incentive compensation plans increase corporate staffing related costs support monitor expanding businesses operations amortization goodwill amortization goodwill noncash charge increased 1283 million 3444 million fiscal 2000 compared fiscal 1999 fiscal 1999 amortization goodwill increased 2161 million 1318 million fiscal 1998 increase amortization goodwill due 51620 million consideration paid acquisitions acquisition related costs fiscal 2000 resulted goodwill intangibles 52068 million 69233 million consideration paid acquisitions acquisition related costs fiscal 1999 resulted goodwill intangibles 58079 million interest expense net interest expense net increased 2840 million 7696 million fiscal 2000 compared fiscal 1999 increased 2403 million 4856 million fiscal 1999 compared fiscal 1998 increases primarily due higher average debt balances resulting borrowings finance acquisitions stock repurchase program lesser extent higher average interest rates fiscal 2000 increase borrowings mitigated part use free cash flow pay certain acquisitions weightedaverage rate interest longterm debt fiscal 2000 fiscal 1999 fiscal 1998 65 62 64 respectively extraordinary items extraordinary items fiscal 2000 fiscal 1999 fiscal 1998 included aftertax losses amounting 02 million 457 million 24 million respectively relating primarily tender offers debt writeoff net unamortized deferred financing costs related lyons details provided notes 4 13 consolidated financial statements income tax expense effective income tax rate excluding impact merger restructuring nonrecurring credits charges impairment longlived assets gain sale tycom shares 248 fiscal 2000 compared 270 fiscal 1999 306 fiscal 1998 decreases effective income tax rates primarily due higher earnings tax jurisdictions lower income tax rates believe generate sufficient future income realize tax benefits related deferred tax assets valuation allowance maintained due continued uncertainties realization certain tax benefits primarily tax loss carryforwards see note 7 liquidity capital resources following table shows sources cash flow operating activities use portion cash operations fiscal 2000 fiscal 1999 refer net amount cash generated operating activities less capital expenditures dividends free cash flow 1 amount sum operating income five business segments set forth less certain corporate expenses merger restructuring nonrecurring credits charges impairment longlived assets goodwill amortization 2 amount sum depreciation tangible property 10950 million 9796 million fiscal 2000 fiscal 1999 respectively amortization intangible property goodwill 2050 million 1155 million fiscal 2000 fiscal 1999 respectively 3 amount net 1000 million 500 million received sale accounts receivable fiscal 2000 fiscal 1999 respectively 4 amount sum cash paid merger restructuring nonrecurring charges connection business combinations accounted pooling interests basis b restructuring nonrecurring charges taken pooled companies prior combination tyco addition fiscal 2000 fiscal 1999 paid 5442 million 3544 million respectively cash charged reserves established connection acquisitions accounted purchase accounting method amount included acquisition businesses net cash acquired consolidated statement cash flows business combinations accounted either pooling interests basis purchase accounting method fiscal 1999 company made two business combinations ussc amp required accounted pooling interests basis pooling interests accounting merged companies treated always part tyco financial statements included consolidated financial statements periods presented time pooling interests transaction tyco establishes reserve transaction costs expect incur integrating merged company within relevant tyco business segment integrating merged companies existing businesses expect realize operating synergies longterm cost savings integration costs relate primarily termination employees closure facilities made redundant detailed note 16 consolidated financial statements reserves merger restructuring nonrecurring items taken charge current earnings time reserves established amounts expended merger restructuring nonrecurring costs charged reserves paid amount reserves proves greater costs actually incurred excess credited merger restructuring nonrecurring charges consolidated statement operations period determination made fiscal 2000 established merger restructuring nonrecurring reserves 3252 million 73 million included cost sales primarily related reserve certain claims relating merged company healthcare business restructuring activities amps brazilian operations wireless communications business nonrecurring charge incurred connection tycom ipo charges associated usscs suture business exiting usscs interventional cardiology business beginning fiscal year existed merger restructuring nonrecurring reserves 3993 million related pooling interests transactions consummated prior years restructuring charges taken merged companies prior combination tyco fiscal 2000 paid 1552 million cash incurred 545 million noncash charges charged reserves also fiscal 2000 determined 1489 million merger restructuring nonrecurring reserves established prior years needed amounts taken merger restructuring nonrecurring credits fiscal 2000 offset reserves september 30 2000 remained 3659 million merger restructuring nonrecurring reserves consolidated balance sheet 3348 million included current liabilities 311 million included longterm liabilities business combinations completed fiscal 2000 required accounted purchase accounting method time purchase acquisition made establish reserve transaction costs integrating purchased company within relevant tyco business segment amounts reserves established fiscal 2000 detailed note 3 consolidated financial statements amounts charged current earnings treated additional purchase price consideration effect increasing amount goodwill recorded connection respective acquisition view costs equivalent additional purchase price consideration consider making acquisition amount reserves proves excess costs actually incurred excess used reduce goodwill account established time acquisition made fiscal 2000 made acquisitions accounted purchase accounting method aggregate cost 51620 million amount 42465 million paid cash net cash acquired 6714 million paid form tyco common shares assumed 2441 million debt connection acquisitions established purchase accounting reserves 4262 million transaction integration costs beginning fiscal 2000 purchase accounting reserves 5703 million result purchase accounting transactions made prior years fiscal 2000 paid 5442 million cash incurred 521 million noncash charges reserves established prior fiscal 2000 also fiscal 2000 determined 1178 million purchase accounting reserves related acquisitions made prior fiscal 2000 needed reversed amount goodwill september 30 2000 remained 3726 million purchase accounting reserves consolidated balance sheet 3492 million included current liabilities 234 million included longterm liabilities following details fiscal 2000 capital expenditures depreciation segment 1 includes 1111 million spending construction tycom global network continue fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards level capital expenditures fire security services segment significantly exceeded expected continue significantly exceed depreciation due large volume growth new residential subscriber systems capitalized level capital expenditures telecommunications segment expected significantly increase due construction tycom global network level capital expenditures segments expected increase moderately fiscal 2001 source funds capital expenditures expected cash operating activities provision income taxes consolidated statement operations fiscal 2000 19260 million amount income taxes paid net refunds year 4547 million difference due primarily timing tax payments related gain issuance shares tycom current income tax liability september 30 2000 16503 million compared 7980 million september 30 1999 adjustment deferred income taxes acquired companies items net increase deferred income taxes 5078 million increase deferred income taxes attributable primarily current utilization deductions restructuring nonrecurring charges purchase accounting spending timing differences book tax recognition income expense utilization net operating loss credit carryforwards tax benefits stock option exercises net change working capital net effects acquisitions divestitures increase 917 million components change set forth detail consolidated statement cash flows increase working capital accounts attributable higher level business activity fiscal 2000 reflected increased sales prior year focus maximizing cash flow operating businesses attempt keep working capital employed businesses minimum level required efficient operations addition used 18851 million purchase common shares november 1999 announced authorization board directors reacquire 20 million tyco common shares open market completed quarter ended march 31 2000 january 2000 board directors authorized expenditure additional 20000 million reacquire shares spent nearly 11000 million september 30 2000 addition repurchase shares time open market satisfy certain stockbased compensation arrangements exercise stock options received proceeds 21307 million issuance common shares subsidiary tycom ipo 3553 million exercise common share options source cash used acquisitions primarily increase total debt cash flows operations goodwill intangible assets 163326 million september 30 2000 compared 121589 million september 30 1999 september 30 2000 total debt 109990 million compared 101222 million september 30 1999 increase resulted principally borrowings commercial paper program net proceeds approximately 5659 million issuance euro denominated private placement notes april 2000 full discussion debt activity see note 4 consolidated financial statements shareholders equity 170332 million 1011 per share september 30 2000 compared 123693 million 732 per share september 30 1999 increase shareholders equity due primarily net income 45199 million unrealized gain available sale securities 10757 million issuance total approximately 156 million common shares valued approximately 6714 million acquisitions gsi afc cable november 1999 total debt percent total capitalization total debt shareholders equity 39 september 30 2000 45 september 30 1999 net debt total debt less cash equivalents percent total capitalization 35 september 30 2000 37 september 30 1999 october 4 2000 entered agreement acquire innerdyne inc innerdyne manufacturer distributor patented radial dilating access devices used minimally invasive medical surgical procedures purchase price approximately 180 million payable tyco common shares innerdyne integrated within tycos healthcare business intend account acquisition purchase october 6 2000 sold adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 1 billion cash sale expected generate onetime pretax gain tyco excess 300 million first quarter fiscal 2001 october 17 2000 acquired mallinckrodt inc mallinckrodt global healthcare company products used primarily respiratory care diagnostic imaging pain relief issued approximately 648 million common shares valued approximately 32 billion assumed approximately 10 billion debt mallinckrodt integrated within tycos healthcare business accounting acquisition purchase november 13 2000 agreed acquire lucent power systems lps business unit lucent technologies inc 25 billion cash lps provides full line energy solutions power products telecommunications service providers computer industry integrated within electronics segment lps products include acdc dcdc switching power supplies batteries power supplies backup power systems acquisition subject customary regulatory approvals november 17 2000 completed private placement offering 4657500000 principal maturity zerocoupon debt securities due 2020 aggregate net proceeds approximately 3374000000 1000 principal amount maturity security issued 74165 principal amount maturity accretes rate 15 per annum convertible 103014 tyco common shares certain conditions met may required repurchase securities accreted value option holders november 17 2001 2003 2005 2007 2014 proceeds offering used finance lps acquisition repay commercial paper december 4 2000 agreed acquire simplex time recorder co simplex approximately 115 billion cash simplex manufactures fire security products communications systems including control panels detection devices system software simplex also installs monitors services fire alarms security systems access control systems integrated within fire security services segment acquisition subject customary regulatory approvals believe cash flow operations together existing credit facilities credit arrangements adequate fund operations backlog september 30 2000 backlog unfilled orders approximately 82148 million compared backlog approximately 75811 million september 30 1999 expect approximately 86 backlog september 30 2000 filled year ending september 30 2001 backlog industry segment follows millions decrease backlog within telecommunications segment due tycom devoting substantial portion resources designing manufacturing tgn therefore taking less work supplier undersea fiber optic cable systems others within electronics segment backlog increased principally due increase demand products manufactured amp raychem lesser extent effect acquisitions within flow control products services segment backlog increased principally due increased backlog earth tech related new contract bookings water waste water facility contracts increase demand valves control products within fire security services segment backlog increased principally due longterm service contracts australian fire protection business lesser extent effect acquisitions backlog healthcare specialty products segment indicative level sales activity backlog segment generally represents unfilled orders shipped shortly purchase orders received quantitative qualitative disclosures market risk subject market risk associated changes interest rates foreign currency exchange rates certain commodity prices order manage volatility relating significant market risks enter forward foreign currency exchange contracts crosscurrency swaps foreign currency options commodity swaps interest rate swaps company anticipate material changes primary market risk exposures fiscal 2001 utilize risk management procedures controls executing derivative financial instrument transactions execute transactions hold derivative financial instruments trading purposes derivative financial instruments related interest rate sensitivity debt obligations intercompany crossborder transactions anticipated nonfunctional currency cash flows well commodity price exposures used goal mitigating significant portion exposures cost effective counterparties derivative financial instruments limited financial institutions least aa longterm credit rating interest rate sensitivity table provides information financial instruments sensitive changes interest rates including longterm investments debt obligations interest rate swaps currency swaps longterm investments table presents cash flows principal payments millions related subordinated noncollateralized zero coupon loan note based amortized cost investment september 30 2000 associated fair value interest rate discount debt obligations table presents cash flows principal repayment millions weightedaverage interest rates interest rate swaps crosscurrency swaps table presents notional amounts millions weightedaverage interest rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars millions weightedaverage variable interest rates based applicable rates september 30 2000 per terms contracts related financial instruments ii march 1994 amp entered crosscurrency swap financial institution hedge portion net investment japanese subsidiary iii fair value crosscurrency swap included table reflects portion fair value contract attributable interest component contract exchange rate sensitivity table provides information tycos financial instruments sensitive foreign currency exchange rates instruments include longterm investments debt obligations crosscurrency swaps forward foreign currency exchange contracts currency options longterm investments table presents cash flows principal payments millions related subordinated noncollateralized zero coupon loan note based amortized cost investment september 30 2000 associated fair value interest rate discount debt obligations table presents cash flows principal repayment millions weightedaverage interest rates crosscurrency swaps forward foreign currency exchange contracts table presents notional amounts millions weightedaverage contractual exchange rates currency options table presents notional amounts millions weightedaverage contractual strike prices notional amounts used calculate contractual payments exchanged contract amounts included table us dollars millions weightedaverage variable interest rates based applicable rates september 30 2000 per terms contracts related financial instruments ii march 1994 amp entered crosscurrency swap financial institution hedge portion net investment japanese subsidiary iii fair value crosscurrency swap included table reflects portion fair value contract attributable foreign currency component contracts commodity price sensitivity table provides information tycos financial instruments sensitive changes commodity prices total contract dollar amounts millions notional quantity amounts presented forward commodity contracts contract amounts used calculate contractual payments quantity commodity exchanged contracts millions year 2000 compliance tycos year 2000 compliance programs systems modifications completed time conversion process successful business adversely affected due failure key third parties successfully complete year 2000 conversion although assurance material thirdparty relationships successful conversion programs expect failure would material adverse effect financial position results operations liquidity costs year 2000 program date material know required modifications information technology embedded technology systems would material impact financial position results operations liquidity accounting technical pronouncements june 1998 june 2000 fasb issued sfas 133 accounting derivative instruments hedging activities sfas 138 accounting certain derivative instruments certain hedging activities statements establish accounting reporting standards requiring every derivative instrument recorded balance sheet either asset liability measured fair value sfas nos 133 138 also require changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met sfas nos 133 138 effective fiscal years beginning june 15 2000 expect adoption new standards material impact earnings financial position december 1999 securities exchange commission sec issued staff accounting bulletin 101 revenue recognition financial statements sab 101 clarifies certain existing accounting principles timing revenue recognition classification financial statements june 2000 sec delayed required implementation date sab 101 result sab 101 effective tyco quarter ended september 30 2001 october 2000 sec issued guidance interpretations included sab 101 currently analyzing impact staff accounting bulletin september 2000 fasb issued sfas 140 sfas 140 accounting transfers servicing financial assets extinguishment liabilitiesa replacement fasb statement 125 sfas 140 revises standards accounting securitizations transfers financial assets collateral requires certain disclosures carries sfas 125s provisions without reconsideration statement effective transfers servicing financial assets extinguishments liabilities occurring march 31 2001 statement effective recognition reclassification collateral disclosures relating securitization transactions collateral fiscal years ending december 15 2000 currently analyzing new standard forward looking information certain statements report forward looking statements within meaning private securities litigation reform act 1995 forward looking statements involve risks uncertainties particular statement contained herein press releases written statements documents filed securities exchange commission tycos communications discussions investors analysts normal course business meetings phone calls conference calls regarding consummation benefits future acquisitions well expectations respect future sales earnings cash flows operating efficiencies product expansion backlog financings share repurchases subject known unknown risks uncertainties contingencies many beyond control tyco may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forward looking statements include among things overall economic business conditions demand tycos goods services competitive factors industries tyco competes changes government regulation changes tax requirements including tax rate changes new tax laws revised tax law interpretations results litigation interest rate fluctuations capital market conditions including foreign currency rate fluctuations economic political conditions international markets including governmental changes restrictions ability transfer capital across borders timing construction successful operation tycom global network ability achieve anticipated synergies cost savings connection acquisitions timing impact uncertainties future acquisitions tyco international ltd schedule iivaluation qualifying accounts millionsitem 14 controls procedures learned instances breakdowns certain internal controls fiscal 2002 began january 2002 board directors learned unauthorized payment former lead director frank e walsh eventually led board replacing senior management team instances included abuse employee relocation loan programs unapproved bonuses attempted unauthorized credits employee loans undisclosed compensation arrangements unreported perquisites selfdealing transactions misuses corporate trust widely reported press believe publicity resulting instances negatively impacted results operations cash flow fiscal 2002 addition publicity contributed deterioration financial condition lost access commercial paper market credit ratings term debt declined fiscal 2002 ratings end fiscal 2001 former chief executive officer resigned june 3 2002 former chief corporate counsel dismissed june 10 2002 former chief financial officer resigned august 1 2002 addition members former senior management team indicted state new york violations criminal law september 12 2002 former chief executive officer former chief financial officer charged 39 violations new york state criminal law including enterprise corruption obtaining monies theft fraud former chief corporate counsel charged falsifying business records violation new york state criminal law board directors retained law firm boies schiller flexner llp april 2002 conduct investigation scope investigation consisted review analysis transactions among tyco subsidiaries directors officers findings first phase 1 reported september 17 2002 current report form 8k connection phase 1 findings direction board new chief executive officer investigation expanded second phase 2 involved comprehensive review tycos accounting financial reporting scope phase 2 review included examination tycos reported revenues profits cash flow internal auditing control procedures use reserves nonrecurring charges well corporate governance issues personal use corporate assets use corporate funds pay personal expenses employee loan forgiveness programs phase 2 investigation completed boies firm late december 2002 concluded significant systemic fraud affecting tycos prior financial statements number accounting entries treatments incorrect required correction incorrect accounting entries treatments individually aggregate material overall financial statements tyco prior senior management engaged pattern aggressive accounting even accordance generally accepted accounting principles intended increase reported earnings would conservative accounting employed reversal restatement prior accounting entries treatments resulting aggressive accounting pursued prior senior management would materially adversely affect reported revenue earnings cash flow 2003 thereafter findings reported december 30 2002 current report form 8k matters identified review aggressive accounting determined tyco consultation auditors accordance generally accepted accounting principles indicated certain adjustments 19 total identified relating years preceding fiscal 2002 adjustments included adjustments recording previously unrecorded audit adjustments aggregated 361 million recorded first quarter fiscal 2002 adjustments discussed note 1 consolidated financial statements included elsewhere herein additionally new senior management team conjunction board directors reviewed overall company policies procedures areas viewed important specific areas focus included acquisition accounting restructuring financial legal controls reserve utilization incentive compensation number areas relevant financial statements new senior management determined tycos existing policies standards approval needed substantial improvement found instances documentation important financial reporting matters substandard limited review bonuses incentive compensation across tyco manner former senior management managed tyco reflect commitment sound corporate governance processes required ensure highest standards financial integrity accounting rigor new senior management team board directors committed shareholders deserve new senior management believes prior senior managements primary focus earningspershare accretive acquisitions resulted growing considerably past several years including acquisition approximately 700 companies varying size varying businesses around world also strained internal control environment limited investment areas addition new senior management believes prior senior management past three years placed undue reliance nonrecurring charges pro forma financial information new senior management also believes rapid pace acquisitions attendant restructurings made difficult ascertain level organic growth new senior management committed improving state internal controls corporate governance financial reporting board directors new senior management initiated following actions added new nominees board directors created new board charters created new employee code conduct created new mission values goals statements conducted phase 2 review instituted detailed operating reviews chief executive officer chief financial officer business segment realigned reporting business segment chief financial officers general counsels report directly chief financial officer general counsel respectively instituted similar reporting within business segment reviewed total incentive compensation spending compensation committee board directors issued new delegation authority govern among business processes expenditure commitment funds initiated controllership assessment process identify status key routines controls conducted thorough review internal audit processes procedures required internal representation letters similar certifications chief executive officer chief financial officer key financial legal executives instituted code conduct financial executives although framework put place materially improve control structure tyco take time realize benefits initiatives board directors new senior management committed sound internal control environment also recognized leader corporate governance committed considerable resources date aforementioned reviews remedies review controls company size tyco includes approximately 2300 subsidiaries onetime event committed ongoing periodic reviews controls effectiveness results reported shareholders controls improving new senior management reason believe financial statements included report fairly stated material respects assurances however new problems found future expect continue improve controls passing quarter take time however place rigorous controls board directors new senior management desires shareholders deserve item 15item 14 principal accountant fees services information 2004 proxy statement set forth captions audit nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference part iv item 15item 14 principal accountant fees services information 2005 proxy statement set forth captions reappointment independent auditors authorization audit committee set compensation audit nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference part iv item 15item 14 principal accountant fees services information 2006 proxy statement set forth captions proposal number tworeappointment independent auditors authorization audit committee set remuneration audit nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditors incorporated herein reference part iv item 15item 14 principal accountant fees services information 2007 proxy statement set forth captions proposal number tworeappointment independent auditors authorization audit committee set remuneration audit nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditors incorporated herein reference part iv item 15item 14 principal accountant fees services information 2008 proxy statement set forth captions proposal number tworeappointment independent auditors authorization audit committee set remuneration audit nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditors incorporated herein reference part iv item 15item 14 principal accountant fees services information 2009 proxy statement set forth captions proposal number tworeappointment independent auditors authorization audit committee set remuneration audit nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditors incorporated herein reference part iv item 15item 14 principal accountant fees services information 2010 proxy statement set forth captions proposal number fiveelection auditors audit nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditors incorporated herein reference part iv item 15item 14 principal accountant fees services information 2011 proxy statement set forth proposal related election auditors incorporated herein reference part iv item 15item 14 principal accountant fees services information 2012 proxy statement set forth proposal related election auditors incorporated herein reference part iv item 15item 14 principal accountant fees services information 2013 proxy statement set forth proposal related election auditors incorporated herein reference part iv item 15item 14 principal accountant fees services information 2015 proxy statement set forth proposal related election auditors incorporated herein reference part iv item 15item 14 principal accounting fees services incorporated reference section entitled audit committee report fiscal 2016 proxy statement part iv item 15item 14 principal accounting fees services information johnson controls proxy statement set forth “proposal number two” related appointment auditors incorporated herein reference part iv item 15item 14 principal accounting fees services information johnson controls proxy statement set forth “proposal number two” related appointment auditors incorporated herein reference part iv item 15item 14 principal accounting fees services information johnson controls proxy statement set forth “proposal number two” related appointment auditors incorporated herein reference part iv item 15item 14 exhibits financial statement schedules reports form 8k 1 2 financial statements schedules see item 8 b exhibits 1 incorporated reference exhibit registrants annual report form 10k year ended december 31 1992 2 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 1993 3 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 1995 4 incorporated reference exhibit former tycos current report dated march 17 1997 form 8k filed march 25 1997 5 incorporated reference exhibit registrants schedule 14d9 dated march 3 1997 6 incorporated reference exhibit registrants current report dated july 2 1997 form 8k filed july 10 1997 7 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 1997 8 incorporated reference exhibit registrants quarterly report form 10q quarter ended december 31 1997 9 incorporated reference exhibit registrants current report dated february 27 1998 form 8k filed march 11 1998 10 incorporated reference exhibit registrants current report dated may 25 1998 form 8k filed june 24 1998 11 incorporated reference exhibit registrants form s3 filed june 9 1998 12 incorporated reference exhibit registrants tigs coregistration statement form s3 file nos 33350855 3335085501 filed june 9 1998 management contract compensatory plan c reports form 8k reports form 8k filed company last quarter fiscal 1998 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd mark h swartz mark h swartz executive vice president chief financial officer principal financial accounting officer date december 10 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated report independent accountants board directors shareholders tyco international ltd opinion consolidated financial statements listed accompanying index present fairly material respects financial position tyco international ltd subsidiaries september 30 1998 1997 results operations cash flows year ended september 30 1998 nine months ended september 30 1997 year ended december 31 1996 conformity generally accepted accounting principles united states addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits audit financial statements keystone international inc wholly owned subsidiary year ended december 31 1996 statements reflect net sales constituting 84 consolidated net sales year ended december 31 1996 statements audited auditors whose report thereon furnished us opinion expressed herein insofar relates amounts included keystone international inc based solely report auditors conducted audits statements accordance generally accepted auditing standards united states require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion expressed pricewaterhousecoopers hamilton bermuda october 23 1998 report independent public accountants shareholders board directors keystone international inc audited consolidated statements income changes shareholders investment cash flows keystone international inc texas corporation subsidiaries year ended december 31 1996 included herein consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects results operations cash flows keystone international inc subsidiaries year ended december 31 1996 conformity generally accepted accounting principles arthur andersen llp january 31 1997 houston texas tyco international ltd consolidated balance sheets see notes consolidated financial statements tyco international ltd consolidated statements operations see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity see notes consolidated financial statements tyco international ltd consolidated statements cash flows see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 summary significant accounting policies basis presentation consolidated financial statements prepared united states dollars accordance generally accepted accounting principles united states described fully note 2 july 2 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd former tyco upon consummation merger adt continuing public company changed name tyco international ltd company tyco former tyco became whollyowned subsidiary company changed name tyco international us inc tyco us addition fully described note 2 tyco merged inbrand corporation inbrand keystone international inc keystone august 27 1997 august 29 1997 respectively transactions referred herein mergers consolidated financial statements include consolidated accounts tyco company incorporated bermuda subsidiaries prepared following pooling interests method accounting mergers therefore reflect combined financial position operating results cash flows adt former tyco keystone combined periods presented inbrand january 1 1997 restated combined financial statements include financial position operating results cash flows inbrand prior january 1 1997 due immateriality accordance pooling interests method accounting fiscal 1997 beginning accumulated earnings deficit balance consolidated statement shareholders equity restated record merger inbrand prior mergers adt keystone calendar year ends former tyco june 30 fiscal year end consolidated statements operations shareholders equity cash flows year ended december 31 1996 reflect combination calendar year end consolidated results operations cash flows adt keystone former tyco results operations cash flows former tyco july 1 1995 december 31 1995 excluded historical combined results reflected adjustments 1996 consolidated statements shareholders equity cash flows principles consolidation tyco holding company whose assets consist investments subsidiaries intercompany balances holdings cash equivalents businesses consolidated group conducted companys subsidiaries company consolidates companies owns controls fifty percent voting shares unless control likely temporary results companies acquired disposed fiscal year included consolidated financial statements effective date acquisition date disposal except case pooling interests see note 2 significant intercompany balances transactions eliminated consolidation change year end september 1997 company changed fiscal year end december 31 september 30 change year end resulted short fiscal year covering nine month transition period january 1 september 30 1997 references fiscal 1998 fiscal 1997 1996 throughout consolidated financial statements refer twelve months ended september 30 1998 nine months ended september 30 1997 calendar year ended december 31 1996 respectively cash equivalents highly liquid investments purchased maturity three months less considered cash equivalents inventories recorded lower cost primarily firstin firstout market value tyco international ltd notes consolidated financial statements continued property plant equipment property plant equipment principally recorded cost less accumulated depreciation maintenance repair expenditures charged expense incurred straightline method depreciation used estimated useful lives related assets follows gains losses arising disposal property plant equipment included consolidated statements operations associates investments company owns controls twenty percent voting shares exerts significant influence operating financial policies equity method accounting used consolidated statements operations include companys share net income associates less applicable goodwill amortization goodwill intangible assets goodwill amortized straightline basis periods ranging 10 40 years 56350 million 26317 million september 30 1998 1997 respectively accumulated amortization amounted 4538 million september 30 1998 3325 million september 30 1997 impairment goodwill measured periodically basis whether anticipated undiscounted operating cash flows generated acquired businesses recover recorded net goodwill balances remaining amortization period intangible assets include patents trademarks customer contracts items amortized straightline basis lives ranging 2 30 years september 30 1998 september 30 1997 accumulated amortization amounted 1086 million 769 million respectively revenue recognition revenue sale services products recognized services rendered shipments made subscriber billings services yet rendered deferred taken income earned deferred element included current liabilities revenue installation electronic security systems recognized installations completed contract sales installation fire protection systems underwater cable systems construction related projects recorded percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable accounts receivable include amounts billed retainage provisions fire protection contracts retention balances 387 million september 30 1998 become due upon contract completion acceptance expected substantially collected fiscal year ending september 30 1999 fiscal 1999 share premium contributed surplus accordance bermuda companies act 1981 company issues shares cash premium par value resulting premium credited share premium account nondistributable reserve company issues shares exchange shares another company excess fair value shares acquired par value shares issued company credited applicable contributed surplus subject certain conditions distributable reserve income taxes deferred tax liabilities assets recognized expected future tax consequences events included consolidated financial statements tax returns deferred tax tyco international ltd notes consolidated financial statements continued liabilities assets determined based differences consolidated financial statements tax basis assets liabilities using tax rates effect years differences expected reverse valuation allowance provided offset net deferred tax assets based upon available evidence likely deferred tax assets realized research development research development expenditures expensed incurred advertising costs expensed incurred translation foreign currency assets liabilities companys subsidiaries operating outside united states account functional currency us dollars operating highly inflationary environments translated us dollars using yearend exchange rates revenues expenses translated average exchange rates effective year foreign currency translation gains losses included separate component shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments operations included net income loss gains losses resulting foreign currency transactions amounts material included net income loss interest rate swaps currency options contracts time company enters variety interest rate swaps interest rate locks future fundings currency options crosscurrency swaps management interest costs foreign currency exposures interest rate swaps interest rate locks hedge interest rates certain indebtedness involve exchange fixed floating rate interest payment obligations life related agreement without exchange notional amount interest differentials paid received interest rate swaps locks recognized life underlying agreement indebtedness respectively adjustment interest expense currency options acquired purpose hedging foreign operating income generally periods exceeding twelve months marked market realized unrealized gains losses reflected selling general administrative expenses crosscurrency swaps hedge certain net foreign investments changes valuation recorded currency translation adjustment account interest differentials swaps recorded interest expense use estimates preparation consolidated financial statements conformity generally accepted accounting principles requires management make extensive use certain estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reported periods significant estimates consolidated financial statements include allowances doubtful accounts receivable estimates future cash flows associated assets asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories estimated contract revenues related costs environmental liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ estimates accounting pronouncements june 1997 financial accounting standards board fasb issued statement financial accounting standards sfas 130 reporting comprehensive income sfas 131 disclosures segments enterprise related information effective years beginning december 15 1997 adoption standards expected impact financial results company tyco international ltd notes consolidated financial statements continued february 1998 fasb issued sfas 132 employers disclosures pensions postretirement benefits effective fiscal years beginning december 15 1997 statement revises financial statement disclosure requirements pension postretirement benefit plans change measurement recognition plans adoption standard expected impact financial results company june 1998 fasb issued sfas 133 accounting derivative instruments hedging activities effective fiscal years beginning june 15 1999 statement establishes accounting reporting standards requiring every derivative instrument recorded balance sheet either asset liability measured fair value sfas 133 also requires changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met company currently analyzing new standard reclassifications certain prior year amounts reclassified conform current year presentation stock split per share amounts share data retroactively adjusted reflect twoforone stock split described note 10 2 mergers tycos merger keystone august 1997 tyco merged keystone international inc total approximately 348 million tyco common shares issued former shareholders keystone tycos merger inbrand august 1997 tyco merged inbrand corporation total approximately 102 million tyco common shares issued former shareholders inbrand adts merger former tyco july 1997 whollyowned subsidiary adt merged former tyco shareholders adt reverse stock split received 048133 shares companys common stock share adt common stock outstanding former tyco shareholders received one share companys common stock share former tyco common stock outstanding total approximately 3368 million tyco common shares historical common share per share data company retroactively restated reflect reverse stock split three merger transactions discussed accounted pooling interests accounting method presents single interest common shareholder interests previously independent historical consolidated financial statements periods prior consummation combination restated though companies combined periods discussed note 1 consolidated financial statements periods prior january 1 1997 include inbrand due immateriality aggregate fees expenses related three mergers discussed integration combined companies expensed accompanying consolidated statement operations nine months ended september 30 1997 required pooling interests accounting method includes transaction costs approximately 2398 million relating legal printing accounting financial advisory services severance costs payable effective time merger direct expenses also includes charges approximately 6780 million reflect combination four companies including severance costs integration costs associated elimination excess facilities satisfaction certain liabilities addition company recorded charge 1484 million impairment longlived assets see notes 11 15 tyco international ltd notes consolidated financial statements continued combined separate results adt former tyco keystone inbrand periods preceding mergers follows restated combined financial statements periods prior january 1 1997 include inbrand due immateriality see note 1 adts merger automated security holdings plc ash september 1996 adt merged acquired whole issued capital ash united kingdom quoted company ash merger ash engaged provision electronic security services north america europe total consideration respect whole issued capital ash consisted issue approximately 68 million common shares company consolidated financial statements ash previously presented pounds sterling ashs functional currency purposes consolidated financial statements ashs consolidated financial statements translated united states dollars appropriate exchange rates addition ashs fiscal year end november 30 ash accounted pooling interests results combined adts using november year end results operations cash flows ash month december 1996 excluded consolidated financial statements reflected adjustments 1997 consolidated statements shareholders equity cash flows combined separate results adt ash periods preceding adt ash merger follows income tax adjustment arising preference share dividends accrued ash group payable following merger fees expenses related ash merger expensed required pooling interests accounting method fees expenses amounted 88 million 1996 3 acquisitions divestitures fiscal 1998 company acquired companies business segments aggregate 420 billion including 382 billion cash assumption approximately 240 million debt tyco international ltd notes consolidated financial statements continued issuance 271416 common shares valued 147 million 1254 subsidiary preference shares valued 1254 million cash portions acquisitions made utilizing cash hand borrowings bank credit agreements proceeds approximately 125 billion sale common shares well borrowings companys uncommitted lines credit acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions approximately 362 billion goodwill intangibles recorded company reflects adjustments necessary allocate individual purchase prices fair value assets acquired liabilities assumed additional purchase liabilities recorded additional purchase liabilities recorded fiscal 1998 include approximately 578 million transaction direct costs 1510 million severance related costs 2789 million costs associated shut consolidation certain acquired facilities september 30 1998 accrued liabilities approximately 388 million transaction costs 1219 million severance costs 2647 million facility related costs remained balance sheet fiscal 1998 acquisitions discussed include acquisition sherwooddavis geck division sherwood american home products corporation purchased cash 177 billion result acquisition approximately 144 billion goodwill intangibles recorded company sherwood manufacturer medical surgical devices catheters needles syringes sutures thermometers specialized disposable medical products annual revenues approximately 10 billion sherwood integrated kendall within tycos disposable specialty products segment july 1998 company acquired us operations crosby valve inc exchange 1254 cumulative dividend preference shares newly created subsidiary valued 1254 million subsidiary authorized 2000 cumulative dividend preference shares holders preference shares option require company repurchase preference shares par value plus unpaid dividends time july 2001 outstanding preference shares issued 100000 par value classified longterm liabilities accompanying 1998 consolidated balance sheet cash dividends accumulate preferred basis whether earned declared rate 3750 per share per annum upon liquidation holders shares entitled receive amount equal 100000 per share plus unpaid dividends preference shares may redeemed subsidiary time december 31 2008 price per share 100000 plus unpaid dividends adjusted certain increases value tycos stock defined tyco international ltd notes consolidated financial statements continued following unaudited pro forma data summarize results operations periods indicated acquisitions completed january 1 1997 pro forma data give effect actual operating results prior acquisitions adjustments interest expense goodwill amortization income taxes pro forma amounts purport indicative results would actually obtained acquisitions occurred january 1 1997 may obtained future pro forma data give effect acquisitions completed subsequent september 30 1998 addition mergers discussed note 2 fiscal 1997 company acquired companies business segments aggregate 136 billion including 134 billion cash assumption approximately 157 million debt cash portions acquisitions made utilizing cash hand funding equity offering 6452 million well borrowings companys uncommitted lines credit acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions approximately 5317 million goodwill intangibles net writeoff purchased inprocess research development recorded company reflects adjustments necessary allocate individual purchase prices fair value assets acquired liabilities assumed additional purchase liabilities recorded september 30 1998 purchase liabilities approximately 69 million severance costs 289 million facility related costs remained balance sheet connection acquisition atts submarine systems business company allocated 3610 million purchase price inprocess research development projects reached technological feasibility probable alternative future uses company expects payout employee severance consolidation facilities related acquisitions substantially completed fiscal 1999 excluding certain leases abandoned facilities 1996 company acquired companies business segments aggregate 11 billion including 8226 million cash 35 million shares companys common stock valued 1304 million assumption approximately 1550 million debt cash acquisitions made utilizing cash hand proceeds approximately 300 million issuance 6 12 public notes well borrowings companys uncommitted lines credit acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions approximately 8592 million goodwill recorded company reflects adjustments necessary allocate individual purchase prices fair value assets acquired liabilities assumed additional purchase liabilities recorded september 30 1998 purchase liabilities approximately 215 million severance costs facility related costs remained balance sheet company expects complete payout employee severance consolidation facilities fiscal 1999 excluding certain leases abandoned facilities result sale business 1995 company holds subordinated noncollateralized zero coupon loan note maturing 2004 vendor note together 10 interest ordinary share tyco international ltd notes consolidated financial statements continued capital issuer vendor note 2054 million aggregate principal amount maturity issue price 839 million reflecting yield maturity 100 per annum originally valued company 746 million september 30 1998 vendor note included longterm investments accompanying consolidated balance sheet accounted amortized cost 1111 million approximates fair value fair value vendor note estimated based companys calculation appropriate fair value interest rate discount rate determined based evaluation current uk market conditions private placement rates discussions financial sources etc continued risk margin associated deep discount debentures 1996 company entered settlement agreement related 1990 acquisition lawsuit originated company 1991 deducting legal settlement costs net gain arising settlement amounted 697 million 650 million included income 47 million included interest income 1996 4 indebtedness longterm debt follows february 1998 tyco us entered new 225 billion credit agreement group commercial banks giving right borrow 175 billion february 12 1999 option extend february 12 2000 b 05 billion february 12 2003 interest payable borrowings variable based upon borrowers option selecting eurodollar rate plus tyco international ltd notes consolidated financial statements continued margins ranging 017 019 certificate deposit rate plus margins ranging 0295 0315 base rate defined outstanding principal amount loans equals exceeds onethird commitments eurodollar certificate deposit margins increased 010 repayments amounts outstanding agreement guaranteed company accordance terms agreement june 1998 tyco us tyco international group sa tig whollyowned subsidiary company elected tig become borrower tyco us cease borrower agreement terms conditions effect remained unchanged substantially amounts outstanding credit agreement classified longterm based companys ability intent refinance obligation long term basis simultaneously closing new credit agreement tyco us reduced aggregate commitments available previously existing credit agreement 175 billion 950 million march 1998 tyco us terminated 950 million credit agreement balances outstanding time termination repaid net proceeds sale common shares note 10 ii uncommitted lines credit borrowings tyco us commercial banks offered basis borrowings repayments occur daily contain specific terms due dates interest rates due dates generally range overnight 90 days interest rates approximate available tig credit agreement iii may 1997 tyco subsidiary entered l60 million term loan bank refinance certain intercompany loans external debt interest payable borrowings variable based upon uk libor plus 035 march 1998 term loan repaid facility terminated iv july 1997 tyco us tendered 1450 million 8125 public notes due 1999 2000 million 95 public debentures due 2022 adt operations inc tendered 2500 million 825 senior notes due 2000 2941 million 925 senior subordinated notes due 2003 percentage debt tendered 928 8125 notes 755 95 debentures 962 825 notes 952 925 notes two companies paid aggregate amount including accrued interest approximately 9008 million note holders 8000 million financed previously existing credit agreement discussed connection tender company recorded aftertax charge approximately 583 million net related income tax benefit 330 million primarily representing unamortized debt issuance fees premium paid reported extraordinary loss note 13 2500 million 825 senior notes due august 2000 issued august 1993 public offering adt operations inc guaranteed senior basis company certain subsidiaries adt operations inc senior notes redeemable prior maturity 2941 million 925 senior subordinated notes due august 2003 issued august 1993 public offering adt operations inc guaranteed senior subordinated basis company notes redeemable whole part option adt operations inc time august 1998 following redemption prices twelve month period beginning august 1998 10375 b august 1999 10250 c august 2000 10125 thereafter 10000 principal amount 1996 company reacquired market 231 million face value senior subordinated notes purchase cost 240 million financed cash hand loss arising reacquisition 09 million related costs 05 million included extraordinary items note 13 december 1998 adt operations inc sent notice redemption holders notes calling notes redemption december 31 1998 conjunction tenders described adt operations inc consent holders senior subordinated notes eliminated indentures pursuant notes issued certain restrictive covenants provisions references restrictive covenants tyco international ltd notes consolidated financial statements continued b certain events default extent relating restrictive covenants c certain definitions extent relating restrictive covenants events default v june 1998 tig issued 750 million 6 18 notes due 2001 750 million 6 38 notes due 2005 750 million 6 14 dealer remarketable securitiessm drssm due 2013 500 million 70 notes due 2028 375 billion public shelf registration statement interest payable semiannually june december terms drs remarketing dealer option remarket drs june 2003 exercised would subject drs mandatory tender remarketing dealer reset interest rate adjusted fixed rate june 2013 remarketing dealer exercise option drs required tendered company june 2003 repayment amounts outstanding debt securities fully unconditionally guaranteed tyco note 24 net proceeds approximately 274 billion ultimately used repay borrowings 225 billion bank credit facility uncommitted lines credit tyco us fiscal 1998 effective interest rate instruments approximated coupon rate vi march 1997 adt finance entered sterling denominated bank credit facility 1375 million l85 million term loan facility 8 million revolving credit facility term loan facility fully drawn used repay part 26 million drawn another sterling denominated bank credit facility entered january 1997 new facility term five years guaranteed company certain subsidiaries interest payable libor plus margin amounts outstanding term loan facility repaid september 30 1998 facility terminated vii july 1995 adt operations inc issued 7763 million aggregate principal amount maturity zero coupon subordinated liquid yield option notes lyons maturing july 2010 net proceeds issue amounted 2874 million used repay full amounts outstanding adt operations incs previous bank credit agreement subsequently canceled issue price per lyon 38309 principal amount 1000 per lyon maturity reflecting yield maturity 65 per annum computed semiannual bond equivalent basis discount amortization lyons charged interest expense consolidated statements operations basis linked yield maturity lyons discount amortization fiscal 1998 amounted 110 million fiscal 1997 159 million 1996 203 million lyon exchangeable common shares company option holder time prior maturity unless previously redeemed otherwise purchased adt operations inc exchange rate 27176 common shares per lyon fiscal 1998 fiscal 1997 respectively 342752 188290 notes carrying values 1553 million 830 million exchanged 9314599 5116923 common shares company lyon purchased adt operations inc option holder july 2002 purchase price per lyon 59946 time holder exercises option company right deliver portion purchase price form common shares company beginning july 2002 lyons redeemable cash time option adt operations inc whole part redemption prices equal issue price plus accrued original issue discount date redemption lyons guaranteed subordinated basis company weightedaverage rate interest longterm debt fiscal 1998 65 fiscal 1997 76 1996 80 aggregate amounts total debt maturing next five years follows millions 3500 fiscal 1999 12475 fiscal 2000 10929 fiscal 2001 650 fiscal 2002 198 fiscal 2003 june 1998 tig entered two interest rate swap agreements financial institution hedge portion fixed rate terms public notes agreements notional amounts 650 million expire june 2003 june 2005 respectively company receives payments fixed rates tyco international ltd notes consolidated financial statements continued 625 6375 respectively makes floating rate payments based libor defined exceed 70 7125 respectively september 30 1998 floating rates agreements 558 555 respectively impact companys interest rate swap activities weightedaverage borrowing rate material year impact reported interest expense reduction 19 million 08 million 18 million fiscal 1998 fiscal 1997 1996 respectively subsequent september 30 1998 tig issued 800 million debt private placement offering consisting two series notes 400 million 5875 notes due november 2004 400 million 6125 notes due november 2008 interest series notes payable may 1 november 1 year beginning may 1 1999 notes fully unconditionally guaranteed tyco net proceeds approximately 7917 million used repay borrowings tigs 225 billion bank credit facility addition tig entered interest rate swap agreement notional amount 400 million hedge fixed rate terms 6125 notes due 2008 agreement expires november 2008 tig receive payments fixed rate 6125 make floating rate payments based libor defined 5 sale accounts receivable company agreement one operating subsidiaries sells defined pool trade accounts receivable limited purpose subsidiary company subsidiary separate corporate entity owns assets sells participating interests accounts receivable financiers turn purchase receive ownership security interests assets collections reduce accounts receivable included pool operating subsidiary sells new receivables limited purpose subsidiary risk credit loss receivables accordingly full amount allowance doubtful accounts retained companys consolidated balance sheets september 30 1998 1997 300 million available program fully utilized proceeds sales used reduce borrowings uncommitted lines credit reported operating cash flows companys consolidated statements cash flows proceeds sale less face amount accounts receivable sold amount approximates purchasers financing costs issuing commercial paper backed accounts receivable discount face amount accounted loss sale receivables 173 million 104 million 121 million fiscal 1998 fiscal 1997 1996 respectively included selling general administrative expenses companys consolidated statements operations operating subsidiary servicing agent purchaser retains collection administrative responsibilities participating interests defined pool 6 financial instruments companys financial instruments consist primarily cash banks temporary investments accounts receivable debt company also currency options notional amount 1536 million well interest rate swaps september 30 1998 september 30 1997 fair value interest rate swaps approximated book value fair value longterm debt approximately 50447 million book value 46526 million 24826 million book value 24806 million respectively based current interest rates fair value financial instruments included working capital approximated book value none companys financial instruments represent concentration credit risk company deals variety major banks worldwide accounts receivable spread among number major industries customers geographic areas none companys offbalance sheet financial instruments would result significant loss company counterparty failed perform according terms agreement tyco international ltd notes consolidated financial statements continued 7 income taxes provision benefit income taxes reconciliation notional united states federal income taxes statutory rate consolidated income loss taxes companys income tax provision follows provisions fiscal 1998 fiscal 1997 1996 included 1548 million 1011 million 453 million respectively nonus income taxes nonus component income loss income taxes 6278 million 1839 million 1177 million fiscal 1998 fiscal 1997 1996 respectively tyco international ltd notes consolidated financial statements continued deferred income tax balance sheet accounts result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset follows september 30 1998 company approximately 185 million net operating loss carryforwards certain nonus jurisdictions 166 million expiration remaining 19 million expire future years 2004 us operating loss carryforwards september 30 1998 approximately 600 million expire future years 2018 valuation allowance provided operating loss carryforwards expected utilized 8 key employee loan program loans made employees company former tyco 1983 key employee loan program payment taxes upon vesting shares granted former tycos restricted stock ownership plans loans unsecured bear interest payable annually rate approximates companys incremental shortterm borrowing rate loans generally repayable ten years except earlier payments required certain circumstances fiscal 1998 maximum amount outstanding 1435 million loans receivable program 222 million 123 million september 30 1998 september 30 1997 respectively 9 convertible redeemable preference shares company authorized 125000000 convertible cumulative redeemable preference shares 1 none outstanding september 30 1998 september 30 1997 125000000 convertible cumulative redeemable preference shares authorized 7500000 classified series first preference shares reserved issuance pursuant shareholder rights plan described rights dividends return capital redemption conversion voting otherwise remaining 117500000 convertible cumulative redeemable preference shares 1 none issued outstanding may determined company time allotment tyco international ltd notes consolidated financial statements continued november 1996 board directors adt adopted shareholder rights plan amended march 1997 july 1997 plan common shareholder received distribution rights common share held giving effect exchange ratio related merger adt former tyco twoforone stock split distributed october 22 1997 number rights associated common share 103879 right entitles holder purchase company shares new series first preference shares initial purchase price 90 per onehundredth first preference share rights become exercisable detach common shares specified period time person becomes beneficial owner 15 companys common shares commences tender exchange offer consummated would result person becoming beneficial owner 15 companys common shares exerciseable right entitle holder acquiring person purchase rights purchase price common shares market value twice rights purchase price following acquisition 15 companys common shares company involved mergers business combinations sells transfers 50 assets earnings power right entitle holder purchase rights purchase price common shares party transaction market value twice rights purchase price merger adt former tyco see note 2 specifically excluded provisions amendment plan july 1997 company may redeem rights price 001 per right time prior specified period time person become beneficial owner 15 companys common shares rights expire november 2005 unless exercised redeemed earlier event liquidation company holders companys convertible redeemable preference shares together entitled payment amount preference shares subscribed unpaid dividend prior payment common shareholders 10 shareholders equity second quarter fiscal 1998 shareholders approved increase number authorized common shares 750000000 1503750000 december 1997 company filed shelf registration enable offer time unsecured debt securities shares common stock combination foregoing aggregate initial offering price exceed 20 billion march 1998 company sold 253 million common shares 5075 per share net proceeds sale approximately 125 billion used repay indebtedness incurred previous acquisitions last quarter fiscal 1997 board directors declared twoforone stock split effected form 100 stock dividend companys common shares per share amounts share data retroactively adjusted reflect stock split march april 1997 former tyco sold aggregate 23 million shares common stock 2888 per share net proceeds sale 6452 million used repay indebtedness incurred previous acquisitions prior merger adt former tyco shareholders adt approved consolidating 010 par value common shares new 020 par value common shares increase number authorized common shares 750 million per share amounts per share data retroactively adjusted reflect consolidation new par value shares information respect adt common shares options retroactively restated connection merger july 2 1997 reflect reverse stock split ratio 048133 share adt share option outstanding issuance tyco international ltd notes consolidated financial statements continued one share former tyco outstanding see note 2 information respect keystone inbrand common shares options retroactively restated connection mergers tyco reflect applicable merger exchange ratios 048726 043 respectively restricted stock former tycos 1978 restricted stock ownership plan 1978 plan provided award 96 million shares common stock key employees november 30 1988 1978 plan approximately 95 million shares granted net surrenders 1983 restricted stock ownership plan 1983 plan provided award 136 million shares common stock key employees october 18 1993 1983 plan approximately 135 million shares awarded net surrenders former tycos 1994 restricted stock ownership plan 1994 plan assumed company provides award initial amount shares common stock plus amount equal onehalf one percent total shares outstanding beginning fiscal year september 30 1998 8540055 shares available 3475624 shares granted common shares awarded subject certain restrictions vesting varying periods ten years grants vest based certain specified performance criteria fair market value shares date vesting expensed period performance criteria measured grants vest passage time fair market value shares time grant amortized net tax benefit expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients restricted shares right vote shares receive dividends income tax benefits resulting vesting restricted shares including deduction excess fair market value restricted shares time vesting fair market value time grants payment dividends unvested shares credited contributed surplus total compensation cost expensed stockbased compensation awards 451 million 485 million 158 million fiscal 1998 fiscal 1997 1996 respectively including 296 million fiscal 1997 related accelerated vesting connection changes control provisions employee stock purchase plan substantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee stock purchase plan eligible employees authorize payroll deductions made purchase shares company matches part employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker stock options company granted employee share options issued five fixed share option plans schemes reserve common shares issuance companys directors executives managers majority options granted tyco international ltd long term incentive plan formerly known adt 1993 longterm incentive plan incentive plan incentive plan originally approved shareholders adt october 1993 certain subsequent amendments incentive plan approved shareholders adt april 1996 july 1997 incentive plan administered compensation committee board directors company consists exclusively independent nonexecutive directors company options generally granted purchase company common shares prices equate market price common shares date option granted conditions vesting determined time grant certain options granted prior years participants required pay subscription price condition vesting options granted incentive plan date generally vested become exercisable installments three year period date grant maximum term ten years company reserved 440 million common shares issuance incentive plan awards company becomes obligated make assumption substitution tyco international ltd notes consolidated financial statements continued outstanding awards previously granted acquired company count shareholder approved shares available award incentive plan september 30 1998 4557648 shares available future grant incentive plan subsequent year end broadbased option plan nonofficer employees tyco longterm incentive plan ii ltip ii approved board directors october 21 1998 company reserved 250 million common shares issuance ltip ii terms conditions plan similar incentive plan connection acquisition holmes protection fiscal 1998 options outstanding holmes stock option plans assumed tycos incentive plan connection mergers occurring fiscal 1997 see note 2 options outstanding former tyco keystone inbrand stock option plans assumed tycos incentive plan options administered incentive plan retain rights terms conditions respective plans originally granted 1995 former tyco established stock option plan certain employees excluding officers directors granted options purchase common stock price equal fair market value date grant options vest prorata basis five years 50 becoming exercisable end third year remaining exercisable end fifth year grants periods generally excess ten years keystone granted share options incentive stock option plans benefit key employees directors stock options generally issued exercise prices less fair market value date grant options vest one five years expire five ten years date grant 1993 inbrand adopted inbrand corporation stock incentive plan inbrand incentive plan awards inbrand incentive plan form qualified nonqualified stock options andor stock appreciation rights sars grants inbrand incentive plan could made employee inbrand director company person compensation committee determines making grant best interests company inbrand incentive plan provides performancebased stock option format governs vesting option awards inbrand incentive plan provided exercise price shall less fair market value common stock determination grant date option granted exercisable term fixed compensation committee term ending five ten years grant date option holder still employed company thirty days prior options expiration date options fully vest inbrand incentive plan contains provisions restrict transferability grants limit exercise event termination employment disability death grantee tyco international ltd notes consolidated financial statements continued share option activity plans since january 1 1996 follows following table summarizes information outstanding exercisable options september 30 1998 stockbased compensation 1996 company required adopt sfas 123 accounting stockbased compensation sfas 123 sfas 123 allows companies measure tyco international ltd notes consolidated financial statements continued compensation cost connection executive share option plans schemes using fair value based method continue use intrinsic value based method generally result compensation cost company decided continue use intrinsic value based method compensation cost recorded fair value based method adopted consistent provisions sfas 123 companys proforma net income loss proforma net income loss per common share fiscal 1998 fiscal 1997 1996 would follows estimated weighted average fair value tyco options granted fiscal 1998 1648 date grant using optionpricing model assumptions referred estimated weighted average fair value tyco former tyco inbrand options granted fiscal 1997 1215 955 3717 respectively date grant using optionpricing model assumptions referred stock option grants keystone fiscal 1997 fair value option grant estimated date grant using blackscholes optionpricing model following weighted average assumptions used fiscal 1998 following weighted average assumptions used fiscal 1997 following weighted average assumptions used 1996 effects applying sfas 123 proforma disclosure indicative future amounts sfas 123 apply awards prior 1995 additional awards future years anticipated stock warrants company outstanding warrants purchase common stock per share exercise prices 299 warrants 398 b warrants respectively together warrants expire july 7 1999 fiscal 1998 31397 warrants 14539 b warrants exercised fiscal 1997 36532 warrants 25000 b warrants exercised 1996 30240 warrants 25120 b warrants exercised september 30 1998 91212 warrants 66566 b warrants outstanding tyco international ltd notes consolidated financial statements continued july 1996 part agreement combine republic industries inc republic adt granted republic warrant acquire 14439900 common shares company exercise price 2078 per common share following termination agreement combine republic warrant vested exercisable republic six month period commencing september 27 1996 march 1997 warrant exercised republic company received 300 million cash treasury shares time company subsidiaries purchases shares open market satisfy certain stockbased compensation arrangements fiscal 1998 certain executives sold approximately 26 million common shares company shares fair market value dividends company paid quarterly cash dividend 0025 per common share since july 1997 prior merger adt former tyco paid quarterly cash dividend 0025 fiscal 1997 1996 adt paid dividends common shares fiscal 1997 1996 keystone paid quarterly dividends 019 per share fiscal 1997 1996 11 charge impairment longlived assets charges impairment longlived assets follows effective january 1 1996 company adopted statement financial accounting standards 121 accounting impairment longlived assets longlived assets disposed sfas 121 sfas 121 requires recoverability carrying value longlived assets primarily property plant equipment related goodwill intangible assets reviewed impairment whenever events changes circumstances indicate carrying amount asset may fully recoverable sfas 121 impairment losses recognized expected future cash flows less assets carrying value indicators impairment present carrying values assets evaluated relation operating performance future undiscounted cash flows underlying business net book value underlying assets adjusted sum expected future cash flows less book value 1997 charges company recorded charges 1484 million impairment longlived assets fiscal 1997 fire security services group recorded charge 1188 million includes 988 million related subscriber security systems installed customers premises united states canada determined following review carrying value assets also includes impairment carrying value goodwill 200 million resulting combination adts electronic security business former tyco flow control products group recorded charge 296 million reflecting impairment carrying value goodwill resulting combination keystones valve manufacturing distribution business former tyco international ltd notes consolidated financial statements continued 1996 charges following adoption sfas 121 particular change methodology requiring company evaluate assets lowest level asset grouping rather aggregate basis company recorded charge 7317 million fire security services segment relating electronic security services business adt assets principally comprise subscriber systems installed customers premises included property plant equipment related goodwill intangible assets charge 3971 million related impairment carrying value subscriber systems principally commercial sector including related goodwill principally arose acquisition adt security services 1987 since 1989 companys electronic security services operations residential sector developed rapid rate based principally internally generated growth consequence companys operations commercial sector acquired principally 1987 complemented significant residential electronic security services operation operations reorganized along separate commercial residential business lines rather aggregate geographic basis financial projections estimated cash flows commercial sector analyzed separately indicated carrying value related assets may fully recoverable impairment charge amounted 3034 million united states 567 million canada 370 million europe remaining 3346 million impairment charge relates electronic security services ash group principally arose acquisition certain businesses modern security systems 1989 1990 api security 1989 sonitrol group 1992 review carrying value subscriber systems related goodwill intangibles connection reorganization commercial residential business sectors address part changes electronic security services business environment performance similar addressed adt group impairment charge carrying values assets recorded addition aggregate fair value adt common shares issued ash shareholders significantly less ashs consolidated net asset value reasons company reviewed assets impairment upon adoption sfas 121 impairment charge amounted 2112 million united kingdom 1234 million united states impairment charge 130 million recorded companys vehicle auction business included disposable specialty products segment relating impairment carrying value property related improvements including related goodwill principally arose acquisition adt automotive 1987 12 income less expenses income less expenses 1996 consists litigation settlement gain 650 million see note 3 gains longterm investments 544 million 1996 gains arising ownership longterm investments comprised net gain 534 million relating disposal november 1996 adts entire investment limelight group plc united kingdom quoted company previously valued accounted adt nominal amount net gain 12 million relating disposal adts equity investment integrated transport systems limited note 3 net losses 02 million principally arising disposal noncore investments 13 extraordinary items extraordinary item fiscal 1998 36 million write unamortized deferred financing costs related lyons note 4 stated net applicable income tax benefit 12 million fiscal 1997 1996 company reacquired market certain longterm debt tyco international ltd notes consolidated financial statements continued financed cash hand new credit agreements extraordinary items fiscal 1997 1996 included loss arising reacquisition notes 797 million 51 million respectively write unamortized deferred refinancing costs related fees 116 million 40 million respectively stated net applicable income tax benefit 330 million 07 million respectively 14 earnings loss per common share first quarter fiscal 1998 company required adopt sfas 128 earnings per share sfas 128 specifies computation presentation disclosure requirements earnings per share substantially similar standards recently issued international accounting standards committee entitled international accounting standards earnings per share prior period earnings per common share data restated accordance provisions statement reconciliations basic diluted earnings loss per common share follows computation diluted income per common share fiscal 1998 excludes effect assumed exercise approximately 36 million stock options outstanding september 30 1998 effect would antidilutive effect diluted loss per common share fiscal 1997 1996 resulting assumed exercise outstanding stock options warrants exchange outstanding lyons antidilutive 15 merger restructuring nonrecurring charges merger restructuring nonrecurring charges follows 1997 charges connection mergers consummated fiscal 1997 note 2 company recorded merger restructuring nonrecurring charges 9178 million transaction costs 2398 million effect tyco international ltd notes consolidated financial statements continued mergers relate legal accounting financial advisory services severance costs payable effective time mergers well direct expenses expensed required pooling interests accounting method also incurred costs required combine adts electronic security business keystones valve manufacturing distribution business inbrands disposable medical products business related businesses former tyco costs include cost workforce reductions 1303 million including elimination approximately 4000 positions combination certain facilities 1942 million involving closure 18 manufacturing facilities consolidation sales service offices electronic security system monitoring centers warehouses locations disposing excess equipment assets 1335 million costs 2200 million relating consolidation certain product lines satisfaction certain liabilities nonrecurring charges approximately 1376 million accrued merger restructuring costs included current liabilities 494 million noncurrent liabilities september 30 1998 company currently anticipates restructurings completed fiscal 1999 except certain longterm contractual obligations 1996 charges 1996 charge recorded principally attributable planned technological infrastructure enhancements facilitate consolidation adts entire united states canadian monitoring center networks together related operations charge amounted 1395 million included writeoff certain property plant equipment 839 million provision idle property leases 207 million termination certain contractual obligations settlement costs 94 million integration restructuring costs 255 million also 1996 adt commenced strategic detailed review electronic security services businesses acquired part acquisition ash september 1996 review intended integrate fully ash group adts existing electronic security service businesses united kingdom united states restructuring charge 978 million recorded included writeoff certain property plant equipment 132 million provision idle property leases 225 million termination certain contractual obligations settlement costs 352 million integration restructuring costs 269 million approximately 176 million costs related charges included current noncurrent liabilities september 30 1998 restructurings substantially complete fees expenses related ash merger expensed required pooling interests accounting method fees expenses amounted 88 million 1996 16 commitments contingencies company occupies certain facilities leases expire various dates year 2021 rental expense leases equipment 2026 million 1535 million 1788 million fiscal 1998 fiscal 1997 1996 respectively september 30 1998 minimum lease payment obligations noncancelable operating leases follows 1476 million fiscal 1999 1216 million fiscal 2000 787 million fiscal 2001 628 million fiscal 2002 467 million fiscal 2003 aggregate 2223 million fiscal years 2004 2021 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations company involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given tyco international ltd notes consolidated financial statements continued uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods based upon companys experience foregoing environmental matters company concluded least reasonable possibility remedial costs incurred respect sites aggregate amount range 165 million 446 million september 30 1998 company concluded probable amount incurred within range 210 million amount included caption accrued expenses current liabilities accompanying consolidated balance sheet based upon information available company sites allocation liability cleanup costs among number parties including company liability could joint several management believes probable responsible parties fully pay cost allocated except respect one site company assumed one identified responsible parties unable pay cost apportioned partys cost reapportioned among remaining responsible parties view companys financial position reserves environmental matters 210 million company concluded payment estimated amounts material effect financial position results operations liquidity company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations liquidity 17 retirement plans defined benefit pension plans company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned contributions based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current employees net pension expense assessed accordance advice professionally qualified actuaries countries concerned based subsequent formal reviews purpose companys funding policy make annual contributions extent contributions tax deductible actuarially determined benefits defined benefit plans based years service compensation net periodic pension benefit cost defined benefit pension plans includes following components tyco international ltd notes consolidated financial statements continued accrued prepaid pension cost september 30 1998 defined benefit plans follows accrued prepaid pension cost september 30 1997 defined benefit plans follows pursuant provisions sfas 87 employers accounting pensions company recorded liabilities additional minimum pension liability adjustment 358 million 110 million september 30 1998 september 30 1997 respectively representing amount accumulated benefit obligation exceeded fair value plan assets plus accrued amounts previously recorded additional liability offset intangible asset included goodwill intangible assets tyco international ltd notes consolidated financial statements continued extent previously unrecognized prior service cost amount excess previously unrecognized prior service cost recorded net related deferred tax benefit reduction shareholders equity amount 138 million september 30 1998 19 million september 30 1997 respectively fiscal 1998 company recorded gain 284 million related curtailment subsidiarys defined benefit pension plan fiscal 1998 fiscal 1997 1996 company terminated certain defined benefit pension plans distributed plans assets participants gains losses fiscal 1997 1996 resulting terminations material addition company recognized liabilities certain plans related business acquisitions years presented amounts material total plan obligations fiscal 1998 54 relate us plans 46 relate nonus plans fiscal 1997 53 47 respectively average discount rate used determining actuarial present value projected benefit obligation weighted relation plan obligations 65 september 30 1998 75 september 30 1997 average rate increase future compensation levels 40 september 30 1998 48 september 30 1997 weighted average longterm rate return assets 93 september 30 1998 96 september 30 1997 plan assets invested principally equity fixed income instruments former tyco also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 17 million 15 million 20 million fiscal 1998 fiscal 1997 1996 respectively defined contribution retirement plans company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing stock bonus retirement plans pension expense defined contribution plans computed percentage participants compensation 362 million 280 million 312 million fiscal 1998 fiscal 1997 1996 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 37 million 22 million 17 million fiscal 1998 fiscal 1997 1996 respectively postretirement benefit plans company generally provide postretirement benefits pensions employees certain former tycos acquired operations provide benefits employees eligible date acquisition addition adts electronic security services operation united states sponsors unfunded defined benefit postretirement plan covers salaried nonsalaried employees provides medical benefits postretirement health care plan contributory retiree contributions adjusted annually company recorded gain 88 million related curtailment plan fiscal 1998 net periodic postretirement benefit cost reflects following components tyco international ltd notes consolidated financial statements continued components accrued postretirement benefit obligation unfunded follows measurement purposes fiscal 1998 91 composite annual rate increase per capita cost covered health care benefits assumed rate assumed decrease gradually 45 year 2008 remain level thereafter health care cost trend rate assumption may significant effect amounts reported illustrate increasing assumed health care cost trend rate one percentage point would increase accumulated postretirement benefit obligation september 30 1998 42 million aggregate service interest cost component net periodic postretirement benefit cost year ended 03 million weighted average discount rate used determining accumulated postretirement benefit obligation 675 september 30 1998 75 september 30 1997 18 consolidated segment data selected information industry segment presented tyco international ltd notes consolidated financial statements continued 1 includes charges 1313 million related merger restructuring nonrecurring charges connection inbrand merger 2 includes charges 5303 million related merger restructuring nonrecurring charges 1188 million related impairment longlived assets connection merger adt former tyco 3 includes charges 2562 million related merger restructuring nonrecurring charges 296 million related impairment longlived assets connection keystone merger 4 includes charge 3610 million related write purchased research development costs connection acquisition 5 includes charge 130 million related impairment longlived assets adts vehicle auction services operations 6 includes charges 7317 million related impairment longlived assets 2373 million relating restructuring nonrecurring items adts electronic security services operations 88 million related professional transaction costs connection ash merger tyco international ltd notes consolidated financial statements continued 19 consolidated geographic data selected information geographic area presented tyco international ltd notes consolidated financial statements continued 20 supplementary balance sheet information selected supplementary balance sheet information presented 21 supplementary income statement information selected supplementary income statement information presented tyco international ltd notes consolidated financial statements continued 22 comparative results unaudited change year end resulted fiscal 1997 covering nine month period ended september 30 1997 following unaudited financial information twelve months ended september 30 1997 presented provide comparative results fiscal 1998 included accompanying consolidated statement operations millions except per share amounts 23 summarized quarterly financial data unaudited summarized quarterly financial data presented tyco international ltd notes consolidated financial statements continued 1 includes charges 96 million first quarter 470 million second quarter 8612 million third quarter related merger restructuring nonrecurring charges primarily connection merger adt former tyco keystone inbrand mergers 2 includes charge impairment longlived assets 1484 million 3610 million writeoff purchased inprocess research development costs 3 extraordinary items comprised principally losses repayment write net unamoritized deferred refinancing costs relating early extinguishment debt 24 tyco international group sa discussed note 4 tig issued 275 billion debt securities fully unconditionally guaranteed tyco tig luxembourg holding company parent company substantially operating subsidiaries company included separate financial statements footnotes tig full unconditional guarantee tyco companys belief information material holders debt securities following presents consolidated summary financial information tig subsidiaries tig organizational structure september 30 1998 place periods presented tyco international ltd notes consolidated financial statements continued 1 loss extraordinary items fiscal 1997 includes charges related merger restructuring nonrecurring costs 8168 million impairment longlived assets 1484 million primarily related mergers integration adt former tyco keystone inbrand see notes 11 15 fiscal 1997 also includes charge 3610 million writeoff purchased inprocess research development costs 2 loss extraordinary items 1996 includes nonrecurring charges 7447 million related adoption sfas 121 2373 million related principally restructuring adts electronic security services business united states united kingdom 88 million fees expenses related ash merger see notes 11 15 3 extraordinary items comprised principally losses repayment write net unamortized deferred refinancing costs relating early extinguishment debt 25 subsequent events october 1 1998 tyco consummated merger united states surgical corporation ussc develops manufactures markets line surgical wound closure products advanced surgical products hospitals throughout world shareholders ussc received 07606 shares tyco common stock exchange outstanding share ussc total approximately 592 million shares issued transaction accounted pooling interests method accounting following pro forma data summarize consolidated results operations periods indicated assuming merger ussc consummated september 30 1998 periods presented restated transaction unaudited november 1998 company announced completion acquisition graphic controls corporation approximately 460 million including assumption certain outstanding debt graphic controls leading designer manufacturer marketer distributor disposable medical products integrated ludlow technical products within tyco healthcare group company intends account acquisition purchase tyco international ltd notes consolidated financial statements continued november 1998 boards directors tyco amp incorporated amp approved definitive merger agreement pursuant amp merge indirect subsidiary tyco estimated tyco issue approximately 1860 million common shares delivery subsidiary former shareholders amp merger actual number shares based tycos weighted average stock price fifteen day trading period prior amps shareholder vote merger amp annual revenues approximately 55 billion designs manufactures markets broad range electronic electrical fiberoptic wireless interconnective devices systems amp serves customers consumer industrial communications automotive computer power industries merger subject approval companies shareholders customary regulatory approvals transaction expected accounted pooling interests managements discussion analysis financial condition results operations results operations information periods presented reflects grouping companys businesses four business segments consisting disposable specialty products fire security services flow control products electrical electronic components september 1997 company changed fiscal year end december 31 september 30 references fiscal 1998 fiscal 1997 1996 refer twelve month fiscal year ended september 30 1998 transitional nine month fiscal year ended september 30 1997 calendar year ended december 31 1996 respectively discussions results operations fiscal 1998 compare fiscal year ended september 30 1998 twelve months ended september 30 1997 unaudited results operations fiscal 1997 compare nine months ended september 30 1997 nine months ended september 30 1996 unaudited overview income loss extraordinary items 118 billion 202 per share diluted basis fiscal 1998 compared 7087 million 139 per share twelve months ended september 30 1997 excluding 140 billion 259 per share aftertax charge twelve months ended september 30 1997 merger transaction costs writeoffs integration costs associated acquisitions see notes 2 3 consolidated financial statements income loss extraordinary items rose 702 6914 million 130 per diluted share increase attributable margin improvements increased sales results acquired companies companys business segments acquisition acquired companies immediately integrated tyco separately track postacquisition financial results accordingly amounts following analysis related impact acquired companies estimates based preacquisition results sales increased 25 fiscal 1998 1231 billion 982 billion twelve months ended september 30 1997 sales disposable specialty products group increased 8652 million 345 billion 34 principally due increased sales kendall lesser extent adt automotive tyco plastics adhesives increase kendall primarily due inclusion sherwooddavis geck sherwood confab acquired february 1998 april 1998 respectively excluding impact acquisitions sales increased estimated 2130 million 6 sales fire security services group increased 5741 million 14 474 billion primarily due increased sales companys electronic security services business united states increase relates increased volume recurring service revenues lesser extent inclusion results companies acquired fiscal 1998 additionally sales increased european security fire protection businesses due increase service recurring revenues inclusion results acquired companies sales flow control products group increased 1462 million 234 billion 7 reflecting increased demand companys valve products north america europe higher volume existing businesses allied tube conduit mueller inclusion companies acquired fiscal 1998 sales electrical electronic components group increased 9055 million 178 billion 103 principally due increased sales tyco submarine systems ltd tssl well increased sales tyco printed circuit group offset slightly decreased sales allied electrical conduit increased sales tssl resulted principally acquisition atts submarine systems business july 1997 excluding impact acquisition sales increased estimated 2739 million 18 sales increased 29 nine month fiscal period ended september 30 1997 759 billion 587 billion nine months ended september 30 1996 sales disposable specialty products group increased 5803 million 20 billion 41 due increased sales kendall tyco plastics adt automotive kendall tyco plastics increase sales resulted principally inbrand carlisle acquisitions respectively well internal growth kendalls healthcare polyken businesses sales fire security services group increased 4732 million 18 315 billion due increased sales geographic region companys fire protection operations primarily result increase volume service business well increases companys electronic security services businesses additionally results include thorn security thorn acquired july 1996 sales flow control products group increased 2668 million 168 billion 19 reflecting higher volume european flow control including businesses acquired last quarter 1996 first quarter fiscal 1997 mueller including businesses acquired third quarter 1996 well increased volume existing businesses allied including businesses acquired first quarter fiscal 1997 grinnells distribution operations sales increased due price increases sales relatively unchanged keystone growth international operations offset reduced us dollar equivalents due currency fluctuations sales electrical electronic components group increased 3964 million 7547 million 111 resulting principally acquisition atts submarine systems business july 1997 increased sales simplex increased sales printed circuit group businesses largely due acquisition electrostar january 1997 increased unit volume allieds electrical conduit operations also increased sales income loss income taxes extraordinary items pretax income loss extraordinary items 172 billion fiscal 1998 compared 4912 million twelve months ended september 30 1997 pretax income twelve months ended september 30 1997 included charges 154 billion merger restructuring nonrecurring charges see notes 11 15 consolidated financial statements excluding nonrecurring charges pretax income loss increased 6673 million 63 105 billion twelve months ended september 30 1997 amortization expense goodwill intangible assets 1530 million fiscal 1998 1158 million twelve months ended september 30 1997 following analysis presented exclusive nonrecurring charges better portray comparability recurring operations operating profits disposable specialty products group increased 2186 million 6437 million fiscal 1998 51 operating profits 187 sales fiscal 1998 165 twelve months ended september 30 1997 increase principally due increased sales kendall including effect acquisition sherwood fixed cost reductions due integration sherwood increased volume better margins tyco plastics adhesives operating profits fire security services group increased 2175 million 6549 million 50 operating profits percentage sales 138 fiscal 1998 compared 105 twelve months ended september 30 1997 overall increase principally due increases service volume including recurring monitoring revenue security fire protection businesses higher margins geographic region companys security services business operating profits flow control products group increased 803 million 3259 million 33 operating profits 139 sales fiscal 1998 compared 112 twelve months ended september 30 1997 increase due increased volume margins companys north american european flow control products operations including keystones valve products integrated companys operations addition higher sales margins allied tube conduit operating profits electrical electronic components group increased 2086 million 3675 million 131 principally due acquisition atts submarine systems business july 1997 operating profits percentage sales 206 fiscal 1998 compared 182 twelve months ended september 30 1997 operating margins increased due sales increasing higher rate expenses tyco printed circuit group improved operating efficiencies allied electrical conduit offset slightly decreased margins tyco submarine systems ltd effect changes foreign exchange rates fiscal 1998 compared twelve months ended september 30 1997 material companys sales operating profits operating profits disposable specialty products group increased 524 million 3287 million fiscal 1997 19 reflecting higher earnings kendall including improved manufacturing efficiencies earnings inbrand tyco plastics addition internal growth volume prices includes results carlisle september 1996 adt automotive operating profits fire security services group increased 779 million 3367 million 30 due higher margins geographic region companys fire protection operations electronic security businesses well inclusion thorn higher margins fire protection result higher mix service work within contracting business operating profits flow control products group increased 472 million 1937 million 32 resulting principally increases companys operations results businesses acquired fiscal 1997 increases companys european flow control businesses primarily due increased margins well inclusion acquisitions increases allied mueller combination stronger operating profits resulting improved operating efficiencies well inclusion acquisitions operating profits electrical electronic components group increased 699 million 1364 million 105 due increased earnings tssl principally due acquisition atts submarine systems business increased operating levels earnings also printed circuit group businesses including electrostar allieds electrical conduit operations effect changes foreign exchange rates fiscal 1997 compared nine months ended september 30 1996 material companys sales operating profits corporate expenses 683 million fiscal 1998 compared 568 million twelve months ended september 30 1997 corporate expenses 448 million fiscal 1997 314 million nine months ended september 30 1996 increases due principally higher compensation expense companys performancerelated incentive compensation plans selling general administrative expenses total selling general administrative expenses 190 sales fiscal 1998 202 twelve months nine months ended september 30 1997 206 nine months ended september 30 1996 reductions selling general administrative costs percentage sales principally due effect higher sales termination employees consolidation facilities associated fiscal 1997 acquisitions interest expense interest expense increased 474 million 2362 million fiscal 1998 compared twelve months ended september 30 1997 due higher average debt balances result monies borrowed pay acquisitions partially offset lower average interest rates weighted average rate interest longterm debt fiscal 1998 fiscal 1997 1996 65 76 80 respectively interest expense decreased 45 million 1375 million fiscal 1997 compared nine months ended september 30 1996 due lower average interest rates partially offset higher average debt balances result monies borrowed make acquisitions extraordinary items extraordinary items fiscal 1998 fiscal 1997 1996 included net losses amounting 24 million 583 million 84 million respectively arising reacquisition certain companys senior subordinated public notes write net unamortized deferred financing costs related lyons details provided notes 4 13 consolidated financial statements income tax expense effective income tax rate 315 fiscal 1998 342 twelve months ended september 30 1997 352 nine months ended september 30 1997 364 nine months ended september 30 1996 decreases effective income tax rates due higher earnings domiciles lower income tax rates effective income tax rates 1997 1996 exclude impact nonrecurring charges management believes company generate sufficient future income realize tax benefits related deferred tax asset valuation allowance maintained due continued uncertainties realization certain tax attributes primarily tax loss carryforwards see note 7 consolidated financial statements liquidity capital resources presented consolidated statement cash flows net cash provided operating activities 164 billion fiscal 1998 significant changes working capital 3177 million decrease accounts payable accruals liabilities resulting principally spending merger restructuring nonrecurring costs 1503 million increase income taxes payable 914 million increase contracts process 862 million increase accounts receivable impact changes foreign exchange rates fiscal 1998 materially affect net working capital working capital requirements anticipated increase substantially fiscal 1999 fiscal 1998 company used cash 382 billion acquire companies four business segments 7813 million purchase property plant equipment 2226 million purchase treasury shares 565 million pay dividends shareholders level capital expenditures expected increase moderately fiscal 1999 primary source funds expenditures expected cash operations expenditures environmental matters expected material effect company fiscal 1999 see note 16 consolidated financial statements source cash used acquisitions increase total debt proceeds sale common shares cash flows operations september 30 1998 companys total debt 500 billion compared 273 billion september 30 1997 increase resulted principally net proceeds received approximately 274 billion issuance public debt discussed partially offset repayment amounts outstanding sterling denominated bank facility exchange 1553 million principal balance lyons common shares goodwill intangible assets 640 billion september 30 1998 compared 293 billion september 30 1997 shareholders equity 614 billion 1046 per share september 30 1998 compared 343 billion 639 per share september 30 1997 increase shareholders equity due primarily net proceeds approximately 125 billion sale 253 million common shares net income 117 billion proceeds 3074 million exercise options total debt percent total capitalization total debt shareholders equity 45 september 30 1998 44 september 30 1997 february 1998 tyco us entered new 225 billion credit agreement group commercial banks giving right borrow 175 billion february 12 1999 ability extend option tyco us february 12 2000 b 05 billion february 12 2003 interest payable borrowings variable based upon borrowers option selecting eurodollar rate plus margins ranging 017 019 certificate deposit rate plus margins ranging 0295 0315 base rate defined outstanding principal amount loans equals exceeds onethird commitments eurodollar certificate deposit margins increased 010 repayments amounts outstanding agreement guaranteed company accordance terms agreement june 1998 tyco us tyco international group sa tig whollyowned subsidiary company elected tig become borrower tyco us cease borrower agreement terms conditions effect remained unchanged substantially amounts outstanding credit agreement classified longterm based companys ability intent refinance obligation long term basis simultaneous closing new credit agreement tyco us reduced aggregate commitments available previously existing credit agreement 175 billion 950 million march 1998 tyco us terminated 950 million credit agreement balances outstanding time termination repaid net proceeds sale common shares discussed march 1998 company sold 253 million common shares approximately 125 billion 20 billion public shelf registration statement net proceeds sale used repay indebtedness incurred previous acquisitions june 1998 tig issued 750 million 6 18 notes due 2001 750 million 6 38 notes due 2005 750 million 6 14 dealer remarketable securitiessmdrssm due 2013 500 million 70 notes due 2028 375 billion public shelf registration statement terms drs remarketing dealer option remarket drs june 2003 exercised would subject drs mandatory tender remarketing dealer reset interest rate adjusted fixed rate june 2013 remarketing dealer exercise option drs required tendered company june 2003 repayment amounts outstanding debt securities fully unconditionally guaranteed tyco net proceeds approximately 274 billion used repay borrowings 225 billion bank credit facility uncommitted lines credit tyco us connection offering debt securities tig entered two interest rate swap agreements hedge portion fixed interest rate terms two swap agreements based notional amount 650 million five seven year term respectively terms agreements tig receives payments based fixed interest rates pays variable rates based libor exceed specified maximum interest received paid semiannually june december fiscal 1998 effective interest rate instruments approximated coupon rate october 1998 tig issued 800 million debt private placement offering consisting two series notes 400 million 5875 notes due november 2004 400 million 6125 notes due november 2008 notes fully unconditionally guaranteed tyco net proceeds approximately 7917 million used repay borrowings tigs 225 billion bank credit facility addition tig entered interest rate swap agreement hedge fixed rate terms 400 million notes due 2008 agreement expires november 2008 tig receive payments fixed rate 6125 make floating rate payments based libor defined see note 4 consolidated financial statements company believes funding sources adequate anticipated requirements expected cash flow operations backlog september 30 1998 amounted 41 billion compared 24 billion september 30 1997 backlog increased companys electrical electronic components flow control products fire security services segments within electrical electronic components group backlog increased principally due contracts awarded companys submarine systems business within flow control products group backlog increased principally due increase backlog earth tech including backlog related acquisitions companys european flow control operations within fire security services group backlog increased principally due increase backlog companys worldwide security north american fire protection businesses year 2000 compliance year 2000 compliance programs systems modifications initiated company fiscal 1997 attempt ensure systems key processes remain functional company continuing assessment potential impact year 2000 datesensitive information computer software programs operating systems product development financial business systems administrative functions begun implementing strategies avoid adverse implications objective expected achieved either modifying present systems using existing internal external programming resources installing new systems monitoring supplier customer thirdparty readiness review systems affecting company progressing costs companys year 2000 program date material company anticipate costs required modifications information technology embedded technology systems material adverse effect financial position results operations liquidity event company material third parties fail complete year 2000 compliance programs successfully time companys ability operate businesses service customers bill collect revenues purchase products timely manner could adversely affected although assurance conversion companys systems successful companys key thirdparty relationships successful conversion programs management expect failure would material adverse effect financial position results operations liquidity company daytoday operational contingency plans management process updating plans possible year 2000 specific operational requirements accounting technical pronouncements june 1998 fasb issued sfas 133 accounting derivative instruments hedging activities effective fiscal years beginning june 15 1999 statement establishes accounting reporting standards requiring every derivative instrument recorded balance sheet either asset liability measured fair value sfas 133 also requires changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met company currently analyzing new standard forward looking information certain statements report forward looking statements within meaning private securities litigation reform act 1995 forward looking statements involve risks uncertainties particular statement contained herein press releases written statements documents filed securities exchange commission companys communications discussions investors analysts normal course business meetings phone calls conference calls regarding consummation benefits future acquisitions well expectations respect future sales operating efficiencies product expansion subject known unknown risks uncertainties contingencies many beyond control company may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forward looking statements include among things overall economic business conditions demand companys goods services competitive factors industries company competes changes government regulation changes tax requirements including tax rate changes new tax laws revised tax law interpretations interest rate fluctuations capital market conditions including foreign currency rate fluctuations economic political conditions international markets including governmental changes restrictions ability transfer capital across borders ability achieve anticipated synergies cost savings connection acquisitions timing impact uncertainties future acquisitions companys ability customers suppliers ability replace modify upgrade computer programs order adequately address year 2000 issue tyco international ltd schedule ii valuation qualifying accounts millions 1 deducted assets 2 writeoff accounts receivable considered uncollectibleitem 14 principal accountant fees services information 2014 proxy statement set forth proposal related election auditors incorporated herein reference part iv item 15item 14 principal accountant fees services information 2016 proxy statement set forth proposal related election auditors incorporated herein reference part iv item 15item 14 exhibits financial statement schedules reports form 8k a1 2 financial statements schedulessee item 8 b reports form 8k current report form 8k filed july 25 2001 announcing tycos results third quarter fiscal 2001 current report form 8k filed august 3 2001 announcing proposed acquisition sensormatic electronics corporation current report form 8k filed august 16 2001 include exhibit unaudited consolidated financial statements cit group inc subsidiaries june 30 2001 december 31 2000 six months ended june 30 2001 2000 include exhibit tyco cit unaudited pro forma combined financial information nine months ended june 30 2001 year ended september 30 2000 c exhibits management contract compensatory plan signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date december 28 2001 pursuant requirements securities exchange act 1934 report signed following persons december 28 2001 capacities indicated report independent accountants board directors shareholders tyco international ltd opinion based upon audits accompanying consolidated balance sheets related consolidated statements operations shareholders equity cash flows present fairly material respects financial position tyco international ltd subsidiaries september 30 2001 2000 results operations cash flows three years period ended september 30 2001 conformity accounting principles generally accepted united states america addition opinion accompanying financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion described note 18 company changed method revenue recognition changed method accounting derivative instruments hedging activities pricewaterhousecoopers hamilton bermuda october 18 2001 except note 31 december 18 2001 consolidated balance sheets millions except share data see notes consolidated financial statements particular see note 1 definitions tyco industrial tyco capital consolidated statements operations millions except per share data see notes consolidated financial statements particular see note 1 definitions tyco industrial tyco capital consolidated statements shareholders equity millions except per share data see notes consolidated financial statements consolidated statements cash flows millions see notes consolidated financial statements particular see note 1 definitions tyco industrial tyco capital tyco international ltd notes consolidated financial statements 1 summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd company incorporated bermuda tyco subsidiaries tyco subsidiaries hereinafter company prepared united states dollars unless indicated otherwise accordance generally accepted accounting principles united states gaap june 1 2001 subsidiary company acquired cit group inc cit independent commercial finance company tyco capital corporation discussion financial data presented herein furnished separately following tyco industrialthis represents tyco subsidiaries tyco capital includes results operations tyco capital june 2 2001 equity method accounting tyco capitalthis represents tyco capital corporation subsidiaries reflects results operations june 2 2001 addition tyco capital includes certain international subsidiaries sold tyco capital corporation nonus subsidiary tyco september 30 2001 consolidatedthis represents tyco industrial tyco capital consolidated basis described fully note 3 subsidiaries tyco merged united states surgical corporation us surgical amp incorporated amp october 1 1998 april 2 1999 respectively transactions referred herein mergers consolidated financial statements prepared following pooling interests method accounting mergers therefore reflect combined financial position operating results cash flows us surgical amp subsidiaries tyco periods presented businessthe company operates following business segments electronics products services include designing engineering manufacturing electronic connector systems fiber optic components wireless devices heat shrink products power components wire cable relays sensors touch screens smart card components identification labeling products energy solutions power products switches battery assemblies designing manufacturing installing operating maintaining undersea cable communications systems telecommunications subsidiary tycom ltd tycom selling bandwidth cable network fire security services fire security services products services include designing installing servicing broad line fire detection prevention suppression systems manufacturing servicing fire extinguishers related products designing installing monitoring maintaining electronic security systems designing manufacturing valves related products tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued providing broad range consulting engineering construction management operating services water wastewater environmental transportation infrastructure markets healthcare specialty products healthcare specialty products include wide variety disposable medical products including wound care closure products syringes needles sutures surgical staplers products used vascular therapy respiratory care infant medical accessories incontinence products anesthetic supplies electrosurgical instruments laparoscopic instruments polyethylene film products flexible plastic packaging plastic bags sheeting coated laminated packaging materials tapes adhesives plastic garment hangers pipeline coating oil gas water distribution industries tyco capital tyco capitals services include commercial financing leasingoffering equipment commercial factoring structured financing specialty financing leasingconsumer lending retail sales vendor financing principles consolidationtyco holding company whose assets consist investments subsidiaries intercompany balances holdings cash equivalents businesses consolidated group conducted tycos subsidiaries company consolidates companies owns controls fifty percent voting shares unless control likely temporary results companies acquired disposed fiscal year included consolidated financial statements effective date acquisition date disposal except case mergers accounted poolings interests see note 3 significant intercompany balances transactions eliminated consolidation cash equivalentsall highly liquid investments purchased original maturity three months less considered cash equivalents inventoriesinventories recorded lower cost primarily firstin firstout market value financing leasing assetstyco capital provides funding variety financing arrangements including term loans lease financing operating leases amounts outstanding loans leases referred finance receivables financing leasing assets consist finance receivables finance receivables held sale net book value operating lease equipment certain investments time designation sale securitization syndication assets classified finance receivables held sale included assets consolidated balance sheet assets carried lower aggregate cost market value tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued chargeoff finance receivablesfinance receivables reviewed periodically determine probability loss chargeoffs taken considering factors borrowers financial condition value underlying collateral guarantees including recourse dealers manufacturers chargeoffs deducted carrying value related finance receivables extent unrecovered balance remains due final chargeoff taken time collection efforts longer deemed useful chargeoffs recorded consumer certain small ticket commercial finance receivables beginning 180 days contractual delinquency based upon historical loss severity property plant equipmentproperty plant equipment recorded principally cost less accumulated depreciation maintenance repair expenditures charged expense incurred years ended september 30 2001 2000 1999 company capitalized interest 763 million 108 million 87 million respectively increase capitalized interest primarily due construction tycom global network tgn began last quarter fiscal 2000 straightline method depreciation used estimated useful lives related assets follows equipment leased others tyco capital also included property plant equipment gains losses arising disposal property plant equipment included consolidated statements operations material goodwill intangible assetsgoodwill net 297908 million 137230 million september 30 2001 2000 respectively accumulated amortization amounted 15565 million 9593 million september 30 2001 2000 respectively accordance statement financial accounting standards sfas 142 goodwill intangible assets goodwill associated acquisitions consummated june 30 2001 amortized goodwill amortized straightline basis periods ranging 10 40 years september 30 2001 see accounting pronouncements within note 1 information sfas 142 intangible assets net 55196 million 26096 million september 30 2001 2000 respectively amounts include patents trademarks customer contracts items amortized straightline basis lives ranging 2 40 years september 30 2001 2000 accumulated amortization amounted 8853 million 5252 million respectively investmentsthe company accounts longterm investments represent less twenty percent ownership adjusting securities market value end accounting period unrealized market gains losses charged earnings securities traded shortterm tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued profit otherwise unrealized gains losses charged credited shareholders equity unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments determined specific identification basis included consolidated statements operations investments company ability exercise significant influence readily determinable market value accounted cost method accounting company periodically evaluates carrying value investments accounted cost method accounting september 30 2001 2000 investments recorded lower cost estimated net realizable value investments company owns controls twenty percent voting shares exerts significant influence operating financial policies equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented investments included assets consolidated balance sheets longlived assetsthe company periodically evaluates net realizable value longlived assets including property plant equipment relying number factors including operating results business plans economic projections anticipated future cash flows impairment carrying value asset recognized fair value asset less carrying value impaired loansimpaired loans include primarily large loans placed nonaccrual status troubled debt restructuring loan impairment defined shortfall estimated value recorded investment loan estimated value determined using fair value collateral loan collateral dependent present value expected future cash flows discounted loans effective interest rate securitizationspools assets originated sold independent trusts turn issue securities investors backed asset pools tyco capital retains servicing rights participates certain cash flows pools present value expected net cash flows exceeds estimated cost servicing recorded time sale retained interest tyco capitals retained interests securitized assets included assets subsequent recording retained interests tyco capital reviews values asset basis least often quarterly fair values retained interests calculated utilizing current anticipated credit losses prepayment speeds discount rates compared respective carrying values losses representing excess carrying value estimated current fair market value recorded impairments recognized charge operations unrealized gains credited current earnings reflected shareholders equity part comprehensive income share premium contributed surplusin accordance bermuda companies act 1981 tyco issues shares cash premium par value resulting premium credited share premium account nondistributable reserve tyco issues shares exchange shares another company excess fair value shares acquired par value shares tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued issued tyco credited applicable contributed surplus subject certain conditions distributable reserve revenue recognitionin december 1999 securities exchange commission sec issued staff accounting bulletin 101 sab 101 revenue recognition financial statements sab 101 sec staff expressed views regarding appropriate recognition revenue respect variety circumstances relevant company required company adopted sab 101 fourth quarter fiscal 2001 retroactive beginning fiscal year recognizing revenues installation security systems deferring associated direct incremental costs estimated customer lives revenue sale products recognized according terms sales arrangement generally upon shipment revenue sale services recognized services rendered subscriber billings services yet rendered deferred taken income earned deferred element included accrued expenses current liabilities longterm liabilities appropriate contract sales installation fire protection systems underwater cable systems construction related projects recorded percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable september 30 2001 accounts receivable included retainage provisions 1007 million 737 million remained unbilled september 30 2000 accounts receivable included retainage provisions 586 million 20 million remained unbilled retention provisions relate primarily fire protection electronics contracts become due upon contract completion acceptance balance 1007 million september 30 2001 447 million expected collected fiscal 2002 finance income includes interest loans accretion income direct financing leases rents operating leases related origination nonrefundable fees direct origination costs deferred amortized adjustment finance income contractual life transactions income finance receivables leveraged leases recognized accrual basis commencing month origination using methods generally approximate interest method leveraged lease income recognized basis calculated achieve constant aftertax rate return periods tyco capital positive investment transaction net related deferred tax liabilities rental income operating leases recognized accrual basis accrual finance income commercial consumer finance receivables generally suspended account placed nonaccrual status payment principal interest contractually delinquent 90 days earlier opinion management full collection principal interest due doubtful lease financingdirect financing leases recorded aggregate future minimum lease payments plus estimated residual values less unearned finance income operating lease equipment carried cost less accumulated depreciation depreciated estimated residual value using straightline method lease term projected economic life asset equipment acquired tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued satisfaction loans subsequently placed operating lease recorded lower carrying value estimated fair value acquired lease receivables include leveraged leases major portion funding provided third party lenders nonrecourse basis tyco capital providing balance acquiring title property leveraged leases recorded aggregate value future minimum lease payments plus estimated residual value less nonrecourse thirdparty debt unearned finance income management performs periodic reviews estimated residual values impairment temporary recognized current period reserve credit losses finance receivablesthe reserve credit losses periodically reviewed adequacy considering economic conditions collateral values credit quality indicators including historical expected chargeoff experience levels past due loans nonperforming assets changes economic conditions events affecting specific obligors industries may necessitate additions deductions reserve credit losses managements judgment reserve credit losses adequate provide credit losses inherent portfolio income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book values tax bases particular assets liabilities using tax rates effect years differences expected reverse valuation allowance provided offset net deferred tax assets based upon available evidence likely deferred tax assets realized research developmentresearch development expenditures expensed incurred included cost revenue advertisingadvertising costs expensed incurred included selling general administrative costs expenses sale common shares subsidiarygains sale subsidiary common shares included consolidated statement operations translation foreign currencyassets liabilities companys subsidiaries operating outside united states account functional currency us dollars operating highly inflationary environments translated us dollars using yearend exchange rates revenues expenses translated average exchange rates effective year foreign currency translation gains losses included component accumulated comprehensive loss income within shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments assets liabilities subsidiaries included net income gains losses resulting foreign currency transactions amounts material included net income tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued financial instrumentseffective october 1 2000 company adopted sfas 133 accounting derivative instruments hedging activities amended requires derivative instruments reported balance sheet fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized charge credit earnings derivative designated cash flow hedge effective portions changes fair value derivative recorded comprehensive loss income recognized consolidated statement operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized charge credit earnings fair value estimates based relevant market information including current interest rates information financial instrument assuming adequate market liquidity fair value estimates based judgments regarding future expected loss experience current economic conditions risk characteristics financial instruments factors company uses derivative instruments manage exposures foreign currency commodity price interest rate risks companys objectives holding derivatives minimize risks using effective methods eliminate reduce impacts exposures company documents relationships hedging instruments hedged items links derivatives designated fair value cash flow foreign currency hedges specific assets liabilities consolidated balance sheet specific firm commitments forecasted transactions company also assesses documents hedges inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows associated hedged items part managing exposure changes market interest rates company enduser enters various interest rate swap transactions transacted overthecounter markets financial institutions acting principal counterparties ensure appropriate use hedge accounting treatment derivatives entered designated according hedge objective specified liabilities including commercial paper specifically underwritten debt issue companys primary hedge objectives include conversion variablerate liabilities fixed rates conversion fixedrate liabilities variable rates derivatives associated objectives classified cash flow hedges fair value hedges respectively notional amounts rates indices maturities tyco capitals derivatives required closely match related terms tyco capitals hedged liabilities companys financial instruments present certain market credit risks however concentration credit risk mitigated tyco deals variety major banks worldwide accounts receivable spread among number major industries customers geographic areas none companys financial instruments would result significant loss company counterparty failed perform according terms agreement company require collateral security furnished counterparties financial instruments company however maintain reserves potential credit losses financial instruments use estimatesthe preparation consolidated financial statements conformity gaap requires management make extensive use estimates assumptions affect reported tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include merger restructuring nonrecurring charges credits purchase accounting reserves allowances doubtful accounts receivable reserve credit losses estimates future cash flows associated assets asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenues related costs environmental liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ estimates accounting pronouncementsin june 2001 financial accounting standards board fasb issued sfas 141 business combinations sfas 142 goodwill intangible assets sfas 141 requires business combinations initiated june 30 2001 accounted using purchase method addition companies required review goodwill intangible assets reported connection prior acquisitions possibly disaggregate report separately previously identified intangible assets possibly reclassify certain intangible assets goodwill sfas 142 establishes new guidelines accounting goodwill intangible assets accordance sfas 142 goodwill associated acquisitions consummated june 30 2001 amortized company implemented remaining provisions sfas 142 october 1 2001 since adoption existing goodwill longer amortized instead assessed impairment least annually company currently determining impact adopting standard transition provisions sfas 142 goodwill amortization expense fiscal 2001 5972 million june 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 addresses accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective fiscal years beginning june 15 2002 company currently assessing impact new standard july 2001 fasb issued sfas 144 impairment disposal longlived assets effective fiscal years beginning december 15 2001 provisions statement provide single accounting model impairment longlived assets company currently assessing impact new standard reclassificationscertain prior year amounts reclassified conform current year presentation stock splitsper share amounts share data retroactively restated give effect twoforone stock split october 21 1999 effected form 100 stock dividend see note 13 2 acquisitions divestitures fiscal 2001 fiscal 2001 company purchased businesses aggregate cost 195542 million consisting 88002 million cash net cash acquired issuance approximately 2112 million common shares valued 104354 million plus fair value options assumed tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued 3186 million addition 8944 million cash paid year purchase accounting liabilities related current prior years acquisitions includes approximately 1057 million relating purchase price adjustments earnout liabilities certain acquisitions 515 million transaction costs paid related acquisition cit cash portions acquisition costs funded utilizing net proceeds issuance longterm debt tyco common shares net proceeds disposal businesses debt acquired companies aggregated 406432 million including 390509 million debt cit acquisition accounted purchase results operations acquired companies included companys consolidated results respective acquisition dates connection acquisitions company recorded purchase accounting liabilities 11200 million costs integrating acquired companies transaction costs details regarding purchase accounting liabilities set forth fiscal 2001 company spent total 96946 million cash related acquisition businesses consisting 88002 million cash purchase price businesses net cash acquired plus 8944 million cash paid year purchase accounting liabilities related current prior years acquisitions time purchase acquisition made company records asset acquired liability assumed estimated fair value amount subject future adjustment appraisals valuation data obtained excess total consideration paid acquired company ii fair value tangible intangible assets acquired less liabilities assumed purchase accounting liabilities recorded goodwill result acquisitions completed fiscal 2001 adjustments fair values assets liabilities purchase accounting liabilities recorded acquisitions completed prior fiscal 2001 company recorded approximately 199021 million goodwill intangible assets fiscal 2001 following table shows fair values assets liabilities purchase accounting liabilities recorded purchase acquisitions completed fiscal 2001 adjusted reflect changes fair values tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued assets liabilities purchase accounting liabilities recorded acquisitions completed prior fiscal 2001 millions fiscal 2001 purchase acquisitions include among others mallinckrodt inc mallinckrodt cigi investment group inc cigi october 2000 innerdyne inc innerdyne lucent technologies power systems business unit lps december 2000 simplex time recorder co simplex january 2001 scott technologies inc scott may 2001 cit june 2001 electronic security systems businesses cambridge protection industries llc securitylink july 2001 mallinckrodt global healthcare company products used primarily respiratory care diagnostic imaging pain relief purchased approximately 652 million tyco common shares valued 30969 million integrated within healthcare specialty products segment cigi designer manufacturer inductors isolation transformers telecommunications applications primarily modems digital subscriber lines dsl network equipment purchased approximately 23 million tyco common shares valued 1189 million plus cash 296 million integrated within electronics segment innerdyne manufacturer distributor patented radial dilating access devices used minimally invasive medical surgical procedures purchased approximately 32 million tyco common shares valued 1780 million integrated within healthcare specialty products segment lps provider full line energy solutions power products telecommunications service providers computer industry purchased approximately 25010 million cash integrated within electronics segment simplex manufacturer fire security products communications systems including control panels detection devices system software purchased approximately 10947 million cash integrated within fire security services segment scott designer manufacturer respiratory systems lifesaving devices firefighting aviation markets purchased approximately 75 million tyco common shares valued 3911 million integrated within fire security services segment cit purchased 94555 million consisting issuance approximately 1330 million tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued common shares valued 66505 million approximately 73 outstanding shares cit cash payment 24864 million daiichi kangyo bank limited purchase approximately 27 outstanding shares cit options assumed valued 3186 million 94555 million purchase price plus 292 million acquisition related costs incurred tyco industrial reflected tyco capitals consolidated balance sheet contribution tyco accordance pushdown accounting business combinations addition 223 million paid tyco industrial acquisition related costs reflected tyco capitals consolidated balance sheet additional capital contribution securitylink provider electronic security systems residential commercial government customers purchased cash approximately 10000 million integrated within fire security services segment connection acquisition mallinckrodt company obtained appraisal independent appraiser fair value intangible assets appraisal valued purchased inprocess research development iprd various projects development new products technologies 1843 million purchased iprd written quarter ended december 31 2000 value purchased iprd based value various projects utilizing discounted cash flow method valuation included consideration stage completion projects ii technological feasibility projects iii whether projects alternative future use iv estimated future residual cash flows could generated various projects technologies respective projected economic lives mallinckrodt acquisition date several projects development different stages completion primary basis determining technological feasibility projects obtaining food drug administration fda approval acquisition date none iprd projects received fda approval assessing technological feasibility project consideration also given level complexity future technological hurdles project overcome prior submitted fda approval acquisition date none iprd projects considered technologically feasible alternative future use future residual cash flows could generated projects determined based upon managements estimate future revenue expected profitability various products technologies involved projected cash flows discounted present values taking account managements estimate future expenses would necessary bring projects completion discount rates include rate return accounts time value money well risk factors reflect economic risk cash flows projected may realized cash flows discounted discount rates ranging 14 25 per annum depending projects stage completion type fda approval needed discounted cash flow methodology various projects included purchased iprd resulted total valuation 1843 million tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued following table summarizes purchase accounting liabilities recorded connection fiscal 2001 purchase acquisitions millions 1 included within 11200 million reserve established 987 million purchase accounting liabilities recorded tyco industrial related acquisition cit reported liability tyco capital purchase accounting liabilities recorded fiscal 2001 consist 3679 million severance related costs 3936 million costs associated shut consolidation certain acquired facilities including unfavorable leases lease terminations related fees costs 3585 million transaction costs purchase accounting liabilities relate primarily acquisitions mallinckrodt lps cit simplex securitylink connection fiscal 2001 purchase acquisitions company began formulate plans date acquisition workforce reductions closure consolidation aggregate 349 facilities costs employee termination benefits relate elimination 6651 positions united states 1559 positions europe 1354 positions asiapacific region 706 positions canada latin america consisting primarily manufacturing distribution administrative technical sales marketing personnel facilities designated closure include 226 facilities united states 54 facilities europe 48 facilities asiapacific region 21 facilities canada latin america consisting primarily manufacturing plants distribution facilities sales offices corporate administrative facilities research development facilities september 30 2001 8201 employees terminated 172 facilities closed consolidated connection purchase acquisitions consummated fiscal 2001 liabilities approximately 1515 million severance related costs 3309 million shutdown consolidation acquired facilities 1089 million transaction direct costs remained consolidated balance sheet september 30 2001 company expects termination employees consolidation facilities related acquisitions substantially complete within one year plan finalization except certain longterm contractual obligations fiscal 2001 company reduced estimate purchase accounting liabilities recorded prior years 689 million primarily costs less originally anticipated goodwill related deferred tax assets reduced equivalent amount addition company finalized business plans exiting businesses termination employees connection fiscal 2000 acquisitions integration electronic oem business thomas betts afc cable systems inc critchley group plc siemens electromechanical components gmbh co kg result recorded 1037 million additional purchase accounting liabilities company yet finalized business integration plans recent acquisitions accordingly purchase accounting liabilities subject revision future quarters addition company tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued still process obtaining information finalize estimates fair values certain assets acquired liabilities assumed october 2000 company sold adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 10 billion cash company recorded net gain sale businesses investments 4065 million principally related sale adt automotive following unaudited pro forma data summarize results operations periods indicated fiscal 2001 acquisitions divestitures completed beginning periods presented pro forma data give effect actual operating results prior acquisitions divestitures adjustments interest expense goodwill amortization income taxes effect given cost reductions operating synergies presentation pro forma amounts purport indicative results would actually obtained acquisitions divestitures occurred beginning periods presented may obtained future 1 includes net gain sale businesses investments 2766 million net gain sale common shares subsidiary 641 million partially offset decrease 2411 million related change revenue recognition policies conform sab 101 income also includes net restructuring nonrecurring impairment charges 5386 million 2 includes nonrecurring gain 17600 million sale subsidiary common shares income also includes net nonrecurring impairment charges 2753 million may 30 2001 subsidiary company entered definitive agreement acquire cr bard inc bard multinational developer manufacturer marketer healthcare products used vascular urological oncological diagnosis intervention well surgical specialties taxfree stockforstock merger exchange approximately 58 million tyco common shares transaction valued approximately 32000 million including assumption net debt 729 million merger approved bard shareholders still contingent regulatory clearance united states antitrust laws consummated bard would integrated within companys healthcare specialty products segment transaction accounted purchase fiscal 2000 fiscal 2000 company purchased businesses aggregate cost 49179 million consisting 42465 million cash net cash acquired issuance approximately tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued 156 million common shares valued 6714 million addition 5442 million cash paid fiscal 2000 purchase accounting liabilities related 2000 prior years acquisitions cash portions acquisition costs funded utilizing cash hand issuance longterm debt borrowings companys commercial paper program debt acquired companies aggregated 2441 million acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions completed fiscal 2000 adjustments fair values assets liabilities purchase accounting liabilities recorded acquisitions completed prior fiscal 2000 company recorded approximately 52068 million goodwill intangible assets connection acquisitions company recorded purchase accounting liabilities 4262 million transaction costs integrating acquired companies within various business segments details regarding purchase accounting liabilities set forth fiscal 2000 company spent total 47907 million cash related acquisition businesses consisting 42465 million purchase price net cash acquired plus 5442 million cash paid fiscal 2000 purchase accounting liabilities related 2000 prior years acquisitions following table summarizes purchase accounting liabilities recorded connection fiscal 2000 purchase acquisitions millions purchase accounting liabilities recorded fiscal 2000 consist 2430 million severance related costs 876 million costs associated shut consolidation certain acquired facilities 956 million transaction direct costs 2430 million severance related costs covers employee termination benefits approximately 7215 employees located throughout world consisting primarily manufacturing distribution employees terminated result shut consolidation production facilities lesser extent administrative technical sales marketing personnel september 30 2001 8985 employees terminated 348 million severance related costs remained consolidated balance sheet company expects remaining employee terminations completed fiscal 2002 tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued 876 million exit costs associated closure consolidation 102 facilities located primarily asiapacific region united states facilities include manufacturing plants sales offices corporate administrative facilities research development facilities included within costs accruals noncancelable leases associated certain facilities approximately 118 facilities closed consolidated september 30 2001 remaining facilities primarily small manufacturing plants expected shut fiscal 2002 expenses connection closure remaining facilities well rental payments noncancelable leases less expected sublease income facilities already closed comprise approximately 325 million facility related costs remaining consolidated balance sheet september 30 2001 fiscal 2001 company reduced estimate purchase accounting liabilities relating primarily fiscal 2000 acquisitions 333 million accordingly goodwill related deferred tax assets reduced equivalent amount reductions resulted primarily costs less originally anticipated fiscal 2000 company sold certain businesses primarily within healthcare specialty products segment net proceeds approximately 744 million cash fiscal 1999 fiscal 1999 company acquired companies aggregate cost 59964 million consisting 45468 million cash issuance 324 million common shares valued 14496 million cash portions acquisition costs funded utilizing cash hand issuance longterm debt borrowings companys commercial paper program debt acquired companies aggregated 9269 million acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions company recorded approximately 58079 million goodwill intangible assets september 30 2001 remained consolidated balance sheet purchase accounting liabilities 345 million employee severance principally payments employees already terminated facility related costs principally rents noncancelable leases vacated premises costs 3 pooling interests transactions fiscal 1999 subsidiaries tyco merged us surgical amp total approximately 1184 million 3292 million tyco common shares respectively issued former shareholders companies merger transactions accounted pooling interests accounting method presents single interest common shareholder interests previously independent historical consolidated financial statements periods prior consummation mergers restated though companies combined periods aggregate fees expenses related mergers integration combined companies expensed consolidated statements operations periods tyco international ltd notes consolidated financial statements continued 3 pooling interests transactions continued mergers consummated required pooling interests method accounting see notes 16 21 connection us surgical merger company assumed operating lease us surgicals north facilities december 1998 company assumed debt related north property approximately 211 million assumption debt combined settlement certain obligations amount 23 million resulted company acquiring ownership north property total cost 234 million combined separate results company amp period preceding merger follows millions 1 includes merger restructuring nonrecurring charges 4146 million impairment charges 760 million related primarily merger us surgical restructuring nonrecurring charges 2753 million 552 million included cost revenue impairment charges 2367 million related amps profit improvement plan also includes credit 83 million representing revision estimates related companys 1997 merger restructuring nonrecurring accruals 2 result combination company amp income tax adjustment recorded conform tax accounting 4 finance receivables net following table presents details tyco capitals finance receivables net millions included finance receivables september 30 2001 leveraged lease receivables 10 billion leveraged lease receivables exclude portion funded thirdparty nonrecourse debt payable 24 billion september 30 2001 net finance receivables exclude 101 billion finance receivables previously securitized managed tyco capital tyco international ltd notes consolidated financial statements continued 4 finance receivables net continued following table sets forth tyco capitals contractual maturities finance receivables millions following table presents changes tyco capitals reserve credit losses period june 2 september 30 2001 millions total nonperforming assets tyco capital 9697 million september 30 2001 nonperforming assets reflect finance receivables nonaccrual status primarily loans ninety days delinquent assets received satisfaction loans fair value finance receivable loans tyco capital approximately 236839 million book value 232262 million september 30 2001 based discounted cash flow analysis using interest rates offered end period loans similar terms borrowers similar credit quality net carrying value lease finance receivables subject fair value disclosure totaled 82 billion 5 investments debt equity securities september 30 2001 2000 tyco industrial availableforsale equity investments fair market value 844 million 13203 million cost basis 2056 million 2187 million respectively gross unrealized losses 1496 million 164 million gross unrealized gains 284 million 11180 million september 30 2001 2000 recorded net deferred taxes 25 million 181 million respectively amounts included separate component shareholders equity september 30 2001 tyco capitals investments debt equity securities designated availableforsale totaled 9726 million included assets consolidated balance sheet tyco international ltd notes consolidated financial statements continued 5 investments debt equity securities continued included tyco capitals investments debt equity securities retained interests commercial securitized assets 8436 million consumer securitized assets 1265 million september 30 2001 retained interests include interestonly strips retained subordinated securities cash reserve accounts related securitizations carrying value retained interests securitized assets reviewed least quarterly valuation impairment securitization programs cover wide range products collateral types significantly different prepayment credit risk characteristics prepayment speed tables based constant prepayment rate cpr expresses payments function declining amount loans compound annual rate expected credit losses based upon annual loss rates key economic assumptions used measuring retained interests date securitization transactions completed period june 2 september 30 2001 follows ranges key economic assumptions used calculating fair value retained interests securitized assets product type september 30 2001 follows impact 10 percent 20 percent adverse changes key economic assumptions fair value retained interests september 30 2001 follows millions tyco international ltd notes consolidated financial statements continued 5 investments debt equity securities continued sensitivities hypothetical used caution changes fair value based 10 percent variation assumptions generally cannot extrapolated relationship change assumptions change fair value may linear also table effect variation particular assumption fair value retained interest calculated without changing assumption reality changes one factor may result changes another example increases market interest rates may result lower prepayments increased credit losses might magnify counteract sensitivities static pool credit losses represent sum actual projected future credit losses divided original balance pool respective assets september 30 2001 actual projected losses 192 weightedaverage basis commercial equipment securitizations fiscal 2001 following table summarizes certain cash flows received paid securitization trusts period june 2 september 30 2001 millions chargeoffs period june 2 september 30 2001 receivables past due 60 days september 30 2001 set forth finance receivables managed receivables addition finance receivables managed receivables include finance receivables previously securitized still managed tyco capital exclude operating leases equity investments millions tyco international ltd notes consolidated financial statements continued 6 debt 1 tyco capital corporations senior notes commercial paper priority position debt obligations tyco capital corporations debt obligation tyco industrial tyco international ltd guaranteed debt 2 tyco industrial plans use longterm credit facilities support borrowings commercial paper program tyco international ltd notes consolidated financial statements continued 6 debt continued tyco industrial november 2000 tyco industrial completed private placement offering 4657500000 principal amount maturity zero coupon convertible debentures due 2020 aggregate net proceeds approximately 3374000000 december 2000 tyco filed registration statement registering securities resale holders 1000 principal amount maturity debenture issued 74165 principal amount maturity accretes rate 15 per annum convertible 103014 tyco common shares certain conditions met company may required repurchase securities accreted value option holders november 17 2003 2005 2007 2014 net proceeds used finance acquisitions repay borrowings commercial paper program tyco international group sa tig whollyowned subsidiary tyco tycos corporate finance subsidiary included part tyco industrial december 2000 accordance terms original issuance tig exchanged 6125 euro denominated private placement notes due 2007 public notes form terms public notes identical material respects form terms outstanding private placement notes corresponding series except public notes subject restrictions transfer united states securities laws february 2001 tig issued 10 billion 6375 notes due 2006 10 billion 675 notes due 2011 public offering notes fully unconditionally guaranteed tyco net proceeds approximately 19821 million used primarily repay borrowings tigs commercial paper program february 2001 tig completed private placement offering 3035000000 principal amount maturity zero coupon convertible debentures due 2021 guaranteed tyco aggregate net proceeds approximately 2203400000 april 2001 tyco filed registration statement registering securities resale holders 1000 principal amount maturity debenture issued 74165 principal amount maturity accretes rate 15 per annum convertible 86916 tyco common shares certain conditions met tig may required repurchase securities accreted value option holders february 12 2003 2005 2007 2009 2016 february 12 2003 option exercised tig may elect repurchase securities cash tyco common shares combination thereof net proceeds used primarily repay borrowings tigs commercial paper program february 2001 tig replaced 45 billion 05 billion revolving credit facilities 3855 billion facility expiring february 6 2002 option extend february 6 2003 20 billion facility expiring february 6 2006 credit facilities guaranteed tyco terms facilities company required meet certain covenants none considered restrictive operations also may 2001 tig increased borrowing capacity commercial paper program 50 billion 5855 billion tig plans use credit facilities support borrowings commercial paper program therefore expects facilities remain largely undrawn july 2001 tig issued 500 million floating rate notes due 2003 600 million 495 notes due 2003 700 million 58 notes due 2006 public offering notes fully unconditionally guaranteed tyco net proceeds approximately 17879 million used repay borrowings tigs commercial paper program tyco international ltd notes consolidated financial statements continued 6 debt continued august 2001 tyco tig filed shelf registration statement enable tig offer time unsecured debt securities guaranteed tyco aggregate initial offering price exceed 60 billion fair value debt tyco industrial approximately 218950 million book value 216190 million 108516 million book value 109990 million september 30 2001 2000 respectively based discounted cash flow analyses using current market interest rates impact tyco industrials interest rate swap activities weightedaverage borrowing rate material year impact tyco industrials reported interest expense reduction 97 million 66 million 09 million fiscal 2001 fiscal 2000 fiscal 1999 respectively tyco capital june 2001 tyco capital corporation filed shelf registration statement enable offer time debt securities aggregate initial offering price exceed 162 billion august 2001 tyco capital sold 10000 million debt public offering registration statement fair value debt tyco capital including accrued interest approximately 364656 million book value 360135 million including accrued interest 3158 million september 30 2001 based discounted cash flow analyses using current market interest rates aggregate amounts total debt maturing next five years follows millions 7 sale accounts receivable tyco industrial agreement several operating subsidiaries sell defined pool trade accounts receivable limited purpose subsidiary company subsidiary separate corporate entity holds receivables sells participating interests accounts receivable financiers turn purchase receive ownership security interests receivables collections reduce accounts receivable included pool operating subsidiaries sell new receivables limited purpose subsidiary limited purpose subsidiary risk credit loss receivables accordingly full amount allowance doubtful accounts retained consolidated balance sheets availability program 500 million september 30 2001 2000 466 million 450 million respectively utilized program proceeds sales used reduce borrowings tigs commercial paper program reported operating cash flows consolidated statements cash flows proceeds sale less face amount accounts receivable sold amount approximates cost limited purpose subsidiary would incur issue commercial paper backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative costs expenses consolidated statements operations discount aggregated 253 million 257 million 157 million 53 66 56 tyco international ltd notes consolidated financial statements continued 7 sale accounts receivable continued weightedaverage balance receivables outstanding fiscal 2001 fiscal 2000 fiscal 1999 respectively operating subsidiaries retain collection administrative responsibilities participating interests defined pool september 2001 tig entered separate agreement sell defined pool trade accounts receivable time financial institution europe terms conditions agreement substantially similar program discussed although case limited purpose subsidiary acting intermediary availability program 1750 million tig sold certain accounts receivable program net proceeds 1600 million net discount 14 million also september 2001 tyco industrial sold certain accounts receivable tyco capital net proceeds approximately 2978 million net discount 43 million sale eliminated intercompany transaction tycos consolidated financial statements 8 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable finance receivables retained interest securitizations longterm investments accounts payable debt derivative financial instruments mandatorily redeemable preferred securities fair value cash equivalents accounts receivables retained interests securitizations longterm investments accounts payable manditorily redeemable preferred securities approximated book value september 30 2001 2000 see notes 4 6 fair value estimates finance receivables debt respectively accordance sfas 133 derivative financial instruments reported consolidated balance sheet fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met companys intention terminate derivative financial instruments based estimated fair values termination forward foreign currency exchange contracts crosscurrency swap agreements forward commodity contracts interest rate swaps september 30 2001 would resulted 1204 million gain 932 million gain 68 million loss 1039 million loss respectively september 30 2000 would resulted 2790 million gain 153 million loss 111 million gain 957 million loss respectively september 30 2001 2000 book values derivative financial instruments recorded consolidated balance sheets equaled fair values interest rate exposures company uses interest rate swaps hedge exposure interest rate risk exchanging fixed rate interest certain debt variable rate amounts interest rate swaps designated fair value hedges certain companys interest rate swaps entered fiscal 2001 assessed using shortcut method sfas 133 highly effective ineffective element gains losses certain interest rate swaps fiscal 2001 totaling net gain 197 million recognized interest financial charges along effective element change fair value interest rate swaps related hedged debt tyco capital also exchanges variable rate interest certain debt fixed rate amounts interest rate swaps designated cash flow hedges unrealized gains losses effective portion derivatives designated cash flow hedges recorded accumulated comprehensive income within consolidated statements shareholders equity assuming tyco international ltd notes consolidated financial statements continued 8 financial instruments continued change interest rates 135 million would credited earnings fiscal 2002 contractual cash payments made period june 2 september 30 2001 ineffective portion changes fair value cash flow hedges amounted 39 million recorded reduction interest expense net investments tyco industrial uses cross currency swaps designated portions foreigncurrency denominated debt hedge foreigncurrency exposure certain net investments foreign operations net unrealized loss 394 million included cumulative translation adjustment fiscal 2001 connection hedges tyco capital uses foreign exchange forward contracts crosscurrency swaps hedge net investments foreign operations net unrealized loss 134 million included cumulative translation adjustment period june 2 september 30 2001 connection hedges tyco industrial uses various options swaps forwards designated hedging instruments sfas 133 hedge impact variability price raw materials copper commodities impact variability foreign exchange rates accounts notes receivable intercompany loan balances subsidiary earnings denominated certain foreign currencies 9 income taxes provision income taxes reconciliation notional united states federal income taxes statutory rate consolidated income taxes companys income tax provision follows millions provisions fiscal 2001 fiscal 2000 fiscal 1999 include 6292 million 6486 million 2639 million respectively nonus income taxes nonus component income taxes 43988 million 33436 million 13763 million fiscal 2001 fiscal 2000 fiscal 1999 respectively tyco international ltd notes consolidated financial statements continued 9 income taxes continued deferred income tax balance sheet accounts result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset follows millions september 30 2001 company approximately 586 million net operating loss carryforwards certain nonus jurisdictions 222 million expiration remaining 364 million expire future years 2011 us operating loss carryforwards september 30 2001 approximately 1605 million expire future years 2021 valuation allowance provided operating loss carryforwards expected utilized normal course company subsidiaries income tax returns examined various regulatory tax authorities connection examinations substantial tax deficiencies proposed however company contesting proposed deficiencies ultimate resolution matters expected material adverse effect companys financial position results operations liquidity 10 key employee loan program loans made employees companys key employee loan program payment taxes upon vesting shares granted restricted share ownership plans loans unsecured bear interest payable annually rate approximates companys incremental shortterm borrowing rate loans generally repayable ten years except earlier payments required certain circumstances fiscal 2001 maximum amount outstanding program 295 million loans receivable program 112 million 114 million september 30 2001 2000 respectively tyco international ltd notes consolidated financial statements continued 11 mandatorily redeemable preferred securities connection acquisition cit company assumed 2600 million 770 preferred capital securities capital securities originally issued february 1997 subsidiary tyco capital trust invested offering proceeds junior subordinated debentures tyco capital identical rates return payment dates debentures tyco capital represent sole assets trust holders capital securities entitled receive cumulative distributions annual rate 770 either redemption date maturity debentures february 15 2027 capital securities issued trust debentures tyco capital owned trust redeemable whole part february 15 2007 time whole upon changes specific tax legislation bank regulatory guidelines securities law distributions trust guaranteed tyco capital extent trust funds available distribution distributions payable capital securities recorded minority interest expense consolidated statements operations 12 preference shares tyco authorized 125000000 preference shares par value 1 per share none issued outstanding september 30 2001 2000 rights dividends return capital redemption conversion voting otherwise may determined tycos board directors time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders 13 shareholders equity tyco authorized 2500000000 common shares par value 20 per share 1935464840 1684511070 outstanding net 17026256 31551310 shares owned subsidiaries september 30 2001 2000 respectively shares owned subsidiaries treated treasury shares recorded cost included within tycos outstanding common shares september 30 2001 4243108 common shares representing assumed exchange 6143199 exchangeable shares 06907 tyco common share per exchangeable share exchangeable shares cit exchangeco inc whollyowned subsidiary tyco capital corporation issued cit prior cits acquisition tyco connection acquisition cit outstanding exchangeable share exchangeable prior merger one share cit common stock became exchangeable 06907 tyco common share holders exchangeable shares dividend liquidation voting rights equivalent tyco common shareholders except exchangeable share equivalent 06907 tyco common share shares may exchanged tyco common shares time option holder company may redeem shares tyco common shares time november 1 2004 contributed surplus includes 853 million 594 million deferred compensation september 30 2001 2000 respectively last quarter fiscal 1999 tycos board directors declared twoforone stock split form 100 stock dividend common shares split payable october 21 1999 shareholders record october 1 1999 per share amounts share data retroactively adjusted reflect stock split change par value number authorized shares result stock split tyco international ltd notes consolidated financial statements continued 13 shareholders equity continued june 6 2001 tyco sold 39 million common shares approximately 21980 million underwritten public offering net proceeds offering 21966 million used repay debt incurred finance portion acquisition cit information respect us surgical amp common shares options retroactively restated connection mergers company reflect applicable merger per share exchange ratios 07606 07507 respectively 15212 15014 respectively giving effect subsequent split total compensation cost expensed stockbased compensation awards discussed 1168 million 1374 million 969 million fiscal 2001 fiscal 2000 fiscal 1999 respectively restricted sharesthe company maintains restricted share ownership plan provides award initial amount common shares plus amount equal onehalf one percent total shares outstanding beginning fiscal year september 30 2001 39978168 shares authorized plan 13796851 shares granted common shares awarded subject certain restrictions vesting varying periods ten years grants vest based certain specified performance criteria fair market value shares date vesting expensed period performance achievement criteria deemed probable grants vest passage time fair market value shares time grant amortized net tax benefit expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients restricted shares right vote shares receive dividends income tax benefits resulting vesting restricted shares including deduction excess fair market value restricted shares time vesting fair market value time grants payment dividends unvested shares credited contributed surplus employee stock purchase plansubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker share optionstyco granted employee share options issued two fixed share option plans reserve common shares issuance tycos directors executives managers majority options granted tyco international ltd longterm incentive plan incentive plan incentive plan administered compensation committee board directors company consists exclusively independent directors company options granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant options granted incentive plan date generally vested become exercisable periods five years date grant maximum term ten years tyco reserved 1400 million common shares issuance incentive plan awards tyco becomes obligated make assumption substitution outstanding awards previously granted acquired company assumed administered incentive plan count limit september 30 2001 tyco international ltd notes consolidated financial statements continued 13 shareholders equity continued approximately 328 million shares available future grant incentive plan october 1998 broadbased option plan nonofficer employees tyco longterm incentive plan ii ltip ii approved board directors tyco reserved 1000 million common shares issuance ltip ii terms conditions plan similar incentive plan september 30 2001 approximately 434 million shares available future grant ltip ii options assumed part business combination transactions administered incentive plan retain rights terms conditions respective plans originally granted share option activity tyco plans since september 30 1998 follows tyco international ltd notes consolidated financial statements continued 13 shareholders equity continued following table summarizes information outstanding exercisable tyco options september 30 2001 result mergers us surgical amp approximately 220 million options previously exercisable became immediately exercisable mergers consummated tycom two option plans employee share purchase plan exercise price options granted plans equal fair market value date grant tycom common shares tycom reserved 519 million common shares issuance option plans september 30 2001 approximately 223 million shares available future grant tycom options outstanding exercisable september 30 2001 29559490 6170984 respectively prices ranging 1292 4462 per share tycom options outstanding exercisable september 30 2000 21607050 26250 respectively prices ranging 3200 4462 per share stockbased compensationsfas 123 accounting stockbased compensation allows companies measure compensation cost connection employee share option plans using fair value based method continue use intrinsic value based method generally result compensation cost tyco tycom continue use intrinsic value based method recognize compensation expense issuance options exercise price equal greater market price time grant fair value based method adopted tyco international ltd notes consolidated financial statements continued 13 shareholders equity continued tyco tycom companys pro forma net income pro forma net income per common share fiscal 2001 fiscal 2000 fiscal 1999 would follows dates grant using blackscholes optionpricing model assumptions set forth estimated weightedaverage fair value tyco tycom options granted fiscal 2001 1972 911 respectively estimated weightedaverage fair value tyco tycom options granted fiscal 2000 1626 1747 respectively estimated weightedaverage fair value tyco tycom options granted fiscal 1999 1213 711 respectively following weightedaverage assumptions used fiscal 2001 following weightedaverage assumptions used fiscal 2000 following weightedaverage assumptions used fiscal 1999 effects applying sfas 123 pro forma disclosure indicative effects may future years sfas 123 apply awards prior 1995 additional awards future years anticipated dividendstyco paid quarterly cash dividend 00125 per common share since july 1997 amp paid dividends 027 per share first two quarters fiscal 1999 tyco international ltd notes consolidated financial statements continued 14 comprehensive loss income purpose reporting comprehensive loss income report measure changes equity transactions shareholders total comprehensive loss income included consolidated statements shareholders equity components accumulated comprehensive loss income follows millions 15 income tyco capital 3351 million period june 2 september 30 2001 set forth following table millions included fees income miscellaneous fees syndication fees gains receivable sales 16 charges impairment longlived assets company reviews recoverability carrying value longlived assets primarily property plant equipment related goodwill intangible assets impairment whenever events changes circumstances indicate carrying amount asset may fully recoverable impairment losses recognized fair value less assets carrying value indicators impairment present carrying values assets evaluated relation operating performance future undiscounted cash flows underlying business net book value underlying assets adjusted fair value sum expected future undiscounted cash flows less book value fair values based quoted market prices assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk tyco international ltd notes consolidated financial statements continued 16 charges impairment longlived assets continued 2001 charges fiscal 2001 electronics healthcare specialty products fire security services segments recorded charges 986 million 154 million 61 million respectively related primarily impairment property plant equipment associated closure facilities 2000 charges healthcare specialty products segment recorded charge 990 million fiscal 2000 primarily related impairment goodwill intangible assets associated company exiting interventional cardiology business us surgical 1999 charges electronics segment recorded charge 4315 million fiscal 1999 includes 3501 million related writedown property plant equipment primarily manufacturing administrative facilities associated facility closures throughout amps worldwide operations connection profit improvement plan combination facilities result merger company approximately 1436 million taken part amp profit improvement plan prior acquisition company also includes impairment value goodwill intangible assets 814 million company evaluated profitability products found certain product lines underperforming relative expectations result analysis performed connection amps profit improvement plan book value goodwill intangible assets deemed impaired written fair value healthcare specialty products segment recorded charge 760 million fiscal 1999 relating primarily writedown property plant equipment principally administrative facilities associated consolidation facilities us surgicals operations united states europe result merger company 17 extraordinary items tyco industrial recorded extraordinary item 171 million net tax benefit 92 million fiscal 2001 relating early extinguishment debt extraordinary item fiscal 2000 02 million net tax benefit 01 million extraordinary item fiscal 1999 457 million net tax benefit 180 million related primarily writeoff unamortized deferred financing costs related early extinguishment debt 18 cumulative effect accounting changes december 1999 sec issued sab 101 sec staff expressed views regarding appropriate recognition revenue respect variety circumstances relevant company required sab 101 company modified revenue recognition policies respect installation electronic security systems see revenue recognition within note 1 addition response sab 101 company undertook review revenue recognition practices identified certain provisions included limited number sales arrangements delayed recognition revenue sab 101 fourth quarter fiscal 2001 company changed method accounting items retroactive beginning fiscal year conform requirements sab 101 reported tyco international ltd notes consolidated financial statements continued 18 cumulative effect accounting changes continued 6537 million aftertax 10056 million pretax charge cumulative effect change accounting principle fiscal 2001 consolidated statement operations impact sab 101 total revenues fiscal 2001 net decrease 2411 million reflecting deferral 5205 million fiscal 2001 revenues partially offset recognition 2794 million revenue included cumulative effect adjustment beginning fiscal year company restated first three quarters fiscal 2001 consolidated statement operations reflect adoption sab 101 see note 29 pro forma amounts periods prior fiscal 2001 presented since effect change accounting principle periods could reasonably determined company recorded cumulative effect adjustment 297 million loss net tax fiscal 2001 accordance transition provisions sfas 133 see note 1 19 earnings per common share reconciliations basic diluted earnings per common share follows millions except per share data computation diluted earnings per common share fiscal 2001 fiscal 2000 fiscal 1999 excludes effect assumed exercise approximately 122 million 73 million 31 million stock options respectively outstanding september 30 2001 2000 1999 respectively effect would antidilutive dilutive earnings per common share also excludes 480 million 264 million shares related tyco industrials zero coupon convertible debentures due 2020 2021 respectively conversion conditions met 20 tycom ltd fiscal 2000 tycom ltd majorityowned subsidiary company completed initial public offering tycom ipo 70300000 common shares price 3200 per share net proceeds tycom ipo deducting underwriting discount commissions direct costs approximately 21 billion amount tycom paid 200 million dividend company prior tycom ipo companys ownership tycoms outstanding tyco international ltd notes consolidated financial statements continued 20 tycom ltd continued common shares 100 september 30 2001 companys ownership tycoms outstanding common shares approximately 89 result tycom ipo company recognized pretax gain investment tycom approximately 176 billion 101 billion aftertax included net gain sale common shares subsidiary fiscal 2000 consolidated statement operations 21 merger restructuring nonrecurring charges net merger restructuring nonrecurring charges net follows millions 1 includes 746 million charge related writedown inventory associated exiting business product lines 517 million charge related sale inventory writtenup purchase accounting included cost revenue 2 includes 146 million charge related writedown inventory included cost revenue 3 includes 350 million charge related sale inventory writtenup purchase accounting 90 million related impairment inventory included cost revenue 4 includes 09 million charge related writedown inventory included cost revenue credit 63 million also included cost revenue 5 includes 64 million charge related writedown inventory included cost revenue 6 includes 1064 million charge related writedown inventory included cost revenue 2001 charges credits electronics segment recorded restructuring nonrecurring charges 3347 million charges 746 million included cost revenue related primarily facility closures within computer consumer electronics communications industries following table provides information restructuring nonrecurring charges related electronics segment recorded fiscal 2001 millions cost announced workforce reductions 1782 million includes elimination 10453 positions primarily united states latin america consisting primarily manufacturing personnel facilitiesrelated costs include shutdown 42 facilities primarily united states consisting primarily manufacturing plants writedown related inventory september 30 2001 6096 employees terminated 14 facilities shut tyco international ltd notes consolidated financial statements continued 21 merger restructuring nonrecurring charges net continued charges 365 million consist primarily vendor commitment cancellations payments noncancelable machinery equipment leases addition charges electronics segment recorded nonrecurring charge 517 million related sale inventory writtenup purchase accounting 517 million nonrecurring charge included cost revenue fire security services segment recorded restructuring nonrecurring charges 1388 million charges 146 million included cost revenue related primarily restructuring existing us security business us fire protection business connection acquisitions securitylink simplex lesser extent restructuring valves controls business following table provides information restructuring nonrecurring charges related fire security services segment recorded fiscal 2001 millions cost announced workforce reductions 260 million includes elimination 1864 positions primarily united states europe consisting primarily manufacturing general administrative sales marketing personnel cost facility closures 629 million consists shutdown 196 facilities united states europe canada consisting primarily sales offices manufacturing plants september 30 2001 862 employees terminated 69 facilities shut charges 499 million consist primarily contract cancellation costs nonrecurring charges relating environmental remediation project healthcare specialty products segment recorded restructuring nonrecurring charges 217 million charges 90 million included cost revenue related primarily closure manufacturing plants following table provides information restructuring nonrecurring charges related healthcare specialty products segment recorded fiscal 2001 millions cost announced workforce reductions 152 million includes elimination 1100 positions primarily united states consisting primarily manufacturing sales personnel cost facility closures 54 million consists shutdown 5 manufacturing tyco international ltd notes consolidated financial statements continued 21 merger restructuring nonrecurring charges net continued administrative facilities united states september 30 2001 444 employees terminated 2 facilities shut charges 11 million consist primarily cost lease buyouts distributor termination fees addition charges healthcare specialty products segment recorded nonrecurring charge 350 million related sale inventory writtenup purchase accounting 350 million nonrecurring charge included cost revenue addition segment charges company recorded net credit 1634 million consisting nonrecurring credit 1668 million related settlement litigation company provided ongoing oem arrangement valued 1668 million nonrecurring charge 34 million related severance september 30 2001 355 million 2750 million litigation reserve established fiscal 2000 remains accrued expenses current liabilities consolidated balance sheet 14 million relating 34 million severance charge remains accrued expenses current liabilities consolidated balance sheet 2000 charges credits fiscal 2000 electronics segment recorded net merger restructuring nonrecurring credit 909 million consists credits 1078 million charges 169 million merger restructuring nonrecurring credit 1078 million credit 63 million included cost revenue related merger amp costs associated amps profit improvement plan 1078 million credit consists revision estimates severance reserves 552 million facility reserves 78 million reserves 448 million restructuring nonrecurring charges 169 million 09 million included cost revenue related restructuring activities amps brazilian operations wireless communications business included 169 million restructuring nonrecurring charges cost announced workforce reductions 49 million elimination 941 positions primarily brazil cost facility closures 48 million shutdown consolidation 3 facilities charges 72 million consisting writeoff nonfacility assets direct costs september 30 2001 substantially restructuring activities completed remaining balance september 30 2001 42 million 10 million included accrued expenses current liabilities 32 million included longterm liabilities consolidated balance sheet primarily payments noncancelable lease obligations fiscal 2000 fire security services segment recorded restructuring nonrecurring credits 112 million related revisions estimates companys 1997 restructuring activities amounts lower originally recorded actions companys 1997 restructuring plans completed fiscal 2000 healthcare specialty products segment recorded net merger restructuring nonrecurring credit 109 million 109 million net credit consists charges 111 million related us surgicals suture business charges 79 million charges 64 million included cost revenue related exiting us surgicals interventional cardiology business restructuring activities completed also recorded credit 299 million representing revision estimates prior years merger restructuring nonrecurring accruals 197 million related primarily merger us surgical tyco international ltd notes consolidated financial statements continued 21 merger restructuring nonrecurring charges net continued 102 million related companys 1997 restructuring accruals 197 million credit relates revision estimates severance reserves 42 million facility reserves 45 million reserves 110 million fiscal 2000 telecommunications segment recorded nonrecurring charge 131 million incurred connection tycom ipo addition segment charges credits company recorded nonrecurring charges 2750 million fiscal 2000 reserve certain claims relating merged company healthcare business 12 million nonrecurring charges fiscal 2001 company recorded credit 1668 million related settlement litigation company provided ongoing oem arrangement valued 1668 million september 30 2001 355 million 2750 million nonrecurring charge remains accrued expenses current liabilities consolidated balance sheet 1999 charges credits fiscal 1999 electronics segment recorded net merger restructuring nonrecurring charges 6433 million charges 1064 million included cost revenue related primarily merger amp costs associated amps profit improvement plan charges include cost workforce reductions 4337 million elimination 16139 positions primarily united states europe consisting primarily manufacturing distribution administrative research development sales marketing personnel cost facility closures 686 million relating shutdown consolidation 87 facilities primarily united states europe also includes charges 1410 million consisting 881 million related writedown inventory transaction costs 679 million direct expenses related amp merger costs 254 million relating primarily consolidation certain product lines nonrecurring charges related amp merger lease termination costs following merger 96 million credit 500 million related litigation settlement alliedsignal inc september 30 2001 restructuring activities substantially completed remaining balance 136 million september 30 2001 relates payments noncancelable lease obligations included longterm liabilities consolidated balance sheet fiscal 1999 healthcare specialty products segment recorded net merger restructuring nonrecurring charges 4191 million consisting 4238 million charge related primarily merger us surgical 47 million credit representing revision estimates related companys 1997 restructuring nonrecurring accruals 4238 million charge includes workforce reductions 1248 million elimination 1467 positions primarily united states europe consisting primarily manufacturing distribution sales marketing administrative research development personnel addition charges include cost facility closures 518 million shutdown consolidation 45 facilities primarily europe united states charges also include charges 2472 million consisting lease termination costs following merger 1568 million relating us surgical north facility purchased company subsequent merger see note 3 transaction costs 533 million related us surgical merger costs 371 million relating consolidation certain product lines nonrecurring charges related primarily us surgical merger september 30 2001 restructuring activities completed tyco international ltd notes consolidated financial statements continued 21 merger restructuring nonrecurring charges net continued fiscal 1999 company recorded credit 319 million including 272 million fire security services segment 47 million healthcare specialty products segment referred representing revision estimates related companys 1997 restructuring nonrecurring accruals actions companys 1997 restructuring plans completed 22 commitments contingencies company occupies certain facilities leases expire various dates year 2031 rental expense leases equipment 6525 million 4427 million 3810 million fiscal 2001 fiscal 2000 fiscal 1999 respectively september 30 2001 minimum lease payment obligations noncancelable operating leases follows 6666 million fiscal 2002 5903 million fiscal 2003 4715 million fiscal 2004 3503 million fiscal 2005 2863 million fiscal 2006 aggregate 14990 million fiscal years 2007 2031 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations liquidity tyco industrial tyco industrial involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods based upon tyco industrials experience environmental remediation matters tyco industrial concluded least reasonable possibility incur remedial costs range 1860 million 4921 million september 30 2001 tyco industrial concluded best estimate within range 2685 million 2062 million included accrued expenses current liabilities 623 million included longterm liabilities consolidated balance sheet increase environmental remediation reserve september 30 2001 compared 683 million reserve september 30 2000 due acquisition mallinckrodt view companys financial position reserves environmental matters 2685 million company concluded potential payment estimated amounts material adverse effect financial position results operations liquidity tyco international ltd notes consolidated financial statements continued 22 commitments contingencies continued tyco capital following table summarizes tyco capitals contractual amounts creditrelated commitments millions normal course meeting financing needs customers tyco capital enters various creditrelated commitments financial instruments generate fees involve varying degrees elements credit risk excess amounts recognized consolidated balance sheet minimize potential credit risk tyco capital generally requires collateral creditrelated terms conditions customer tyco capitals policy time creditrelated commitments granted fair value underlying collateral guarantee must approximate exceed contractual amount commitment event customer defaults underlying transaction maximum potential loss tyco capital contractual amount outstanding less value underlying collateral guarantees 2001 tyco capital entered agreement boeing company purchase 25 aircraft list price 13 billion options purchase additional five units deliveries scheduled take place 2003 2005 prior years tyco capital entered agreements airbus industrie boeing company purchase total 88 aircraft estimated cost approximately 5 billion options acquire additional units flexibility delay terminate certain positions deliveries new aircraft scheduled take place fiveyear period started first quarter fiscal 2001 outstanding commitments purchase aircraft rail equipment placed operating lease totaled approximately 53 billion september 30 2001 outstanding commitments relating fiscal 2002 totaled 9012 million 8402 million agreements place lease third parties 23 retirement plans defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned contributions based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current employees net pension expense assessed accordance advice professionally qualified actuaries countries concerned based subsequent formal reviews purpose companys funding policy make annual contributions extent contributions tax deductible actuarially determined benefits defined benefit plans based years service compensation tyco international ltd notes consolidated financial statements continued 23 retirement plans continued net periodic pension income cost us nonus defined benefit pension plans includes following components millions curtailmentsettlement gain fiscal 2001 relates partially freezing certain pension plans curtailmentsettlement gains fiscal 1999 relate primarily termination employees amp freezing amps pension plan curtailmentsettlement gains recorded selling general administrative costs expenses consolidated statements operations tyco international ltd notes consolidated financial statements continued 23 retirement plans continued net pension cost recognized september 30 2001 2000 us nonus defined benefit plans follows millions tyco international ltd notes consolidated financial statements continued 23 retirement plans continued projected benefit obligation accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 19863 million 19216 million 15508 million respectively september 30 2001 303 million 293 million 93 million respectively september 30 2000 projected benefit obligation accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 10788 million 9387 million 6039 million respectively september 30 2001 5438 million 4640 million 2561 million respectively september 30 2000 company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 64 million 82 million 75 million fiscal 2001 fiscal 2000 fiscal 1999 respectively defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans pension expense defined contribution plans computed percentage participants compensation 1574 million 1327 million 732 million fiscal 2001 fiscal 2000 fiscal 1999 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 90 million 108 million 69 million fiscal 2001 fiscal 2000 fiscal 1999 respectively postretirement benefit plansthe company generally provide postretirement benefits pensions employees certain companys acquired operations provide benefits employees eligible date acquisition amp provides postretirement health care coverage qualifying us retirees result merger company 137 million adjustment recorded conform amps accounting method postretirement benefits companys method regarding initial recognition benefits upon adoption sfas 106 employers accounting postretirement benefits pensions tyco international ltd notes consolidated financial statements continued 23 retirement plans continued second quarter fiscal 1999 amp offered enhanced postretirement benefits terminated employees totaling 160 million recorded part amps second quarter restructuring charge amount included determination net periodic benefit cost presented net periodic postretirement benefit cost reflects following components millions components accrued postretirement benefit obligation generally unfunded follows millions measurement purposes fiscal 2001 90 composite annual rate increase per capita cost covered health care benefits assumed rate assumed decrease gradually 50 year 2008 remain level thereafter health care cost trend rate assumption tyco international ltd notes consolidated financial statements continued 23 retirement plans continued may significant effect amounts reported onepercentagepoint change assumed healthcare cost trend rates would following effects millions combined weighted average discount rate used determining accumulated postretirement benefit obligation 75 september 30 2001 80 september 30 2000 24 consolidated segment data companys reportable segments strategic business units operate different industries managed separately segment data presented basis consistent business activities reported internally management period covered report certain corporate expenses allocated operating segments operating income based generally net revenues factors additional information including description products services included segment see note 1 fiscal 2001 change made companys internal reporting structure operations former flow control products services segment reported part within fire security services part within electronics segments company conformed segment reporting accordingly reclassified comparative prior period information reflect change june 1 2001 company acquired cit tyco capital corporation tyco capitals operating activities include vendor equipment commercial factoring consumer structured financing leasing results operations included june 2 2001 selected information companys four manufacturing service segments tyco capital segment presented following tables telecommunications business currently operates part electronics segment presented separately segment data segment profit measure tyco industrials businesses operating profit earnings interest corporate expenses goodwill amortization income taxes segment profit measure tyco capital earnings goodwill amortization income taxes 1 includes increase 554 million relating adoption sab 101 tyco international ltd notes consolidated financial statements continued 24 consolidated segment data continued 2 includes decrease 2759 million relating adoption sab 101 3 includes decrease 206 million relating adoption sab 101 4 consists net gain sale businesses investments 2766 million includes 4065 million net gain related primarily sale adt automotive partially offset loss 1299 million related permanent impairment equity investment also includes net gain 641 million sale common shares subsidiary 5 consists gain sale subsidiary common shares 1 includes restructuring nonrecurring charges 3347 million charges 746 million included cost revenue primarily related closure facilities within computer consumer electronics communications industries nonrecurring charge 517 million related sale inventory writtenup purchase accounting included cost revenue also includes charge 986 million related impairment property plant equipment associated closure facilities increase 225 million relating adoption sab 101 2 includes restructuring nonrecurring charge 1388 million 146 million included cost revenue related primarily closure manufacturing plants warehouses sales offices administrative offices also includes charge 61 million related primarily impairment property plant equipment associated closure facilities decrease 1838 million relating adoption sab 101 3 includes writeoff purchased inprocess research development 1843 million nonrecurring charge 350 million related sale inventory writtenup purchase accounting restructuring nonrecurring charges 217 million 90 million included cost revenue related closure several manufacturing plants also includes charge 154 million related primarily impairment property plant equipment associated closure plants decrease 98 million relating adoption sab 101 4 includes net gain sale businesses investments 2766 million consisting 4065 million net gain related primarily sale adt automotive partially offset loss 1299 million related permanent impairment equity investment also includes net gain 641 million sale subsidiarys common shares nonrecurring credit 1668 million related settlement litigation nonrecurring charge 34 million related severance 5 includes restructuring charge 169 million 09 million included cost revenue related amps brazilian operations wireless communications business credit 1078 million 63 million included tyco international ltd notes consolidated financial statements continued 24 consolidated segment data continued cost revenue representing primarily revision estimates merger restructuring nonrecurring accruals related merger amp amps profit improvement plan 6 includes merger restructuring nonrecurring credit 112 million representing revision estimates related companys 1997 restructuring accruals 7 includes charges impairment longlived assets 990 million restructuring nonrecurring charges 79 million 64 million included cost revenue related exiting us surgicals interventional cardiology business includes restructuring nonrecurring charges 111 million related us surgicals suture business also includes credit 299 million representing revision estimates merger restructuring nonrecurring accruals consisting 197 million related primarily merger us surgical 102 million related companys 1997 restructuring accruals 8 includes nonrecurring charge 131 million incurred connection tycom ipo 9 includes nonrecurring gain sale subsidiary common shares 17600 million also includes charges 2750 million reserve certain claims relating merged company healthcare business nonrecurring charges 12 million 10 includes merger restructuring nonrecurring charges 6433 million 1064 million included cost revenue charges impairment longlived assets 4315 million related primarily merger amp amps profit improvement plan 11 includes credit 272 million representing revision estimates related companys 1997 restructuring nonrecurring accruals 12 includes merger restructuring nonrecurring charges 4238 million charges impairment longlived assets 760 million related primarily merger us surgical credit 47 million representing revision estimates related companys 1997 restructuring nonrecurring accruals tyco international ltd notes consolidated financial statements continued 24 consolidated segment data continued 1 excludes 22477 million spending construction tgn 2 includes 4277 million received saleleaseback transactions 3 excludes 1111 million spending construction tgn 4 includes 1720 million received saleleaseback transactions 5 excludes 2340 million related purchase property previously leased us surgical 6 excludes amounts related tyco capitals equipment leased others tyco international ltd notes consolidated financial statements continued 25 consolidated geographic data selected information geographic area presented millions 1 includes net gain sale business investments 2766 million consisting 4065 net gain primarily related sale adt automotive partially offset loss 1299 million related permanent impairment equity investment also includes net gain 641 million sale common shares subsidiary 2 includes gain sale subsidiary common shares 17600 million 26 supplementary balance sheet information selected supplementary balance sheet information presented millions tyco industrials inventories classified follows tyco international ltd notes consolidated financial statements continued 26 supplementary balance sheet information continued net property plant equipment including equipment leased others follows millions accrued expenses current liabilities include following millions 27 supplementary income statement information selected supplementary income statement information presented millions tyco international ltd notes consolidated financial statements continued 28 supplementary cash flow information selected supplementary cash flow information presented millions tyco industrials net proceeds debt consist following tyco capitals net decrease financing leasing assets consist following tyco capitals net repayments debt consist following tyco international ltd notes consolidated financial statements continued 29 summarized quarterly financial data unaudited fourth quarter fiscal 2001 company adopted sab 101 retroactive beginning fiscal year summarized quarterly financial data year ended september 30 2001 reported basis restated adoption sab 101 included table millions except per share data 1 includes net restructuring nonrecurring credit 1756 million charge 250 million included cost revenue net credit consists net gain sale businesses 4104 million principally related sale adt automotive writeoff purchased inprocess research development 1843 million nonrecurring charge 250 million related sale inventory writtenup purchase accounting restructuring nonrecurring charges 181 million primarily related environmental remediation project closure manufacturing plant charge 74 million primarily related impairment property plant equipment associated closure manufacturing plant 2 includes net restructuring nonrecurring charge 152 charge 464 million included cost revenue net charge consists nonrecurring credit 1668 million related settlement litigation nonrecurring charge 464 million included cost revenue primarily related sale inventory writtenup purchase accounting nonrecurring charge 1140 million primarily related closure tyco international ltd notes consolidated financial statements continued 29 summarized quarterly financial data unaudited continued facilities charges 177 million related impairment property plant equipment associated closure facilities net loss sale businesses investments 39 million primarily related sale adt automotive 3 includes net restructuring nonrecurring charge 1188 million charges 74 million included cost revenue net charge consists net loss sale investments 1299 million restructuring nonrecurring impairment charges totaling 530 million related certain fire security services businesses partially offset 641 million net gain sale shares subsidiary 4 includes restructuring nonrecurring charge 4238 million charges 1061 million included cost revenue charge consists restructuring nonrecurring charges 2839 million charges 584 million included cost revenue primarily related closure manufacturing facilities within electronics fire security services segments charges 922 million related impairment property plant equipment associated facilities closures nonrecurring charge 477 million included cost revenue related sale inventory writtenup purchase accounting 5 extraordinary items relate principally early extinguishment debt cumulative effect accounting changes relate adoption sab 101 sfas 133 summarized quarterly financial data fiscal 2000 presented millions except per share data 1 includes charges impairment longlived assets 990 million restructuring nonrecurring charges 79 million charges 64 million included cost revenue related exiting us surgicals interventional cardiology business restructuring nonrecurring charges 77 million related us surgicals suture business restructuring charges 65 million related amps brazilian operations also includes credit 947 million representing revision estimates merger restructuring nonrecurring accruals consisting 578 million related merger amp amps profit improvement plan 155 million related primarily merger us surgical 214 million related companys 1997 restructuring accruals 2 includes merger restructuring nonrecurring charges 104 million charges 09 million included cost revenue primarily related activities amps wireless communications business restructuring nonrecurring charges 05 million related us surgicals suture business also includes credit 127 million credit 63 million included cost revenue primarily representing revision estimates merger restructuring nonrecurring accruals related merger amp amps profit improvement plan 3 includes restructuring nonrecurring charges 29 million related us surgicals suture business also includes merger restructuring nonrecurring credit 98 million representing revision estimates merger restructuring nonrecurring accruals related merger amp amps profit improvement plan 4 includes nonrecurring gain issuance common shares subsidiary 17600 million also includes charges 2750 million reserve certain claims relating merged company healthcare business nonrecurring charge 131 million incurred connection tycom ipo nonrecurring charges 12 million also includes credits 275 million 42 million representing revision estimates merger restructuring nonrecurring accruals related merger amp amps profit improvement plan merger us surgical respectively 5 extraordinary items relate principally early extinguishment debt tyco international ltd notes consolidated financial statements continued 30 tyco international group sa fiscal 2001 fiscal 2000 tyco international group sa tig whollyowned subsidiary company issued public debt securities see note 6 fully unconditionally guaranteed tyco following presents condensed consolidating financial information tig subsidiaries tig current organizational structure place periods presented condensed financial information tyco tig standalone basis presented using equity method accounting subsidiaries owns controls twenty percent voting shares consolidating balance sheet september 30 2001 tyco international ltd notes consolidated financial statements continued 30 tyco international group sa continued consolidating balance sheet september 30 2000 tyco international ltd notes consolidated financial statements continued 30 tyco international group sa continued consolidating statement operations year ended september 30 2001 tyco international ltd notes consolidated financial statements continued 30 tyco international group sa continued consolidating statement operations year ended september 30 2000 tyco international ltd notes consolidated financial statements continued 30 tyco international group sa continued consolidating statement operations year ended september 30 1999 tyco international ltd notes consolidated financial statements continued 30 tyco international group sa continued consolidating statement cash flows year ended september 30 2001 tyco international ltd notes consolidated financial statements continued 30 tyco international group sa continued consolidating statement cash flows year ended september 30 2000 tyco international ltd notes consolidated financial statements continued 30 tyco international group sa continued consolidating statement cash flows year ended september 30 1999 31 subsequent events october 26 2001 tig sold 15000 million 6375 notes due 2011 60 billion shelf registration statement public offering notes fully unconditionally guaranteed tyco net proceeds approximately 14878 million used repay borrowings tigs commercial paper program november 13 2001 tyco completed acquisition sensormatic electronics corporation sensormatic leading supplier electronic security solutions retail commercial industrial marketplaces acquisition accomplished exchange offer followed shortform merger valued approximately 23 billion including assumption 116 million net debt aggregate approximately 48 million common shares tyco issued outstanding capital stock sensormatic november 19 2001 tig issued e500 million 4375 notes due 2005 e685 million 55 notes due 2009 l200 million 65 notes due 2012 l285 million 65 notes due 2032 utilizing tyco international ltd notes consolidated financial statements continued 31 subsequent events continued capacity available tigs european medium term note programme established september 2001 notes fully unconditionally guaranteed tyco net proceeds 17266 million used repay borrowings tigs commercial paper program december 18 2001 company completed amalgamation tycom approximately 56 million tycom common shares owned tyco converted right receive 03133 tyco common share upon completion amalgamation tycom became whollyowned subsidiary tyco outstanding option purchase tycom common shares exercisable tyco common shares number tyco shares equal number tycom common shares issuable upon exercise immediately prior consummation multiplied exchange ratio 03133 per share exercise price tyco common shares issuable upon exercise tycom options equals exercise price per tycom common share price options exercisable prior amalgamation divided exchange ratio addition outstanding tycom restricted share converted restricted tyco common share based exchange ratio options restricted shares subject terms conditions applicable immediately prior amalgamation tyco international ltd managements discussion analysis financial condition results operations accompanying consolidated financial statements include consolidated accounts tyco international ltd tyco subsidiaries tyco subsidiaries hereinafter company june 1 2001 subsidiary company acquired cit group inc cit independent commercial finance company tyco capital corporation discussion financial data presented herein furnished separately following tyco industrialthis represents tyco subsidiaries tyco capital includes results operations tyco capital june 2 2001 equity method accounting tyco capitalthis represents tyco capital corporation subsidiaries reflects results operations june 2 2001 addition tyco capital includes certain international subsidiaries sold tyco capital corporation nonus subsidiary tyco september 30 2001 consolidatedthis represents tyco industrial tyco capital consolidated basis results operations tyco industrial overview information periods presented reflects grouping tyco industrials businesses four segments consisting electronics fire security services healthcare specialty products telecommunications business currently operates part electronics segment broken separately segment discussion fiscal 2001 change made companys internal management reporting structure operations former flow control products services segment reported part within fire security services part within electronics segments company conformed segment reporting accordingly reclassified comparative prior period information reflect change fiscal 1999 consummated two mergers accounted pooling interests method accounting merger united states surgical corporation us surgical merger amp incorporated amp required generally accepted accounting principles united states gaap restated financial statements us surgical amp always part tyco industrial segment revenues increased 176 fiscal 2001 340366 million compared 289319 million fiscal 2000 fiscal 2001 revenues reflect decrease 2411 million resulting adoption staff accounting bulletin 101 sab 101 tyco industrial segment revenues increased 286 fiscal 2000 289319 million 224965 million fiscal 1999 income extraordinary items cumulative effect accounting changes 46711 million fiscal 2001 compared 45201 million fiscal 2000 10677 million fiscal 1999 income extraordinary items cumulative effect accounting changes fiscal 2001 included net charge 3822 million 3668 million aftertax consisting following restructuring nonrecurring charges impairment charges totaling 7054 million related primarily closure facilities within electronics fire security services segments ii 1843 million writeoff purchased inprocess research development related acquisition mallinckrodt inc mallinckrodt iii nonrecurring credit 1668 million related settlement litigation iv net gain sale businesses investments 2766 million principally related sale adt automotive partially offset permanent impairment equity investment v 641 million net gain sale common shares subsidiary income extraordinary items cumulative effect accounting changes fiscal 2001 also reflects 1112 million decrease resulting fiscal 2001 impact adoption sab 101 income extraordinary items fiscal 2000 included net credit 14847 million 7937 million aftertax consisting following gain 17600 million sale subsidiary common shares connection tycoms initial public offering ii restructuring nonrecurring impairment charges 4242 million primarily nonrecurring claims related merged company exiting us surgicals interventional cardiology business iii credit 1489 million representing revision estimates merger restructuring nonrecurring accruals income extraordinary items fiscal 1999 included net charge 15427 million 13048 million aftertax related primarily mergers us surgical amp costs associated amps profit improvement plan following table details tyco industrials net revenue earnings fiscal 2001 fiscal 2000 fiscal 1999 millions 1 amount sum operating income tyco industrials four business segments set forth segment discussion less certain corporate expenses merger restructuring nonrecurring charges credits writeoff purchased inprocess research development charges impairment longlived assets amortization goodwill adoption sab 101 merger restructuring nonrecurring charges net amount 1849 million 10 million 1064 million related inventory deducted part cost revenue consolidated statements operations fiscal 2001 2000 1999 respectively however deducted part cost revenue purpose calculating operating income certain charges credits table charges instead included merger restructuring nonrecurring charges fiscal 2001 recorded merger restructuring nonrecurring charges impairment longlived assets related primarily cost reduction actions acquisitions restructuring integration programs terminate employees close facilities made redundant reduction manpower facilities comes manufacturing sales administrative functions addition discontinue dispose product lines fit longterm strategy respective businesses separately track impact financial results restructuring integration programs however estimate overall cost structure reduced approximately 3000 million annualized basis due impact associated charges significant decreases selling general administrative expenses cost revenue operating income margins tyco industrials four business segments presented accordance gaap following discussion supplemented discussion operating income margins stated deductions merger restructuring nonrecurring charges impairment longlived assets adoption sab 101 supplemental discussion operating results certain charges credits accounting change considered alternative operating net income indicator performance business alternative cash flows operating activities measure liquidity case determined accordance gaap operating income certain charges credits accounting change improved segments fiscal 2001 fiscal 2000 exception telecommunications segment discussed operating improvements result increased revenues telecommunications segment enhanced margins healthcare specialty products segment increased revenues resulted acquisitions accounted purchase method accounting organic growth enhanced margins improved productivity cost reductions ordinary course business unrelated acquisition divestiture activities regard charges incurred reduce costs ordinary course business recurring charges reflected cost revenue selling general administrative costs expenses consolidated statements operations make acquisition acquired company immediately integrated existing operations consequently separately track financial results acquired companies discussions following tables include estimates yeartoyear revenue growth exclude effects indicated acquisitions estimates assume acquisitions made beginning relevant fiscal periods revenue operating income margins electronics products services include designing engineering manufacturing electronic connector systems fiber optic components wireless devices heat shrink products power components wire cable relays sensors touch screens smart card components identification labeling products energy solutions power products switches battery assemblies amp merger occurred april 1999 required pooling interests method accounting fiscal 1999 results presented though companies combined since beginning fiscal 1999 following table sets forth revenue operating income loss margins electronics segment millions 143 increase revenue accounting change fiscal 2001 fiscal 2000 resulted primarily acquisitions included siemens electromechanical components gmbh co kg siemens afc cable systems inc afc cable november 1999 praegitzer industries inc praegitzer december 1999 critchley group plc critchley march 2000 electronic oem business thomas betts july 2000 cigi investment group inc cigi october 2000 lucent technologies power systems business unit december 2000 excluding impact acquisitions revenue increased estimated 03 reflects economic slowdown computer consumer electronics communications industries lesser extent effect foreign exchange rates 621 increase revenue fiscal 2000 fiscal 1999 predominantly due acquisitions lesser extent organic growth acquisitions included glynwed international plc march 1999 raychem corporation raychem august 1999 siemens afc cable november 1999 praegitzer december 1999 critchley march 2000 electronic oem business thomas betts july 2000 excluding impact acquisitions revenue increased estimated 131 200 increase operating income increase margins certain charges credits accounting change fiscal 2001 compared fiscal 2000 primarily due acquisitions improved margins tyco printed circuit group amp increases somewhat offset decreased operating income margins allied tube conduit resulting higher raw material prices operating income margins certain charges credits accounting change include restructuring nonrecurring impairment charges 4850 million partially offset increase 225 million relating adoption sab 101 fiscal 2001 compared net merger restructuring nonrecurring credit 909 million fiscal 2000 substantial increase operating income margins certain charges credits fiscal 2000 compared fiscal 1999 primarily due acquisitions raychem siemens improved margins amp tyco printed circuit group improved operating margins certain charges credits fiscal 2000 compared fiscal 1999 resulted increased volume improved pricing continuing cost reduction programs following amp merger addition items discussed substantial increase operating income margins certain charges credits due merger restructuring nonrecurring net credit 909 million fiscal 2000 compared restructuring nonrecurring charge 10748 million fiscal 1999 fire security services fire security services products services include designing installing servicing broad line fire detection prevention suppression systems manufacturing servicing fire extinguishers related products designing installing monitoring maintaining electronic security systems designing manufacturing valves related products providing broad range consulting engineering construction management operating services water wastewater environmental transportation infrastructure markets following table sets forth revenue operating income margins fire security services segment millions 238 increase revenue accounting change fiscal 2001 fiscal 2000 resulted primarily higher sales volume increased service revenue fire protection north america asia higher revenues worldwide electronic security services business increases due primarily higher volume recurring service revenues lesser extent effects acquisitions included flow control technologies fct february 2000 simplex time recorder co january 2001 scott technologies inc scott may 2001 electronic security systems businesses cambridge protection industries llc securitylink july 2001 excluding impact acquisitions revenue increased estimated 99 52 increase revenue fiscal 2000 fiscal 1999 resulted primarily increased sales worldwide electronic security services business higher sales volume fire protection operations north america asia australia increases due primarily higher volume recurring service revenues lesser extent effects acquisitions security services business acquisitions included entergy security corporation january 1999 alarmguard holdings february 1999 central sprinkler corporation august 1999 fct february 2000 august 1999 sold certain businesses within segment including mueller company portions grinnell supply sales manufacturing excluding impact acquisitions divestitures revenue increased estimated 119 379 increase operating income certain charges credits accounting change fiscal 2001 fiscal 2000 primarily due acquisitions increased service volume fire protection business north america asia worldwide security business increase operating margins certain charges credits accounting change primarily due increased service revenues fire protection improved margins valve operations tyco infrastructure formerly known earth tech operating income margins certain charges credits accounting change include restructuring nonrecurring impairment charges 1449 million well decrease 1838 million relating adoption sab 101 fiscal 2001 compared restructuring nonrecurring credit 112 million fiscal 2000 required sab 101 modified revenue recognition policies respect installation electronic security systems beginning fiscal year see consolidated itemscumulative effect accounting changes 118 increase operating income certain charges credits fiscal 2000 fiscal 1999 reflects increased service volume security operations united states fire protection businesses north america asia increase operating margins certain credits due increased sales volume security services fire protection offset slightly case security services costs reorganization security services dealer program internal sales force first two quarters fiscal 2000 addition items discussed operating income margins certain charges credits reflect restructuring nonrecurring credits 112 million fiscal 2000 272 million fiscal 1999 healthcare specialty products healthcare specialty products include wide variety disposable medical products including wound care closure products syringes needles sutures surgical staplers products used vascular therapy respiratory care infant medical accessories incontinence products anesthetic supplies electrosurgical instruments laparoscopic instruments polyethylene film products flexible plastic packaging plastic bags sheeting coated laminated packaging materials tapes adhesives plastic garment hangers pipeline coatings oil gas water distribution industries adt automotives auto redistribution services sold october 6 2000 following table sets forth revenue operating income margins healthcare specialty products segment millions 366 increase revenue accounting change fiscal 2001 fiscal 2000 resulted primarily acquisitions lesser extent organic growth acquisitions included general surgical innovations inc gsi november 1999 radionics january 2000 fiberlam march 2000 mallinckrodt inc mallinckrodt october 2000 innerdyne inc innerdyne december 2000 revenue increase somewhat offset sale adt automotive business excluding impact acquisitions divestiture revenue increased estimated 59 126 increase revenue fiscal 2000 fiscal 1999 primarily result increased sales tyco plastics adhesives tyco healthcare lesser extent adt automotive increases tyco healthcare due organic growth lesser extent acquisitions included graphic controls corporation sunbelt plastics november 1998 batts inc april 1999 gsi november 1999 radionics january 2000 fiberlam march 2000 excluding impact acquisitions revenue segment increased estimated 82 fiscal 2000 fiscal 1999 355 increase operating income certain charges credits accounting change slight decrease operating margins certain charges credits accounting change fiscal 2001 compared fiscal 2000 due acquisition mallinckrodt generally lower operating margins businesses segment operating income margins certain charges credits accounting change include restructuring nonrecurring impairment charges 2564 million well decrease 98 million relating adoption sab 101 fiscal 2001 compared net merger restructuring nonrecurring impairment charges 881 million fiscal 2000 102 increase operating income certain charges credits accounting change fiscal 2000 fiscal 1999 due increased sales volume tyco healthcare tyco plastics adhesives lesser extent adt automotive slightly offset lower operating margin percentage tyco healthcare principally due higher raw materials costs addition items discussed substantial increase operating income margins certain charges credits fiscal 2000 fiscal 1999 due net merger restructuring nonrecurring impairment charges 881 million fiscal 2000 compared net merger restructuring nonrecurring charges 4951 million fiscal 1999 telecommunications tycos subsidiary tycom ltd tycom leading independent provider undersea fiber optic networks services products services include designing engineering manufacturing installing undersea cable communications systems servicing maintaining major undersea cable networks beginning fourth quarter fiscal 2000 tycom began design manufacture installation global undersea fiber optic network known tycom global networktm tgn third quarter fiscal 2001 tycom began operating maintaining selling bandwidth capacity tgn following table sets forth revenue operating income margins telecommunications segment millions since fourth quarter fiscal 2000 began construction transatlantic portion tgn tycoms revenues decreased due lower thirdparty contract sales fixed costs generally increased due building infrastructure support tgn including network operations sales marketing research development administration 266 decrease revenue fiscal 2001 compared fiscal 2000 reflects generally downturn telecommunications industry specifically decrease thirdparty contract sales undersea communication systems addition certain revenues deferred pending customer financing tycom may continue experience softness demand current downturn telecommunications industry continues however tycom believes technological capabilities contraction number competitors mitigate negative effects industry trends results longer term 564 increase revenue fiscal 2000 fiscal 1999 resulted primarily increased demand thirdparty sales undersea communications systems much lesser extent acquisition may 1999 telecomunicaciones marinas sa temasa excluding effect temasa revenue increase segment fiscal 2000 estimated 540 217 decrease operating income certain charges fiscal 2001 compared fiscal 2000 principally due decrease volume undersea cable communications systems sales services others increase operating margins primarily due project completions certain reduced accruals due lower profitability levels fiscal 2001 certain contractual settlements substantial increase operating income certain charges fiscal 2000 compared fiscal 1999 primarily due higher sales volume lesser extent temasa acquisition increase operating income certain charges offset nonrecurring charge 131 million incurred connection tycom initial public offering foreign currency effect changes foreign exchange rates fiscal 2001 compared fiscal 2000 decrease revenue approximately 10536 million decrease operating income approximately 1995 million effect changes foreign exchange rates fiscal 2000 compared fiscal 1999 decrease revenue approximately 5286 million decrease operating income approximately 1059 million corporate expenses corporate expenses excluding net gain sale businesses investments 2766 million net nonrecurring credit 1634 million primarily settlement litigation net gain 641 million sale common shares subsidiary 1919 million fiscal 2001 compared 1874 million fiscal 2000 1229 million fiscal 1999 increases due principally higher compensation expense equitybased incentive compensation plans increase corporate staffing related costs support monitor expanding businesses operations amortization goodwill amortization goodwill noncash charge increased 1930 million 5374 million fiscal 2001 compared fiscal 2000 fiscal 2000 amortization goodwill increased 3444 million 2161 million fiscal 1999 increases goodwill amortization expenses due net increases goodwill balances 100662 million fiscal 2001 37644 million fiscal 2000 due acquisitions accordance recently adopted accounting rule changes goodwill longer amortized beginning fiscal 2002 year see accounting technical pronouncements within note 1 consolidated financial statements discussion accounting rule changes interest expense net interest expense net increased 69 million 7765 million fiscal 2001 compared fiscal 2000 increased 2840 million 7696 million fiscal 2000 compared fiscal 1999 increases due primarily higher average debt balances resulting borrowings finance acquisitions share repurchase program offset lower interest rates fiscal 2001 increase borrowings mitigated part generation substantial amount free cash flow weightedaverage rates interest tyco industrials longterm debt outstanding september 30 2001 2000 42 66 respectively tyco capital june 1 2001 subsidiary tyco acquired cit group inc independent commercial finance company tyco capital corporation discussion herein period june 2 september 30 2001 four month period results four month period indicative results would achieved entire year tyco capitals services include commercial financing leasingoffering equipment commercial factoring structured financing specialty financing leasingconsumer lending retail sales vendor financing following table sets forth operating results tyco capital 1 depreciation operating lease equipment included within selling general administrative costs expenses consolidated statements operations 2 average earning assets average finance receivables operating lease equipment finance receivables held sale certain investments less credit balances factoring clients tyco capitals revenues 20116 million four month period finance income totaled 16765 million four month period percentage aea finance income excluding interest income related shortterm interestbearing deposits 1270 interest expense totaled 5971 million four month period percentage aea interest expense excluding interest related shortterm interestbearing deposits dividends related preferred capital securities 443 income tyco capital 3351 million four month period set forth following table millions included fees income miscellaneous fees syndication fees gains receivable sales provision credit losses 1161 million four month period chargeoffs 868 million managed assets 509 billion september 30 2001 financing leasing portfolio assets totaled 407 billion managed assets include finance receivables operating lease equipment finance receivables held sale certain investments finance receivables previously securitized still managed tyco capital consolidated items consolidated income tax expense effective income tax rate excluding impact purchased inprocess research development merger restructuring nonrecurring charges credits charges impairment longlived assets net gain sale businesses investments net gain sale common shares subsidiary accounting change 230 fiscal 2001 compared 248 fiscal 2000 270 fiscal 1999 decrease effective income tax rate primarily due higher earnings tax jurisdictions lower income tax rates believe generate sufficient future income realize tax benefits related deferred tax assets valuation allowance maintained due continued uncertainties realization certain tax benefits primarily tax loss carryforwards see note 9 consolidated financial statements extraordinary items extraordinary items fiscal 2001 fiscal 2000 fiscal 1999 included aftertax losses amounting 171 million 02 million 457 million respectively relating primarily early extinguishment debt see note 17 consolidated financial statements cumulative effect accounting changes december 1999 securities exchange commission sec issued sab 101 sec staff expressed views regarding appropriate recognition revenue variety circumstances relevant us required sab 101 modified revenue recognition policies respect installation electronic security systems see revenue recognition within note 1 consolidated financial statements addition response sab 101 undertook review revenue recognition practices identified certain provisions included limited number sales arrangements delayed recognition revenue sab 101 fourth quarter fiscal 2001 changed method accounting items retroactive beginning fiscal year conform requirements sab 101 reported 6537 million aftertax 10056 million pretax charge cumulative effect change accounting principle fiscal 2001 consolidated statement operations impact sab 101 total revenues fiscal 2001 net decrease 2411 million reflecting deferral 5205 million fiscal 2001 revenues partially offset recognition 2794 million revenue included cumulative effect adjustment beginning fiscal year restated first three quarters fiscal 2001 consolidated statement operations reflect adoption sab 101 see note 29 consolidated financial statements pro forma amounts periods prior fiscal 2001 presented since effect change accounting principle periods could reasonably determined recorded cumulative effect adjustment 297 million loss net tax fiscal 2001 accordance transition provisions sfas 133 see note 1 consolidated financial statements liquidity capital resources tyco industrial following table shows sources cash flow operating activities use portion cash operations fiscal 2001 fiscal 2000 fiscal 1999 refer net amount cash generated operating activities less capital expenditures dividends free cash flow 1 amount sum operating income four tyco industrial business segments set forth less certain corporate expenses merger restructuring nonrecurring charges credits charge writeoff purchased inprocess research development charges impairment longlived assets goodwill amortization adoption sab 101 2 amount sum depreciation tangible property 12431 million 10950 million 9796 million fiscal 2001 fiscal 2000 fiscal 1999 respectively amortization intangible assets goodwill 3601 million 2050 million 1155 million fiscal 2001 fiscal 2000 fiscal 1999 respectively 3 amount includes 4906 million 2978 million relates sales tyco capital 1000 million 500 million received sale accounts receivable fiscal 2001 fiscal 2000 fiscal 1999 respectively 4 amount cash paid merger restructuring nonrecurring charges 5 amount excludes expenditures related construction tgn 22477 million 1111 million years ended september 30 2001 2000 respectively amount includes 4277 million 1720 million received saleleaseback transactions years ended september 30 2001 2000 respectively addition fiscal 2001 fiscal 2000 fiscal 1999 paid 7372 million 5442 million 3544 million respectively cash charged reserves established connection acquisitions accounted purchase accounting method amount included acquisition businesses net cash acquired consolidated statements cash flows reserves restructuring nonrecurring items taken charge current earnings time reserves established amounts expended restructuring nonrecurring costs charged reserves paid amount reserves proves greater costs actually incurred excess credited restructuring nonrecurring charges consolidated statement operations period determination made fiscal 2001 recorded net restructuring nonrecurring charges 3318 million charges 982 million included cost revenue consisting charges 4986 million related primarily closure manufacturing plants sales offices warehouses administrative offices electronics fire security services segments partially offset 1668 million credit litigation reserves established prior year addition incurred nonrecurring charge 867 million related sale inventory writtenup purchase accounting included cost revenue september 30 2000 existed merger restructuring nonrecurring reserves 3659 million fiscal 2001 paid 2155 million cash incurred 2287 million noncash charges charged reserves september 30 2001 remained 3402 million merger restructuring nonrecurring reserves tyco industrials consolidated balance sheet 3049 million included accrued expenses current liabilities 353 million included longterm liabilities business combinations completed fiscal 2001 accounted purchase accounting method time purchase acquisition made establish reserve transaction costs integrating purchased company within relevant tyco business segment amounts reserves established fiscal 2001 detailed note 2 consolidated financial statements amounts charged current earnings treated additional purchase price consideration effect increasing amount goodwill recorded connection respective acquisition view costs equivalent additional purchase price consideration consider making acquisition amount reserves proves excess costs actually incurred excess used reduce goodwill account established time acquisition made fiscal 2001 tyco industrial made acquisitions accounted purchase accounting method aggregate cost 147415 million amount 109566 million paid cash net cash acquired excluding 21564 million cash acquired tyco capital 37849 million paid form tyco common shares debt acquired companies aggregated 15923 million connection acquisitions established purchase accounting reserves 10213 million transaction integration costs addition purchase accounting liabilities 1037 million corresponding increase goodwill deferred tax assets recorded fiscal 2001 changes estimates related acquisitions consummated prior fiscal 2001 primarily related revisions associated finalizing exit plans electronic oem business thomas betts afc cable critchley siemens acquired fiscal 2000 beginning fiscal 2001 purchase accounting reserves 3726 million result purchase accounting transactions made prior years fiscal 2001 paid 8944 million cash including approximately 1057 million relating purchase price adjustments earnout liabilities certain acquisitions 515 million relating acquisition tyco capital incurred 72 million noncash charges reserves established prior fiscal 2001 also fiscal 2001 determined 689 million purchase accounting reserves related primarily acquisitions prior fiscal 2001 needed reversed amount goodwill september 30 2001 remained 7021 million purchase accounting reserves tyco industrials consolidated balance sheet 5831 million included accrued expenses current liabilities 1190 million included longterm liabilities following details fiscal 2001 capital expenditures depreciation segment tyco industrial millions 1 excludes 22477 million spending construction tgn 2 includes 4277 million received saleleaseback transactions continue fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards level capital expenditures fire security services segment significantly exceeded expected continue significantly exceed depreciation due substantial growth number new security system installations level capital expenditures segments expected increase moderately fiscal 2002 fiscal 2001 tycom spent 22477 million construction tgn expect expenditures construction tgn approximately 15000 million fiscal 2002 source funds capital expenditures construction tgn expected cash operating activities provision income taxes consolidated statement operations fiscal 2001 12849 million amount income taxes paid net refunds year 7229 million difference due timing differences well tax benefits related exercise share options current income tax liability september 30 2001 18450 million compared 16503 million september 30 2000 net change working capital net effects acquisitions divestitures increase 4660 million fiscal 2001 components change set forth detail tyco industrials consolidated statement cash flows increase working capital accounts attributable higher level business activity fiscal 2001 reflected increased revenue prior year focus maximizing cash flow operating businesses attempt keep working capital employed businesses minimum level required efficient operations fiscal 2001 used 13261 million repurchase common shares ongoing share buyback program repurchase shares time open market satisfy certain stockbased compensation arrangements exercise share options use acquisitions fiscal 2001 tyco sold 39 million common shares approximately 21980 million underwritten public offering net proceeds offering 21966 million used repay debt incurred finance portion acquisition cit fiscal 2001 received proceeds 5450 million exercise common share options addition fiscal 2001 received proceeds 9044 million net cash sold primarily sale adt automotive business source cash used acquisitions fiscal 2001 primarily issuance debt free cash flow sale common shares proceeds sale businesses goodwill intangible assets 287409 million september 30 2001 compared 163326 million september 30 2000 september 30 2001 tyco industrials total debt 216190 million compared 109990 million september 30 2000 increase resulted principally net proceeds approximately 33740 million 22034 million sale zero coupon convertible debentures due 2020 2021 respectively 19821 million sale notes due 2006 2011 17879 million sale notes due 2003 2006 borrowings tyco international group sas tig commercial paper program full discussion debt activity see note 6 consolidated financial statements shareholders equity 317374 million 1640 per share september 30 2001 compared 170332 million 1011 per share september 30 2000 increase shareholders equity due primarily issuance approximately 2112 million common shares valued 104353 million acquisitions mallinckrodt cigi october 2000 innerdyne december 2000 scott may 2001 cit june 2001 net income 39706 million sale 39 million common shares net proceeds 21966 million discussed increase partially offset repurchase common shares approximately 13261 million unrealized loss available sale securities 12679 million total debt percent total capitalization total debt shareholders equity 41 september 30 2001 39 september 30 2000 net debt total debt less cash equivalents percent total capitalization 37 september 30 2001 35 september 30 2000 october 26 2001 tig sold 15000 million 6375 notes due 2011 60 billion shelf registration statement public offering notes fully unconditionally guaranteed tyco net proceeds approximately 14878 million used repay borrowings tigs commercial paper program november 13 2001 tyco completed acquisition sensormatic electronics corporation sensormatic leading supplier electronic security solutions retail commercial industrial marketplaces acquisition valued approximately 23 billion including assumption 116 million net debt aggregate approximately 48 million common shares tyco issued exchange outstanding capital stock sensormatic november 19 2001 tig issued e500 million 4375 notes due 2005 e685 million 55 notes due 2009 l200 million 65 notes due 2012 l285 million 65 notes due 2032 utilizing capacity available tigs european medium term note programme established september 2001 notes fully unconditionally guaranteed tyco net proceeds 17266 million used repay borrowings tigs commercial paper program december 18 2001 completed amalgamation tycom approximately 56 million tycom common shares owned tyco converted right receive 03133 tyco common share upon completion amalgamation tycom became whollyowned subsidiary tyco believe cash flow tyco industrials operations together existing credit facilities credit arrangements adequate fund tyco industrials operations tyco industrial backlog september 30 2001 tyco industrial backlog unfilled orders 109991 million compared backlog 104182 million september 30 2000 expect approximately 76 backlog september 30 2001 filled fiscal 2002 backlog reportable industry segment follows millions backlog fire security services includes recurring revenue force represents one years fees security monitoring maintenance services contract amount backlog september 30 2000 restated include recurring revenue force date 22034 million amount recurring revenue force september 30 2001 30996 million within fire security services segment backlog increased due following deferral 14535 million net revenue result adoption sab 101 increase services contracts security business increase contract bookings tyco infrastructure lesser extent effect acquisitions within electronics segment backlog decreased due cancellation andor delay orders customers certain endmarkets computer consumer electronics communications industries decrease backlog within telecommunications segment reflects generally downturn telecommunications industry specifically decrease thirdparty contracts undersea communications systems partially offset contracts signed capacity sales tgn addition 7105 million contract previously booked removed backlog pending customer financing increase backlog healthcare specialty products due deferral 716 million net revenue result adoption sab 101 backlog healthcare specialty products segment represents unfilled orders nature business normally shipped shortly purchase orders received view backlog healthcare industry significant indicator level future sales activity tyco capital tyco capital maintains committed bank lines credit aggregating 85 billion provide backstop support commercial paper borrowings approximately 2524 million local bank lines support international operations tyco capitals primary bank line agreements include minimum equity requirement 38 billion included part tyco capitals securitization programs committed assetbacked commercial paper programs us canada aggregating approximately 46 billion ensure uninterrupted access capital competitive interest rates tyco capital maintains strong investment grade ratings part tyco capitals continuing program accessing public private assetbacked securitization markets additional liquidity source general equipment finance receivables 22 billion securitized four month period part tyco capitals initiative address businesses fit strategically portfolios meet profitability requirements four month period approximately 18 billion assets sold total 36 billion managed assets either sold liquidated placed liquidation status addition tyco capital received 8983 million capital contributions tyco industrial partially offset impact tangible capital pushdown accounting result tangible equity managed assets total debt tangible equity 855 813x respectively quantitative qualitative disclosures market risk tyco industrial subject market risk associated changes interest rates foreign currency exchange rates certain commodity prices order manage volatility relating significant market risks enter forward foreign currency exchange contracts crosscurrency swaps foreign currency options commodity swaps interest rate swaps anticipate material changes primary market risk exposures fiscal 2002 utilize risk management procedures controls executing derivative financial instrument transactions execute transactions hold derivative financial instruments trading purposes derivative financial instruments related interest rate sensitivity debt obligations intercompany crossborder transactions anticipated nonfunctional currency cash flows well commodity price exposures used goal mitigating significant portion exposures cost effective counterparties derivative financial instruments limited financial institutions least aa longterm credit rating interest rate sensitivity table provides information tyco industrials financial instruments sensitive changes interest rates including longterm investments debt obligations interest rate swaps crosscurrency swaps longterm investments table presents cash flows principal payments related subordinated noncollateralized zero coupon loan note based amortized cost investment september 30 2001 associated fair value interest rate discount debt obligations table presents cash flows principal repayment weightedaverage interest rates interest rate swaps crosscurrency swaps table presents notional amounts weightedaverage interest rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars millions 1 weightedaverage variable interest rates based applicable rates september 30 2001 per terms contracts related financial instruments 2 fair value crosscurrency swap included table reflects portion fair value contract attributable interest component contract exchange rate sensitivity table provides information tyco industrials financial instruments sensitive foreign currency exchange rates instruments include longterm investments debt obligations crosscurrency swaps forward foreign currency exchange contracts longterm investments table presents cash flows principal payments related subordinated noncollateralized zero coupon loan note based amortized cost investment september 30 2001 associated fair value interest rate discount debt obligations table presents cash flows principal repayment weightedaverage interest rates crosscurrency swaps forward foreign currency exchange contracts table presents notional amounts weightedaverage contractual exchange rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars millions 1 weightedaverage variable interest rates based applicable rates september 30 2001 per terms contracts related financial instruments 2 fair value crosscurrency swap included table reflects portion fair value contract attributable foreign currency component contracts commodity price sensitivity table provides information tyco industrials financial instruments sensitive changes commodity prices total contract dollar amounts notional quantity amounts presented forward commodity contracts contract amounts used calculate contractual payments quantity commodity exchanged contracts millions tyco capital risk management tyco capitals business activities contain various elements risk tyco capital considers principal types risk credit risk including credit collateral equipment risk market risk including interest rate foreign currency liquidity risk credit risk management tyco capital developed maintains systems specifically designed manage credit risk business segments tyco capital evaluates financing leasing assets credit collateral risk credit granting process periodically advancement funds tyco capitals strategic business units developed maintains formal credit management process accordance formal uniform guidelines established tyco capitals corporate credit risk management group guidelines set forth risk acceptance criteria acceptable maximum credit line selected target markets products creditworthiness borrowers including credit history financial condition adequacy cash flow quality management type value underlying collateral guarantees including recourse dealers manufacturers tyco capital also employs risk adjusted pricing process perceived credit risk factor determining interest rate andor fees charged financing leasing products economic market conditions change credit risk management practices reviewed modified necessary seek minimize risk credit loss equipmentresidual risk management tyco capital developed systems processes expertise manage equipment residual risk commercial businesses tyco capital process consists following residual setting valuation deal inception ii systematic residual reviews iii monitoring residual realizations reviews impairment performed least annually residual realizations business unit product reviewed part tyco capitals ongoing financial asset quality review within business units corporate management commercial tyco capital developed systems specifically designed effectively manage credit risk commercial businesses process starts initial evaluation credit risk underlying collateral time origination continues life finance receivable operating lease including collecting past due balances liquidating underlying collateral consumer smallticket leasing tyco capital developed proprietary automated credit scoring models loan type include customer demographics credit bureau characteristics profiles emphasize among things occupancy status length residence length employment debt income ratio total installment debt housing expenses gross monthly income bank account references credit bureau information combined loan value ratio models used assess potential borrowers credit standing repayment ability considering value adequacy property offered collateral tyco capitals credit criteria include reliance credit scores including based upon proprietary internal credit scoring model external credit bureau scoring combined judgment market risk management market risk loss arising changes values financial instruments including interest rate risk foreign exchange risk derivative credit risk liquidity risk tyco capital engages transactions normal course business expose market risks maintains believes conservative management practices policies designed effectively mitigate risks objectives tyco capitals market risk management efforts preserve company value hedging changes future expected net cash flows decrease cost capital strategies managing market risks associated changes interest rates foreign exchange rates integral part process strategies affect tyco capitals future expected cash flows well cost capital interest rate foreign exchange risk management tyco capital offers variety financing products customers including fixed floatingrate loans various maturities currency denominations variety leases including operating leases changes market interest rates relationships shortterm longterm market interest rates relationships different interest rate indices ie basis risk affect interest rates charged interestearning assets differently interest rates paid interestbearing liabilities result increase interest expense relative finance income tyco capital measures assetliability position economic terms duration measures value risk analysis measures periodic effect earnings using maturity gap analysis substantially matched assetliability position generally achieved combination financial instruments including issuing commercial paper mediumterm notes longterm debt interest rate currency swaps foreign exchange contracts asset syndication securitization tyco capital speculate interest rates foreign exchange rates rather seeks mitigate possible impact rate fluctuations encountered normal course business process ongoing due prepayments refinancings actual payments varying contractual terms well portfolio dynamics tyco capital periodically enters structured financings involving issuance debt interest rate swap corresponding notional principal amount maturity manage liquidity reduce interest rate risk lower overall funding cost could achieved solely issuing debt interest rate swaps notional principal amounts 69 billion september 30 2001 designated hedges outstanding debt principally used convert interest rate variablerate debt fixedrate establishing fixedrate term debt borrowing cost life swap hedges reduce tyco capitals exposure rising interest rates also reduce benefits lower interest rates tyco capitals foreign operations include canada latin america europe asia australia funded local currency borrowings us dollar borrowings converted local currency use foreign exchange forward contracts crosscurrency swaps september 30 2001 25 billion notional principal amount foreign exchange forwards 17 billion notional principal amount crosscurrency swaps designated currencyrelated debt hedges tyco capital also utilizes foreign exchange forward contracts hedge net investments foreign operations translation gains losses underlying foreign net investment well offsetting derivative gains losses designated hedges reflected comprehensive income september 30 2001 08 billion notional principal foreign exchange forwards designated hedges net investments foreign operations derivative risk management tyco capital enters interest rate currency swaps foreign exchange forward contracts part overall market risk management practices primary external risk derivative instruments counterparty credit exposure defined ability counterparty perform financial obligations derivative contract tyco capital controls credit risk derivative agreements counterparty credit approvals preestablished exposure limits monitoring procedures liquidity risk management liquidity risk refers risk tyco capital unable meet potential cash outflows promptly cost effectively factors could cause risk arise might disruption securities market unavailability funds tyco capital actively manages mitigates liquidity risk maintaining diversified sources funding primary funding sources commercial paper us canada australia mediumterm notes us canada europe assetbacked securities us canada included part tyco capitals securitization programs committed assetbacked commercial paper programs us canada tyco capital also maintains committed bank lines credit provide backstop support commercial paper borrowings local bank lines support international operations additional sources liquidity loan lease payments customers whole loan asset sales loan syndications following tables provide information regarding tyco capitals financial instruments sensitive interest rates foreign currency exchange rates based upon contractual rates tyco capitals financial instruments september 30 2001 amounts included table us dollars millions interest rate sensitivity exchange rate sensitivity accounting technical pronouncements june 2001 financial accounting standards board fasb issued sfas 141 business combinations sfas 142 goodwill intangible assets sfas 141 requires business combinations initiated june 30 2001 accounted using purchase method addition companies required review goodwill intangible assets reported connection prior acquisitions possibly disaggregate report separately previously identified intangible assets possibly reclassify certain intangible assets goodwill sfas 142 establishes new guidelines accounting goodwill intangible assets accordance sfas 142 goodwill associated acquisitions consummated june 30 2001 amortized company implemented remaining provisions sfas 142 october 1 2001 since adoption existing goodwill longer amortized instead assessed impairment least annually currently determining impact adopting standard transition provisions sfas 142 goodwill amortization expense fiscal 2001 5972 million june 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 addresses accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective fiscal years beginning june 15 2002 currently assessing impact new standard july 2001 fasb issued sfas 144 impairment disposal longlived assets effective fiscal years beginning december 15 2001 provisions statement provide single accounting model impairment longlived assets currently assessing impact new standard forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed securities exchange commission tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding consummation benefits future acquisitions well expectations respect future sales earnings cash flows operating efficiencies product expansion backlog financings share repurchases subject known unknown risks uncertainties contingencies many beyond control may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forwardlooking statements include among things overall economic business conditions demand tycos goods services competitive factors industries tyco competes changes government regulations changes tax requirements including tax rate changes new tax laws revised tax law interpretations results litigation interest rate fluctuations capital market conditions including foreign currency rate fluctuations economic political conditions international markets including governmental changes restrictions ability transfer capital across borders tyco capitals ability access funding sources costeffective basis credit loss experience adequacy credit loss reserve timing construction successful operation tycom global network ability achieve anticipated synergies cost savings connection acquisitions timing impact uncertainties future acquisitions tyco international ltd schedule iivaluation qualifying accounts millionsitem 14 principal accounting fees services information johnson controls proxy statement set forth “proposal number two” related appointment auditors incorporated herein reference part iv item 15 item 7 managements discussion analysis financial condition results operations introduction september 1996 company merged acquired whole issued capital ash united kingdom quoted company ash engaged provision electronic security services north america europe merger acquisition ash company accounted means pooling interests method accounting pursuant accounting principles board opinion 16 pooling interests method accounting assumes combining companies merged since inception historical consolidated financial statements periods prior consummation merger restated though companies combined since inception accordingly accompanying consolidated financial statements give effect transaction means pooling interests restated 1995 management commenced strategic review companys business operations corporate organizational structure view developing business strategy would place company stronger position deal changing business environment challenges facing core service businesses late 1990s part strategic review management approved redeployment certain companys assets order concentrate companys resources electronic security services operations principally united states management believes greatest potential future growth lies consequently actron group companys european electronic article surveillance business disposed november 1995 december 1995 company disposed interest european vehicle auction services businesses fourth quarter 1995 company entered agreement acquisition alert tenth largest electronic security services company united states predominantly residential customer base located principally texas florida georgia part strategic review business operations undertaken 1995 context acquisition alert disposal interest european vehicle auction services businesses management commenced evaluation entire group corporate structure administrative accounting management information systems united states electronic security services division reengineering project reengineering project ongoing intended modify improve entire structure business operations order create profitable efficient organization significantly improved marketing selling installation servicing capabilities supported upgraded management information systems 1996 restructuring electronic security services division included reorganization senior management closure major corporate office parsippany new jersey realignment organizational structure along functional business lines residential commercial customer service rather along geographic lines 1996 result acquisition ash development reengineering project control new senior management company identified need extend process strategic change include significantly expanded agenda result various strategic initiatives added corporate plan implementation plans currently progress continue throughout 1997 united states plans relate principally significant investment technological infrastructure enhancements facilitate consolidation companys entire customer monitoring center network four state art customer service centers place company stronger position take advantage significant opportunities changing market place europe plans relate principally merger integration consolidation companys existing electronic security services businesses ash recent developments november 1996 company announced intended dispose vehicle auction services operations united states order concentrate expansion companys electronic security services business accordingly companys vehicle auction services business segment initially reclassified discontinued operation years presented preliminary summarized consolidated results operations company year ended december 31 1996 announced march 3 1997 filed schedule 14a march 17 1997 company announced aforementioned intention rescinded vehicle auction services operations united states would longer disposed accordingly consolidated financial information set forth form 10k including audited consolidated financial statements company presented companys vehicle auction services business segment classified continuing operation years presented net effect reported net income total shareholders equity comparing preliminary summarized consolidated results operations company referred consolidated financial information set forth form 10k differences relate reclassification vehicle auction services business segment discontinued operations continuing operations december 1996 western resources inc western announced intention commence offer exchange adt limiteds outstanding common shares consideration consisting cash shares western common stock march 3 1997 company announced board directors determined offer made western inadequate best interests adt limiteds shareholders march 17 1997 offer made western commenced march 17 1997 company announced entered definitive merger agreement subject shareholder approval customary matters tyco international ltd tyco united states quoted company engaged manufacture industrial commercial products tyco shareholders receive one common share combined company tyco common share adt limited shareholders reverse stock split receive 048133 common shares combined company adt limited common share information presented read conjunction qualified reference consolidated financial statements company related notes thereto consolidated financial statement schedules results operations following discussion results operations addresses net sales operating loss income certain line items consolidated financial statements net sales year ended december 31 1996 1995 1994 electronic security services 14062 13509 12533 vehicle auction services 2978 4329 3761 17040 17838 16294 operating loss income loss income taxes year ended december 31 1996 1995 1994 electronic security services 7565 1724 1821 vehicle auction services 271 702 627 corporate expenses 361 418 388 operating loss income 7655 2008 2060 interest income 275 162 152 interest expense 1010 1163 993 gain loss disposal businesses 17 366 03 income less expenses 1288 50 41 loss income taxes 7085 591 1175 restructuring nonrecurring charges 2373 342 45 charge impairment longlived assets 7447 depreciation amortization 2248 2479 2267 capital expenditures 3444 3258 2826 electronic security services net sales derived electronic security services division dependent volume new customer installations number customers contract provision electronic monitoring services majority divisions revenues derived contractually recurring fees electronic monitoring maintenance security systems installed customer premises related services remainder divisions revenues derived outright sale installation security systems installation security systems accordance monitoring service agreement maintenance security systems noncontractual basis security system installation revenues recognized installation system complete system installed accordance terms monitoring service agreement company retains ownership system direct installation costs include materials labor installation overheads capitalized recorded fixed asset subscriber systems subscriber systems depreciated estimated useful life principally 14 years 10 years commercial residential systems respectively case commercial systems actual contract duration shorter selling marketing costs expensed year incurred following table presents approximate number commercial residential customers north america europe contracting company monitoring maintenance electronic security systems together annualized service revenue contract december 31 1996 annual combined discontinuance rate commercial residential contracts respect 1996 adt defines annualized service revenue annualized service billing arising customer base point time monitoring maintenance related services aggregate annualized service billings amount takes account cancellations terminations increases contract revenues due new contracts additional services existing customers rate variations date computation actual amount service revenue future periods vary accordance changes customer base fees charged adt calculates annual combined discontinuance rate dividing annualized service revenue contracts cancelled reduced price year annualized service revenue force beginning year expressed percentage since 1987 divisions goals create lower cost efficient operation suitable longterm growth greater profitability take advantage economies scale resulting utilization existing infrastructure services commercial customer base period company equipped regional customer monitoring centers enhanced computer technology automate monitoring process increase monitoring capacity result increased monitoring service capacity lower cost structure due manpower reductions reduced facility costs early 1990s company began marketing electronically monitored security systems services lower installation price points residential customers throughout north america result rapid expansion companys business recent past broader business strategy adopted company changing market place company identified need improve expand technological physical capacity order expand customer base product range consequently company approved plan significantly enhance monitoring capacity service quality ability expand service product range company continue aggressively market residential security systems north america also focusing opportunities growth commercial sector economies north america europe improve details electronic security services divisions business strategy set description business description electronic security services 1996 compared 1995 net sales division increased 41 per cent 1996 14062 million 13509 million 1995 sales increase attributable increase 1021 million sales north american operations offset 468 million decline sales european operations due exclusion sales european electronic article surveillance operation certain businesses operating ash group disposed 1995 north america increase sales principally due first time inclusion sales alert acquired december 1995 well increased recurring monitoring maintenance revenues arising larger base residential security systems although unit residential security systems sales north america increased 1996 compared 1995 due price competition market place residential installation revenues north america showed modest decline 1996 compared 1995 commercial business united states remained flat new system sales installation revenues growth recurring commercial revenues continues affected factors europe allowing business disposals effect foreign exchange sales showed modest increase 1996 compared 1995 operating results division declined 1724 million income 1995 7565 million loss 1996 principally due charge impairment longlived assets 7317 million restructuring nonrecurring charges 2325 million 1996 operating income division charge impairment longlived assets restructuring charges increased 72 per cent 1996 2077 million 1938 million 1995 operating income charge impairment longlived assets restructuring charges percentage net sales operating margin increased 148 per cent 1996 143 per cent 1995 increase operating income charge impairment longlived assets restructuring charges principally reflected first time inclusion alert disposal european electronic article surveillance operation november 1995 continuing success north american residential security systems sales program achieved advances recurring revenues 1996 however improvement offset continued price competition increased marketing selling costs caused contribution residential installation revenues outright residential sales show modest decline north american commercial installation revenues outright sales remained flat contribution europe showed modest increase 1995 compared 1994 net sales division increased 92 per cent 1995 13509 million 12366 million 1994 excluding net sales 167 million relating companys electronic security services businesses australia new zealand disposed june 1994 increase attributable increases net sales 902 million 241 million north america europe respectively sales increase north america principally due increased recurring monitoring maintenance revenues arising larger base residential security systems addition commercial business united states experienced improved growth new system sales installation revenues however corporate downsizing cost containment meant growth recurring revenues commercial sector modest sales canada however marginally declined increase sales europe due increased sales commercial business particularly united kingdom well increased recurring monitoring maintenance revenues commercial customers strengthening european currencies us dollar operating income division declined 1821 million 1994 1724 million 1995 principally due restructuring nonrecurring charges 214 million 1995 operating income division restructuring charges increased 65 per cent 1995 1938 million 1819 million 1994 excluding operating income 02 million relating australia new zealand disposed june 1994 operating margin declined 147 per cent 1994 excluding australia new zealand 143 per cent 1995 reflecting higher cost adding new residential customers north america 1995 increase operating income restructuring charges north america reflected continuing success united states residential security systems sales program growth sale new systems installation revenues commercial sector growth residential commercial sales resulted increased installation fees related monitoring maintenance revenues increased utilization monitoring network united states canada however sales margins fallen overall business performance disappointing europe operating income restructuring charges showed modest increase despite pressure margins electronic article surveillance business november 1995 company disposed entire electronic article surveillance business restructuring nonrecurring charges 1995 company commenced strategic review business operations view developing business strategy would place company stronger position deal changing business environment challenges facing core electronic security services businesses late 1990s strategic review process continued 1996 following completion acquisition alert senior management reorganization took place first quarter 1996 identification new senior management team need expand significantly terms reference restructuring united states effects reengineering project consequent restructuring fully described note 5i notes consolidated financial statements consequence reengineering project fourth quarters 1996 1995 senior executive management approved restructuring plan resulted charge restructuring nonrecurring items 1347 million 214 million respectively fourth quarter 1996 company commenced strategic detailed review electronic security services businesses acquired part acquisition ash september 1996 december 1996 senior executive management approved restructuring plan intended merge integrate fully ash group adt group end 1997 consequence restructuring plan charge restructuring nonrecurring items 978 millon recorded fourth quarter 1996 details restructuring fully described note 5i notes consolidated financial statements charge impairment longlived assets effective january 1 1996 company required adopt sfas 121 following adoption sfas 121 first quarter 1996 company recorded aggregate noncash charge impairment longlived assets 7317 million electronic security services division consequential tax credit 108 million impairment charge comprised 3971 million relating adt group principally related carrying value goodwill intangibles 3346 million relating ash group 1210 million related carrying value subscriber systems installed customers premises included property plant equipment 2136 million related carrying value goodwill intangibles details set note 6i notes consolidated financial statements vehicle auction services net sales vehicle auction services division function number vehicles handled number vehicles sold auction number vehicles handled ancillary services provided company charges entry fee majority vehicles entered auction sale vehicle auction company charges separate sellers buyers fee vehicle sold fee per vehicle sold either fixed fee variable fee directly related sale price achieved fee structure vehicle transaction based upon contractual relationship customer revenues additional services include reconditioning body repair inspection transportation insurance related number vehicles handled additional integral source divisions revenue december 1995 company disposed interest united kingdom continental european vehicle auction services businesses 1996 compared 1995 net sales division declined 4329 million 1995 2978 million 1996 due exclusion sales european auctions sold december 1995 net sales united states vehicle auction services business increased 104 per cent 1996 2978 million 2698 million 1995 volume vehicles sold increased approximately 7 per cent principally due increase volume vehicles sold fleet lease customers approximately 35 per cent volume vehicles sold vehicle manufacturers new used vehicle dealers declined approximately 5 per cent approximately 2 per cent respectively operating income division declined 702 million 1995 252 million 1996 due charge impairment longlived assets 130 million see note 6ii notes consolidated financial statements exclusion operating income european auctions operating income charge impairment longlived assets united states vehicle auction services business increased 114 per cent 1996 382 million 343 million 1995 operating margin increased 128 per cent 1996 127 per cent 1995 increase operating income operating margin due principally increase volume vehicles sold increase ratio vehicles sold vehicles entered sale conversion ratio 566 per cent 1996 553 per cent 1995 due higher proportion vehicles entered sale fleet lease customers december 1995 company disposed interest european auctions aggregate consideration 3349 million net loss disposal 658 million included 1365 million relating write net unamortized goodwill intangibles 232 million charge relating cumulative currency translation adjustments 1995 compared 1994 net sales division increased 151 per cent 1995 4329 million 3761 million 1994 increase attributable increases net sales 403 million 165 million europe united states respectively increase europe primarily attributable increase number vehicles sold 1995 approximately 7 per cent inclusion vehicle reconditioning transportation business united kingdom acquired december 1994 strengthening european currencies us dollar europe volume vehicles sold new used vehicle dealers fleet lease customers vehicle manufacturers increased approximately 5 per cent approximately 10 per cent approximately 8 per cent respectively united states volume vehicles sold increased approximately 3 per cent principally due increase volume vehicles sold fleet lease customers approximately 30 per cent offset decline case volume vehicles sold vehicle manufacturers new used vehicle dealers approximately 5 per cent operating income division increased 120 per cent 1995 702 million 627 million 1994 operating income europe increased 69 million due increase revenue per vehicle sold auctions inclusion vehicle reconditioning transportation business united kingdom effective overhead containment strengthening european currencies us dollar operating income united states increased 06 million operating margin declined 133 per cent 127 per cent principally due decline conversion ratio 583 per cent 1994 553 per cent 1995 due lower proportion vehicles entered sale manufacturers lower dealer conversion ratios corporate expenses corporate expenses comprise administrative legal general corporate expenses net income include central costs incurred directly connected operational management companys two businesses responsible corporate overheads effects reengineering project merger ash group adt group resulted charge restructuring nonrecurring items corporate level fourth quarter 1996 48 million 1995 management evaluated companys entire group corporate structure particular united kingdom result december 1995 senior executive management approved restructuring plan resulted charge restructuring nonrecurring items corporate level 128 million corporate restructuring charge 1994 45 million principally attributable companys corporate administration united kingdom details restructurings fully described note 5ii notes consolidated financial statements items income statement interest income interest expense year ended december 31 1996 1995 1994 interest income 275 162 152 interest expense 1010 1163 993 interest income increased 1996 compared 1995 principally due effects disposal european vehicle auction division european electronic article surveillance business fourth quarter 1995 inclusion 89 million interest income 1996 related vendor note interest income increased 1995 compared 1994 principally due increase level cash deposits held company 1995 interest expense declined 1996 compared 1995 principally due effects refinancing took place third quarter 1995 1996 interest expense included 203 million 1995 94 million relating liquid yield option notes discount amortization 37 million 1995 53 million relating refinancing costs amortization interest expense increased 1995 compared 1994 principally due effects financing redemption significant proportion companys convertible redeemable preference shares 1994 1995 interest expense included 94 million 1994 nil relating liquid yield option notes discount amortization 53 million 1994 57 million relating refinancing costs amortization company holds derivative financial instruments see liquidity capital resources notes 21 23 notes consolidated financial statements provide details shortterm longterm debt respectively disposal businesses december 1995 company disposed interest united kingdom continental european vehicle auction services businesses aggregate consideration 3349 million see notes 18 34 notes consolidated financial statements details net loss disposal 658 million included 1365 million relating write net unamortized goodwill 232 million charge relating cumulative currency translation adjustments november 1995 company disposed entire european electronic article surveillance business aggregate consideration 540 million net gain disposal 314 million included 21 million gain relating cumulative currency translation adjustments income less expenses year ended december 31 1996 1995 1994 gains losses arising ownership investments 544 50 215 write value associate 307 settlement gain 650 gains losses currency transactions 97 09 21 income less expenses net 03 09 30 1288 50 41 1996 gains arising ownership investments included net gain 534 million relating disposal november 1996 companys entire investment limelight group plc write value associate 1994 related companys entire equity investment arius inc held ash group december 1996 company bdo entered agreement full final settlement companys litigation bdo net gain arising settlement write certain deferred legal costs amounted 697 million 650 million included income less expenses 47 million included interest income see note 8 notes consolidated financial statements details income less expenses income taxes current income taxes principally relate state local tax liabilities incurred united states nonus tax liabilities companys effective income tax rate adjusted financial reporting purposes increased 1996 1995 1994 effective tax rate increase principally arose increase deferred tax charge 1996 companys deferred income tax charge impacted tax effects restructuring united states nonus tax jurisdictions see note 9 notes consolidated financial statements details income taxes discontinued operations discontinued operations comprised disposal 1994 companys noncore businesses company longer interests noncore businesses included loss discontinued operations 1994 net losses disposal noncore businesses amounting 37 million included 191 million relating write net unamortized goodwill intangibles disposal noncore businesses net income operations 1994 included loss discontinued operations amounted 04 million net sales 806 million extraordinary items extraordinary items 1996 1995 included net losses amounting 12 million 15 million respectively arising reacquisition certain companys senior subordinated notes details provided notes 11 23ii notes consolidated financial statements september 1996 company repaid full amounts owed ash group senior notes bank credit agreement details net loss amounting 46 million arose transactions provided notes 11 23vi notes consolidated financial statements december 1996 company gave notice would redeem full amounts outstanding convertible capital bond holders owed ash group details net loss amounting 16 million arose transaction provided notes 11 23v notes consolidated financial statements july 1995 december 1996 company repaid full cancelled certain bank credit agreements part refinancing arrangements time details net losses amounting 83 million 1995 10 million 1996 arose transactions provided notes 11 23iii 23iv notes consolidated financial statements dividends preference shares result redemption significant proportion companys convertible redeemable preference shares 1994 dividends payable balance shares outstanding negligible 1996 1995 effects inflation due relatively low levels inflation experienced 1994 1995 1996 major markets company operates inflation significant effect results company years liquidity capital resources consolidated cash flow information net decrease cash equivalents amounted 1350 million positive effect currency translation cash equivalents 14 million net cash 3087 million provided operating activities offset net cash utilized investing activities 3284 million net cash utilized financing activities 1167 million net cash provided operating activities 3087 million principally included cash provided companys electronic security services vehicle auction services divisions less expenses adjusted net increase working capital within net increase 327 million working capital increases accounts receivable 119 million inventories assets 150 million net decrease liabilities 58 million principally relating increases accounts payable deferred revenue decrease liabilities movement accounts receivable principally due increase accounts receivable vehicle auction services division movement deferred revenue principally due timing billings within electronic security services division net cash utilized investing activities 3284 million principally due capital expenditures 3142 million 257 million electronic security services vehicle auction services divisions respectively 255 million relating acquisition minority interest alert 346 million relating purchase customer contracts provide electronic security monitoring principally offset 154 million received disposal certain investments loans associates 541 million received disposal investments principally limelight group plc net cash utilized financing activities 1167 million principally due repayments longterm debt 2099 million principally relating ash group purchase 231 million companys senior subordinated notes cost 240 million principally offset 868 million relating proceeds longterm debt 247 million realized issue common shares cash liquid resources sources finance liquid assets available company december 31 1996 represented cash equivalents 2159 million december 31 1996 company available undrawn facilities 359 million revolving bank credit agreement july 1996 part agreement combine republic industries inc republic adt limited granted republic warrant acquire 15 million common shares adt limited exercise price 20 per common share following termination agreement combine republic warrant vested exercisable republic six month period commencing september 27 1996 march 21 1997 warrant exercised republic company received 300 million cash future commitments cash requirements capital expenditures 1997 estimated approximately 487 million represent normal replacement needs purchase additional equipment facilities customer contracts necessary meet planned increases sales approximately 90 per cent capital expenditures projected electronic security services relates installation subscriber systems customers premises amount include amounts acquisitions company may pursue time company believes working capital december 31 1996 available credit facilities current cash flows operations adequate companys normal growth operating needs funding capital expenditures budget current servicing debt requirements adt limited present intention pay dividends common shares keep dividend policy review light prevailing circumstances terms senior notes revolving bank credit agreement adt limited may declare pay make dividend distribution respect common shares except certain defined circumstances see note 23 notes consolidated financial statements details forward looking information certain statements form 10k constitute forward looking statements within meaning private securities litigation reform act 1995 particular statements contained herein regarding consummation benefits future acquisitions well expectations respect future sales operating efficiencies product expansion subject known unknown risks uncertainties contingencies many beyond control company may cause actual results performance achievements differ materially anticipated results performance achievements factors might affect forward looking statements included among others overall economic business conditions demand companys service competitive factors industry regulatory approvals uncertainty consummation future acquisitions item 8item 7 managements discussion analysis financial condition operating results see managements discussion analysis financial condition operating results appears pages 65 69 form 10k item 7aitem 7 managements discussion analysis financial condition results operations see managements discussion analysis financial condition results operations appears pages 68 84 form 10ka item 7aitem 7 managements discussion analysis financial condition results operations see managements discussion analysis financial condition results operations appears pages 81 98 form 10k item 7aitem 7 managements discussion analysis financial condition results operations see managements discussion analysis financial condition results operations appears pages 123 160 form 10k item 7aitem 7 managements discussion analysis financial condition results operations see managements discussion analysis financial condition results operations appears pages 126 172 form 10k item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information introduction consolidated financial statements include consolidated accounts tyco international ltd company organized laws bermuda subsidiaries tyco subsidiaries hereinafter collectively referred company tyco prepared united states dollars accordance generally accepted accounting principles united states gaap company operates following business segments •fire security designs manufactures installs monitors services electronic security fire protection systems •electronics designs manufactures distributes electrical electronic components •healthcare designs manufactures distributes medical devices supplies imaging agents pharmaceuticals adult incontinence infant care products •engineered products services designs manufactures distributes services engineered products including industrial valves controls well steel tubular goods provides environmental industrial consulting services •plastics adhesives designs manufactures distributes plastic products adhesives films unless otherwise indicated references annual report 2004 2003 2002 tycos fiscal year ended september 30 2004 2003 2002 respectively overview business strategy focuses enhancing internal growth operational efficiency existing tyco businesses achieve goal primarily new product innovation increased market share increasing service repair components existing businesses continued geographic expansion implemented continue implement additional six sigma initiatives across business segments company engaged series restructuring programs made operations efficient exiting certain noncore businesses business lines streamlining general operations restructuring program announced november 2003 designed improve cost structure primarily fire security also plastics adhesives engineered products services substantially completed 2004 impact restructuring programs operations company discussed operating results segment results additionally details related companys divestiture program related discontinued operations discussed divestitures discontinued operations references tyco companys continuing operations prior year amounts reclassified exclude results discontinued operations 2004 tycos precision interconnect business transferred healthcare electronics 2003 company finalized plan sell tyco global network tgn result reorganized reporting structure results tgn business held sale presented within corporate also 2003 company changed internal reporting structure operations tycos plastics adhesives businesses previously reported within healthcare specialty products comprise plastics adhesives reportable segment company conformed segment reporting accordingly reclassified comparative prior period information reflect changes operating results following table details net revenue earnings years ended september 30 2004 2003 2002 millions company made significant progress 2004 towards meeting strategic objectives described fully segment results course 2004 experienced solid revenue growth electronics healthcare engineered products services lesser extent fire security also expanded operating margins due large part momentum strong results operational intensity programs addition strong operating performance favorable foreign currency exchange rates contributed positively net revenue operating income growth 2004 well 2003 net revenue increased 116 2004 402 billion 360 billion 2003 net revenue increased 33 2003 compared 348 billion 2002 tyco income continuing operations 3005 million 2004 compared 1035 million 2003 loss continuing operations 2851 million 2002 effect changes foreign exchange rates 2004 compared 2003 increase net revenue operating income 1685 million 230 million respectively effect changes foreign exchange rates 2003 compared 2002 increase net revenue operating income 1508 million 191 million respectively 2004 2003 impact foreign currency primarily due strengthening euro us dollar income continuing operations 2004 included net charges totaling 755 million 564 million tax consisting following charges impairment longlived assets 99 million 34 million attributable machinery equipment impairments fire security ii net restructuring charges 256 million charges 7 million included cost sales iii net losses impairments divestitures totaling 116 million iv loss 284 million associated retirement debt v 5 million writedown investments income continuing operations 2003 included net charges totaling 1832 million 1566 million aftertax consisting following charges impairment longlived assets 815 million ii charges recorded changes estimates 389 million arose companys intensified internal audits detailed controls operating reviews includes net restructuring credits 72 million credits 12 million included costs sales charges impairment longlived assets 10 million charges 243 million included selling general administrative expenses charges 123 million included cost sales charge 76 million relating writedown investments expense 9 million included expenses income net iii charges impairment goodwill 278 million iv net loss 128 million related retirement debt v charges 148 million 34 million included cost sales related primarily product warranty reserves dismantlement customers adt security systems 114 million included selling general administrative expenses related primarily uncollectible accounts receivable internal investigation fees well severance facility closures slightly offset credit changes estimates charges recorded prior periods vi charge 91 million retroactive incremental premium prior period directors officers insurance included selling general administrative expenses vii charge 12 million relating writedown investments viii interest expense 2 million ix interest income 19 million x net restructuring credits 12 million charges 2 million included cost sales loss continuing operations 2002 included net charge totaling 6759 million 6091 million aftertax consisting following goodwill impairment charge 1344 million relating continuing operations ii charges impairment longlived assets 3310 million primarily related writedown tgn iii net restructuring charges 1872 million 636 million included cost sales 115 million related bad debt provision included selling general administrative expenses iv writeoff purchased inprocess research development 18 million v loss writeoff investments 271 million vi gain divestiture 24 million vii gain retirement debt 30 million segment results segment discussions follow describe significant factors contributing changes results segment 2004 divestitures impacted certain segments implemented divestiture program early 2004 2003 2002 acquisitions significant element growth strategy therefore significant component results see details divestitures discontinued operations acquisitions fire security following table sets forth net revenue operating income margin fire security years ended september 30 2004 2003 2002 millions net revenue fire security increased 57 2004 compared 2003 including 92 increase product revenue 28 increase service revenue product sales include sales installation security fire protection systems increase net revenue primarily due favorable currency exchange rates 526 million slightly offset effects divestitures 82 million lesser extent increase net revenue due stronger sales retailers within worldwide security higher sales volume breathing systems video access control products tyco safety products increase partially offset weakness worldwide fire service business continental europe security operating income margin increased significantly 2004 compared 2003 due partially total charges 512 million recorded 2003 discussed additionally increase operating income margin due improvements within worldwide security related primarily combined impact stronger retailer market environment cost reductions also contributing increase lesser extent improvements within continental europe security result cost saving initiatives changing business model tyco safety products due primarily increased volumes cost savings partly reflect benefits restructuring activities described operating income 2004 also includes charges totaling 264 million consisting primarily restructuring 175 million 4 million included cost sales impairment 34 million divestiture 55 million charges substantially associated comprehensive cost reduction measures began 2003 attrition rates customers global electronic security services business decreased average 151 trailing twelvemonth basis 2004 compared 159 2003 net revenue fire security increased 61 2003 compared 2002 including 34 increase product revenue 85 increase service revenue increase net revenue due favorable changes foreign currency exchange rates 459 million 2002 acquisitions 214 million calculated manner described acquisitions included sbcsmith alarm systems dsc group dsc sensormatic electronics corporation sensormatic early 2002 acquisitions purchase price 10 million addition increase net revenues due customer contracts purchased adt dealer program 371 million generated internal sales force offset decline net revenue due increased attrition rates worldwide security overall increase also partially offset decline net revenue worldwide fire protection business due softness commercial construction market operating income margin decreased significantly 2003 compared 2002 due charges totaling 512 million recorded 2003 included within 512 million charges 266 million includes charges 128 million primarily related adjustments liabilities workers compensation professional fees environmental exposure charge 98 million primarily due adjusting allowances doubtful accounts slow nonmoving inventory well writeoff subscriber systems charges 34 million adjustments primarily related deferred commissions charges 6 million related reconciling items current period recorded connection companys intensified internal audits detailed controls operating reviews performed year also included within 512 million impairment charges 143 million primarily related impairment intangible assets associated adt dealer program mostly result increased attrition rates discussed impairment property plant equipment subscriber systems fixed assets net restructuring charges 10 million charges 4 million included cost sales 3 million writeoff noncurrent assets related streamlining business charges 93 million 34 million included cost sales 59 million included selling general administrative expenses primarily related uncollectible receivables product warranty dismantlement customers adt security systems included within 143 million impairment charge 10 million net restructuring charge 10 million credit 2 million respectively also related changes estimates recorded quarter ended march 31 2003 decrease operating income margins also due increased depreciation amortization expense security business due growth subscriber asset dealer asset base well impact acquisitions sensormatic dsc 2002 decline operating income continental european security business weaker worldwide fire contracting environment attrition rates customers global electronic security services business averaged 159 trailing twelvemonth basis 2003 compared 132 2002 increase relates attrition customer accounts acquired worldwide dealer program well internally generated commercial customer accounts continental europe internally generated residential customer accounts united states partly driven increased management control delinquent accounts account pools experiencing increased attrition prior lifing studies reexamined company concluded existing amortization methods asset lives continue appropriate given observed actual attrition data pools operating income margin 2002 include net restructuring charge 95 million net 95 million charge includes charges 113 million inventory writedowns 19 million reflected cost sales charges primarily related severance facility exit costs associated streamlining business slightly offset credit 18 million relating current prior years restructuring charges also included within operating income 2002 charge 18 million writeoff purchased inprocess research development associated acquisitions sensormatic dsc charge 115 million impairment property plant equipment resulting primarily termination software development project lesser extent curtailment certain markets termination adt dealer program certain nonus markets electronics following table sets forth net revenue operating income margin electronics years ended september 30 2004 2003 2002 millions net revenue electronics increased 127 2004 compared 2003 including 131 increase product revenue 23 increase service revenue increase net revenue primarily result growth existing businesses specifically automotive computer consumer electronics communications industrial commercial markets however continue experience decrease sales power systems products north america electrical contracting services divested september 2004 lesser extent increase net revenue resulted favorable changes foreign currency exchange rates 560 million 409 increase operating income 30 increase margin 2004 compared 2003 primarily due revenue growth discussed cost saving initiatives executed 2003 positive impact foreign currency 90 million fewer charges recorded 2004 compared 2003 increases operating income partially offset 80 basis point impact increased metal prices copper gold operating income 2004 includes net restructuring divestiture impairment charges totaling 22 million net charges include 52 million charge related divestiture electrical contracting services business partially offset 33 million net restructuring credits related changes estimates severance facility exit costs distributor supplier cancellation fees recorded prior periods impact sale assets impaired prior years amounts greater originally anticipated net charges also include 3 million charge related impairment property plant equipment net revenue electronics decreased slightly 2003 compared 2002 net revenue electronic components group increased 442 million 45 due primarily favorable impact foreign currency exchange rates net revenue submarine telecommunications business declined 542 million 799 due completion thirdparty undersea fiber optic system installations 2002 overall decrease net revenue submarine telecommunications business offset increase total net revenue due favorable changes foreign currency exchange rates 524 million 69 million calculated manner described acquisitions due acquisitions transpower technologies november 2001 communications instruments inc january 2002 acquisitions purchase price 10 million increase operating income margin 2003 compared 2002 due operating losses prior year primarily result charges totaling 1965 million discussed recorded 2002 operating income margin 2003 include net charges totaling 236 million 236 million consists primarily charges impairment goodwill 278 million power systems electrical contracting services printed circuit group restructuring credits 72 million 20 million included cost sales related primarily changes estimates severance facility exit costs recorded prior years charges impairment longlived assets 1 million net restructuring credit 72 million includes 55 million credits changes estimates recorded connection companys intensified internal audits detailed controls operating reviews performed 2003 also included within 236 million charges 14 million related adjusting asset reserves 6 million related adjustments accrual balances 9 million reconciliation accounting adjustments also recorded connection companys intensified internal audits detailed controls operating reviews performed 2003 operating loss 2002 primarily due restructuring charges well impairment long lived assets goodwill addition decrease revenue electronic components business overall decrease demand resulted much lower manufacturing volumes across business units increased per unit costs submarine telecommunications business margin impacted significantly significant reduction third party system builds operating loss margin 2002 include net restructuring charges 1115 million 1115 million net charge includes charges totaling 1141 million inventory reserves 609 million included cost sales charges primarily relate initiatives taken reduce fixed costs due significant downturn telecommunications business certain electronics end markets including facility closures headcount reductions inventory reserves purchase commitment cancellations charges slightly offset restructuring credit 26 million primarily relating revision estimates current prior years severance facilities charges total inventory charges 833 million include 609 million inventory writedowns 212 million supplier contract termination fees 2002 20 million originally included inventory written recorded restructuring credit cost sales 2003 also included within operating loss margins 2002 charges 569 million impairment long lived assets goodwill impairment charges 281 million related tyco submarine telecommunications healthcare following table sets forth net revenue operating income margin healthcare years ended september 30 2004 2003 2002 millions net revenue healthcare increased 82 2004 compared 2003 increase net revenue resulted primarily growth existing businesses favorable foreign currency exchange rates 292 million growth healthcares underlying businesses primarily result increased net revenue within medical devices supplies lesser extent pharmaceuticals increase medical devices supplies largely driven higher sales volume within international division particularly europe due benefits realized sales force investment back order recovery growth spain italy absence unfavorable 47 million contractual adjustment recorded 2003 also contributing increase medical devices supplies higher sales within medical division resulting primarily new sharpsafety product launches gain market share within wound care market 124 increase operating income 2004 compared 2003 due primarily favorable margin impact increased sales discussed favorable foreign currency exchange rates continued focus maximizing operating efficiencies operating income adversely impacted 29 million increase legal liabilities ongoing patent infringement suit 59 million increase research development costs additionally 2004 operating income includes net restructuring divestiture impairment charges 18 million composed restructuring charges 13 million related closure various facilities offset credit 2 million due costs less anticipated ii 4 million divestiture charge resulting loss sale business iii 3 million impairment charges related closure various facilities net revenue healthcare increased 84 2003 compared 2002 including 85 increase product revenue 70 increase service revenue increase net revenue resulted primarily growth existing businesses favorable foreign currency exchange rates lesser extent acquisitions net divestitures growth existing businesses due following increases surgical division concurrent award major contract continued organic growth within certain surgical stapling lines increases medical division resulting award significant wound care contract coupled exit major competitor traditional wound care business new product launches higher demand ultrasound market increases pharmaceuticals imaging due higher volumes increased market share strong sales within respiratory division sales increases partially offset decrease diaper product segment retail business largely resulting adverse impact industrywide downcount issues decline international division due lower sales continental europe latin america increase net revenue also resulted favorable changes foreign exchange rates 268 million incremental revenue generated acquisition paragon trade brands paragon january 2002 124 million calculated manner described acquisitions slightly offset decline revenue 48 million related divestiture surgical dynamics inc july 2002 148 increase operating income increase margin 2003 compared 2002 due primarily favorable margin impact result higher sales favorable manufacturing variances result increased production volumes shift favorable product mix cost savings result closure certain paragon facilities back office consolidations continued focus optimizing operating expenses slightly offsetting effect items increased legal fees insurance pension expense higher sales marketing expense result program development aimed supporting organic growth initiatives also contributing increase operating income margins favorable fluctuations foreign currency exchange rates impact acquisitions divestitures 2003 recorded net credits totaling 2 million including restructuring credits 8 million due actual costs less anticipated credit 7 million related insurance reimbursement certain legal fees associated product liability cases credits largely offset charges 12 million related asset reserves inventory charges 1 million adjustments accrual balances related workers compensation changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates operating income margin 2002 reflect net restructuring charges 45 million 45 million net charge includes charges 49 million inventory writedowns 1 million included cost sales charges primarily relate severance associated consolidation operations facility related costs due exiting certain business lines partially offset credit 4 million relating current prior years restructuring charges operating income margin 2002 also include charge impairment longlived assets 2 million engineered products services following table sets forth net revenue operating income margin engineered products services years ended september 30 2004 2003 2002 millions net revenue engineered products services increased 1509 million 335 2004 compared 2003 739 million 164 represents change classify certain subcontract costs paid infrastructure services rebilled customers costs historically treated pass therefore included reported revenue cost revenue infrastructure services year ended september 30 2004 company began reflecting subcontract costs revenue cost revenue infrastructure services company adjusted revenue cost revenue years ended september 30 2003 2002 change material adjustment would impact previously reported operating income net income loss cash flow remaining increase net revenue resulted primarily increased demand higher selling prices electrical metal products tyco fire building products favorable foreign currency exchange rates businesses 298 million contributing increase although much lesser extent improved business conditions infrastructure services due primarily improved construction market continued market share growth sales remained flat flow control impact lower levels nonresidential construction industrial capital spending primarily north america offset improved activity end markets geographic regions 713 increase operating income 23 increase margin 2004 compared 2003 due primarily increased net revenue discussed impact cost reduction programs initiated prior periods positive impact foreign currency 31 million favorable increases partly offset impact higher raw material costs additionally operating income includes net restructuring impairment divestiture charges 62 million 2004 compared 56 million discussed 2003 included 62 million charge 53 million restructuring 4 million impairment charges related consolidation manufacturing distribution office locations activities flow control infrastructure services remaining 5 million divestiture charge primarily relates impairment goodwill related sale business revenue reclassification infrastructure services discussed impact operating income 2004 however adjustment lowered 2004 operating margin 15 percentage points net revenue engineered products services slightly decreased 2003 compared 2002 including 16 decrease product revenue partially offset 45 increase service revenue net revenue decreased year increase net revenue due favorable changes foreign currency exchange rates 219 million effect acquisitions 41 million calculated manner described acquisitions offset weak conditions major markets flow control electrical metal products notably nonresidential construction also contributing overall decrease lower levels capital spending increased pricing pressure resulting lower selling prices 41 million effect acquisitions included century tube corporation october 2001 water power technologies november 2001 clean air systems february 2002 acquisitions purchase price 10 million 442 increase operating income increase margin 2003 compared 2002 due lower usual operating income prior year period result recording charges 377 million discussed 2003 recorded charges totaling 56 million includes charges 32 million related changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates including 19 million related adjustments workers compensation 13 million associated asset reserves charges also include charges 8 million 6 million charge included cost sales 2003 restructuring plans partially offset changes estimates due actual costs less originally anticipated charges impairment longlived assets 2 million relating manufacturing distribution consolidation flow control cost reduction projects costs 14 million included within selling general administrative expenses primarily related reorganization consolidation manufacturing facility certain business offices operating income margin also negatively impacted lower sales discussed competitive conditions major markets valves controls thermal controls electrical metal products increased raw material costs primarily steel operating income margin 2002 reflect 377 million restructuring charges consisting 48 million inventory writedowns 6 million included cost sales primarily related severance facility exit costs associated streamlining business also included charges 10 million impairment property plant equipment associated closure facilities goodwill impairment charges 319 million relating tyco infrastructure services plastics adhesives following table sets forth net revenue operating income margin plastics adhesives years ended september 30 2004 2003 2002 millions net revenue increased slightly 2004 compared 2003 primarily due increase price 44 million volume 4 million plastics additionally foreign currency positive impact 9 million net revenue increased volume ludlow coated products 5 million building products flexible packaging business also contributed overall increase increases largely offset softness ae products 49 million particularly americas hangers business asia catering business slight decline adhesives sales volume corrosion protection business significant decreases operating income operating margin 2004 compared 2003 primarily due impairment 47 million restructuring charges 44 million incurred 2004 totaling 91 million associated closure various facilities decreases net revenue discussed margin declines ae products due lower volumes pricing pressure also contributed decrease operating income margin operating income margin 2003 includes net credit 1 million discussed net revenue tyco plastics adhesives increased slightly 2003 compared 2002 due effect favorable changes foreign currency exchange rates 38 million acquisitions 21 million calculated manner described acquisitions included linq industrial fabrics inc december 2001 acquisitions purchase price 10 million sales increases achieved higher selling prices result higher raw material costs increased sales volume plastic sheeting duct tape products result heightened level security related potential likelihood terrorist attacks strong residential construction market ludlow coated products increases offset increased competition decreases corrosion protection business negatively impacted slow oil gas pipeline construction markets created uncertainty middle east venezuela decline hanger sales due weak demand retail garment industry significant decrease operating income decrease operating margin 2003 compared 2002 primarily due increased raw material costs primarily polyethylene increased pricing competition driven excess production capacity increase lower priced imported goods 2003 tyco plastics adhesives recorded net credits totaling 1 million credits include charges 6 million related changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates including 3 million adjustments accrual balances 3 million related asset reserves inventory restructuring credits 1 million due costs less anticipated credit 6 million related settlement lawsuit operating income margin 2002 reflect net restructuring charges 10 million inventory writedowns 1 million included cost sales charges primarily relate severance associated consolidation operations facility related costs due exiting certain business lines operating income margins 2002 also include charge writeoff longlived assets 3 million primarily related impairment longlived assets corporate net revenue 25 million 14 million 8 million 2004 2003 2002 respectively relates tgn business classified held sale corporate expense 385 million 1161 million 3510 million 2004 2003 2002 respectively includes operating losses 73 million 760 million 3090 million 2004 2003 2002 respectively related tgn business held sale corporate expense 2004 includes net charges 14 million consists charges impairment longlived assets 8 million net restructuring charges 6 million primarily attributable severance related relocation corporate headquarters corporate expense 2003 includes charges totaling 824 million included within 824 million charge 91 million incremental increase directors officers insurance charges 39 million related internal investigation fees also included charge 20 million primarily related severance benefits corporate employees restructuring credit 11 million due actual costs less anticipated changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates also included within 824 million net restructuring credits 10 million net charges 16 million included selling general administrative expenses charges impairment longlived assets 679 million primarily related tgn business held sale lesser extent closure relocation corporate offices related severance benefits corporate expense 2002 includes net restructuring impairment charges 3914 million including 2582 million related impairment tgn 29 million related impairment certain properties associated consolidation corporate headquarters 744 million related goodwill impairment within tgn business held sale net restructuring charges 559 million primarily related charges within tgn business held sale lesser extent writeoff investment banking fees deal costs associated terminated breakup plan certain acquisitions completed costs incurred internal investigation severance significant restructuring charges recorded 2002 primarily related restructuring tgn business held sale address significant overcapacity market resulting lack demand new system construction fourth quarter 2002 management decided focus business foreseeable future maintenance revenue capacity sales tgn discontinue future additions tgn limit construction activities small projects cash flow positive least breakeven earnings result strategy management devised plan significantly downsize manufacturing footprint decrease project management staffing reduce research development function minimize staffing expense administrative areas business decrease cash outflows losses maximum extent possible plan carefully crafted ensure technical construction competencies business would preserved event industry conditions improve results geographic area net revenue geographic area years ended september 30 2004 2003 2002 follows millions 1revenue external customers attributed individual countries based reporting entity records transaction interest income expense interest income 91 million 2004 compared 107 million 117 million 2003 2002 respectively interest expense 963 million 2004 compared 1148 million 2003 1076 million 2002 decrease interest expense 2004 compared 2003 primarily result lower average debt balance 2004 favorable impact interest rate swap agreements executed year increase interest expense 2003 2002 primarily result benefit cancellation certain swaps 2002 decrease capitalized interest due completion tgn partially offset lower average outstanding debt balance 2003 weightedaverage rates interest total debt outstanding 2004 2003 2002 54 49 45 respectively weightedaverage interest rate 2004 increased due retirement lower interest rate debt expense net 2004 net expense 286 million consisted primarily 284 million loss related repurchase portion outstanding convertible debt prior scheduled maturity see note 15 consolidated financial statements details regarding debt repurchases 2003 net expense 223 million consisted primarily net loss retirement debt 128 million see note 15 consolidated financial statements details regarding debt repurchases additionally net expense included 87 million loss relating writedown various investments became evident declines fair value investments temporary predominately due continuing depressed economic conditions specifically within telecommunications industry 2002 net expense 217 million consisted primarily 271 million loss various investments mainly related investments flag telecom holdings ltd flag became evident declines fair value flag investments temporary loss partially offset gain 30 million related retirement debt net gain divestiture 24 million see divestitures discontinued operations income taxes effective income tax rate 274 422 76 2004 2003 2002 respectively decline effective rate 2003 2004 principally result increased profitability operations primarily jurisdictions lower tax rates decrease nondeductible charges change effective tax rate 2002 2003 primarily result decrease impairment charges provide tax benefit decrease nondeductible charges 2004 company made substantial changes tax reporting compliance processes including preparation amended us federal income tax returns hiring training additional tax personnel completion comprehensive review analysis reconciliation deferred tax assets liabilities september 30 2003 september 30 2004 presentation deferred tax assets liabilities september 30 2003 reclassified comparability purposes result comprehensive deferred tax analysis valuation allowance deferred tax assets 1992 million 1879 million september 30 2004 2003 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets valuation allowance calculated accordance provisions sfas 109 requires valuation allowance established maintained likely portion deferred tax assets realized company subsidiaries income tax returns periodically examined various tax authorities company currently audit internal revenue service irs years 1997 2000 connection examinations certain tax authorities including irs raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable recorded income tax provision calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel issues raised taxing authorities adequacy recorded amounts substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year connection irs audits years 19972000 company prepared proposed amendments prior period us federal income tax returns resulting reduction taxable income previously reported irs currently reviewing proposed amendments company recorded impact proposed amendments pending completion irs review proposed amendments accepted result receipt refunds credits corresponding reduction deferred tax assets liabilities company may prepare proposed amendments prior period us federal income tax returns additional periods proposed amendments expected material adverse impact financial condition results operations cash flows except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries divestitures discontinued operations 2003 conducted comprehensive review core businesses result implemented divestiture program early 2004 strategy intended sharpen focus core businesses simplify operations improve cost structure divestiture program designed increase focus core operations exiting certain operations meet criteria strategic fit financial returns november 2003 estimated potential proceeds excluding proceeds sale tgn could least 400 million program completed cumulative proceeds date filing approximately 412 million part program planned sell tgn undersea fiber optic telecommunications network market tgn challenged significant overcapacity severe pricing pressure industry need consolidation however plan retain ownership telecommunications systems supply business provides maintenance undersea cable construction november 2004 agreed sell tgn one indias telephone internet service providers 130 million discussed note 3 entire value tgn writtenoff sale subject governmental approval united states india countries 2004 activity 2004 company recorded net losses impairments divestitures 116 million continuing operations connection divestiture writedown fair value certain held sale businesses addition company also recorded losses sale discontinued operations 132 million 123 million tax write carrying value assets estimated fair value connection divestiture program announced november 2003 company divested twentyone liquidated four noncore businesses across business segments except plastics adhesives primarily within fire security aggregate proceeds 252 million cash 16 million proceeds currently held escrow total assets total liabilities divested businesses 445 million 115 million respectively total assets include cash retained businesses sold 13 million subsequent september 30 2004 company divested additional seven noncore businesses realizing aggregate proceeds approximately 160 million net revenue net loss 2004 date disposition 460 million 43 million respectively divested companies meet criteria discontinued operations net revenue net income year ended september 30 2003 587 million 24 million respectively divested companies meet criteria discontinued operations net revenue 2004 discontinued operations years ended september 30 2004 2003 2002 889 million 815 million 766 million respectively pretax loss income discontinued operations years ended september 30 2004 2003 2002 135 million 7 million 19 million respectively following table presents balance sheet information discontinued operations businesses held sale september 30 2004 2003 millions 2003 activity 2003 tyco recorded income discontinued operations 20 million restitution payment made frank e walsh jr former director see note 14 consolidated financial statements 2002 activity 2002 company sold certain businesses net proceeds 139 million cash consisted primarily businesses within healthcare fire security connection dispositions company recorded net gain 24 million included expense net consolidated statement operations july 8 2002 company divested tyco capital cit group inc sale 100 common shares cit group inc cit principal operating subsidiary initial public offering ipo accordingly results tyco capital presented discontinued operations operating results discontinued operations tyco capital october 1 2001 july 8 2002 33 billion finance income 60 billion pretax loss 63 billion net loss net loss includes goodwill impairment charge 6638 million quarter ended march 31 2002 tyco experienced disruptions business surrounding announced breakup plan downgrade credit ratings significant decline market capitalization time period cit also experienced credit downgrades disruption historical funding base marketbased information developed connection companys preliminary consideration proposed ipo cit indicated cits book value exceeded estimated fair value march 31 2002 result company performed sfas 142 goodwill intangible assets first step impairment analysis march 31 2002 concluded impairment charge warranted time managements objective performing first step goodwill impairment analysis obtain relevant marketbased data calculate estimated fair value cit march 31 2002 based projected earnings market factors expected used market participants ascribing value cit planned separation cit tyco management obtained relevant market data financial advisors regarding range price earnings multiples market condition discounts applicable cit march 31 2002 applied market data cits projected annual earnings march 31 2002 calculate estimated fair value resulting goodwill impairment estimated fair value compared corresponding carrying value cit march 31 2002 result company recorded 4513 million impairment charge march 31 2002 included discontinued operations second step goodwill impairment analysis required whenever reporting units book value exceeds estimated fair value analysis required company estimate fair value reporting units individual assets liabilities complete analysis goodwill march 31 2002 company completed second step analysis cit quarter ended june 30 2002 result recorded additional goodwill impairment charge 132 million june 30 2002 quarter cit experienced credit downgrades business environment factors continued negatively impact likely proceeds ipo result company performed another first step second step analysis june 30 2002 manner consistent march 2002 process described analyses based upon updated market data june 30 2002 period immediately following ipo including ipo proceeds analyses resulted goodwill impairment 1867 million tyco also recorded additional impairment charge 126 million order writedown investment cit fair value total cit goodwill impairment 2125 million writedown based upon net ipo proceeds approximately 44 billion deducting estimated outofpocket expenses included 6283 million loss discontinued operations fourth quarter 2002 tyco recorded loss sale tyco capital 59 million acquisitions prior 2003 acquisitions significant element growth strategy acquired business began integrate acquired company existing operations immediately consequently generally unable separately identify postacquisition financial results acquired companies revenue growth decline attributable acquisitions included segment discussions 2003 2002 estimates calculated assuming acquisitions made beginning relevant year adding back preacquisition revenue acquired companies periods calculations included acquisitions purchase price 10 million include acquisitions purchase price less 10 million due relative size smaller acquisitions compared tycos operating results large number acquisitions 2003 2002 smaller acquisitions represent approximately 6 total purchase price acquisitions 2003 2002 since estimates based preacquisition revenue necessarily indicative postacquisition results calculation similar method used calculating acquisition related pro forma results operations note 5 consolidated financial statements pursuant sfas 141 business combinations cumulative effect accounting change discussed note 9 consolidated financial statements company three synthetic lease programs utilized extent companys segments finance capital expenditures manufacturing machinery equipment ships used tyco submarine telecommunications 2003 company adopted financial accounting standards board interpretation fin 46 consolidation variable interest entities revised december 2003 fin 46r accordingly restructured one synthetic leases meet requirements fin 46 offbalance sheet accounting company reclassified remaining two leases capital leases consequently recorded 75 million aftertax loss 115 million pretax cumulative effect adjustment addition total debt increased 498 million time consolidation july 1 2003 conjunction adopting fin 46 company also evaluated investments concluded four joint ventures previously accounted equity method accounting within tyco infrastructure services minority interest met consolidation criteria set forth fin 46 accordingly ventures consolidated onto companys balance sheet effective july 1 2003 assets liabilities joint ventures included companys balance sheet time 112 million 96 million respectively subsequently four joint ventures deconsolidated march 31 2004 adoption fin 46r assets liabilities joint ventures included companys balance sheet september 30 2003 96 million 69 million respectively change fiscal year november 4 2004 board directors approved change fiscal year end calendar fiscal year ending september 30 5253 week year ending friday nearest september 30 quarterly period 13 weeks length every seven years starting 2011 fourth quarter reporting period 14 weeks addition certain subsidiaries consistently closed books one month prior fiscal period end plan report results subsidiaries using period reported results consolidated company expected december holidayrelated slowdown certain customer sales expected shift second fiscal quarter first fiscal quarter impact change expected material consolidated financial statements change also consistent ongoing efforts enhance controls improve transparency reporting change better aligns external reporting internal operational processes change effective first fiscal quarter ending december 31 2004 results transition period related change reported adjustment within shareholders equity transition report required changes critical accounting policies preparation consolidated financial statements conformity generally accepted accounting principles united states gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization method security monitoring systemstyco generally considers electronic security assets three asset pools internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program determination depreciable lives subscriber systems included property plant equipment amortizable lives customer contracts related customer relationships included intangible assets primarily based historical attrition rates thirdparty lifing studies useful life underlying tangible asset realizable value remaining useful lives assets could impacted changes customer attrition rates attrition rates rise tyco may required accelerate depreciation amortization respect tycos depreciation policy security monitoring systems installed residential commercial customer premises costs systems combined separate pools internally generated residential internally generated commercial account customers collectively subscriber systems generally depreciated ten fourteen years tyco concluded residential commercial account pools straightline method depreciation ten fourteenyear period continues appropriate given observed actual attrition data pools tyco purchases residential security monitoring contracts external network independent dealers operate adt dealer program purchase price customer contracts recorded intangible asset ie contracts related customer relationships intangible assets arising adt dealer program amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship tyco believes accelerated method presently best achieves matching objective described doubledeclining balance method based tenyear life first eight years estimated life customer relationships converting straightline method amortization remaining four years estimated relationship period actual attrition data regularly reviewed order assess continued applicability accelerated method amortization described attrition rates customers global electronic security services business 151 159 132 trailing 12month basis september 30 2004 2003 2002 respectively goodwillin performing annual goodwill assessment management relies number factors including operating results business plans economic projections anticipated future cash flows transactions market place data inherent uncertainties related factors managements judgment applying analysis goodwill impairment since managements judgment involved performing goodwill valuation analyses risk carrying value goodwill may overstated understated elected make july 1 annual impairment assessment date reporting units goodwill valuations calculated using income approach based present value future cash flows reporting unit approach incorporates many assumptions including future growth rates discount factors income tax rates changes economic operating conditions impacting assumptions could result goodwill impairment future periods disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit market capitalization declines may result perform sfas 142 first step valuation analysis reporting units prior required annual assessment types events resulting analysis could result goodwill impairment charges future 2004 company recorded goodwill impairments 60 million 48 million related divested businesses 12 million related businesses classified held sale respectively company also recorded goodwill impairments 278 million 1344 million 2003 2002 respectively revenue recognitioncontract sales installation fire protection systems large security intruder systems undersea cable systems construction related projects recorded primarily percentageofcompletion method profits recognized contracts process based upon contracted revenue related estimated cost completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable estimates inaccurate risk revenue profits period may overstated understated income taxesin determining income loss financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense deferred tax assets also reduced valuation allowance based weight available evidence likely portion recorded deferred tax assets realized future periods evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future state federal international pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded significant valuation allowances intend maintain likely deferred tax assets realized income tax expense recorded future reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance would result additional income tax expense period could significant impact future earnings change valuation allowance occurs established connection acquisition adjustment may impact goodwill rather income tax provision addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary tax liabilities relate tax uncertainties existing date acquisition business adjustment tax liabilities result adjustment goodwill recorded date acquisition longlived assetsassets held used company including property plant equipment intangible assets reviewed impairment whenever events circumstances indicate carrying amount asset may recoverable purposes evaluating recoverability longlived assets held used recoverability test performed based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk impairments longlived assets disposed recorded based upon fair value applicable assets since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated liquidity capital resources following table summarizes sources cash flow operating activities use portion cash operations years ended september 30 2004 2003 2002 millions 1this amount sum depreciation 1478 million 1459 million 1454 million 2004 2003 2002 respectively amortization intangible assets 698 million 724 million 619 million 2004 2003 2002 respectively 2this amount includes add back net losses retirement debt 284 million 128 million 2004 2003 respectively income retirement debt 33 million 2002 3this includes net proceeds 141 million 124 million 166 million received saledisposition property plant equipment 2004 2003 2002 respectively also includes proceeds 30 million received saleleaseback transactions 2002 following table shows cash flow operating activities cash flow items segment year ended september 30 2004 millions 1this amount includes add back 284 million related loss retirement debt 2fire security electronics include 91 million 21 million respectively related corporate programs net change total working capital net effects divestitures acquisitions cash decrease 906 million 2004 including cash paid restructuring charges 266 million components change set forth detail consolidated statements cash flows significant changes working capital included 225 million increase inventories 153 million increase accounts receivable offset increase 406 million income taxes payable also 2004 significantly decreased participation sale accounts receivable programs resulting additional 929 million increase accounts receivable strive maximize cash flow minimizing working capital employed businesses 2004 2003 2002 paid 266 million 503 million 518 million respectively cash related restructuring activities see note 2 consolidated financial statements information regarding restructuring activities 2004 2003 2002 tyco paid 254 million 597 million 1138 million cash respectively acquire 03 million 06 million 14 million customer contracts electronic security services adt dealer program 2004 2003 2002 paid 107 million 272 million 625 million respectively cash purchase accounting holdbackearnout liabilities holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet certain acquisitions provisions require tyco make additional earnout payments sellers acquired company achieves certain milestones subsequent acquisition tyco earnout payments tied certain performance measures revenue gross margin earnings growth september 30 2004 acquisition liabilities consolidated balance sheets 123 million 29 million included accrued current liabilities 94 million included liabilities addition holdbackearnout liabilities consolidated balance sheets 167 million 59 million included accrued current liabilities 108 million included liabilities previously discussed 2003 conducted comprehensive review tycos core businesses result implemented divestiture program early 2004 november 2003 estimated potential proceeds excluding proceeds sale tgn could least 400 million program completed cumulative proceeds date filing approximately 412 million part program planned sell tgn undersea fiber optic telecommunications network november 2004 agreed sell tgn one indias telephone internet service providers 130 million discussed note 3 entire value tgn writtenoff sale subject governmental approval united states india countries continue fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards 2003 2002 spent 113 million 11 billion respectively construction tgn construction tgn completed 2003 consequently level capital expenditures electronics decreased 2004 level capital expenditures segments expected exceed depreciation 2005 expected increase slightly relative level spending 2004 provision income taxes relating continuing operations consolidated statement operations 2004 1140 million amount income taxes paid net refunds year 550 million difference due timing differences well net operating loss carryforward carryback utilization capitalization shareholders equity 303 billion september 30 2004 compared 264 billion september 30 2003 increase due primarily net income 29 billion foreign currency translation 704 million september 30 2004 total debt decreased 42 billion 167 billion compared 210 billion september 30 2003 total debt percentage total capitalization total debt shareholders equity 36 september 30 2004 44 september 30 2003 decrease debt resulted principally repayments debt detailed partially offset issuance 10 billion 60 notes due 2013 tyco international group sa tigsa november 2003 cash balance increased 4467 million september 30 2004 compared 4186 million september 30 2003 november 2003 tigsa issued 10 billion 60 notes due 2013 private placement offering notes fully unconditionally guaranteed tyco net proceeds approximately 988 million used repay portion 20 billion outstanding 5year revolving credit facility due 2006 notes subsequently exchanged registered notes substantially identical terms exchange offer expired may 3 2004 november 2003 holders principal amount maturity 3197 million zero coupon convertible debentures due 2020 notified tyco exercised option require tyco repurchase debentures price 77566 per 1000 principal maturity representing accreted value debentures date november 18 2003 tyco purchased debentures cash 2480 million december 2003 tigsa entered 10 billion 364day revolving bank credit facility includes one year termout option 15 billion 3year revolving bank credit facility facilities variable interest rate based libor margin libor payable tigsa vary based changes credit rating new facilities replaced 15 billion undrawn 364day revolving credit facility due expire january 2004 20 billion drawn 5year revolving credit facility due expire february 2006 september 30 2004 outstanding borrowings either facility 10 billion 364day revolving credit facility expires december 20 2004 expect facility replaced 10 billion 5year revolving credit facility prior expiration 15 billion 3year revolving credit facility expires december 22 2006 june 2004 company purchased 303 million 82 notes due 2008 cash 341 million resulted 38 million loss including unamortized debt issuance costs retirement debt fourth quarter 2004 company repurchased 517 million outstanding 275 convertible senior debentures 2008 put option total purchase price paid 750 million repurchase resulted 241 million loss retirement debt including writeoff unamortized debt issuance costs bank credit agreements contain number financial covenants limit ratio debt earnings interest taxes depreciation amortization minimum levels net worth covenants limit ability pledge assets make substantial payments connection capital shares september 30 2004 three synthetic lease facilities one since expired december 10 2004 covenants including interest coverage leverage ratios outstanding indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants presently considered restrictive operations currently compliance debt covenants 2004 made voluntary contributions pension plans totaling approximately 575 million transactions support tycos previously discussed strategy strengthen balance sheet using portion excess cash reduce debt plan use available cash continue fund internal growth cost reduction opportunities within businesses additionally believe cash flow generation capability allow us continue strengthen balance sheet return capital shareholders debt reduction remains focus near term may consider appropriate acquisition opportunity arise december 9 2004 board directors approved increase quarterly dividend common shares 00125 010 per share following table details trend debt ratings 2004 fitch upgraded rating senior unsecured debt company well unconditionally guaranteed debt tigsa bbb bb raised commercial paper rating b standard poors upgraded corporate credit senior unsecured ratings bbb short term corporate credit commercial paper ratings a2 a3 moodys upgraded long term rating baa3 ba2 well short term rating prime3 prime security ratings set forth recommendation buy sell hold securities may subject revision withdrawal assigning rating organization rating evaluated independently rating commitments contingencies contractual obligations summary contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases obligations september 30 2004 follows millions 1includes capital lease obligations excludes interest 2includes obligations offbalance sheet leasing arrangement subsidiary company option buy five cable laying sea vessels see note 18 consolidated financial statements 3purchase obligations consist commitments purchases good services 4minimum pension funding requirements included amounts determined periods presented minimum required contributions pension plans expected approximately 194 million 2005 september 30 2004 company outstanding letters credit letters guarantee amount 16 billion september 30 2004 tigsa unsecured credit facilities 10 billion due december 20 2004 15 billion due december 22 2006 undrawn available see note 15 consolidated financial statements expect existing 10 billion facility replaced 10 billion 5year revolving credit facility prior expiration addition certain companys operating subsidiaries overdraft similar types facilities total 434 million 326 million undrawn available september 30 2004 facilities expire various dates year 2013 renewable established primarily within international operations september 30 2004 company contingent liability 80 million related 2001 acquisition comnet electronics represents maximum amount payable former shareholders comnet construction installation communications system state florida finished state approved system based guidelines set forth contract provision made consolidated financial statements outcome contingency cannot reasonably determined june 2004 tigsa entered 500 million 3year unsecured letter credit facility provides issuance letters credit supported related line credit facility tigsa may borrow line credit agreement reimburse bank obligations respect letters credit issued facility covenants facility substantially similar tigsas bank credit facilities entered december 2003 indenture related tigsas 6 notes due 2013 issued november 2003 tigsa would pay interest outstanding borrowings variable interest rate based banks base rate eurodollar rate defined upon occurrence certain credit events interest rate outstanding borrowings becomes fixed issuance letters credit facility 2004 enabled company release approximately 480 million restricted cash investments september 30 2004 outstanding borrowings facility normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows legal matters class actions detailed discussion contingencies related tycos securities class actions shareholder derivative litigation erisa litigation investigation litigation former senior management see item 3 legal proceedings generally obligated indemnify directors officers former directors officers named defendants matters extent required bermuda law addition insurance carriers may decline coverage may insufficient cover expenses liability matters unable time estimate ultimate liability matters may possible required pay judgments settlements incur expenses excess insurance coverage aggregate amounts would material adverse effect financial position results operations cash flows time possible estimate amount loss probable losses might result adverse resolution matters investigation detailed discussion contingencies related governmental investigations related tyco see item 3 legal proceedingssubpoenas document requests governmental entities cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities turn could negatively impact business nongovernmental customers suffer penalties could material adverse effect business possible estimate amount loss range possible loss might result adverse resolution matters intellectual property litigation detailed discussion contingencies related tycos intellectual property litigation see item 3 legal proceedingsintellectual property litigation environmental matters detailed discussion contingencies related tycos environmental matters see item 1 businessenvironmental matters asbestos matters like many companies tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation observed increase number lawsuits past several years majority cases filed subsidiaries healthcare engineered products services limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property majority cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore experience large percentage claims never substantiated dismissed courts continue vigorously defend lawsuits suffered adverse verdict trial court proceeding related asbestos claims appropriate settle claims however total amount paid date settle defend asbestos claims immaterial september 30 2004 approximately 14500 asbestos liability cases pending us subsidiaries believe subsidiaries substantial indemnification protection insurance coverage subject applicable deductibles respect asbestos claims indemnitors relevant carriers typically honoring duty defend indemnify believe valid defenses claims intend continue defend vigorously additionally based historical experience asbestos litigation analysis current cases believe adequate amounts recorded potential settlements adverse judgments asbestosrelated litigation possible time determine certainty ultimate outcome asbestosrelated proceedings believe final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect financial position results operations cash flows income tax matters tyco subsidiaries income tax returns periodically examined various regulatory tax authorities connection examinations tax authorities including irs raised issues proposed tax deficiencies reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable recorded income tax provision cannot provide assurance ultimate resolution tax deficiencies contingencies material adverse effect financial condition results operations cash flows american jobs creation act 2004 ajca signed law october 2004 replaces export incentive deduction domestic manufacturing income expected ajca material impact companys income tax provision ajca also allows company repatriate 500 million permanently reinvested foreign earnings 2005 2006 effective tax rate 525 company currently reviewing whether take advantage new provision ajca matters company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows new internal controls procedures implemented reported allegations violations guide ethical conduct investigated appropriate disciplinary remedial measures taken allegation brought attention period 1999 2003 certain improper payments made nonus subsidiary tyco 2004 revenue 40 million assistance outside counsel conducted internal investigation allegations whether certain payments correctly recorded books records subsidiary taken remedial steps reported results investigation department justice sec cooperating inquiry believe matter material adverse effect financial position results operations cash flows backlog september 30 2004 backlog unfilled orders 132 billion compared backlog 113 billion september 30 2003 expect approximately 80 backlog september 30 2004 filled 2005 backlog reportable industry segment september 30 follows millions 1during first quarter 2004 precision interconnect business transferred healthcare electronics addition results tgn business held sale presented within corporate company conformed segment reporting accordingly reclassified comparative prior period information reflect changes within fire security backlog decreased primarily result sale sonitrol adt security second quarter 2004 backlog fire security includes recurring revenueinforce represents twelve months fees monitoring maintenance services contract security business amount recurring revenueinforce september 30 2004 september 30 2003 3559 million 3607 million respectively within engineered products services backlog increased primarily result 14 billion adjustment related change classify subcontract costs paid infrastructure services rebilled customers costs historically treated pass therefore previously included reported revenue cost revenue infrastructure services 2004 company began reflecting subcontract costs revenue cost revenue infrastructure services within electronics backlog increased primarily due stronger orders resulting overall improvement business conditions across vast majority end markets backlog healthcare plastics adhesives represents unfilled orders nature businesses normally shipped shortly purchase orders received view backlog healthcare plastics adhesives significant indicator level future sales activity offbalance sheet arrangements sale accounts receivable tyco several programs may sell participating interests accounts receivable investors turn purchase receive ownership security interests receivables collections reduce accounts receivable included pool company sells new receivables company risk credit loss receivables accordingly full amount reserve retained consolidated balance sheets proceeds sales used repay shortterm longterm borrowings working capital corporate purposes reported operating cash flows consolidated statements cash flows sale proceeds less face amount accounts receivable sold amount approximates cost would incurred commercial paper issued backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative expenses consolidated statements operations discount aggregated 18 million 29 million 17 million 31 35 27 weightedaverage balance receivables outstanding 2004 2003 2002 respectively company retains collection administrative responsibilities participating interests defined pool 2004 company reduced outstanding balances accounts receivable programs 929 million 812 million relates three corporate accounts receivable programs september 30 2004 2003 availability corporate programs 625 million 1025 million respectively subsequent september 30 2004 company reduced availability programs 550 million september 30 2004 2003 amounts utilized programs zero 803 million respectively remaining reduction related certain international businesses selling fewer accounts receivable shortterm financing mechanism transactions qualify true sales aggregate amount outstanding arrangements 99 million 202 million september 30 2004 2003 respectively variable interest entities company programs sells machinery equipment investors turn purchase receive ownership security interests assets company may certain investments affiliated companies whereby provides varying degrees financial support investors entitled share results entities consolidate entities may substantive operating companies evaluated potential consolidation fin 46 previously discussed 2003 company restructured one synthetic leases meet requirements fin 46 offbalance sheet accounting 2003 conjunction adopting fin 46 company also evaluated investments concluded four joint ventures previously accounted equity method accounting within tyco infrastructure services minority interest met consolidation criteria set forth fin 46 accordingly ventures consolidated onto companys balance sheet effective july 1 2003 subsequently deconsolidated march 31 2004 upon adoption fin 46r assets liabilities joint ventures included companys consolidated balance sheets september 30 2003 96 million 69 million respectively guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2005 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however reason believe uncertainties would material adverse effect companys financial position annual results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see item businessenvironmental matters discussion liabilities company guaranteed fair value certain vessels exceed 235 million september 30 2004 expects obligation 54 million recorded accompanying consolidated balance sheets based estimate fair value vessels see liquidity capital resourcescontractual obligations result exiting certain facilities part restructuring acquisition plans otherwise company continues lease certain properties vacated sublet third parties event third parties vacate premises company would legally obligated master lease arrangements company believes financial risk default sublessors material individually aggregate companys financial position results operations cash flows normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company generally records estimated product warranty costs time sale information estimated product warranty see notes 1 16 consolidated financial statements accounting pronouncements november 2003 emerging issues task force eitf financial accounting standards board fasb reached consensus eitf issue 031 meaning otherthantemporary impairment application certain investments eitf 031 provides guidance determining otherthantemporary impairments application marketable equity securities debt securities accounted sfas 115 accounting certain investments debt equity securities september 2004 fasb issued fasb staff position fsp eitf issue 0311 delayed effective date measurement recognition guidance contained eitf 031 pending finalization draft fsp eitf issue 031a implementation guidance application paragraph 16 eitf 031 disclosure requirements eitf 031 remain effect company adopted disclosure requirement eitf 031 september 30 2004 adoption recognition measurement provisions eitf 031 expected material impact results operations financial position cash flows december 2003 fasb issued fin 46 revised december 2003 fin 46r fin 46r explains identify variable interest entities vie determine business enterprise include assets liabilities noncontrolling interest results vie financial statements company adopted fin 46r march 31 2004 result joint ventures previously consolidated fin 46 deconsolidated effective march 31 2004 see note 9 consolidated financial statements discussion impact fin 46r december 2003 fasb issued revision sfas 132 employers disclosures pensions postretirement benefits improve financial statement disclosure defined benefit plans statement requires additional disclosures assets including plan assets category obligations cash flows defined pension plans defined benefit postretirement plans also requires reporting various elements pension postretirement benefit costs quarterly basis generally disclosure requirements effective interim periods beginning december 15 2003 however information foreign plans effective fiscal years ending june 15 2004 tyco adopted revised sfas 132 quarter ended march 31 2004 see note 19 consolidated financial statements discussion retirement plans december 2003 sec issued staff accounting bulletin sab 104 revenue recognition supercedes sab 101 revenue recognition financial statements sab 104s primary purpose rescind accounting guidance contained sab 101 related multiple element revenue arrangements superceded result issuance eitf 0021 revenue arrangements multiple deliverables issuance sab 104 reflects concepts contained eitf 0021 revenue recognition concepts contained sab 101 remain largely unchanged issuance sab 104 material impact results operations financial position cash flows may 2004 fasb issued fsp 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 fsp 1062 provides guidance accounting effects medicare prescription drug improvement modernization act 2003 act postretirement health care plans provide prescription drug benefits fsp 1062 also requires certain disclosures regarding effect federal subsidy provided act fsp 1062 effective tyco fourth quarter 2004 adoption fsp 1062 material impact results operations financial position cash flows september 2004 eitf reached consensus eitf issue 048 effect contingently convertible instruments diluted earnings per share eitf requires contingently convertible debt securities market price trigger included diluted earnings per share regardless whether market price trigger met eitf 048 effective periods ending december 15 2004 requires retroactive restatement previously reported earnings per share contingently convertible instrument settled cash december 31 2004 would reflected retroactive restatement adoption eitf expected material impact results operations financial position cash flows november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 sfas 151 amends accounting research bulletin arb 43 chapter 4 clarify abnormal amounts idle facility expense freight handling costs wasted materials spoilage recognized currentperiod charges addition sfas 151 requires allocation fixed production overhead inventory based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 company currently assessing impact sfas 151 results operations financial position cash flows risk factors carefully consider risks described investing publicly traded securities risks described ones facing us business also subject risks affect many companies competition technological obsolescence labor relations general economic conditions geopolitical events international operations additional risks currently known us currently believe immaterial also may impair business operations liquidity risks relating actions tycos former senior corporate management pending litigation could material adverse effect liquidity financial condition result actions taken former senior corporate management tyco members former senior corporate management former members board directors current chief executive officer named defendants number purported class actions alleging violations disclosure provisions federal securities laws tyco certain current former employees members former senior corporate management former members board directors also named defendants several erisa class actions addition tyco members former senior corporate management subject sec inquiry members former senior corporate management named defendants criminal cases prosecuted district attorney new york county findings outcomes prosecutions sec civil action may affect course purported securities class actions erisa class actions pending tyco generally obligated indemnify directors officers former directors officers also named defendants matters extent required bermuda law addition insurance carriers may decline coverage may insufficient cover expenses liability matters unable time estimate ultimate liability matters may possible required pay judgments settlements incur expenses excess insurance coverage aggregate amounts would material adverse effect financial position results operations cash flows time possible estimate amount loss probable losses might result adverse resolution matters continued scrutiny resulting ongoing governmental investigations may adverse effect business others received subpoenas requests secs division enforcement district attorney new york county department labor others seeking production voluminous documents connection various investigations governance management operations accounting related controls certain current former employees fire security received subpoenas secs division enforcement seeking testimony related past accounting practices regarding adt dealer connect fees previously reported periodic filings practices discontinued department labor investigating tyco administrators certain benefit plans cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities turn could negatively impact business nongovernmental customers suffer penalties could material adverse effect business cannot provide assurance effects results investigations material adverse business financial condition results operations cash flows examinations audits tax authorities including irs could result additional tax payments prior periods tyco subsidiaries income tax returns periodically examined various tax authorities tyco currently audit irs years 1997 2000 connection examinations tax authorities including irs raised issues proposed tax deficiencies reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable accrued income tax provision calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities connection irs audits years 19972000 company prepared proposed adjustments prior period us federal income tax returns proposed amendments currently reviewed irs accepted result receipt refunds credits corresponding reduction deferred tax assets liabilities company may prepare proposed amendments prior period us federal income tax returns additional periods ongoing sec inquiries may require us amend restate public disclosures subject inquiries secs division enforcement cannot provide assurance resolution division enforcements inquiries necessitate amendments restatements previouslyfiled periodic reports lead enforcement proceedings tyco secs division enforcement completed review prior managements actions accounting including matters covered companys current report form 8k filed december 30 2002 instances breakdowns internal controls procedures could adverse effect us management determined past tyco general suffered •poor documentation •inadequate policies procedures prevent misconduct senior corporate executives •inadequate procedures proper corporate authorizations •inadequate approval procedures documentation •a lack oversight senior management corporate level •a pattern using aggressive accounting even accordance gaap intended increase reported earnings would conservative accounting employed •pressure inducements segment unit managers increase current earnings including decisions accounting treatment employ •a lack stated demonstrable commitment former senior corporate management set high standards ethics integrity accounting corporate governance implemented new procedures cannot provide assurance discover instances breakdowns internal controls procedures material adverse legal judgments fines penalties settlements could adversely affect financial health prevent us fulfilling obligations outstanding indebtedness estimate available cash flow operations adequate fund operations service debt forseeable future making estimate assumed need make material payments connection pending litigation investigations material adverse legal judgments fines penalties settlements arising pending investigations litigation could require additional funding developments require us obtain additional funding cannot provide assurance able obtain additional funding need commercially reasonable terms could material adverse effect results operations cash flows outcome could important consequences example could •require us dedicate substantial portion cash flow operations payments indebtedness thereby reducing availability cash flow fund working capital expenditures research development efforts general corporate purposes including debt reduction dividend payments •increase vulnerability general adverse economic industry conditions •limit flexibility planning reacting changes businesses industries operate •restrict ability introduce new technologies exploit business opportunities •make difficult us satisfy payment obligations respect outstanding indebtedness •increase difficulty andor cost us refinancing indebtedness additional negative publicity may adversely affect business result actions taken former senior corporate management tyco subject continuing negative publicity focusing actions negative publicity contributed significant declines prices publicly traded securities 2002 brought increased regulatory scrutiny upon us additional negative publicity related former senior corporate managements actions could material adverse effect results operations cash flows market price publicly traded securities senior corporate management team required devote significant attention matters arising actions prior management replaced senior corporate executives new team 2002 2004 former members board directors determined stand reelection march 2003 new board directors elected annual general meeting shareholders march 2003 cannot provide assurance major restructuring board directors senior management team accompanying distractions related matters arising actions prior management adversely affect results operations risks relating businesses cyclical industry economic conditions affected may continue adversely affect financial condition results operations operating results segments affected adversely general cyclical pattern industries operate example demand products services fire security engineered products services significantly affected levels commercial construction consumer business discretionary spending also electronic components business within electronics heavily dependent end markets serves therefore affected demand capital investment patterns markets could impact margins business cyclical impact amplified businesses purchase products businesses example fire security purchases certain products sold engineered products services therefore drop demand fire prevention products due lower new residential office construction factors cause drop demand certain products sold engineered products services operations expose us risk material environmental liabilities litigation violations subject numerous foreign federal state local environmental protection health safety laws governing among things •the generation storage use transportation hazardous materials •emissions discharges substances environment •the health safety employees assurances times compliance environmental health safety laws violate laws could fined criminally charged otherwise sanctioned regulators example august 17 2004 one subsidiaries electronics sentenced clean water act violations three manufacturing plants connecticut pursuant paid 6 million fine additional 4 million fund environmental projects designed improve environment local residents see item 3 legal proceedingsenvironmental litigation certain environmental laws assess liability current previous owners operators real property cost removal remediation hazardous substances properties disposed hazardous substances costs restore natural resources addition cleanup costs resulting environmental laws private parties could bring personal injury claims due presence exposure hazardous substances used stored disposed us contained products notified us environmental protection agency certain foreign state environmental agencies third parties conditions number sites others disposed hazardous substances require cleanup possible remedial action may require reimburse government otherwise pay cost cleanup sites andor natural resource damages also number projects underway several current former manufacturing facilities order comply environmental laws otherwise remediate environmental contamination projects relate variety activities including •radioactive materials decontamination decommissioning •solvent metal hazardous substance contamination cleanup •oil spill equipment upgrades replacement projects voluntary required applicable law involve remediation expenses capital improvements addition remain responsible certain environmental issues manufacturing locations previously sold us ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods concluded probable would incur remedial costs range approximately 167 million 443 million concluded best estimate within range approximately 265 million 42 million included accrued current liabilities 223 million included liabilities consolidated balance sheets september 30 2004 environmental laws complex change frequently tended become stringent time budgeted future capital operating expenditures maintain compliance laws cannot provide assurance costs complying current future environmental protection health safety laws liabilities arising past future releases exposures hazardous substances exceed estimates adversely affect financial condition results operations subject additional environmental claims personal injury cleanup future based past present future business activities may required recognize additional impairment charges pursuant gaap required periodically assess goodwill intangibles longlived assets determine impaired disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestitures market capitalization declines may result additional charges goodwill asset impairments future impairment charges could substantially affect reported earnings period charge addition charges would reduce consolidated net worth shareholders equity increasing debttototalcapitalization ratio reduction consolidated net worth increase debt percentage total capitalization could result default credit facilities foreign currency exchange rate commodity price interest rate fluctuations may adversely affect results exposed variety market risks including effects changes foreign currency exchange rates commodity prices interest rates see item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements due many factors including limited headings risk factors forwardlooking information introduction consolidated financial statements include consolidated accounts tyco international ltd company organized laws bermuda subsidiaries hereinafter collectively referred company tyco prepared united states dollars accordance accounting principles generally accepted united states gaap company operates following business segments •fire security designs manufactures installs monitors services electronic security fire protection systems •electronics designs manufactures distributes electrical electronic components •healthcare designs manufactures distributes medical devices supplies imaging agents pharmaceuticals adult incontinence infant care products •engineered products services designs manufactures distributes services engineered products including industrial valves controls well steel tubular goods provides environmental industrial consulting services unless otherwise indicated references annual report 2005 2004 2003 tycos fiscal years ended september 30 2005 2004 2003 respectively overview business strategy focuses enhancing internal growth operational efficiency existing tyco businesses achieve goal primarily new product innovation increased market share continued geographic expansion implemented continue implement additional six sigma initiatives across business segments achieve bestinclass operating practices company engaged series restructuring programs since november 2003 made operations efficient including exiting certain noncore businesses business lines streamlining general operations impact restructuring programs companys operations discussed operating results segment results also fourth quarter 2005 company committed plan sell plastics adhesives segment operations plastics adhesives segment reflected discontinued operations accompanying consolidated financial statements details related companys divestiture program related discontinued operations discussed divestitures discontinued operations continuing assess strategic fit various businesses considering additional divestitures businesses align long term vision 2005 continued utilize cash fund internal growth strengthen balance sheet return capital shareholders 2005 utilized 30 billion repurchase convertible debentures prior scheduled maturities total repurchases reduced diluted share count approximately 889 million shares annualized basis added benefit reducing debt interest expense addition utilized 20 billion cash scheduled repayments debentures also july 2005 tycos board directors approved 15 billion share repurchase program september 30 2005 repurchased 105 million common shares 300 million two weeks following end fourth quarter 2005 repurchased additional 79 million common shares 216 million result program anticipate spending total approximately 2 billion second quarter 2006 repurchases first quarter 2005 announced substantial increase quarterly dividend 00125 per share 010 per share result dividend payments 2005 increased 628 million 100 million comparable prior year period references tyco companys continuing operations prior year amounts reclassified exclude results discontinued operations comparatively reflect changes companys segment reporting operating results tgn presented within corporate date disposal third quarter 2005 information 2003 reclassified reflect transfer tycos precision interconnect business healthcare electronics 2004 operating results following table details net revenue earnings years ended september 30 2005 2004 2003 millions net revenue increased 13 billion 34 2005 compared 2004 resulted growth segments foreign currency exchange rates favorably affected 2005 876 million impact divestitures acquisitions negatively impacted period 689 million operating income increased 559 million 107 2005 operating margin increased 10 percentage point 146 2005 favorably impacted gain sale tgn business 303 million addition year unfavorably impacted charges related adverse decision united states court appeals federal circuit patent dispute healthcare segment 277 million charge related sec enforcement action 50 million charge relating former executives employment 70 million foreign currency exchange rates favorably affected operating income 142 million net revenue increased 42 billion 121 2004 compared 2003 resulted growth segments foreign currency exchange rates favorably affected period 17 billion impact divestitures negatively impacted period 638 million operating income increased 24 billion 820 2004 operating margin increased 52 percentage points 136 operating income 2004 unfavorably impacted charges 380 million consisting following net restructuring charges 212 million charges 6 million included cost sales ii net losses impairments divestitures totaling 116 million iii charges impairment longlived assets 52 million 34 million attributable machinery equipment impairments fire security foreign currency exchange rates favorably affected operating income 230 million operating income 2003 unfavorably impacted net charges totaling 1625 million charges consisted charges impairment longlived assets 815 million ii charges recorded changes estimates 298 million arose companys intensified internal audits detailed controls operating reviews includes net restructuring credits 72 million credits 13 million included costs sales charges impairment longlived assets 10 million charges 240 million included selling general administrative expenses charges 120 million included cost sales iii charges impairment goodwill 278 million iv charges 154 million 34 million included cost sales related primarily product warranty reserves dismantlement customers adt security systems 120 million included selling general administrative expenses related primarily uncollectible accounts receivable internal investigation fees well severance facility closures slightly offset credit changes estimates charges recorded prior periods v charge 91 million retroactive incremental premium prior period directors officers insurance included selling general administrative expenses vi net restructuring credits 11 million charges 2 million included cost sales foreign currency exchange rates favorably affected operating income 191 million results geographic area net revenue geographic area years ended september 30 2005 2004 2003 follows millions 1revenue external customers attributed individual countries based reporting entity records transaction segment results segment discussions follow describe significant factors contributing changes results continuing segment divestitures impacted certain segments since establishment divestiture program early 2004 see details divestitures discontinued operations acquisitions fire security following table sets forth net revenue operating income margin fire security years ended september 30 2005 2004 2003 millions net revenue fire security remained relatively level 2005 compared 2004 decrease product revenue offset increase service revenue product sales includes sales installation security fire protection systems net revenue increased due favorable changes foreign currency exchange rates 274 million lesser extent increased sales volume breathing intrusion products tyco safety products well growth european fire services business increases offset impact divestitures 315 million decreased sales security business europe operating income increased 317 million 2005 prior year results current period included net restructuring related charges 9 million compared net restructuring impairment divestiture charges 264 million 2004 operating income 2005 also favorably impacted foreign currency exchange rates 26 million well cost savings related operational excellence initiatives prior year restructuring programs cost reductions partially offset increased investment sales marketing addition 2005 unfavorably impacted 18 million divestiturerelated charges attrition rates customers global electronic security services business decreased average 148 trailing twelvemonth basis 2005 compared 151 2004 159 2003 net revenue fire security increased 57 2004 compared 2003 including 92 increase product revenue 28 increase service revenue increase net revenue primarily due favorable currency exchange rates 526 million slightly offset effects divestitures 82 million lesser extent increase net revenue due stronger sales retailers within worldwide security higher sales volume breathing systems video access control product tyco safety products increase partially offset weakness worldwide fire service business continental europe security operating income margin increased significantly 2004 compared 2003 due partially total charges 512 million recorded 2003 discussed additionally increase operating income margin due improvements within worldwide security related primarily combined impact stronger retailer market environment cost reductions also contributing increase lesser extent improvements within continental europe security result cost saving initiatives changing business model tyco safety products due primarily increased volumes cost savings partly reflect benefits restructuring activities described operating income 2004 also includes charges totaling 264 million consisting primarily restructuring 175 million 4 million included cost sales impairment 34 million divestiture 55 million charges substantially associated comprehensive cost reduction measures began 2003 operating income margin 2003 included charges totaling 512 million included within 512 million charges 266 million includes charges 128 million primarily related adjustments liabilities workers compensation professional fees environmental exposure charge 98 million primarily due adjusting allowances doubtful accounts slow nonmoving inventory well writeoff subscriber systems charges 34 million adjustments primarily related deferred commissions charges 6 million related reconciling items recorded connection companys intensified internal audits detailed controls operating reviews performed year also included within 512 million impairment charges 143 million primarily related impairment intangible assets associated adt dealer program mostly result increased attrition rates impairment property plant equipment subscriber systems fixed assets net restructuring charges 10 million charges 4 million included cost sales 3 million writeoff noncurrent assets related streamlining business charges 93 million 34 million included cost sales 59 million included selling general administrative expenses primarily related uncollectible receivables product warranty dismantlement customers adt security systems included within 143 million impairment charge 10 million net restructuring charge 10 million credit 2 million respectively also related changes estimates recorded quarter ended march 31 2003 electronics following table sets forth net revenue operating income margin electronics years ended september 30 2005 2004 2003 millions net revenue electronics increased 374 million 32 2005 compared 2004 including 59 increase product revenue increase net revenue driven primarily sales automotive aerospace defense consumer electronics power utilities communications equipment manufacturing communication service markets addition revenue increased substantially due favorable changes foreign currency exchange rates 294 million increases partially offset impact divestiture electrical contracting services business 353 million operating income operating margin 2005 increased compared 2004 due primarily increased sales volume cost savings initiatives favorable changes foreign currency exchange rates 57 million increases partially offset 80 basis point impact increased commodity costs additionally operating income 2005 included net restructuring credits 5 million compared net restructuring divestiture impairment charges 22 million 2004 discussed net revenue electronics increased 127 2004 compared 2003 including 131 increase product revenue 23 increase service revenue increase net revenue primarily result growth existing businesses specifically automotive computer consumer electronics communications industrial commercial markets growth partially offset decrease sales power systems products north america electrical contracting services divested september 2004 additionally favorable changes foreign currency rates 560 million contributed increase net revenue 409 increase operating income 30 percentage point increase margin 2004 compared 2003 primarily due revenue growth discussed cost savings initiatives executed 2003 positive impact foreign currency 90 million fewer charges recorded 2004 compared 2003 increases operating income partially offset 80 basis point impact increased metal prices copper gold operating income 2004 includes net restructuring divestiture impairment charges totaling 22 million net charges include 52 million charge related divestiture electrical contracting services business partially offset 33 million net restructuring credits related changes estimates severance facility exit costs distributor supplier cancellation fees recorded prior periods impact sale assets impaired prior years amounts greater originally anticipated net charges also include 3 million charge related impairment property plant equipment operating income margin 2003 include net charges totaling 236 million 236 million consists primarily charges impairment goodwill 278 million power systems electrical contracting services printed circuit group restructuring credits 72 million 20 million included cost sales related primarily changes estimates severance facility exit costs recorded prior years charges impairment longlived assets 1 million net restructuring credit 72 million includes 55 million credits changes estimates recorded connection companys intensified internal audits detailed controls operating reviews performed 2003 also included within 236 million charges 14 million related adjusting asset reserves 6 million related adjustments accrual balances 9 million reconciliation accounting adjustments also recorded connection companys intensified internal audits detailed controls operating reviews performed 2003 healthcare following table sets forth net revenue operating income margin healthcare years ended september 30 2005 2004 2003 millions net revenue healthcare increased 433 million 48 2005 compared 2004 increase resulted primarily growth existing businesses lesser extent favorable changes foreign currency exchange rates 141 million growth healthcares underlying businesses principally driven increased revenue within medical devices supplies largely result increased sales volume international division primarily europe due salesforce investment sales growth vessel sealing laparoscopy stapling increased sales surgical division within medical devices supplies also strongly contributed due enhanced contracting group purchasing organizations increased acceptance laparoscopic gastric bypass procedures increased adoption ligasure device pharmaceuticals also contributed increase revenue although lesser extent increases partially offset decreased sales retail primarily due difficult competitive environment customer consolidations decreases operating income operating margin 2005 compared 2004 due primarily 277 million charge recorded fourth quarter 2005 associated adverse decision united states court appeals federal circuit previously disclosed legal matter refer note 17 consolidated financial statements discussion charge combined declines retail division result competitive environment mentioned well increased material transportation costs offset substantial increases divisions specifically international surgical divisions within medical devices supplies well within pharmaceutical increases divisions due strong sales growth mentioned combined favorable product mix also positively impacting segment reduced administrative expenses segment level well favorable foreign exchange rates 41 million november 2005 mallinckrodt imaging division voluntarily recalled two medical imaging products market instance healthcare concerned procedures used assure sterility product healthcare received reports adverse events involving patient health safety regard either product healthcares mallinckrodt imaging division restart manufacture products corrective actions implemented healthcare expect voluntary recall two products november 2005 material adverse impact company net revenue healthcare increased 82 2004 compared 2003 increase net revenue resulted primarily growth existing businesses well favorable foreign currency exchange rates 292 million growth healthcares underlying businesses primarily result increased net revenue within medical devices supplies lesser extent pharmaceuticals increase medical devices supplies largely driven higher sales volume within international division particularly europe due benefits realized sales force investment back order recovery growth spain italy absence unfavorable 47 million contractual adjustment recorded 2003 also contributing increase medical devices supplies higher sales within medical division resulting primarily new sharpsafety product launches gain market share within wound care market 124 increase operating income 2004 compared 2003 due primarily favorable margin impact increased sales discussed favorable foreign currency exchanges rates continued focus maximizing operating efficiencies operating income adversely impacted 29 million increase legal liabilities ongoing patent infringement suit 59 million increase research development costs additionally operating income 2004 includes net restructuring divestitures impairment charges 18 million composed restructuring charges 13 million related closure various facilities offset credit 2 million due costs less anticipated ii 4 million divestiture charge resulting loss sale business iii 3 million impairment charges related closure various facilities 2003 healthcare recorded net credits totaling 2 million including restructuring credits 8 million due actual costs less anticipated credit 7 million related insurance reimbursement certain legal fees associated product liability cases credits largely offset charges 12 million related asset reserves inventory charges 1 million adjustments accrual balances related workers compensation changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates engineered products services following table sets forth net revenue operating income margin engineered products services years ended september 30 2005 2004 2003 millions net revenue engineered products services increased 449 million 75 2005 compared 2004 increase net revenue largely driven increased selling prices electrical metal products due higher costs steel raw materials addition flow control lesser extent tyco fire building products experienced growth industrial commercial construction markets favorable changes foreign currency exchange rates 167 million also contributed increase revenue increases revenue partially offset decrease infrastructure services result strategic decision selective bidding new projects result fewer profitable projects increases operating income operating margin 2005 compared 2004 due primarily increased volume demand within industrial commercial markets along impact operational excellence initiatives cost reductions prior period restructuring programs favorable changes foreign currency exchange rates 21 million increases offset impact higher raw material costs additionally 2005 operating income includes 1 million divestiture credit 5 million restructuring charges compared 62 million net restructuring impairment divestiture charges 2004 discussed net revenue engineered products services increased 1509 million 335 2004 compared 2003 739 million 164 represents change classify certain subcontract costs paid infrastructure services rebilled customers costs historically treated pass therefore included reported revenue cost revenue infrastructure services year ended september 30 2004 company began reflecting subcontracts costs revenue cost revenue infrastructure services company adjusted revenue cost revenue year ended september 30 2003 change material adjustment would material impact previously reported operating income net income cash flow remaining increase 2004 net revenue resulted primarily increased demand higher selling prices tyco electrical metal products tyco fire building products favorable foreign currency exchanges rates businesses 298 million contributing increase although much lesser extent improved business conditions infrastructure services due primarily improved construction market continued market share growth sales remained flat flow control impact lower levels nonresidential construction industrial capital spending primarily north america offset improved activity end markets geographic regions 713 increase operating income 23 percentage point increase margin 2004 compared 2003 due primarily increased net revenue discussed impact cost reduction programs initiated prior periods positive impact foreign currency 31 million favorable increases partly offset impact higher raw material costs additionally operating income includes net restructuring impairment divestiture charges 62 million 2004 compared 56 million discussed 2003 included 62 million charge 53 million restructuring 4 million impairment charges related consolidation manufacturing distribution office locations activities flow control infrastructure services remaining 5 million divestiture charge primarily relates impairment goodwill related sale business revenue reclassification infrastructure services discussed impact operating income 2004 however adjustment lowered 2004 operating margin 15 percentage points 2003 recorded charges totaling 56 million includes charges 32 million related changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates including 19 million related adjustments workers compensation 13 million associated asset reserves charges also include charges 8 million 6 million charge included cost sales 2003 restructuring plans partially offset changes estimates due actual costs less originally anticipated charges impairment longlived assets 2 million relating manufacturing distribution consolidation flow control cost reduction projects costs 14 million included within selling general administrative expenses primarily related reorganization consolidation manufacturing facility certain business offices corporate net revenue 29 million 25 million 14 million 2005 2004 2003 respectively related tgn business corporate expense 231 million 397 million 1172 million 2005 2004 2003 respectively 2005 recorded 303 million gain sale tgn business tgn operating losses 54 million addition corporate expenses 2005 included 50 million charge representing best estimate amount fines penalties company likely pay resolve matters raised sec investigation commenced june 2002 well 70 million charge estimated legacy contingencies related former executives employment corporate expense 2004 includes net charges 14 million consists charges impairment longlived assets 8 million net restructuring charges 6 million primarily attributable severance related relocation corporate headquarters expense also included 73 million operating losses related tgn corporate expense 2003 includes charges totaling 824 million included within 824 million charge 91 million incremental increase directors officers insurance charges 39 million related internal investigation fees also included charge 20 million primarily related severance benefits corporate employees restructuring credit 11 million due actual costs less anticipated changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates corporate expense also includes net restructuring credits 10 million net charges 16 million included selling general administrative expenses charges impairment longlived assets 679 million primarily related tgn business lesser extent closure relocation corporate offices related severance benefits interest income expense interest income 123 million 2005 compared 91 million 107 million 2004 2003 respectively interest expense 815 million 2005 compared 956 million 2004 1147 million 2003 decrease interest expense 2005 primarily driven lower debt balances partially offset impact higher interest rates interest rate swap program compared period prior year decrease interest expense 2004 2003 primarily result lower average debt balance 2004 favorable impact interest rate swap agreements executed year weightedaverage rates interest total debt outstanding 2005 2004 2003 56 52 49 respectively expense net september 12 2002 indictments filed supreme court state new york mr l dennis kozlowski former chairman chief executive officer mr mark h swartz former chief financial officer director together defendants alleging enterprise corruption fraud conspiracy grand larceny falsifying certain business records crimes june 17 2005 jury convicted defendants 22 23 counts indictment september 19 2005 defendants sentenced new york state supreme court serve eight one third years twenty five years prison make joint restitution company amount 134 million resulting larceny convictions court ordered restitution payment made later one year date sentencing restitution award comprised 109 million previously expensed compensation made defendants reported expense net prior years 25 million related loan receivable one defendants remains reflected companys consolidated financial statements receivable fourth quarter 2005 company recognized 109 million income included expense net accompanying consolidated statement income defendants filed notice appeal convictions company considered collectibility restitution award assessed likelihood defendants success upon appeal larceny convictions successful could result change restitution order concluded receipt restitution award probable 2005 expense net also included losses related repurchase outstanding convertible debt prior scheduled maturity 1013 million see note 14 consolidated financial statements details regarding debt repurchases 2004 expense net consisted primarily net loss retirement debt company repurchased 303 million 72 notes due 2008 cash 341 million resulted 38 million loss including unamortized debt issuance costs retirement debt additionally company repurchased 517 million outstanding 275 convertible senior debentures 2008 put option total purchase price paid 750 million repurchase resulted 241 million loss retirement debt including writeoff unamortized debt issuance costs 2003 expense net consisted primarily net loss retirement debt 128 million loss relating writedown various investments 87 million value investments reduced became evident declines fair value investments temporary predominately due continuing depressed economic conditions specifically within telecommunications industry income taxes effective income tax rate 235 275 452 2005 2004 2003 respectively decrease effective tax rate 2004 2005 primarily result release valuation allowances benefits realized related tgn divestiture well courtordered restitution award related certain former executives tax obligation lesser extent increased profitability operations jurisdictions lower tax rates decrease partially offset increase charges tax benefit available loss retirement debt asset impairments estimated settlement sec enforcement action change effective tax rate 2003 2004 primarily result increased profitability operations primarily jurisdictions lower tax rates decrease nondeductible charges valuation allowance deferred tax assets 1867 million 1967 million september 30 2005 2004 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets valuation allowance calculated accordance provisions sfas 109 requires valuation allowance established maintained likely portion deferred tax assets realized calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel issues raised taxing authorities adequacy recorded amounts substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year company subsidiaries income tax returns periodically examined various tax authorities company currently audit irs years 1997 2000 connection examinations certain tax authorities including irs raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable recorded income tax provision connection irs audits years 1997 2000 company prepared proposed amendments prior period us federal income tax returns resulting reduction taxable income previously reported irs currently reviewing proposed amendments company recorded impact proposed amendments pending completion irs review proposed amendments accepted result receipt refunds credits corresponding reduction deferred tax assets liabilities company may prepare proposed amendments prior period us federal income tax returns additional periods proposed amendments expected material adverse impact financial condition results operations cash flows except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries discontinued operations divestitures discontinued operations may 2005 tyco announced intent explore divestiture plastics adhesives business segment global manufacturer plastic film specialty tapes adhesives coated products garment hangers third quarter 2005 result consideration potential sale deteriorating operating results ae products business company performed interim assessment recoverability goodwill longlived assets plastics adhesives segment estimated fair values reporting units longlived assets plastics adhesives developed based probabilityweighted expected future cash flows assets result assessment company determined book value certain longlived assets ae products reporting unit plastics adhesives greater estimated fair value consequently recorded longlived asset impairment 40 million company also determined book value ae products reporting unit excess estimated fair value resulted goodwill impairment charge 162 million september 30 2005 plastics adhesives segment met held sale criteria results operations included discontinued operations periods presented company negotiating sales agreement potential buyers expects complete sale transaction 2006 company assessed recoverability segments carrying value september 30 2005 continue assess recoverability based current fair values less cost sell businesses sold depending outcome sale negotiations company may incur additional impairment charges 2005 company divested eight businesses reported discontinued operations within fire security plastics adhesives engineered products services company reported losses sale additional impairments write carrying value assets estimated fair value 56 million 55 million tax 2005 2004 company reported losses sale discontinued operations 132 million 36 million related goodwill impairments write carrying value assets fair value less cost sell gains losses impairments divestitures net 2003 company conducted comprehensive review core businesses result implemented divestiture program early 2004 connection program company divested twentyone liquidated four noncore businesses across business segments primarily within fire security 2004 company recorded net losses impairments divestitures 116 million including 60 million goodwill impairment charges continuing operations connection divestiture writedown fair value certain held sale businesses november 2004 tyco agreed sell tgn undersea fiber optic telecommunication network sale consummated june 30 2005 part sale transaction tyco received gross cash proceeds 130 million purchaser assumed certain liabilities connection sale tyco recorded 303 million pretax gain reflected gains losses impairments divestitures consolidated statement income 2005 company presented operations tgn continuing operations criteria discontinued operations met 2005 company divested ten businesses reported continuing operations fire security healthcare engineered products services company recorded net losses impairments divestitures 32 million including 3 million charge reflected cost sales connection divestiture liquidation businesses well writedown estimated fair value certain held sale businesses acquisitions 2005 surgical division tycos healthcare segment acquired vivant medical inc vivant developer microwave ablation medical technology transaction valued approximately 66 million cash approximately 35 million additional cash paid future based achievement certain milestones acquisition vivant strengthens healthcares surgical product portfolio 2004 company completed acquisition two businesses within engineered products services fire security aggregate cost 9 million 2003 company purchased seven businesses within healthcare engineered products services fire security electronics aggregate cost 44 million cash net 1 million cash acquired acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows cumulative effect accounting change 2005 company changed measurement date pension postretirement benefit plans september 30th august 31st company believes onemonth change measurement date preferable change allows management adequate time evaluate report actuarial information companys consolidated financial statements accelerated reporting deadlines conjunction change company recorded 21 million aftertax gain 28 million pretax cumulative effect adjustment refer note 18 consolidated financial statements additional information retirement plans 2003 company adopted fin 46 requires identification companys participation variable interest entities vies entities level invested equity sufficient fund future activities permit operate stand alone basis whose equity holders lack certain characteristics controlling financial interest entities identified vies fin 46 sets forth model evaluate potential consolidation based assessment party vies bears majority risk expected losses stands gain majority expected returns company programs sells machinery equipment investors turn purchase receive ownership security interests assets company may certain investments affiliated companies whereby provides varying degrees financial support investors entitled share results entities company consolidate entities may substantive operating companies evaluated potential consolidation fin 46 company three synthetic lease programs utilized extent companys segments finance capital expenditures manufacturing machinery equipment ships used tyco submarine telecommunications 2003 company restructured one synthetic leases meet requirements fin 46 offbalance sheet accounting company reclassified remaining two leases capital leases consequently recorded 75 million aftertax loss 115 million pretax cumulative effect adjustment one capital leases expired december 2004 scheduled expire july 2006 change fiscal year reporting calendar alignment effective october 1 2004 tyco changed fiscal year end calendar fiscal year ending september 30 5253 week year ending last friday september quarterly period 13 weeks length fiscal years 53 weeks fourth quarter reporting period 14 weeks first occurrence taking place fiscal 2011 addition certain companys subsidiaries consistently closed books one month prior companys fiscal period end subsidiaries report results period reported results consolidated company impact change material consolidated financial statements change also consistent companys ongoing efforts enhance controls improve transparency reporting change better aligns companys external reporting companys internal operational processes net income transition period related change 26 million reported within shareholders equity critical accounting policies estimates preparation consolidated financial statements conformity gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization method security monitoring systemstyco generally considers electronic security assets three asset pools internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program determination depreciable lives subscriber systems defined included property plant equipment amortizable lives customer contracts related customer relationships included intangible assets primarily based historical attrition rates thirdparty lifing studies useful life underlying tangible asset realizable value remaining useful lives assets could impacted changes customer attrition rates attrition rates rise tyco may required accelerate depreciation amortization respect tycos depreciation policy security monitoring systems installed residential commercial customer premises costs systems combined separate pools internally generated residential internally generated commercial account customers collectively subscriber systems generally depreciated ten fourteen years tyco concluded residential commercial account pools straightline method depreciation ten fourteenyear period continues appropriate given observed actual attrition data pools tyco purchases residential security monitoring contracts external network independent dealers operate adt dealer program purchase price customer contracts recorded intangible asset ie contracts related customer relationships intangible assets arising adt dealer program amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship tyco believes accelerated method presently best achieves matching objective described doubledeclining balance method based tenyear life first eight years estimated life customer relationships converting straightline method amortization remaining four years estimated relationship period actual attrition data regularly reviewed order assess continued applicability accelerated method amortization described attrition rates customers global electronic security services business 148 151 159 trailing 12month basis 2005 2004 2003 respectively revenue recognitioncontract sales installation fire protection systems large security intruder systems undersea cable systems construction related projects recorded primarily percentageofcompletion method profits recognized contracts process based upon contracted revenue related estimated cost completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable estimates inaccurate risk revenue profits period may overstated understated product discounts granted based terms arrangements direct indirect markets participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based managements judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable income taxesin determining income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense deferred tax assets also reduced valuation allowance based weight available evidence likely portion recorded deferred tax assets realized future periods evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future state federal international pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded significant valuation allowances intend maintain likely deferred tax assets realized income tax expense recorded future reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance would result additional income tax expense period could significant impact future earnings change valuation allowance occurs established connection acquisition adjustment may impact goodwill rather income tax provision changes tax laws rates could also affect recorded deferred tax assets liabilities future management aware charges would material effect companys results operations cash flows financial position addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary tax liabilities relate tax uncertainties existing date acquisition business adjustment tax liabilities result adjustment goodwill recorded date acquisition goodwillin performing goodwill assessments management relies number factors including operating results business plans economic projections anticipated future cash flows transactions market place data inherent uncertainties related factors managements judgment applying analysis goodwill impairment since managements judgment involved performing goodwill valuation analyses risk carrying value goodwill may overstated understated elected make first day fourth quarter annual impairment assessment date reporting units goodwill valuations calculated using income approach based present value future cash flows reporting unit approach incorporates many assumptions including future growth rates discount factors income tax rates changes economic operating conditions impacting assumptions could result goodwill impairment future periods disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit market capitalization declines may result perform goodwill impairment first step valuation analysis reporting units prior required annual assessment types events resulting analysis could result goodwill impairment charges future company recorded goodwill impairments 162 million 2005 included loss income discontinued operations 96 million 2004 36 million included loss income discontinued operations remaining 60 million included gains losses impairments divestitures net consolidated statements income goodwill impairments 2003 totaled 278 million longlived assetsassets held used company including property plant equipment intangible assets reviewed impairment whenever events circumstances indicate carrying amount asset may recoverable purposes evaluating recoverability longlived assets held used recoverability test performed based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk impairments longlived assets disposed recorded based upon fair value applicable assets since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated liquidity capital resources following table summarizes sources cash flow operating activities use portion cash operations years ended september 30 2005 2004 2003 millions 1includes depreciation expense 1447 million 1428 million 1420 million 2005 2004 2003 respectively amortization intangible assets 653 million 691 million 722 million 2005 2004 2003 respectively 2includes addback net losses retirement debt 1013 million 284 million 128 million 2005 2004 2003 respectively 3includes net proceeds 94 million 141 million 124 million received saledisposition property plant equipment 2005 2004 2003 respectively net change total working capital cash decrease 204 million 2005 significant changes working capital included 714 million increase accounts receivable offset increase 424 million accounts payable provision losses accounts receivable inventory decreased 318 million year ended september 30 2004 234 million current period decrease largely result improved accounts receivable aging due overall improved credit profile customer base particularly fire security segment better collections additionally allowance doubtful accounts decreased 516 million september 30 2004 422 million september 30 2005 primarily due writeoff fully reserved receivables improved aging accounts receivable fire security change inventory provision also contributed decrease however much lesser extent cash flows operating activities cash flow items segment follows year ended september 30 2005 millions 1includes add back 1013 million related loss retirement debt 2005 2004 2003 paid 161 million 228 million 499 million respectively cash related restructuring activities see note 2 consolidated financial statements information regarding restructuring activities anticipate cash outflow approximately 50 million 2006 related restructuring activities electronics segment 2005 2004 2003 tyco paid 328 million 254 million 597 million cash respectively acquire 04 million 03 million 06 million customer contracts electronic security services adt dealer program 2005 2004 2003 paid 47 million 105 million 267 million respectively cash purchase accounting holdbackearnout liabilities holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet certain acquisitions provisions require tyco make additional earnout payments sellers acquired company achieves certain milestones subsequent acquisition tyco earnout payments tied certain performance measures revenue gross margin earnings growth september 30 2005 holdbackearnout liabilities consolidated balance sheets 148 million 79 million included accrued current liabilities 69 million included liabilities september 30 2005 acquisition liabilities consolidated balance sheets 70 million 24 million included accrued current liabilities 46 million included liabilities 2005 company sold various businesses aggregate net proceeds 295 million 120 million relates tgn business purchaser tgn also assumed certain liabilities 2005 surgical division tycos healthcare segment acquired vivant developer microwave ablation medical technology transaction valued approximately 66 million cash approximately 35 million additional cash paid future based achievement certain milestones additionally november 2005 tycos healthcare segment acquired controlling interest floreane medical implants manufacturer surgical mesh products transactions strengthen healthcares surgical product portfolio continue fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards capital spending increased 13 billion 2005 10 billion 2004 level capital expenditures expected exceed depreciation 2006 expected increase slightly relative level spending 2005 amount income taxes paid net refunds year 790 million first half 2006 expect cash outflows approximately 500 million resolution certain previously accrued legal legacy matters including patent dispute healthcare segment sec enforcement action certain holdback liabilities capitalization shareholders equity 325 billion 1610 per share september 30 2005 compared 303 billion 1507 per share september 30 2004 increase due primarily net income 30 billion share options exercised 351 million increases partially offset dividends declared 805 million repurchase shares 300 million increase minimum pension liability 200 million net income taxes september 30 2005 total debt decreased 40 billion 126 billion compared 166 billion september 30 2004 total debt percentage total capitalization total debt shareholders equity 28 september 30 2005 35 september 30 2004 decrease debt resulted principally repurchase convertible debentures discussed 20 billion scheduled repayments debentures 18 billion cash balance decreased 32 billion september 30 2005 compared 45 billion september 30 2004 decrease cash primarily due convertible debt repurchases scheduled debt repayments referred capital expenditures lesser extent dividend payments acquisition customer accounts also contributed cash decrease furthermore company used 300 million cash repurchase shares open market connection 15 billion share repurchase program approved board directors july 2005 decreases partially offset cash flows operations december 16 2004 tyco international group sa whollyowned subsidiary company organized laws luxembourg tigsa entered 10 billion 5year revolving credit facility expiring december 16 2009 facility replaced tigsas 10 billion 364day revolving credit facility terminated prior scheduled expiration date december 20 2004 amounts outstanding 364day revolving credit facility date termination tigsa also holds 15 billion 3year revolving bank credit facility expiring december 22 2006 500 million 3year unsecured letter credit facility expiring june 15 2007 september 30 2005 letters credit amount 488 million issued 500 million facility remaining 12 million available issuance amounts borrowed facilities 2005 company repurchased 12 billion aggregate principal amount outstanding 275 convertible senior debentures due 2018 2008 put option cash 18 billion 750 million aggregate principal amount outstanding 3125 convertible senior debentures due 2023 2015 put option cash 11 billion repurchases resulted 10 billion loss retirement debt including writeoff unamortized debt issuance costs reflected expense net consolidated statement income plan use available cash continue fund internal growth cost reduction opportunities within businesses additionally believe cash flow generation capability allow us continue strengthen balance sheet return capital shareholders debt reduction share repurchases focus near term also consider appropriate acquisitions opportunity arise companys bank credit agreements contain number financial covenants limit ratio debt earnings interest taxes depreciation amortization minimum levels net worth limits incurrence liens september 30 2005 company two remaining synthetic lease facilities one expire july 2006 covenants including interest coverage leverage ratios companys outstanding indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants presently considered restrictive companys operations company currently compliance debt covenants 2005 made voluntary contributions pension plans totaling approximately 115 million december 9 2004 board directors approved increase quarterly dividend common shares 00125 010 per share result dividend payments 628 million 2005 expected approximate 800 million 2006 following table details trend debt ratings august 3 2005 standard poors rating services raised corporate credit senior unsecured ratings tyco international ltd subsidiaries bbb security ratings set forth recommendation buy sell hold securities may subject revision withdrawal assigning rating organization rating evaluated independently rating commitments contingencies contractual obligations summary contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases obligations september 30 2005 follows millions 1includes capital lease obligations excludes interest 2includes obligations offbalance sheet leasing arrangement subsidiary company option buy five cable laying sea vessels see note 17 consolidated financial statements 3purchase obligations consist commitments purchases good services 4minimum pension funding requirements included amounts determined periods presented minimum required contributions pension plans expected approximately 118 million 2006 september 30 2005 company outstanding letters credit letters guarantee amount 14 billion september 30 2005 tigsa unsecured credit facilities 15 billion due december 22 2006 10 billion due december 16 2009 undrawn available see note 15 consolidated financial statements addition certain companys operating subsidiaries overdraft similar types facilities total 605 million 599 million undrawn available september 30 2005 facilities expire various dates year 2013 renewable established primarily within international operations september 30 2005 company contingent purchase price liability 80 million related 2001 acquisition comnet electronics represents maximum amount payable former shareholders comnet construction installation communications system state florida finished state approved system based guidelines set forth contract liability contingency recorded tycos consolidated financial statements outcome contingency cannot reasonably determined june 2004 tigsa entered 500 million 3year unsecured letter credit facility provides issuance letters credit supported related line credit facility tigsa may borrow line credit agreement reimburse bank obligations respect letters credit issued facility covenants facility substantially similar tigsas bank credit facilities entered december 2003 indenture related tigsas 6 notes due 2013 issued november 2003 tigsa would pay interest outstanding borrowings variable interest rate based banks base rate eurodollar rate defined upon occurrence certain credit events interest rate outstanding borrowings becomes fixed issuance letters credit facility 2004 enabled company release approximately 480 million restricted cash investments september 30 2005 letters credit amount 488 million issued 500 million facility remaining 12 million available issuance amounts borrowed facilities normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows legal matters class actions detailed discussion contingencies related tycos securities class actions shareholder derivative litigation erisa litigation investigation litigation former senior management see item 3 legal proceedings generally obligated indemnify directors officers former directors officers named defendants matters extent required bermuda law addition insurance carriers may decline coverage may insufficient cover expenses liability matters unable time estimate ultimate liability matters may possible required pay judgments settlements incur expenses excess insurance coverage aggregate amounts would material adverse effect financial position results operations cash flows time possible estimate amount loss probable losses might result adverse resolution matters investigation detailed discussion contingencies related governmental investigations related tyco see item 3 legal proceedingssubpoenas document requests governmental entities cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities turn could negatively impact business nongovernmental customers suffer penalties could material adverse effect business possible estimate amount loss range possible loss might result adverse resolution matters 2005 company recorded charge 50 million represents companys best estimate amount fines penalties management believes company likely pay resolve matters raised secs investigation company engaged discussions secs division enforcement resolve matters raised secs investigation final resolution matters subject number uncertainties including finalizing terms settlement enforcement staff agree recommend commission companys submission offer settlement approved tyco board directors commissions approval settlement offer events occurred charge subject change intellectual property litigation detailed discussion contingencies related tycos intellectual property litigation see item 3 legal proceedingsintellectual property litigation environmental matters detailed discussion contingencies related tycos environmental matters see item 1 businessenvironmental matters asbestos matters tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation company observed increase number lawsuits past several years majority cases filed subsidiaries healthcare engineered products services limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property majority cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore companys experience large percentage claims never substantiated dismissed courts company continue vigorously defend lawsuits company suffered adverse verdict trial court proceeding related asbestos claims appropriate company settles claims however total amount paid date settle defend asbestos claims immaterial september 30 2005 approximately 14000 asbestos liability cases pending company subsidiaries 2005 company undertook detailed study pending asbestos claims also developed estimate asbestos claims incurred reported well related insurance indemnification recoveries impact study material companys financial position results operations cash flows companys estimate liability pending future claims based claim experience past five years covers claims expected filed 2012 company believes adequate amounts recorded related matters possible time determine certainty ultimate outcome asbestosrelated proceedings company believes final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect companys financial position results operations cash flows income taxes tyco subsidiaries income tax returns periodically examined various regulatory tax authorities connection examinations tax authorities including united states internal revenue service raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable recorded income tax provision equity goodwill applicable american jobs creation act 2004 ajca signed law october 2004 replaces export incentive deduction domestic manufacturing income expected ajca material impact companys income tax provision ajca also allows company repatriate 500 million permanently reinvested foreign earnings 2006 effective tax rate 525 incentive would apply companys us owned controlled foreign companies company continues review whether take advantage provision ajca compliance matters 2003 allegation brought attention period 1999 2003 certain improper payments made nonus subsidiary tyco 2004 revenue 40 million assistance outside counsel conducted internal investigation allegation determine whether certain payments correctly recorded books records subsidiary taken remedial steps reported results investigation us department justice doj sec cooperating inquiries march 29 2005 august 9 2005 tyco reported doj sec investigative steps remedial measures taken response number recent allegations improper payments tyco also informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance foreign corrupt practices act would continue make periodic progress reports would present factual findings upon conclusion baseline review time tyco cannot predict outcome disclosures matters reported regulatory law enforcement authorities therefore cannot estimate range potential loss extent risk may result adverse resolution matters company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows backlog september 30 2005 backlog unfilled orders 136 billion compared backlog 130 billion september 30 2004 expect approximately 75 backlog september 30 2005 filled 2006 backlog reportable industry segment september 30 follows millions 12004 includes tgn business classified held sale september 30 2004 sold 2005 within fire security backlog remained flat part due increased bookings within fire protection north america offset continued recognition deferred revenues leased security systems result transition directconsumer sales model 2003 backlog fire security includes recurring revenueinforce represents twelve months fees monitoring maintenance services contract security business amount recurring revenueinforce september 30 2005 september 30 2004 3550 million 3559 million respectively within engineered products services backlog increased infrastructure services result projects venezuela canada well expanding sectors flow control asia north america favorable changes foreign currency exchange rates also contributed increase within electronics backlog increased primarily due stronger orders improving business conditions across majority end markets backlog healthcare represents unfilled orders nature businesses normally shipped shortly purchase orders received view backlog healthcare significant indicator level future sales activity offbalance sheet arrangements sale accounts receivable tyco utilized several programs sold participating interests accounts receivable investors turn purchased received ownership security interests receivables collections reduced accounts receivable included pool company sold new receivables company retained risk credit loss receivables accordingly full amount reserve retained consolidated balance sheets proceeds sales used repay shortterm longterm borrowings working capital corporate purposes reported operating cash flows consolidated statements cash flows sale proceeds less face amount accounts receivable sold amount approximated cost would incurred commercial paper issued backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative expenses consolidated statements income discount aggregated 18 million 29 million 31 35 weightedaverage balance receivables outstanding 2004 2003 respectively company retained collection administrative responsibilities participating interests defined pool 2004 company reduced outstanding balances accounts receivable programs 929 million 812 million related three corporate accounts receivable programs terminated 2005 amounts utilized programs september 30 2004 date termination remaining reduction 117 million related certain companys international businesses selling fewer accounts receivable shortterm financing mechanism transactions qualify true sales aggregate amount outstanding international accounts receivable programs 80 million 99 million september 30 2005 2004 respectively variable interest entities company programs sells machinery equipment investors turn purchase receive ownership security interests assets company may certain investments affiliated companies whereby provides varying degrees financial support investors entitled share results entities consolidate entities may substantive operating companies evaluated potential consolidation fin 46 company three synthetic lease programs utilized extent companys segments finance capital expenditures manufacturing machinery equipment ships used tyco submarine telecommunications 2003 company restructured one synthetic leases meet requirements fin 46 offbalance sheet accounting 2003 conjunction adopting fin 46 company also evaluated investments concluded four joint ventures previously accounted equity method accounting within tyco infrastructure services minority interest met consolidation criteria set forth fin 46 accordingly ventures consolidated onto companys balance sheet effective july 1 2003 subsequently deconsolidated march 31 2004 upon adoption fin 46r guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2006 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however company reason believe uncertainties would material adverse effect companys financial position annual results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see item businessenvironmental matters discussion liabilities company guaranteed fair value certain vessels exceed 235 million september 30 2005 expects obligation 54 million recorded accompanying consolidated balance sheet based estimate fair value vessels see liquidity capital resourcescontractual obligations normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company generally records estimated product warranty costs time sale information estimated product warranty see notes 1 15 consolidated financial statements accounting pronouncements september 2004 emerging issues task force eitf financial accounting standards board fasb reached consensus eitf 048 effect contingently convertible instruments diluted earnings per share eitf requires contingently convertible debt securities market price trigger included diluted earnings per share regardless whether market price trigger met eitf 048 became effective tyco october 1 2004 required retroactive restatement previously reported earnings per share adoption eitf impact diluted earnings per share period presented november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 sfas 151 amends accounting research bulletin arb 43 chapter 4 clarify abnormal amounts idle facility expense freight handling costs wasted materials spoilage recognized currentperiod charges addition sfas 151 requires allocation fixed production overhead inventory based normal capacity production facilities sfas 151 effective first quarter fiscal 2006 tyco adoption sfas 151 expected significant impact companys results operations financial position cash flows december 2004 fasb issued sfas 123r requires sharebased payments employees recognized financial statements based fair values sfas 123r replaces sfas 123 accounting stockbased compensation supersedes accounting principles board opinion 25 apb opinion 25 accounting stock issued employees effective october 1 2005 tyco adopted provisions sfas 123r using modified prospective method compensation expense recorded unvested options related vesting period beginning quarter adoption company previously applied intrinsic value based method prescribed apb opinion 25 accounting employee stockbased compensation upon adoption sfas 123r company recognize stockbased compensation costs ratably service period earlier retirement eligibility date grant contains provisions award becomes fully vested upon retirement stated vesting period grants issued retirement eligible employees prior adoption sfas 123r company recognize compensation costs stated vesting period acceleration unrecognized compensation costs employee elects retire statement also amends sfas 95 statement cash flows require excess tax benefits reflected financing cash inflows rather operating cash inflows impact adoption sfas 123r estimated result compensation charge fiscal year 2006 range approximately 006 007 per diluted share march 2005 sec issued staff accounting bulletin sab 107 regarding staffs interpretation sfas 123r interpretation provides staffs views regarding interactions sfas 123r certain sec rules regulations provides interpretations valuation sharebased payments public companies interpretive guidance intended assist companies applying provisions sfas 123r investors users financial statements analyzing information provided company follow guidance prescribed sab 107 connection adoption sfas 123r march 2005 fasb issued interpretation fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 interpretation clarifies timing liability recognition legal obligations associated asset retirement timing method settling obligation conditional future event may within control entity fin 47 effective later end fiscal years ending december 15 2005 company currently assessing impact fin 47 results operations financial position cash flows june 2005 fasb issued staff position fsp 1431 accounting electronic equipment waste obligations provides guidance accounting historical waste obligations associated european union waste electrical electronic equipment directive weee directive fsp 1431 effective first reporting period ending june 8 2005 date adoption weee directive law applicable european union member country european union member countries yet among steps fully enacted national laws relating weee ii completed implementation administrative measures programs iii clarified scope products considered weee andor iv established pricing recycling weee company time reasonably estimate effect applying guidance future periods company continues monitor weee developments respective eu countries effort reflect impact directive forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed sec tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect sales earnings cash flows operating efficiencies product expansion backlog consummation benefits acquisitions divestitures matters well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performance achievements factors might affect forwardlooking statements include among things •overall economic business conditions •the demand tycos goods services •competitive factors industries tyco competes •changes tax requirements including tax rate changes new tax laws revised tax law interpretations •results consequences tycos internal investigation governmental investigations concerning companys governance management internal controls operations •the outcome litigation governmental proceedings result actions taken former senior corporate management •effect income tax audit settlements •the ratings debt ability repay refinance outstanding indebtedness matures •our ability operate within limitations imposed financing arrangements maintain credit ratings •interest rate fluctuations changes borrowing costs •other capital market conditions including foreign currency rate fluctuations •availability fluctuations prices key raw materials including steel resin •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability achieve cost savings connection companys strategic restructuring six sigma initiatives •potential impairment goodwill andor longlived assets •the impact fluctuations price tyco common shares •changes us nonus government regulations general particular changes rules regulations regarding safety efficacy sales promotions insurance reimbursement pricing tycos disposable medical products specialty products well changes rules regulations regarding retirement disposal certain electrical products •the possible effects tyco future legislation us may limit eliminate potential us tax benefits resulting tycos incorporation bermuda deny us government contracts tyco based upon incorporation bermuda •the potential distraction costs associated negative publicity relating actions former senior corporate management item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations including effects restatement described note 1 consolidated financial statements read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements due many factors including limited headings risk factors forwardlooking information introduction consolidated financial statements include consolidated accounts tyco international ltd company organized laws bermuda subsidiaries hereinafter collectively referred company tyco prepared united states dollars accordance accounting principles generally accepted united states gaap company operates following business segments •electronics designs manufactures distributes electrical electronic components related solutions •fire security designs manufactures installs monitors services electronic security fire protection systems •healthcare designs manufactures distributes medical devices supplies imaging agents pharmaceuticals adult incontinence infant care products •engineered products services designs manufactures distributes services engineered products including industrial valves controls well steel tubular goods provides consulting engineering construction management operating services operating results tyco global network tgn business presented within corporate date disposal third quarter 2005 restatement review prior period stock option grant practices following publicity 2006 regarding granting stock options number companies company initiated internal review historical stock option grant practices determine whether companys stock option award actions appropriately governed accurately reflected companys financial statements companys internal audit staff reports directly audit committee board directors began review companys equity incentive plan practices associated approvals period october 1999 june 2006 addition review plan administration internal audit staff performed detailed audit procedures 95 share options granted regular offcycle grants period audit procedures covered 100 named executive officers section 16 officers directors companys review included evaluation grant authorizations assessment appropriate measurement dates accounting principles board apb opinion 25 accounting stock issued employees application appropriate equity pricing methodology company determined october 1999 2002 several grants complete documentation available validation appropriate measurement date apb opinion 25 difficult determine precision grants company determined appropriate measurement date reliance upon available evidence consideration alternatives including communication date grantees grants establish reasonable date upon equity recipients share awards known fixed ready communicated employees extent company able conclude grant date lists fixed ready communicated employees measurement date considered grant date however many instances measurement date company used date equity award communicated recipient company concluded errors relating companys stock option accounting primarily resulted incomplete documentation enable application accounting principles apb opinion 25 b unintentional misapplication generally accepted accounting principles c absence adequate control procedures 1999 early 2002 designed ensure equity recipients share awards fixed certain prior legal grant date amount aggregate compensation expense related item company recorded prior periods 252 million pretax 173 million aftertax relating grants awarded prior end 2002 none amount relates 2006 17 million pretax 8 million aftertax relates 2005 66 million pretax 46 million aftertax relates 2004 awards vested relevant vesting periods company used communication date measurement date instances difference amount recorded would material period aggregate review equity plan compliance separately company identified error related recognition compensation expense companys employee stock purchase program united kingdom aggregate compensation expense related item company recorded 20022005 29 million pretax 20 million aftertax none amount relates 2006 7 million pretax 5 million aftertax relates 2005 19 million pretax 13 million aftertax relates 2004 effect restatement taken together prior period errors result aggregate understatement compensation expense 281 million pretax 193 million aftertax based findings items discussed company restated reported results prior periods reflect impact additional stockbased compensation expense corporate impact year follows millions impact consolidated statements income years ended september 30 2005 2004 consolidated balance sheet september 30 2005 result restatement summarized tables impact total cash flows operating investing financing activities within consolidated statements cash flows years ended september 30 2005 2004 amounts previously reported derived form 10k year ended september 30 2005 filed december 9 2005 reclassified effects discontinued operations 1the impact restatement described accumulated earnings 59 million 53 million 9 million 2003 2002 2001 prior respectively 1the impact restatement described accumulated earnings september 30 2004 october 1 2003 decrease 180 million 121 million respectively overview previously reported periodic filings january 13 2006 company announced board directors approved plan separate company three separate publicly traded companiestyco healthcare one worlds leading diversified healthcare companies tyco electronics worlds largest passive electronic components manufacturer combination tyco fire security engineered products services global business leading positions residential commercial security fire protection industrial products services proposed separation thorough reviews strategic options board directors believe strategy best way position marketleading companies sustained growth value creation following proposed separation tycos shareholders 100 equity three companies taxfree stock dividends company independent board directors strong corporate governance standards expect file registration statements connection proposed separation second quarter 2007 connection proposed separation company continues estimate net economic cost complete transaction expected approximate 10 billion largely tax restructuring debt refinancing professional services employeerelated costs depending prevailing market conditions date proposed separation company anticipates corresponding income statement charges would larger net economic cost complete proposed separation difference income statement charges estimated net economic cost expected result costs retire refinance reassign debt well noncash charges 2006 company incurred 169 million costs related proposed separation primarily related legal accounting consulting work associated executing transaction consummation proposed separation subject certain conditions including final approval tyco board directors receipt certain tax rulings necessary opinions counsel filing effectiveness registration statements securities exchange commission sec completion necessary debt refinancings approval companys shareholders required condition consummation proposed separation tyco received initial private letter ruling internal revenue service irs regarding us federal income tax consequences proposed separation noting qualify favorable tax treatment focused growing profitability within companies proposed separation may well positioned longterm growth independent entities following proposed separation expect three companies dividendpaying companies prepare proposed separation remain committed returning excess cash shareholders 2006 repurchased 95 million common shares 25 billion share repurchase programs completed 15 billion share repurchase program previously approved board directors repurchase 45 million common shares 12 billion repurchased additional 50 million common shares 13 billion new 20 billion share repurchase program approved board directors may 2006 659 million remaining 20 billion share repurchase program expect complete prior proposed separation 2006 holders tyco international group sa whollyowned subsidiary company organized laws luxembourg tigsa series 275 convertible senior debentures due 2018 2008 put option converted 12 billion debentures 54 million tyco common shares redeemed remaining 1 million principal amount outstanding cash additionally utilized 10 billion cash scheduled repayment public notes terminated one synthetic lease facilities total cash payment 203 million reducing principal debt minority interest 191 million 10 million respectively october 2006 exercised right buy five cable laying sea vessels previously included offbalance sheet leasing arrangement 280 million 2006 completed sale plastics adhesives segment plastics adhesives ludlow coated products businesses sold net proceeds 882 million ae products group sold net proceeds 2 million 2006 company also recorded 30 million receivable due purchaser plastics adhesives ludlow coated products businesses based decline average resin prices fiscal year 2006 contemplated definitive sale agreement amount payable tyco later january 2007 additionally entered definitive agreement sell printed circuit group pcg tyco electronics business leading manufacturer hightechnology printed circuit boards military aerospace commercial markets 226 million transaction completed october 27 2006 gain sale approximately 45 million expected operations plastics adhesives segment pcg business reflected discontinued operations periods presented details related companys divestiture program related discontinued operations discussed discontinued operations divestitures continuing assess strategic fit various businesses considering additional divestitures businesses align long term vision improve operating efficiency first quarter 2007 launched restructuring program across segments including corporate organization streamline businesses reduce operational footprint expect incur charges approximately 600 million next two years 500 million expected incurred 2007 expect total cash expenditures program approximately 450 million 250 million expected 2007 believe restructuring program strengthen competitive position long term operating results net revenue net income years ended september 29 2006 september 30 2005 2004 restated follows millions net revenue increased 17 billion 42 2006 compared 2005 result growth segments led electronics engineered products services foreign currency exchange rates impact acquisitions divestitures negatively impacted 2006 revenue growth 326 million 125 million respectively operating income decreased 294 million 51 2006 operating margin decreased 13 percentage points 134 operating income 2006 unfavorably impacted charges 426 million consisting separation costs 169 million incremental stock option charges 161 million required statement financial accounting standards sfas 123r sharebased payment charges 63 million related purchased inprocess research development net restructuring impairment charges 33 million 6 million included cost sales operating income 2006 also included net gains impairments divestitures 44 million 72 million income related settlement former executive 48 million income resulting reduction estimated workers compensation liabilities primarily due favorable claims experience addition foreign currency exchange rates negatively affected operating income 52 million net revenue increased 13 billion 35 2005 compared 2004 resulted growth segments foreign currency exchange rates favorably affected 2005 873 million impact divestitures acquisitions negatively impacted period 689 million operating income increased 622 million 121 2005 operating margin increased 11 percentage point 147 operating income 2005 favorably impacted gain sale tgn business 301 million addition year unfavorably impacted charges related adverse decision united states court appeals federal circuit patent dispute healthcare segment 277 million charge related sec enforcement action 50 million charge relating former executives employment 70 million foreign currency exchange rates favorably affected operating income 142 million results geographic area net revenue geographic area years ended september 29 2006 september 30 2005 2004 follows millions 1revenue external customers attributed individual countries based reporting entity records transaction segment results segment discussions follow describe significant factors contributing changes results segment included continuing operations electronics net revenue operating income operating margin electronics years ended september 29 2006 september 30 2005 2004 follows millions net revenue electronics increased 950 million 81 2006 compared 2005 including 77 increase product revenue increase net revenue reflects broadbased volume growth across customer end markets especially premise wiring industrial machinery equipment consumer electronics communications equipment manufacturing communication service provider markets increases partially offset impact unfavorable changes foreign currency exchange rates 148 million operating income operating margin 2006 decreased compared 2005 due primarily increased material costs 306 million incremental stock option charges 40 million required sfas 123r negative changes foreign currency exchange rates 23 million additionally operating income 2006 included net restructuring divestiture impairment charges 16 million 6 million reflected cost sales compared net restructuring credits 10 million 2005 discussed operating income 2006 also includes 3 million related proposed separation net revenue electronics increased 403 million 35 2005 compared 2004 including 64 increase product revenue increase net revenue driven primarily sales automotive aerospace defense consumer electronics power utilities communications equipment manufacturing communication service provider markets addition revenue increased substantially due favorable changes foreign currency exchange rates 291 million increases partially offset impact divestiture electrical contracting services business 353 million operating income operating margin 2005 increased compared 2004 due primarily increased sales volume cost savings initiatives favorable changes foreign currency exchange rates 57 million increases partially offset 80 basis point impact increased commodity costs additionally operating income 2005 included net restructuring credits 10 million compared net restructuring divestiture impairment charges 20 million 2004 fire security net revenue operating income operating margin fire security years ended september 29 2006 september 30 2005 2004 follows millions net revenue fire security increased 150 million 13 2006 compared 2005 including 24 increase product revenue product sales includes sales installation security fire protection systems net revenue increased due growth worldwide fire protection contracting services primarily related electrical mechanical contracting well growth north american international markets worldwide electronic security services increases offset impact acquisitions divestitures 117 million unfavorable changes foreign currency exchange rates 60 million decrease sales breathing fire detection products within safety products operating income decreased 26 million 2006 prior year primarily result lower margins increased investments selling marketing decline european recurring monitoring revenues within worldwide electronic security services results current period included net restructuring impairment divestiture charges 11 million compared net restructuring impairment divestiture charges 28 million 2005 operating income 2006 favorably impacted cost savings related operational excellence initiatives prior year restructuring programs addition 2006 operating income unfavorably impacted 2 million related proposed separation well incremental stock option charges 35 million required sfas 123r attrition rates customers worldwide electronic security services business decreased 138 trailing twelvemonth basis 2006 compared 148 2005 151 2004 net revenue fire security remained relatively level 2005 compared 2004 decrease product revenue offset increase service revenue product sales includes sales installation security fire protection systems net revenue increased due favorable changes foreign currency exchange rates 274 million lesser extent increased sales volume breathing intrusion products tyco safety products well growth european fire services business increases offset impact divestitures 315 million decreased sales security business europe operating income increased 317 million 2005 prior year results current period included net restructuring impairment divestiture charges 28 million compared net restructuring impairment divestiture charges 264 million 2004 operating income 2005 also favorably impacted foreign currency exchange rates 26 million well cost savings related operational excellence initiatives prior year restructuring programs cost reductions partially offset increased investment sales marketing healthcare net revenue operating income operating margin healthcare years ended september 29 2006 september 30 2005 2004 follows millions net revenue healthcare increased 98 million 10 2006 compared 2005 increase largely driven international surgical divisions within medical devices supplies result strong growth across majority geographic regions surgical sales including laparoscopy ablation vessel sealing lesser extent sutures also contributing revenue increase volume growth bulk pharmaceuticals active pharmaceutical ingredients retail growth primarily driven new product sales distribution growth latin america well favorable economic trends strategic promotional efforts key markets increases partially offset adverse impact voluntary product recalls imaging lower volume sales within respiratory addition negative changes foreign currency exchange rates 93 million operating income operating margin decreased 86 million 12 percentage points respectively compared 2005 increased volume medical devices supplies discussed offset unfavorable manufacturing performance primarily respiratory imaging result lower volumes higher expenses primarily associated voluntary product recalls well weakness retail 40 million also contributing decrease operating income although lesser extent additional investments research development selling expenses operating income adversely impacted charge 63 million related purchased inprocess research development incremental stock option charges required sfas 123r 37 million 2 million charges related proposed separation 31 million negative impact related foreign currency exchange rates additionally operating income 2006 included gain divestiture 48 million primarily relating sale business within medical devices supplies net revenue healthcare increased 433 million 48 2005 compared 2004 increase resulted primarily growth existing businesses lesser extent favorable changes foreign currency exchange rates 141 million growth healthcares underlying businesses principally driven increased revenue within medical devices supplies largely result increased sales volume international division primarily europe due sales force investment sales growth vessel sealing laparoscopy stapling increased sales surgical division within medical devices supplies also strongly contributed due enhanced contracting group purchasing organizations increased acceptance laparoscopic gastric bypass procedures increased adoption ligasure device pharmaceuticals also contributed increase revenue although lesser extent increases partially offset decreased sales retail primarily due difficult competitive environment customer consolidations decreases operating income operating margin 2005 compared 2004 due primarily 277 million charge recorded fourth quarter 2005 associated adverse decision united states court appeals federal circuit previously disclosed legal matter refer note 18 consolidated financial statements discussion charge combined declines retail division result competitive environment mentioned well increased material transportation costs offset substantial increases divisions specifically international surgical divisions within medical devices supplies well within pharmaceutical increases divisions due strong sales growth mentioned combined favorable product mix also positively impacting segment reduced administrative expenses segment level well favorable foreign exchange rates 41 million engineered products services net revenue operating income operating margin engineered products services years ended september 29 2006 september 30 2005 2004 follows millions net revenue engineered products services increased 486 million 75 2006 compared 2005 increase net revenue largely driven flow control result strong project volume pacific region favorable market conditions asia north america well increased selling prices electrical metal products due higher costs copper lesser extent tyco fire building products experienced growth industrial commercial construction markets increased price realization increases revenue partially offset decrease infrastructure services result strategic decision selective bidding new projects resulted fewer profitable projects unfavorable changes foreign currency exchange rates 25 million operating income remained relatively level 2006 compared 2005 revenue growth flow control fire building products well favorable copper spreads electrical metal products higher margin projects infrastructure services contributed positively operating income 2006 offsetting growth 100 million charge relating voluntary replacement program certain sprinkler heads see note 16 consolidated financial statements incremental stock option charges 17 million required sfas 123r net revenue engineered products services increased 449 million 75 2005 compared 2004 increase net revenue largely driven increased selling prices electrical metal products due higher costs steel raw materials addition flow control lesser extent tyco fire building products experienced growth industrial commercial construction markets favorable changes foreign currency exchange rates 167 million also contributed increase revenue increases revenue partially offset decrease infrastructure services result strategic decision selective bidding new projects resulted fewer profitable projects increases operating income operating margin 2005 compared 2004 due primarily increased volume demand within industrial commercial markets along impact operational excellence initiatives cost reductions prior period restructuring programs favorable changes foreign currency exchange rates 21 million increases offset impact higher raw material costs additionally 2005 operating income includes 4 million net restructuring impairment divestiture charges compared 62 million net restructuring impairment divestiture charges 2004 corporate net revenue 29 million 25 million 2005 2004 respectively related tgn business sold third quarter 2005 corporate expense 400 million 255 million 482 million 2006 2005 2004 respectively corporate expense 2006 includes 162 million related proposed separation incremental stock option charges 32 million required sfas 123r corporate expense also includes income related settlement former executive 72 million well 48 million income resulting reduction estimated workers compensation liabilities primarily due favorable claims experience operating income 2005 2004 restated reflect additional compensation expense 24 million 85 million respectively related review prior period stock option grant practices equity plan compliance see note 1 consolidated financial statements corporate expense 2005 includes 301 million gain sale tgn business tgn operating losses 54 million addition corporate expenses 2005 included 50 million charge representing fines penalties company paid resolve matters raised sec investigation commenced june 2002 well 70 million charge estimated legacy contingencies related former executives employment corporate expense 2004 includes net charges 14 million consists charges impairment longlived assets 8 million net restructuring charges 6 million primarily attributable severance related relocation corporate headquarters expense also included 73 million operating losses related tgn interest income expense interest income 134 million 2006 compared 123 million 91 million 2005 2004 respectively interest expense 713 million 2006 compared 815 million 2005 956 million 2004 decrease interest expense 2006 primarily driven lower debt balances partially offset impact higher interest rates interest rate swap program compared 2005 decrease interest expense 2005 2004 primarily result lower debt balances partially offset impact higher interest rates interest rate swap program compared 2004 weightedaverage rates interest total debt outstanding 2006 2005 2004 59 56 52 respectively expense net 2006 expense net consisted primarily loss relating writedown certain investments net realizable value 2005 expense net included loss retirement debt company repurchased 1241 million principal amount outstanding 275 convertible senior debentures 1823 million 750 million principal amount outstanding 3125 convertible senior debentures 1147 million repurchases resulted 1013 million loss retirement debt including writeoff unamortized debt issuance costs also 2005 expense net included income 109 million related courtordered restitution award september 12 2002 indictments filed supreme court state new york mr l dennis kozlowski former chairman chief executive officer mr mark h swartz former chief financial officer director together defendants alleging enterprise corruption fraud conspiracy grand larceny falsifying certain business records crimes june 17 2005 jury convicted defendants 22 23 counts indictment september 19 2005 defendants sentenced new york state supreme court serve eight one third years twenty five years prison make joint restitution company amount 134 million resulting larceny convictions restitution award comprised 109 million previously expensed compensation made defendants reported expense net prior years 25 million related loan receivable one defendants remains reflected companys consolidated financial statements receivable defendants filed notice appeal convictions company considered collectibility restitution award assessed likelihood defendants success upon appeal larceny convictions successful could result change restitution order concluded receipt restitution award probable court ordered restitution payment made later one year date sentencing tyco initiated process collecting restitution payment owed subject pending appeal october 2006 company received payment 38 million relating restitution expects receive remaining amount second quarter 2007 2004 expense net consisted primarily loss retirement debt company repurchased 303 million 72 notes due 2008 cash 341 million resulted 38 million loss including writeoff unamortized debt issuance costs additionally company repurchased 517 million outstanding 275 convertible senior debentures 2008 put option total purchase price paid 750 million repurchase resulted 241 million loss retirement debt including writeoff unamortized debt issuance costs income taxes effective income tax rate 164 267 278 2006 2005 2004 respectively decrease effective tax rate 2005 2006 primarily result additional releases deferred tax asset valuation allowances result improved historical projected profitability certain jurisdictions 127 million favorable adjustment correct prior year tax reserves legacy tax matters decrease effective tax rate 2004 2005 primarily result release valuation allowances benefits realized related tgn divestiture well courtordered restitution award related certain former executives tax obligation lesser extent increased profitability operations jurisdictions lower tax rates decrease partially offset increase charges tax benefit available loss retirement debt asset impairments estimated settlement sec enforcement action valuation allowance deferred tax assets 1731 million 1871 million september 29 2006 september 30 2005 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets valuation allowance calculated accordance provisions sfas 109 accounting income taxes requires valuation allowance established maintained likely portion deferred tax assets realized calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel issues raised taxing authorities adequacy recorded amounts substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year company subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including united states internal revenue service irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies management assessed probable estimable recorded timing ultimate resolution matters uncertain company anticipates certain matters could resolved 2007 irs continues audit years 1997 2000 2004 company submitted irs proposed adjustments prior period us federal income tax returns resulting reduction taxable income previously filed 2006 irs accepted substantially proposed adjustments material impact financial condition results operations cash flows company 2006 company developed amendments us federal income tax returns additional periods basis previously accepted amendments company determined acceptance adjustments probable accordingly recorded consolidated financial statements adjustments material impact companys financial condition results operations cash flows except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries discontinued operations divestitures discontinued operations 2006 company consummated sale plastics adhesives ludlow coated products businesses well ae product business 975 million 6 million gross cash proceeds respectively working capital adjustments resulted net proceeds 882 million sale plastics adhesives ludlow coated products businesses 2006 company also recorded 30 million receivable due purchaser plastics adhesives ludlow coated products businesses based decline average resin prices fiscal year 2006 contemplated definitive sale agreement amount payable tyco later january 2007 net cash proceeds received sale ae products business 2 million include working capital provisions expected settled prior end calendar year 2006 businesses met held sale discontinued operations criteria included discontinued operations periods presented 2006 company recorded 261 million 26 million pretax loss sale discontinued operations related plastics adhesives ludlow coated products businesses ae products business respectively include 275 million 22 million respectively pretax impairment charges write businesses fair values less costs sell fair values used respective impairment assessments based existing market conditions terms conditions included expected included respective sale agreements 2006 company approved plan divest printed circuit group pcg business component electronics segment also entered definitive sale agreement sell pcg 226 million cash 2006 company recorded 4 million pretax loss sale discontinued operations pcg related divestiture pcg spain business well certain costs sell sale pcg completed october 2006 company expects record gain sale approximately 45 million see note 28 consolidated financial statements pcg business met held sale discontinued operations criteria included discontinued operations periods presented 2005 tyco announced intent explore divesture plastics adhesives ludlow coated products businesses well ae products business global manufacturer plastic film specialty tapes adhesives coated products garment hangers result consideration potential sale deteriorating operating results ae products business company performed interim assessment recoverability goodwill longlived assets determined book value certain longlived assets ae products business greater estimated fair value consequently recorded longlived asset impairment 40 million goodwill impairment charge 162 million fair value used impairment assessment based probabilityweighted expected future cash flow assets 2005 company divested 8 businesses reported discontinued operations within fire security engineered products services plastics adhesives business segment company reported losses sale additional impairments write carrying value assets estimated fair value less costs sell 60 million 2005 2004 company reported losses sale discontinued operations 132 million write carrying value assets fair value less cost sell additional 8 businesses 2005 divested businesses 2004 fair value used impairment assessment primarily based terms conditions included expected included sales agreements gains losses divestitures 2004 company divested twentyone liquidated four noncore businesses across business segments primarily within fire security 2004 company recorded net losses impairments divestitures 116 million continuing operations connection divestiture writedown fair value certain held sale businesses 2005 tyco agreed sell tgn undersea fiber optic telecommunication network sale consummated june 30 2005 part sale transaction tyco received gross cash proceeds 130 million purchaser assumed certain liabilities connection sale tyco recorded 301 million gain reflected gains losses divestitures consolidated statement income 2005 company presented operations tgn continuing operations criteria discontinued operations met 2005 company divested 10 businesses reported continuing operations fire security healthcare engineered products services company recorded net losses impairments divestitures 32 million including 3 million charge reflected cost sales connection divestiture liquidation businesses well writedown estimated fair value certain held sale businesses 2006 company divested 6 businesses reported continuing operations fire security healthcare company recorded net gains divestitures 46 million connection divestiture businesses less 2 million divestiture charges related writedown estimated fair value costs sell certain held sale businesses divested businesses 2006 2005 2004 fair value used impairment assessment primarily based terms conditions included expected included sales agreements acquisitions 2006 tycos healthcare segment acquired 90 ownership floreane medical implants sa floreane approximately 123 million cash net cash acquired 3 million floreane innovator development surgical support implants parietal urological gynecological surgery remaining outstanding shares would acquired become available company recorded 3 million inprocess research development charge conjunction acquisition 2006 tycos healthcare segment also acquired 50 ownership airox sa airox approximately 59 million net cash acquired 4 million airox leading european company home respiratory ventilation systems business tyco expects acquire remaining airox shares mandatory tender offer initial share purchase subsequent tender offer combined expected total approximately 108 million company also recorded 11 million inprocess research development charge conjunction acquisition charge relates development second generation technology yet obtained regulatory approval acquisition date inprocess research development considered technologically feasible alternative future use 2006 tycos healthcare segment also acquired confluent surgical inc confluent total purchase price expected 246 million september 29 2006 company paid approximately 200 million cash net cash acquired 12 million company also deposited approximately 34 million total purchase price escrow account related closing balance sheet adjustments certain indemnifications resolved fiscal 2008 company recorded 49 million inprocess research development charge conjunction acquisition related technology confluent developing numerous applications across several surgical disciplines yet received regulatory approval acquisition date inprocess research development considered technologically feasible alternative future use cash paid acquisitions 2006 totaled 31 million net 8 million cash acquired july 2005 tycos healthcare segment acquired vivant medical inc vivant developer microwave ablation medical technology transaction valued approximately 66 million cash approximately 35 million additional cash paid future based achieving certain milestones cash paid net cash acquired various acquisitions totaled 16 million 2004 company completed acquisition two businesses within engineered products services fire security aggregate cost 9 million acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows cumulative effect accounting change 2006 company adopted financial accounting standards board interpretation fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 accordingly company recognized asset retirement obligations 32 million property plant equipment net 10 million consolidated balance sheet september 29 2006 addition company recorded cumulative effect accounting change resulted 14 million aftertax loss 22 million pretax refer note 1 consolidated financial statements additional information fin 47 2005 company changed measurement date pension postretirement benefit plans september 30th august 31st effective october 1 2004 company believes onemonth change measurement date preferable change allows management adequate time evaluate report actuarial information companys consolidated financial statements accelerated reporting deadlines result change company recorded 21 million aftertax gain 28 million pretax cumulative effect accounting change refer note 19 consolidated financial statements additional information retirement plans change fiscal year reporting calendar alignment effective october 1 2004 tyco changed fiscal year end calendar fiscal year ending september 30 5253 week year ending last friday september quarterly period 13 weeks length addition certain companys subsidiaries consistently closed books one month prior companys fiscal period end subsidiaries report results period reported results consolidated company impact change material consolidated financial statements net income transition period related change 26 million reported within shareholders equity 2005 critical accounting policies estimates preparation consolidated financial statements conformity gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization method security monitoring systemstyco generally considers electronic security assets three asset pools internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program determination depreciable lives subscriber systems defined included property plant equipment amortizable lives customer contracts related customer relationships included intangible assets primarily based historical attrition rates thirdparty lifing studies useful life underlying tangible asset realizable value remaining useful lives assets could impacted changes customer attrition rates attrition rates rise tyco may required accelerate depreciation amortization respect tycos depreciation policy security monitoring systems installed residential commercial customer premises costs systems combined separate pools internally generated residential internally generated commercial account customers collectively subscriber systems generally depreciated ten fourteen years tyco concluded residential commercial account pools straightline method depreciation ten fourteenyear period continues appropriate given observed actual attrition data pools tyco purchases residential security monitoring contracts external network independent dealers operate adt dealer program purchase price customer contracts recorded intangible asset ie contracts related customer relationships intangible assets arising adt dealer program amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship tyco believes accelerated method presently best achieves matching objective described doubledeclining balance method based tenyear life first eight years estimated life customer relationships converting straightline method amortization remaining four years estimated relationship period actual attrition data regularly reviewed order assess continued applicability accelerated method amortization described attrition rates customers worldwide electronic security services business 138 148 151 trailing 12month basis 2006 2005 2004 respectively revenue recognitioncontract sales installation fire protection systems large security intruder systems undersea fiberoptic cable systems construction related projects recorded primarily percentageofcompletion method profits recognized contracts process based upon contracted revenue related estimated cost completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable estimates inaccurate risk revenue profits period may overstated understated product discounts granted based terms arrangements direct indirect markets participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable income taxesin determining income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future state federal international pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded significant valuation allowances intend maintain likely deferred tax assets realized income tax expense recorded future reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance would result additional income tax expense period could significant impact future earnings change valuation allowance occurs established connection acquisition adjustment may impact goodwill rather income tax provision changes tax laws rates could also affect recorded deferred tax assets liabilities future management aware changes would material effect companys results operations cash flows financial position addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary tax liabilities relate tax uncertainties existing date acquisition business adjustment tax liabilities result adjustment goodwill recorded date acquisition goodwill intangible assetsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering event occurs performing assessment management relies number factors including operating results business plans economic projections anticipated future cash flows transactions market place data inherent uncertainties related factors judgment applying analysis goodwill impairment since judgment involved performing goodwill valuation analyses risk carrying value goodwill may overstated understated elected make first day fourth quarter annual impairment assessment date reporting units testing goodwill impairment company follows guidance prescribed sfas 142 goodwill intangible assets first company performs step goodwill impairment test identify potential impairment company compares fair value reporting unit carrying amount carrying amount reporting unit exceeds fair value goodwill considered impaired step ii goodwill impairment test performed measure amount impairment loss step ii goodwill impairment test company compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess value reporting unit amounts assigned assets liabilities implied fair value goodwill disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit market capitalization declines may result perform goodwill impairment first step valuation analysis reporting units prior required annual assessment types events resulting analysis could result goodwill impairment charges future goodwill impairments related continuing operations 2006 2005 2004 goodwill impairments included loss discontinued operations 2005 totaled 162 million longlived assetsassets held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events circumstances indicate carrying amount asset may recoverable purposes evaluating recoverability longlived assets held used recoverability test performed based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk impairments longlived assets disposed recorded based upon fair value applicable assets since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 225 million consider current expected asset allocations pension plans well historical expected longterm rates return types plan assets determining expected longterm return plan assets 50 basis point decrease expected longterm return plan assets would increase pension expense approximately 20 million liquidity capital resources sources cash flow operating activities use portion cash operations years ended september 29 2006 september 30 2005 2004 restated follows millions 1includes depreciation expense 1415 million 1431 million 1407 million 2006 2005 2004 respectively amortization intangible assets 650 million 653 million 691 million 2006 2005 2004 respectively 2includes addback losses retirement debt 2 million 1013 million 284 million 2006 2005 2004 respectively 3includes net proceeds 55 million 91 million 140 million received saledisposition property plant equipment 2006 2005 2004 respectively net change total working capital cash decrease 1069 million 2006 components change set forth consolidated statements cash flows change working capital included increase 680 million inventories 332 million decrease accrued liabilities primarily related decreased accrued legal audit fees partially offset increase annual employee bonus compensation provision losses accounts receivable inventory decreased 232 million year ended september 30 2005 174 million current period decrease driven improvements across segments particularly due improved accounts receivable aging overall improved credit profile customer base better collections consequently allowance doubtful accounts decreased 421 million september 30 2005 336 million september 29 2006 cash flows operating activities cash flow items segment year ended september 29 2006 follows millions 2006 company completed sale plastics adhesives segment previously announced 2005 plastics adhesives ludlow coated products businesses sold net proceeds 882 million ae products group sold 2 million net cash proceeds 2006 made additional cash outflows approximately 450 million resolution certain previously accrued legal matters including patent dispute healthcare segment cash payment 50 million settle previously disclosed sec enforcement action continue use excess cash repurchase shares 2006 repaid terminated one synthetic lease facilities total cash payment 203 million reducing principal debt minority interest 191 million 10 million respectively also utilized 10 billion cash 700 million credit facility borrowings scheduled repayments public notes 2006 paid 413 million related acquisitions businesses net cash acquired including net 200 million net 123 million related previously discussed acquisitions confluent floreane respectively within tycos healthcare segment continue fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards capital spending increased 16 billion 2006 14 billion 2005 level capital expenditures 2007 expected exceed spending levels 2006 also expected exceed depreciation october 2006 company exercised right buy five cable laying sea vessels previously included offbalance sheet leasing arrangement 280 million cash paid included capital expenditures 2007 income taxes paid net refunds year 862 million 2006 repurchased 95 million common shares 25 billion completing 15 billion share repurchase program previously approved board directors july 2005 continuing new 20 billion share repurchase program approved board directors may 2006 2005 2004 tyco paid 373 million 328 million 254 million cash respectively acquire approximately 401000 364000 302000 customer contracts electronic security services adt dealer program 2006 2005 2004 paid 68 million 171 million 266 million respectively cash related restructuring activities amounts include 7 million 16 million 43 million respectively reported discontinued operations see note 4 consolidated financial statements information regarding restructuring activities subsequent year end launched 600 million companywide restructuring program expect incur approximately 500 million charges 2007 expect total cash expenditures program approximately 450 million 250 million expected 2007 2006 2005 2004 paid 101 million 48 million 107 million respectively cash purchase accounting holdback liabilities total cash paid 82 million 1 million 3 million respectively reported discontinued operations holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet contingencies september 29 2006 holdback liabilities consolidated balance sheets 112 million 23 million included accrued current liabilities 89 million included liabilities september 29 2006 40 million acquisition liabilities remained consolidated balance sheets 14 million included accrued current liabilities 26 million included liabilities previously mentioned january 2006 company announced board directors approved plan separate company three separate publicly traded companies connection proposed separation paid 96 million separation costs 2006 expect 2007 incur remaining cash outflows related proposed separation largely attributable tax restructuring debt refinancing professional services employeerelated costs october 2006 company completed sale pcg business part electronics segment 226 million expects record gain sale approximately 45 million capitalization shareholders equity 354 billion 1778 per share september 29 2006 compared 325 billion 1614 per share september 30 2005 increase due primarily net income 37 billion exchange convertible debt due 2018 12 billion favorable changes foreign currency exchange rates 619 million increases partially offset repurchase common shares subsidiary 25 billion previously mentioned dividends declared 807 million september 29 2006 total debt decreased 23 billion 102 billion compared 125 billion september 30 2005 total debt percentage total capitalization total debt shareholders equity 22 september 29 2006 28 september 30 2005 debt levels significantly decreased compared september 30 2005 primarily due redemption 12 billion series 275 convertible senior debentures due 2018 2008 put option scheduled 10 billion repayment 6375 public notes also mentioned repaid terminated one synthetic lease facilities reducing principal debt 203 million cash balance decreased 29 billion september 29 2006 compared 32 billion september 30 2005 decrease cash primarily due repurchase shares previouslyannounced programs scheduled debt repayments referred capital expenditures lesser extent dividend payments majority decreases partially offset cash flows operations tigsa holds 10 billion 5year revolving credit facility expiring december 16 2009 tigsa also holds 15 billion 3year revolving bank credit facility amended 2006 extend maturity date december 22 2006 december 21 2007 additionally tigsa holds 500 million 3year unsecured letter credit facility expiring june 15 2007 september 29 2006 letters credit 475 million issued 500 million facility 25 million remains available issuance also 2006 tigsa borrowed 700 million 15 billion 3year revolving bank credit facility entire proceeds used repay 58 public notes due 2006 maturity august 1 2006 amounts borrowed credit facilities september 29 2006 companys bank credit agreements contain number financial covenants limit ratio debt earnings interest income taxes depreciation amortization minimum levels net worth limits incurrence liens companys outstanding indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants presently considered restrictive companys operations company currently compliance debt covenants previously discussed may 2006 board directors approved new 20 billion share repurchase program pursuant new program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved 10b51 trading plan accordance applicable regulations rule 10b51 trading plan permits company repurchase shares periods company would normally active trading market due insider trading laws provided plan adopted company aware material nonpublic information rule 10b51 trading plan would unable repurchase shares predetermined price per share additionally maximum number shares may purchase day would governed rule 10b18 december 9 2004 board directors approved increase quarterly dividend common shares 00125 010 per share result dividend payments 806 million 2006 following proposed separation expect three companies dividendpaying companies also following proposed separation anticipated three companies capitalized provide financial flexibility take advantage future growth opportunities expected financial policies balance sheet credit metrics commensurate solid investment grade ratings tyco continue follow financial policies consistent current credit ratings planned transactions take place companys existing debt expected allocated among three companies refinanced existing potential liabilities cannot associated particular entity allocated appropriately businesses sharing agreement among three companies established following table details debt ratings september 29 2006 september 30 2005 security ratings set forth recommendation buy sell hold securities may subject revision withdrawal assigning rating organization rating evaluated independently rating commitments contingencies contractual obligations contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases obligations september 29 2006 follows millions 1excludes interest 2purchase obligations consist commitments purchases good services 3other longterm liabilities primarily consist following pension postretirement costs income taxes warranty environmental liabilities excluded table unable estimate timing payment items due inherent uncertainties obligations type minimum required contributions pension plans expected approximately 151 million 2007 expect pay 26 million 2007 related postretirement benefit plans september 29 2006 company outstanding letters credit bank guarantees amount 13 billion september 29 2006 tigsa unsecured credit facilities 15 billion due december 21 2007 10 billion due december 16 2009 18 billion undrawn available see note 15 consolidated financial statements addition certain companys operating subsidiaries uncommitted overdraft similar types facilities total 624 million 606 million undrawn available september 29 2006 facilities expire various dates year 2013 renewable established primarily within international operations september 29 2006 company contingent purchase price liability 80 million related 2001 acquisition comnet electronics represents maximum amount payable former shareholders comnet construction installation communications system state florida finished state approved system based guidelines set forth contract liability contingency recorded tycos consolidated financial statements outcome contingency cannot reasonably determined june 2004 tigsa entered 500 million 3year unsecured letter credit facility due june 15 2007 facility provides issuance letters credit supported related line credit facility tigsa may borrow line credit agreement reimburse bank obligations respect letters credit issued facility covenants facility substantially similar tigsas bank credit facilities entered december 2003 indenture related tigsas 6 notes due 2013 issued november 2003 tigsa would pay interest outstanding borrowings variable interest rate based banks base rate eurodollar rate defined upon occurrence certain credit events interest rate outstanding borrowings becomes fixed issuance letters credit facility 2004 enabled company release approximately 480 million restricted cash investments september 29 2006 letters credit 475 million issued 500 million credit facility 25 million remains available issuance amounts borrowed credit facility september 29 2006 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows legal matters class actions detailed discussion contingencies related tycos securities class actions shareholder derivative litigation erisa litigation investigation litigation former senior management see item 3 legal proceedings generally obligated indemnify directors officers former directors officers named defendants matters extent required bermuda law addition insurance carriers may decline coverage may insufficient cover expenses liability matters may time seek engage plaintiffs counsel settlement discussions unable time estimate ultimate liability matters may possible required pay judgments settlements incur expenses excess insurance coverage aggregate amounts would material adverse effect financial position results operations cash flows time possible estimate amount loss probable losses might result adverse resolution matters investigations detailed discussion contingencies related governmental investigations related tyco see item 3 legal proceedingssubpoenas document requests governmental entities cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities turn could negatively impact business nongovernmental customers suffer penalties could material adverse effect business possible estimate amount loss range possible loss might result adverse resolution matters april 17 2006 company reached settlement closes sec enforcement divisions investigation company regarding certain accounting practices actions former tyco officers april 25 2006 united states district court southern district new york entered final judgment company ordered pay 1 disgorgement fine 50 million third quarter 2006 company satisfied judgment accrued 2005 intellectual property antitrust litigation company party number patent infringement antitrust actions may require company pay damage awards tyco assessed status matters recorded liabilities related certain matters appropriate detailed discussion contingencies related tycos intellectual property antitrust litigation see item 3 legal proceedingsintellectual property antitrust litigation environmental matters detailed discussion contingencies related tycos environmental matters see item 1 businessenvironmental matters asbestos matters tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation company observed increase number lawsuits past several years majority cases filed subsidiaries healthcare engineered products services limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property majority cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore companys experience large percentage claims never substantiated dismissed courts company continue vigorously defend lawsuits company suffered adverse verdict trial court proceeding related asbestos claims appropriate company settles claims however total amount paid year settle defend asbestos claims immaterial september 29 2006 approximately 15500 asbestos liability cases pending company subsidiaries company estimates pending asbestos claims incurred reported well related insurance indemnification recoveries companys estimate liability pending future claims based claim experience past five years covers claims expected filed next seven years company believes adequate amounts recorded related matters possible time determine certainty ultimate outcome asbestosrelated proceedings company believes final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect companys financial position results operations cash flows income taxes tyco subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies management assessed probable estimable recorded timing ultimate resolution matters uncertain company anticipates certain matters could resolved 2007 compliance matters tyco received responded various allegations certain improper payments made tyco subsidiaries recent years 2005 tyco reported us department justice doj sec investigative steps remedial measures taken response allegations tyco also informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance foreign corrupt practices act would continue make periodic progress reports agencies would present factual findings upon conclusion baseline review company continue communications doj sec provide updates baseline review conducted outside counsel including appropriate briefings concerning additional instances potential improper payments identified company course ongoing compliance activities time tyco cannot predict outcome matters reported regulatory law enforcement authorities therefore cannot estimate range potential loss extent risk may result adverse resolution matters company party contract dispute arising earth techs contract city phoenix arizona expansion citys 91st avenue waste water treatment plant earth tech city phoenix filed lawsuits local county superior court alleging party breached contract time tyco cannot predict outcome matter therefore cannot estimate range potential loss extent risk may result adverse resolution matter detailed discussion contingencies related tycos legal matters see note 18 consolidated financial statements company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows backlog september 29 2006 backlog unfilled orders 142 billion compared backlog 135 billion september 30 2005 expect approximately 77 backlog september 29 2006 filled 2007 backlog reportable industry segment september 29 2006 september 30 2005 follows millions within fire security backlog increased primarily result strong bookings north america europe backlog fire security includes recurring revenueinforce represents twelve months fees monitoring maintenance services contract security business amount recurring revenueinforce september 29 2006 september 30 2005 365 billion 355 billion respectively backlog within engineered products services increased primarily result increased orders flow control within electronics backlog increased result increased bookings key end markets backlog healthcare represents unfilled orders nature business normally shipped shortly purchase orders received view backlog healthcare significant indicator level future sales activity offbalance sheet arrangements sale accounts receivable tyco utilized several programs sold participating interests accounts receivable investors turn purchased received ownership security interests receivables transactions qualified true sales sale proceeds less face amount accounts receivable sold discount face amount included selling general administrative expenses consolidated statements income discount aggregated 18 million 31 weightedaverage balance receivables outstanding 2004 company reduced outstanding balances accounts receivable programs 929 million 812 million related corporate accounts receivable programs terminated 2005 amounts utilized programs september 30 2004 date termination remaining reduction 117 million related certain companys international businesses selling fewer accounts receivable shortterm financing mechanism aggregate amount outstanding companys remaining international accounts receivable programs 75 million 80 million september 29 2006 september 30 2005 respectively guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2007 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see item businessenvironmental matters discussion liabilities company offbalance sheet leasing arrangement five cable laying sea vessels upon expiration lease october 2006 subsidiary company option buy vessels approximately 280 million return vessels lessor residual guarantee pay shortfall sales proceeds lessor third party amount exceed 235 million september 29 2006 company expected obligation 54 million recorded accompanying consolidated balance sheets based estimate fair value vessels performed management assistance thirdparty valuation october 2006 company exercised option buy vessels 280 million see note 28 consolidated financial statements normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company records estimated product warranty costs time sale information estimated product warranty see notes 1 16 consolidated financial statements 2001 engineered products services initiated voluntary replacement program vrp associated acquisition central sprinkler vrp relates replacement certain model gb fire sprinkler heads originally manufactured central sprinkler prior tycos acquisition program sprinkler heads replaced 57 year period free charge property owners third quarter 2006 company completed comprehensive review reported claims recent claim rates cost trends assessed future program company determined additional liability necessary order satisfy companys obligation vrp result company recorded 100 million charge reflected cost sales settlements 2006 include cash expenditures 37 million related vrp accounting pronouncements recently adopted accounting pronouncementseffective october 1 2005 tyco adopted statement financial accounting standards sfas 123r sharebased payment requires compensation costs related sharebased transactions including employee stock options recognized financial statements based fair value sfas 123r revises sfas 123 amended accounting stockbased compensation supersedes accounting principles board apb opinion 25 accounting stock issued employees tyco adopted sfas 123r using modified prospective application transition method compensation cost recognized unvested portion sharebased payments granted prior october 1 2005 sharebased payments granted subsequent september 30 2005 related vesting period prior october 1 2005 company applied intrinsic value based method prescribed apb opinion 25 accounting employee stockbased compensation prior period results restated due adoption sfas 123r companys results continuing operations 2006 include incremental sharebased compensation expense totaling 161 million basic diluted earnings per share continuing operations impacted 006 005 respectively 2006 november 10 2005 financial accounting standards board fasb issued fasb staff position fas 123r3 transition election related accounting tax effects sharebased payment awards company elected adopt alternative transition method provided fasb staff position calculating tax effects stockbased compensation pursuant sfas 123r fourth quarter fiscal 2006 alternative transition method includes simplified methods establish beginning balance additional paidin capital pool apic pool related tax effects employee stockbased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee stockbased compensation awards fully vested outstanding upon adoption sfas 123r adoption material impact results operations financial condition company adopted fasb interpretation fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fourth quarter 2006 interpretation clarifies timing liability recognition legal obligations associated asset retirement timing method settling obligation conditional future event may within control entity fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation interpretation requires conditional asset retirement obligations along associated capitalized asset retirement costs reported fair values upon adoption company recognized liability 32 million asset retirement obligations increase 10 million carrying amount related assets initial recognition resulted cumulative effect accounting change 22 million pretax reflecting accumulated depreciation accretion would recognized prior periods provisions fin 47 effect time certain obligations relating handling disposal asbestos recorded due fact fair value cannot reasonably estimated company sufficient information range time obligation may settled undiscounted cash flows relating asset retirement obligations recognized financial statements approximately 8 million company continue monitor legal asset retirement obligations recognize liability period sufficient information becomes available reasonably estimate fair value june 2005 fasb issued staff position fsp 1431 accounting electronic equipment waste obligations provides guidance accounting historical waste obligations associated european union waste electrical electronic equipment directive weee directive waste management obligation historical equipment products put market prior august 13 2005 remains commercial user equipment replaced time waste management obligation may transferred producer replacement equipment fsp 1431 effective first reporting period ending june 8 2005 date adoption weee directive law applicable european union member country financial statement impact depends heavily respective laws regulations adopted eu member countries implementation guidance type recycling programs systems established company evaluated effects fsp 1431 determined material impact companys results operations financial position cash flows recently issued accounting pronouncementsin september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r sfas 158 requires employers recognize funded status defined benefit pension postretirement benefit plans net asset liability balance sheet recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized component net periodic benefit cost sfas 158 companies required measure plan assets benefit obligations fiscal year end company presently uses measurement date august 31st sfas 158 also requires additional disclosure notes financial statements recognition provisions sfas 158 effective fiscal 2007 measurement date provisions become effective fiscal 2009 company currently assessing impact sfas 158 consolidated financial statements based funded status defined benefit postretirement plans september 29 2006 company estimates would recognize net 356 million liability reduction shareholders equity ultimate amounts recorded highly dependent various estimates assumptions including among things discount rate selected future compensation levels performance plan assets changes assumptions could increase decrease estimated impact implementing sfas 158 september 2006 fasb issued sfas 157 fair value measurements enhances existing guidance measuring assets liabilities fair value sfas 157 defines fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective tyco beginning september 29 2008 company currently assessing impact sfas 157 results operations financial position cash flows september 2006 sec issued staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statement sab 108 requires companies utilize dualapproach assessing quantitative effects financial statement misstatements dual approach includes income statement focused balance sheet focused assessment sab 108 applicable tycos fiscal year ending september 28 2007 company currently assessing impact adoption sab 108 expect significant impact financial position results operations june 2006 fasb issued fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns fin 48 effective tyco first quarter fiscal 2008 company currently assessing impact fin 48 results operations financial position cash flows forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed sec tycos communications discussions investors analysts normal course business meetings web casts phone calls conference calls regarding expectations respect sales earnings cash flows operating efficiencies product expansion backlog consummation benefits acquisitions divestitures proposed separation matters well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performance achievements factors might affect forwardlooking statements include among things •overall economic business conditions •the demand tycos goods services •competitive factors industries tyco competes •changes tax requirements including tax rate changes new tax laws revised tax law interpretations •results consequences tycos internal investigation governmental investigations concerning companys governance management internal controls operations •the outcome litigation governmental proceedings result actions taken former senior corporate management •effect income tax audit settlements •the ratings debt ability repay refinance outstanding indebtedness matures •our ability operate within limitations imposed financing arrangements maintain credit ratings •interest rate fluctuations changes borrowing costs •other capital market conditions including foreign currency rate fluctuations •availability fluctuations prices key raw materials including steel •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability achieve cost savings connection companys strategic restructuring six sigma initiatives •potential impairment goodwill andor longlived assets •the impact fluctuations price tyco common shares •changes us nonus government regulations general particular changes rules regulations regarding safety efficacy sales promotions insurance reimbursement pricing tycos disposable medical products specialty products well changes rules regulations regarding retirement disposal certain electrical products •the possible effects tyco future legislation us may limit eliminate potential us tax benefits resulting tycos incorporation bermuda deny us government contracts tyco based upon incorporation bermuda •the potential distraction costs associated negative publicity relating actions former senior corporate management additionally several factors assumptions could affect companys plan separate three independent entities future results cause actual results differ materially expressed forward looking statements •increased demands companys management team result proposed separation •changes business political economic conditions us countries company currently business •changes governmental regulations policies actions regulatory bodies •changes operating performance •required changes existing financings changes credit ratings including may result proposed separation •the companys ability obtain financing necessary consummate proposed separation •the companys ability satisfy certain conditions precedent including final approval tyco board directors receipt certain tax rulings necessary opinions counsel filing effectiveness registration statements sec item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information introduction consolidated financial statements include consolidated results tyco international ltd company organized laws bermuda subsidiaries hereinafter collectively referred company tyco prepared united states dollars accordance accounting principles generally accepted united states gaap connection separation tyco healthcare changed name covidien ltd covidien tyco electronics historically accounted 55 revenues realigned management segment reporting structure report financial operating information following five segments effective march 31 2007 •adt worldwide designs sells installs services monitors electronic security systems residential commercial industrial governmental customers •fire protection services designs sells installs services fire detection fire suppression systems commercial industrial governmental customers •flow control designs manufactures sells services valves pipes fittings valve automation heat tracing products water wastewater markets oil gas energy markets along general process industries •safety products designs manufactures sells fire protection security life safety products including fire suppression products breathing apparatus intrusion security access control video management systems addition safety products manufactures products installed serviced adt worldwide fire protection services •electrical metal products designs manufactures sells steel tubing pipe products well cable products including prewired armored cable flexible conduit products commercial construction also provide general corporate services segments costs reported corporate fourth quarter 2007 infrastructure services previously reported part corporate met held sale criteria included discontinued operations periods presented references segment data companys continuing operations prior period amounts reclassified exclude results discontinued operations overview effective june 29 2007 tyco completed spinoffs covidien tyco electronics formerly healthcare electronics businesses respectively separate publicly traded companies separation form distribution tyco shareholders distribution made june 29 2007 tyco shareholders record june 18 2007 record date tyco shareholder received 025 common share covidien tyco electronics tyco common share held record date tyco shareholders received cash lieu fractional shares amounts less one covidien tyco electronics common share distribution structured taxfree tyco shareholders except extent cash received lieu fractional shares result distribution operations tycos former healthcare electronics businesses classified discontinued operations periods presented additionally distribution date company approved board directors effected reverse stock split tycos common shares split ratio one four shareholder approval reverse stock split obtained march 8 2007 special general meeting shareholders share per share data periods presented adjusted reflect reverse stock split continue incur separation costs related debt refinancing tax restructuring professional services employeerelated costs currently estimate total income statement charges approximately 14 billion aftertax much reflected discontinued operations 2007 2006 company incurred pretax costs related separation including 647 million loss early extinguishment debt 2007 1083 million 169 million respectively amount 105 million 49 million included separation costs 259 million 0 million related loss early extinguishment debt included expense net 719 million 120 million included discontinued operations respectively remaining charges expected incurred first six months fiscal 2008 additionally 2007 includes tax charges related separation primarily writeoff deferred tax assets longer realizable 183 million 95 million included income taxes 88 million included discontinued operations april 27 2007 connection separation tyco certain subsidiaries issuers corporate debt commenced tender offers purchase cash substantially outstanding us dollar denominated public debt additionally april 30 2007 tyco international group sa whollyowned subsidiary company tigsa commenced tender offers purchase cash outstanding euro pound sterling denominated public debt connection debt tender offers tyco incurred pretax charge early extinguishment debt approximately 647 million tax benefit available connection separation third quarter 2007 reorganized new management segment reporting structure part organizational changes assessed new reporting units assigned goodwill new reporting units tested goodwill impairment result recognized goodwill impairment 46 million 2007 adt worldwide segment remain committed returning excess cash shareholders september 2007 tycos board directors approved new 10 billion share repurchase program repurchased 13 million common shares 56 million 2007 also completed 20 billion share repurchase program approved board directors may 2006 additionally 2006 completed 15 billion share repurchase program approved board directors july 2005 2007 paid dividends 791 million shareholders september 13 2007 tycos board directors approved quarterly dividend companys common shares 015 per share payable november 1 2007 shareholders record tyco international ltd post separation october 1 2007 sold aquas industriales de jose ca aij joint venture majority owned infrastructure services 42 million net cash proceeds pretax gain 19 million recorded aij met held sale discontinued operations criteria included discontinued operations periods presented continuing assess strategic fit various businesses considering additional divestitures businesses align long term vision tyco explore number strategic alternatives underperforming nonstrategic businesses including possible divestiture july 2007 board directors approved divestiture infrastructure services previously reported part corporate infrastructure services total net revenue 13 billion operating income 53 million 2007 infrastructure services met held sale criteria fourth quarter 2007 included discontinued operations periods presented improve operating efficiency first quarter 2007 launched restructuring program across segments including corporate organization streamline businesses reduce operational footprint expect incur charges related program approximately 350 million 400 million end 2008 2007 incurred charges 204 million 7 million recorded cost sales utilized cash 70 million related program believe restructuring program strengthen competitive position long term class action settlement may 14 2007 tyco entered memorandum understanding plaintiffs counsel connection settlement 32 purported securities class action lawsuits terms memorandum understanding plaintiffs agreed release claims tyco settling defendants ten individuals consideration payment 2975 billion tyco certified class parties memorandum understanding applied court approval settlement agreement july 13 2007 u district court concord new hampshire granted preliminary approval settlement november 2 2007 final fairness hearing class settlement held court indicated would approve settlement stated formal ruling would issued weeks settlement agreement receive final court approval memorandum understanding null void december 28 2007 class participants must file proofs claim demonstrating right recovery class settlement deadline deciding participate class settlement september 28 2007 date tyco received optout notices individuals entities totaling approximately 4 shares owned class members individuals entities may pursue claims separately tyco judgments resulting claims would reduce settlement amount one entity franklin mutual advisers llc filed complaint tyco september 24 2007 action styled franklin mutual advisers llc v tyco international ltd united states district court district new jersey alleging violations section 11 securities act 1933 15 usc sec 77b section 10b securities exchange act 1934 15 usc sec 78b rule 10b5 promulgated thereunder section 18 securities exchange act 1934 15 usc sec 78k connection plaintiffs purchases sales tyco securities june 4 2001 april 30 2002 plaintiffs seek unspecified compensatory damages reasonable attorneys fees costs tyco requested action transferred united states district court district new hampshire tyco intends vigorously defend litigation possible time predict final outcome estimate amount loss range possible loss might result adverse resolution franklin matter unasserted claims individuals optedout terms separation distribution agreement entered connection separation tyco covidien tyco electronics jointly severally liable full amount class action settlement judgments resulting optout claims additionally separation distribution agreement companies share liability related escrow accounts tyco assuming 27 covidien 42 tyco electronics 31 settlement amount tyco incurred charge expense tax benefit available current liability 2975 billion 2007 company also recovered expects recover certain costs insurers company recorded 113 million recoveries connection class action settlement consolidated statements operations tyco borrowed unsecured bridge credit facilities fund liability placed proceeds escrow benefit class connection separation covidien tyco electronics assumed portion related borrowing escrow accounts earn interest payable class interest also accrued class action settlement liability based separation distribution agreement september 28 2007 tyco receivable covidien tyco electronics portion liability 1257 million 927 million respectively payable covidien tyco electronics interest escrow accounts receivables payables pertain class action settlement related escrow accounts counterparty presented net consolidated balance sheet tycos portion liability 808 million additionally tyco paid 73 million recorded payables 9 million september 28 2007 offset shareholders equity amounts due covidien tyco electronics portion insurance recovery operating results net revenue net income years ended september 28 2007 september 29 2006 september 30 2005 follows millions net revenue increased 14 billion 83 2007 compared 2006 result growth segments increase net revenue largely driven flow control result volume growth continued strength industrial end markets addition adt worldwide strong growth asia latin america well growth recurring revenue base contracting revenue north america fire protection services experienced continued growth electronic mechanical contracting foreign currency exchange rates positively affected 2007 586 million net impact acquisitions divestitures negatively affected 2007 48 million operating income decreased 31 billion 2007 operating income primarily impacted class action settlement charge net 2862 billion revenue growth segments partially offset lower margins electrical metal products primarily due unfavorable spreads steel copper products additionally operating income impacted costs incurred relating separation restructuring program announced november 2006 separation related costs impacted operating income 105 million 2007 49 million 2006 restructuring asset impairment charges net impacted operating income 217 million 2007 also impacting operating income goodwill impairment charge 46 million due reorganization new management segment reporting structure divestiture charges impacted 2007 4 million restructuring asset impairment divestiture charges net 15 million 2006 net revenue increased 671 million 40 2006 compared 2005 result growth four segments increase net revenue largely driven flow control result volume growth strength industrial end markets addition revenue growth favorably impacted increased selling prices armored cable products due higher costs copper within electrical metal products 2006 foreign currency exchange rates negatively affected 2006 85 million net impact acquisitions divestitures negatively affected period 118 million operating income increased 179 million 150 2006 operating margin increased 08 percentage points 79 increase operating income driven growth three segments well reduced operating expenses corporate partially offset lower margins adt worldwide safety products operating income 2006 unfavorably affected 100 million charge relating preexisting voluntary replacement program certain sprinkler heads incremental stock option charges 84 million required sfas 123r sharebased payments separation related costs 49 million net restructuring asset impairment divestiture charges 15 million operating income 2006 also included 72 million income related extinguishment certain payment obligations split dollar life insurance policy rabbi trust pursuant settlement mr kozlowski former chief executive officer 48 million income resulting reduction estimated workers compensation liabilities primarily due favorable claims experience operating income 2005 negatively affected net restructuring asset impairment divestiture charges 40 million addition 2005 unfavorably affected charge 50 million related sec enforcement action 70 million charge estimated contingencies related contested legal proceedings seeking enforce retention agreements five former executives results geographic area net revenue geographic area years ended september 28 2007 september 29 2006 september 30 2005 follows millions 1revenue attributed individual countries based reporting entity records transaction segment results segment discussions follow describe significant factors contributing changes results realigned segments included continuing operations adt worldwide net revenue operating income operating margin adt worldwide years ended september 28 2007 september 29 2006 september 30 2005 follows millions net revenue geographic area adt worldwide years ended september 28 2007 september 29 2006 september 30 2005 follows millions net revenue adt worldwide increased 61 2007 product revenue 74 service revenue 55 compared 2006 revenue product sales includes sales installation electronic security systems service revenue comprised electronic security services maintenance including monitoring burglar alarms fire alarms life safety systems well services related retailer antitheft systems 28 revenue growth north america resulted largely increase commercial installations primarily retailer market well increase recurring revenue base revenue emea region grew 87 primarily driven favorable changes foreign currency exchange rates 145 revenue growth rest world geographies primarily driven strong growth asia latin america lesser extent favorable changes foreign currency exchange rates overall net revenue favorably affected 213 million due changes foreign currency exchange rates net impact acquisitions divestitures unfavorably impacted net revenue 3 million north america profitable geographic area adt worldwide 2007 2006 operating margin 171 166 respectively adt emea profitable 2007 2006 operating margin 31 63 respectively strong future prospects performing level believe attainable part long term program improve profitability adt emea several specific actions started including appointment new general management initiation estimated 90 million restructuring program improve field efficiency operations consolidate certain administrative functions incurred charges 69 million related restructuring program 2007 negatively impacted operating margins attrition rates customers adt worldwide business continued improve declining average 123 trailing 12month basis 2007 compared 142 2006 150 2005 result ongoing review attrition rates pertinent factors affecting related patterns revenues expected earned management reassessed amortization depreciation methods lives companyowned security systems dealer intangible assets made adjustments 2007 see note 1 operating income 842 million 2007 decreased 65 million 907 million 2006 factors positively impacted operating income included increased volume operational efficiencies reductions depreciation amortization expense 26 million decrease depreciation amortization expense resulted changes depreciation method estimated useful lives pooled subscriber assets changes estimated useful lives dealer intangible assets increases offset goodwill impairment charge 46 million due reorganization management segment reporting structure well increased investment selling marketing americas asia addition results 2007 included net restructuring asset impairment charges 83 million primarily related actions improve field efficiencies consolidating certain administrative functions europe impairment certain indefinite lived intangible assets net restructuring asset impairment divestiture charges 5 million 2006 fourth quarter 2007 adt worldwide began converting certain north american customers digital backup services advance february 2008 analogtodigital signal transition wireless cellular carriers given companys experience conversion fourth quarter estimate cost conversion negatively impact operating income approximate 40 million 50 million first half 2008 net revenue adt worldwide increased 14 2006 product revenue 30 compared 2005 revenue grew 106 rest world geographies driven primarily strong growth asia latin america revenue north america slightly revenue emea region declined due continued high attrition legacy account base continental europe net revenue unfavorably affected 35 million due changes foreign currency exchange rates net impact acquisitions divestitures unfavorably impacted net revenue 19 million operating income decreased 45 million 2006 2005 results 2006 included net restructuring asset impairment divestiture charges 5 million compared net restructuring asset impairment divestiture charges 13 million 2005 operating income 2006 negatively affected slightly lower gross margin due largely margin pressures commercial contracting coupled slightly higher mix lowermargin contracting revenue effects partially offset cost savings related operational excellence initiatives addition 2006 unfavorably affected incremental stock option charges 14 million required sfas 123r fire protection services net revenue operating income operating margin fire protection services years ended september 28 2007 september 29 2006 september 30 2005 follows millions net revenue fire protection services increased 225 million 69 2007 compared 2006 driven largely 99 increase revenue product sales revenue product sales includes sales installation fire protection systems service revenue comprises inspection maintenance service monitoring fire detection suppression systems increase largely result strong growth regions benefited continuing strength commercial construction activity focused endmarkets changes foreign currency exchange rates favorable impact 99 million divestitures negative impact 30 million operating income increased 14 million 2007 compared 2006 resulting largely increased volume improved margins primarily north america results 2007 included net restructuring charges 33 million 1 million included cost sales primarily related actions improve field efficiencies consolidate certain administrative functions europe compared charges 2006 net revenue fire protection services increased 99 million 31 2006 compared 2005 driven largely 63 increase revenue product sales revenue increase occurred north america experienced strong bookings increasing backlog throughout past two years revenue unfavorably affected 39 million related divestitures 22 million due changes foreign currency exchange rates operating income increased 37 million 2006 2005 higher revenue slightly improved gross margin continued control general administrative expenses contributed improved operating results operating income 2006 also favorably affected cost savings related operational excellence initiatives prior year restructuring programs addition 2006 unfavorably affected incremental stock option charges 8 million required sfas 123r flow control net revenue operating income operating margin flow control years ended september 28 2007 september 29 2006 september 30 2005 follows millions net revenue flow control increased 631 million 201 2007 compared 2006 increase net revenue largely driven volume growth continued strength industrial end markets significant project growth energy water sectors growth sectors strong across geographical regions particular asiapacific europe favorable changes foreign currency exchange rates positively impacted revenue 197 million net impact acquisitions divestitures unfavorably impacted net revenue 16 million increase operating income 101 million 284 2007 compared 2006 primarily due revenue growth well improved utilization rates increase operating income 2007 partially offset net restructuring asset impairment charges 25 million includes 6 million cost sales 3 million divestiture charges 1 million separation costs net revenue flow control increased 329 million 117 2006 compared 2005 increase net revenue largely driven volume growth strength industrial end markets substantial project growth energy process water sectors growth sectors particularly strong asiapacific americas increases revenue partially offset unfavorable changes foreign currency exchange rates 43 million increase operating income 2006 compared 2005 due primarily revenue growth mentioned along impact operational excellence initiatives increase partially offset impact incremental stock option charges required sfas 123r 7 million safety products net revenue operating income operating margin safety products years ended september 28 2007 september 29 2006 september 30 2005 follows millions net revenue safety products increased 92 million 55 2007 compared 2006 primarily strong performance fire suppression electronic security businesses favorable changes foreign currency exchange rates 48 million also contributed increase revenue increase fire suppression business driven continued growth energy marine sectors americas middle east well increased selling prices help offset significant cost increase raw materials electronic security business also experienced favorable growth result new product introductions new market expansions increases partially offset continued softness life safety business north america due delays federal assistance provided fire departments operating income increased 84 million 286 million year ended september 28 2007 compared prior year prior year results included 100 million charge related preexisting voluntary replacement program vrp sprinkler heads fire suppression business deadline filing claims participate vrp ended august 31 2007 light current claims data additional 10 million charge recorded fourth quarter 2007 net revenue safety products decreased 7 million 2006 compared 2005 driven unfavorable impact 56 million divested businesses well delays federal assistance provided fire departments unfavorably impacted life safety business decreases partially offset stronger performance fire suppression business result favorable market conditions united states middle east china new product introductions including clean agent fire suppression systems electronic security business also experienced favorable growth result new product introductions new market expansions foreign currency exchange rates negatively impacted revenues 7 million operating income decreased 76 million 2006 2005 primarily result 100 million charge related preexisting voluntary replacement program sprinkler heads fire suppression business charge reflected updated estimate additional costs necessary bring program completion decrease operating income 2006 partially offset volume growth higher margins new product introductions price increases fire suppression electronic security business well cost reduction benefits 2004 restructuring programs also 2006 results include effect incremental stock option charges required sfas 123r 5 million electrical metal products net revenue operating income operating margin electrical metal products years ended september 28 2007 september 29 2006 september 30 2005 follows millions net revenue electrical metal products increased 25 million 13 2007 compared 2006 favorable changes foreign currency exchange rates 20 million contributed increase revenue increase net revenue largely driven increased sales volume armored cable products steel tubular products higher selling prices sales volumes brazil increases largely offset impact lower selling prices steel tubular products north america decrease operating income 160 million 502 2007 compared 2006 primarily due unfavorable spreads steel tubular armored cable products income generated higher sales volume armored cable steel tubular products offset lower selling prices higher raw material prices net revenue electrical metal products increased 151 million 84 2006 compared 2005 increase net revenue 2006 largely driven increased selling prices armored cable products result higher costs copper higher volumes core steel products due growth nonresidential construction markets north america favorable changes foreign currency exchange rates 15 million also contributed increase revenue increases revenue partially offset impact lower selling prices core steel products north america mainly due lower costs steel slower market products brazil increase operating income 24 million 2006 compared 2005 due primarily favorable copper spreads higher volumes core steel products increases partially offset impact reduced spreads core steel products incremental stock option charges required sfas 123r 3 million corporate net revenue operating income operating margin corporate metal products years ended september 28 2007 september 29 2006 september 30 2005 follows millions corporate includes operating results certain international buildings products businesses corporate expense 2007 included class action settlement charge net 2862 billion separation related costs 104 million net restructuring charges 40 million primarily related consolidation certain headquarter functions additionally corporate expense 2007 includes 13 million charges related accelerated amortization restricted shares connection separation connection separation initiated actions reduce corporate expense targeting full year corporate expense run rate 500 million mid2008 corporate expense 2006 219 million lower 2005 corporate expense 2006 included 72 million income related extinguishment certain payment obligations split dollar life insurance policy rabbi trust pursuant settlement mr kozlowski former chief executive officer 48 million income resulting reduction estimated workers compensation liabilities primarily due favorable claims experience income items partially offset incremental stock option charges 47 million required sfas 123r separation related costs 49 million restructuring divestiture charges 2 million comparative basis 2005 corporate expense 2006 also benefited lower sarbanesoxley compliance costs corporate expense 2005 included 50 million charge fines penalties paid resolve matters raised sec investigation commenced june 2002 well 70 million charge estimated contingencies related contested legal proceedings seeking enforce retention agreements five former executives interest income expense interest income 102 million 2007 compared 43 million 39 million 2006 2005 respectively increase interest income 2007 primarily related interest earned class action settlement escrow 41 million interest expense 313 million 2007 compared 279 million 2006 322 million 2005 increase interest expense 2007 result interest class action settlement liability 41 million partially offset lower debt outstanding decrease interest expense 2006 primarily driven lower debt balances partially offset impact higher interest rates interest rate swap program compared 2005 weightedaverage interest rate total debt outstanding september 28 2007 september 29 2006 september 30 2005 63 60 57 respectively period net interest amounts proportionally allocated covidien tyco electronics based debt amounts believe utilized covidien tyco electronics historically inclusive amounts directly incurred reflected discontinued operations allocated net interest calculated using historical weighted average interest rate debt including impact interest rate swap agreements portion tycos interest income allocated covidien tyco electronics 35 million 53 million 43 million 2007 2006 2005 respectively portion tycos interest expense allocated covidien tyco electronics 242 million 378 million 433 million 2007 2006 2005 respectively expense net expense net 255 million 2007 296 million 2005 2007 expense net consisted primarily 259 million loss early extinguishment debt incurred connection debt tender offers see note 13 tax benefit available charge consists primarily premiums paid writeoff unamortized debt issuance costs discounts total loss early extinguishment debt 647 million 259 million included continuing operations 388 million allocated covidien tyco electronics included discontinued operations 2005 expense net consisted primarily losses related repurchase outstanding convertible debt prior scheduled maturity partially offset 109 million courtordered restitution award 2005 company repurchased 1241 million principal amount outstanding 275 convertible senior debentures 1823 million 750 million principal amount outstanding 3125 convertible senior debentures 1147 million repurchases resulted 1013 million loss retirement debt including writeoff unamortized debt issuance costs 405 included continuing operations 608 million allocated covidien tyco electronics included discontinued operations additionally september 2005 awarded total 134 million restitution connection litigation mr l dennis kozlowski former chairman chief executive officer mr mark h swartz former chief financial officer director together defendants described item 3 legal proceedings restitution award comprised 109 million previously expensed compensation made defendants reported expense net prior years 25 million related loan receivable mr l dennis kozlowski reflected companys consolidated financial statements receivable 2007 company received payment amounts income taxes effective income tax rate effective tax rate 2007 meaningful primarily result class action settlement charge net 2862 billion loss early extinguishment debt 259 million tax benefit available additionally taxes 2007 negatively impacted tax costs related separation effective income tax rate 273 47 2006 2005 respectively increase effective tax rate 2005 2006 primarily result lower release deferred tax asset valuation allowances increased profits higher tax rate jurisdictions adjustments tax accrual legacy tax matters 2005 partially offset loss retirement debt benefit available 2005 valuation allowance deferred tax assets 666 million 800 million september 28 2007 september 29 2006 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets valuation allowance calculated accordance provisions sfas 109 accounting income taxes requires valuation allowance established maintained likely portion deferred tax assets realized calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel issues raised taxing authorities adequacy recorded amounts substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year income tax matters connection spinoffs covidien tyco electronics tyco entered tax sharing agreement generally governs covidiens tyco electronics tycos respective rights responsibilities obligations distribution respect taxes including ordinary course business taxes incurred result failure distribution shares covidien tyco electronics qualify taxfree distribution us federal income tax purposes within meaning section 355 code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code tax sharing agreement certain exceptions tyco generally responsible payment 27 additional us income taxes required paid us tax authority result us tax audit covidiens tyco electronics tycos subsidiaries income tax returns periods prior spinoffs tax sharing agreement company shares responsibility certain tycos covidiens tyco electronics income tax liabilities based sharing formula periods prior including june 29 2007 specifically tyco covidien tyco electronics share 27 42 31 respectively us income tax liabilities arise adjustments made tax authorities tycos covidiens tyco electronics us income tax returns costs expenses associated management shared tax liabilities shared equally among parties september 28 2007 tyco recorded receivable covidien tyco electronics 103 million reflected assets estimate portion tax sharing obligations offset shareholders equity liabilities include 543 million fair value tycos obligations tax sharing agreement determined accordance fin 45 recognized offset shareholders equity tyco provide payment tax sharing agreement shared income tax liabilities settled settlement expected occur irs audit process completed impacted years given nature shared liabilities maximum amount potential future payments determinable event separation determined taxable determination result actions taken separation tyco covidien tyco electronics party responsible failure would responsible taxes imposed tyco covidien tyco electronics result thereof determination result actions taken separation tyco covidien tyco electronics tyco covidien tyco electronics would responsible 27 42 31 respectively taxes imposed tyco covidien tyco electronics result determination tax amounts could significant company responsible taxes shared pursuant tax sharing agreements sharing formula addition covidien tyco electronics responsible tax liabilities subject tax sharing agreements sharing formula party tax sharing agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party would required pay equally nondefaulting party amounts default addition another party tax sharing agreement responsible portion income tax liability default payment liability taxing authority company could legally liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances company may obligated pay amounts excess agreedupon share tycos covidiens tyco electronics tax liabilities see note 16 discussion guarantees indemnifications extended among tyco covidien tyco electronics company subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including internal revenue service irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies related interest management assessed probable estimable recorded 2004 connection irs audit 1997 2000 years company submitted irs proposed adjustments prior period us federal income tax returns resulting reduction taxable income previously filed 2006 irs accepted substantially proposed adjustments also 2006 company developed proposed amendments us federal income tax returns additional periods 2002 basis previously accepted amendments company determined acceptance adjustments probable accordingly recorded consolidated financial statements adjustments material impact companys financial condition results operations cash flows company yet complete proposed amendments us federal income tax returns periods subsequent 2002 primarily reflect roll forward 2006 amendments periods 1997 2002 companys tax return positions updated additional adjustments may identified recorded consolidated financial statements final adjustments cannot determined income tax return amendment process completed company believes resulting adjustments material impact financial condition results operations cash flows third quarter 2007 irs concluded field examination certain tycos us federal income tax returns years 1997 though 2000 issued anticipated revenue agents reports rars reflect irs determination proposed tax adjustments periods audit rars propose tax audit adjustments certain companys previously filed tax return positions company expected previously assessed balance sheet date accordingly company made additional provision year ended september 28 2007 result proposed audit adjustments rars company agreed irs adjustments totaling 498 million estimated cash impact company 458 million third quarter 2007 company paid 458 million 163 million relates companys discontinued operations company appealed proposed tax audit adjustments totaling approximately 1 billion audit managing party specified tax sharing agreement company intends vigorously defend prior filed tax return positions company continues believe amounts recorded financial statements relating tax adjustments sufficient however ultimate resolution matters uncertain could result material impact companys financial position results operations cash flows addition ultimate resolution matters could result company filing amended us federal income tax returns years subsequent current 1997 2000 audit period could material impact companys effective tax rate future reporting periods additionally irs proposed civil fraud penalties prior subsidiary distributed tyco electronics arising alleged actions former executives connection certain intercompany transfers stock simplex technologies 1998 1999 based statutory guidelines estimate proposed penalties could range 30 million 50 million company audit managing party vigorously oppose assertion penalties tyco electronics part beginning 2003 company discovered investigated reported conduct issue irs fully cooperated criminal prosecution companys former chief tax officer charge willful filing false tax return except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries discontinued operations divestitures discontinued operations third quarter 2007 tyco completed separation presented healthcare electronics businesses discontinued operations periods presented company used available information develop best estimates certain assets liabilities related separation limited instances final determination balances made subsequent periods fourth quarter 2007 72 million recorded shareholders equity primarily related cash trueup adjustment items specified separation distribution agreement adjustments certain preseparation tax liabilities impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor tyco electronics legal entities additional adjustments expected material recorded shareholders equity subsequent periods tax returns finalized 2007 aij joint venture majority owned infrastructure services sold 42 million net cash proceeds pretax gain sale 19 million recorded additionally fourth quarter 2007 remaining portion infrastructure services met held sale criteria results operations included discontinued operations periods presented infrastructure services provides consulting engineering construction management operating services water wastewater environmental transportation facilities market company assessed recoverability businesses carrying values continue assess recoverability based current fair value less cost sell businesses sold september 17 2007 company executed definitive agreement sell approximately 295 million cash 100 stock eteoempresa de transmissao de energia oeste ltda brazilian subsidiary infrastructure services transaction subject brazilian regulatory approval normal closing conditions expected close end second quarter fiscal 2008 company expects sell remaining portion infrastructure services end fiscal 2008 aij infrastructure services plastics adhesives ludlow coated products ae products businesses met held sale discontinued operations criteria included discontinued operations periods presented losses divestitures 2007 2006 2005 company recorded 4 million 2 million 23 million respectively divestiture charges continuing operations connection writedown fair value less cost sell certain businesses fair value used impairment assessments primarily based terms conditions included expected included sales agreements acquisitions 2007 cash paid acquisitions included continuing operations primarily within adt worldwide safety products flow control totaled 31 million cash paid acquisitions businesses included continuing operations 2006 2005 totaled 5 million 6 million respectively acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows goodwill impairment connection separation third quarter 2007 tyco reorganized new management segment reporting structure part organizational changes company assessed new reporting units conducted valuations determine assignment goodwill new reporting units based estimated relative fair values following relative fair value goodwill allocation company tested goodwill impairment comparing fair value reporting unit carrying value amount carrying amount reporting unit exceeded fair value goodwill considered potentially impaired goodwill potentially impaired company compared implied fair value reporting unit goodwill carrying amount goodwill carrying amount goodwill exceeded implied fair value goodwill australia new zealand security services business part adt worldwide segment result company recognized goodwill impairment 46 million third quarter 2007 determining fair value management relies number factors including operating results business plans economic projections anticipated future cash flows market place data inherent uncertainties related factors judgments applying analysis goodwill impairment changes factors judgments could result impairment one reporting units future period see note 1 cumulative effect accounting change 2006 company adopted financial accounting standards board interpretation fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fin 47 clarifies timing liability recognition legal obligations associated asset retirement timing method settling obligation conditional future event may within control entity clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation fin 47 requires conditional asset retirement obligations along associated capitalized asset retirement costs initially reported fair values upon adoption company recognized liability 32 million asset retirement obligations increase 10 million carrying amount related assets 19 million 5 million reflected liabilities assets discontinued operations respectively initial recognition resulted cumulative effect accounting change 14 million aftertax loss 22 million pretax reflecting accumulated depreciation accretion would recognized prior periods provisions fin 47 effect time 2005 company changed measurement date pension postretirement benefit plans september 30th august 31st effective october 1 2004 company believes onemonth change measurement date preferable change allows management adequate time evaluate report actuarial information companys consolidated financial statements accelerated reporting deadlines result change company recorded 21 million aftertax gain 28 million pretax cumulative effect accounting change critical accounting policies estimates preparation consolidated financial statements conformity gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization methods security monitoringrelated assets tyco generally considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition effective beginning third quarter 2007 tyco changed depreciation method estimated useful life used account pooled subscriber system assets primarily north america related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 195 residential subscriber pools 145 265 commercial subscriber pools converts straightline methodology resulting depreciation charge greater accelerated method company continue use straightline method 14year life nonpooled subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination change method estimated useful life used account pooled subscriber system assets related deferred revenue resulted ongoing analysis pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems continue reviewed company balance sheet date assess continued appropriateness methods estimated useful lives effective beginning third quarter 2007 tyco also changed estimated useful life dealer intangibles geographical areas comprising approximately 90 net carrying value dealer intangibles 12 15 years company continues amortize dealer intangible assets accelerated basis change estimated useful life used account dealer intangibles resulted ongoing analysis pertinent factors including actual customer attrition data demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base attrition rates customers adt worldwide business 123 142 150 trailing 12month basis 2007 2006 2005 respectively revenue recognitioncontract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimates inaccurate risk revenue profits period may overstated understated product discounts granted based terms arrangements direct indirect markets participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable income taxesin determining income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future state federal international pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded significant valuation allowances intend maintain likely deferred tax assets realized income tax expense recorded future reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance would result additional income tax expense period could significant impact future earnings change valuation allowance occurs established connection acquisition adjustment may impact goodwill rather income tax provision changes tax laws rates could also affect recorded deferred tax assets liabilities future management aware changes would material effect companys financial condition results operations cash flows addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary tax liabilities relate tax uncertainties existing date acquisition business adjustment tax liabilities result adjustment goodwill recorded date acquisition goodwill indefinitelived intangible assetsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur performing assessments management relies various factors including operating results business plans economic projections anticipated future cash flows comparable transactions market data inherent uncertainties related factors judgment applying analysis goodwill indefinitelived intangible assets impairment since judgment involved performing fair value measurements used goodwill indefinitelived intangible assets impairment analyses risk carrying values goodwill indefinitelived intangible assets may overstated elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets testing goodwill impairment company follows guidance prescribed sfas 142 goodwill intangible assets first company compares fair value reporting unit carrying amount carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting unit goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit market capitalization declines may result perform goodwill impairment first step valuation analysis reporting units prior required annual assessment types events resulting analysis could result goodwill impairment charges future goodwill impairments related continuing operations 46 million 2007 goodwill impairments related continuing operations 2006 2005 longlived assetsassets held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairments longlived assets disposed recorded based upon fair value applicable assets calculation fair value longlived assets based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 90 million consider current expected asset allocations pension plans well historical expected longterm rates return types plan assets determining expected longterm return plan assets 50 basis point decrease expected longterm return plan assets would increase pension expense approximately 10 million liquidity capital resources sources cash flow operating activities use portion cash operations years ended september 28 2007 september 29 2006 september 30 2005 follows millions 1includes depreciation expense 638 million 665 million 676 million 2007 2006 2005 respectively amortization intangible assets 513 million 517 million 528 million 2007 2006 2005 respectively 2includes addback losses retirement debt 259 million 1 million 405 million 2007 2006 2005 respectively 3includes net proceeds 23 million 39 million 53 million received saledisposition property plant equipment 2007 2006 2005 respectively net change total working capital cash decrease 405 million 2007 components change set forth consolidated statements cash flows significant changes working capital included 166 million increase inventories 128 million increase accounts receivable 244 million changes income taxes net includes payment legacy tax liabilities additionally working capital includes collection 38 million related restitution owed mark h swartz former chief financial officer director 98 million related restitution owed l dennis kozlowski former chairman chief executive officer third quarter 2007 tyco entered class action settlement borrowed unsecured bridge loan revolving credit facilities fund 2992 billion liability placing proceeds escrow benefit class 2007 completed sale aij business 42 million net cash proceeds additionally 2007 received 271 million due liquidation investments rabbi trust well 136 million restitution payments owed former executives described continue fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards capital spending increased 669 million 2007 558 million 2006 level capital expenditures 2008 expected exceed spending levels 2007 also expected exceed depreciation september 2007 tycos board directors approved new 10 billion share repurchase program repurchased 13 million common shares 56 million first quarter 2007 repurchased 5 million common shares 659 million completing 20 billion share repurchase program approved board directors may 2006 followed repurchase 13 million common shares 13 billion 2006 additionally 2006 completed 15 billion share repurchase program approved board directors july 2005 repurchase 11 million common shares 12 billion 2006 commenced termination interest rate cross currency swaps designated fair value hedges 2007 terminated remaining swaps terminations resulted net cash inflow 63 million first quarter 2007 launched 350 million 400 million companywide restructuring program 2007 2006 2005 paid 70 million 32 million 103 million respectively cash related restructuring activities see note 3 consolidated financial statements information regarding restructuring activities income taxes paid net refunds related continuing operations 650 million 2007 included 295 million legacy tax liability payments amounts yet due irs respect examination 1997 2000 us federal income tax returns ultimate resolution uncertain 2007 2006 2005 tyco paid 409 million 373 million 328 million cash respectively acquire approximately 415000 401000 364000 customer contracts electronic security services adt dealer program 2007 2006 2005 paid 10 million 7 million 14 million respectively cash purchase accounting holdback liabilities holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet contingencies september 28 2007 holdback liabilities consolidated balance sheets 16 million included liabilities september 28 2007 14 million acquisition liabilities remained consolidated balance sheets 4 million included accrued current liabilities 10 million included liabilities previously discussed effective june 29 2007 company completed separation connection separation paid 349 million separation costs 2007 96 million 2006 including 256 million 77 million respectively recorded cash provided discontinued operating activities expect incur remaining cash outflows related separation first six months fiscal 2008 amounts primarily consist tax restructuring professional services employeerelated costs capitalization shareholders equity 156 billion 3150 per share september 28 2007 compared 354 billion 7106 per share september 29 2006 shareholders equity decreased 198 billion primarily due distribution covidien tyco electronics shareholders decrease also due net loss 17 billion repurchase common shares subsidiary 727 million dividends declared 668 million offset favorable changes foreign currency exchange rates 883 million connection separation approved board directors executed reverse stock split result four tyco shares converted one share shareholder approval obtained march 8 2007 special general meeting shareholders debt levels decreased significantly compared september 29 2006 primarily due debt tenders covidien tyco electronics assuming portion related borrowings september 28 2007 total debt decreased 51 billion 45 billion compared 96 billion september 29 2006 total debt percentage total capitalization total debt shareholders equity 22 september 28 2007 increased slightly compared 21 september 29 2006 due decrease shareholders equity mentioned see debt tenders bank revolving credit facilities discussion cash balance decreased 19 billion september 28 2007 compared 22 billion september 29 2006 decrease cash primarily due debt repayments referred class action settlement escrow decreases partially offset cash flows provided operations transfers discontinued operations previously discussed september 2007 board directors approved new 10 billion share repurchase program pursuant program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved 10b51 trading plan accordance applicable regulations rule 10b51 trading plan permits company repurchase shares periods company would normally active trading market due insider trading laws provided plan adopted company aware material nonpublic information rule 10b51 trading plan would unable repurchase shares predetermined price per share additionally maximum number shares may purchase day would governed rule 10b18 dividend payments 791 million 2007 september 13 2007 tycos board directors approved quarterly dividend companys common shares 015 per share payable november 1 2007 shareholders record tyco international ltd post separation october 1 2007 timing declaration payment future dividends holders common shares however falls within discretion board directors depend upon many factors including statutory requirements bermuda law financial condition results operations capital requirements businesses industry practice factors board directors deems relevant debt tenders april 27 2007 announced connection separation certain subsidiaries issuers corporate debt commenced tender offers purchase cash substantially outstanding us dollar denominated public debt aggregating approximately 66 billion amount approximately 59 billion nonconvertible us debt 750 million convertible us debt maturities 2007 2029 conjunction tender offers relevant issuer solicited consents certain clarifying amendments indentures pursuant debt issued received acceptance notices approximately 21 billion 36 outstanding nonconvertible us debt approximately 726 million 97 outstanding convertible us debt tendered amount approximately 38 billion remains us additionally tyco international group sa whollyowned subsidiary organized laws luxembourg tigsa commenced april 30 2007 tender offers purchase cash outstanding euro pound sterling denominated public debt aggregating equivalent approximately 19 billion maturities 2008 2031 issued euro medium term note programme emtn notes consent solicitation certain clarifying amendments fiscal agency agreement pursuant emtn notes issued received acceptance notices approximately 15 billion 80 emtn notes remaining emtn notes repurchased pursuant optional redemption connection debt tender offers incurred pretax charge early extinguishment debt approximately 647 million tax benefit available see note 5 tigsas remaining debt contributed tyco international finance sa tifsa wholly owned subsidiary company successor company tigsa bank revolving credit facilities april 25 2007 certain subsidiaries syndicate banks entered three 364day unsecured bridge loan facilities aggregate commitment amount 10 billion end may 2007 aggregate commitment amount facilities increased 125 billion borrowed approximately 89 billion unsecured bridge loan facilities fund debt tender offers repay existing bank credit facilities finance class action settlement amount approximately 43 billion 36 billion assigned covidien tyco electronics respectively initially guaranteed new unsecured bridge loan facilities covidien tyco electronics assumed tycos obligations respect unsecured bridge loan facilities upon separation longer guarantee assumed amounts facility variable interest rate based libor margin libor payable tifsa vary based changes credit rating september 28 2007 aggregate commitment unsecured bridge loan facility 40 billion 367 million remained outstanding weightedaverage interest rate 55 october 1 2007 commitments respect unused portion unsecured bridge loan facility expired unsecured revolving credit facility described letter credit facility described commitments contingenciescontractual obligations provide lenders facilities right demand repayment outstanding amounts terminate commitments extend additional credit certain outstanding public debt declared due payable ii sufficient liquidity available unsecured bridge loan facility refinance debt result november 27 2007 secured additional firm commitments certain lenders bridge loan facility additional commitments provide us sufficient liquidity repay outstanding public debt borrowings 40 billion additional commitments expire borrowings facility would mature november 25 2008 facility may used repay settle otherwise extinguish public debt described subject ongoing litigation us bank new york information regarding litigation see item 3 legal proceedingsindenture trustee litigation additionally april 25 2007 certain subsidiaries syndicate banks entered three unsecured revolving credit facilities initial aggregate commitment amount 25 billion increased 425 billion time separation aggregate commitment amount 425 billion 125 billion commitment available us 15 billion commitment available covidien tyco electronics use revolving credit facilities working capital expenditures corporate purposes initially guaranteed new revolving credit facilities covidien tyco electronics assumed obligations respect revolving credit facilities upon separation longer guarantee assumed amounts september 28 2007 borrowed 308 million unsecured revolving credit facility variable interest rate based libor margin libor payable tifsa vary based changes credit rating unsecured revolving credit facilities replaced tigsas existing 10 billion 5year revolving credit facility 15 billion 3year revolving bank credit facility terminated june 1 2007 prior scheduled expiration dates december 16 2009 december 21 2007 respectively date termination amounts borrowed facilities tifsas bank credit agreements contain customary terms conditions financial covenants limit ratio debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive business believe compliance debt covenants bank new york indenture trustee indentures dated june 9 1998 november 12 2003 contesting whether separation transactions permitted indentures see item 3 legal proceedingsindenture trustee litigation following table details longterm debt ratings september 28 2007 september 29 2006 security ratings set forth recommendation buy sell hold securities may subject revision withdrawal assigning rating organization rating evaluated independently rating commitments contingencies contractual obligations contractual obligations commitments principal debt minimum lease payment obligations noncancelable operating leases obligations september 28 2007 follows millions 1excludes interest 2excludes debt discount swap activity 3purchase obligations consist commitments purchases good services 4other longterm liabilities primarily consist following pension postretirement costs income taxes warranty environmental liabilities excluded table unable estimate timing payment items due inherent uncertainties obligations type minimum required contributions pension plans expected approximately 69 million 2008 expect pay 7 million 2008 related postretirement benefit plans september 28 2007 tifsa unsecured credit facilities 125 billion due april 25 2012 approximately 09 billion undrawn available see note 13 consolidated financial statements addition certain companys operating subsidiaries uncommitted overdraft similar types facilities total 55 million 51 million undrawn available facilities expire various dates year 2009 renewable established primarily within international operations june 21 2007 tyco tifsa entered new 500 million letter credit facility citibank na administrative agent expiring december 15 2007 facility provides issuance letters credit supported related line credit facility tifsa may borrow line credit agreement reimburse bank obligations respect letters credit issued facility covenants facility substantially similar covenants bridge loan revolving credit facilities tifsa would pay interest outstanding borrowings variable interest rate based banks base rate eurodollar rate defined september 28 2007 letters credit 494 million issued 500 million credit facility 6 million remains available issuance amounts borrowed credit facility september 28 2007 october 19 2007 facility amended amendment extended maturity date june 15 2008 adjusted interest rate spreads fees applicable extensions credit thereunder loans amended letter credit agreement continue bear interest based libor plus applicable margin september 28 2007 company total outstanding letters credit bank guarantees 11 billion normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows connection separation company entered liability sharing agreement regarding certain class actions pending tyco prior separation subject terms conditions separation distribution agreement company manage control legal matters related assumed contingent liabilities described separation distribution agreement including defense settlement thereof subject certain limitations tyco assumed 27 covidien assumed 42 tyco electronics assumed 31 certain tyco preseparation contingent corporate liabilities include securities class action litigation erisa class action litigation certain legacy tax contingencies actions respect spinoffs distributions made brought third party except litigation related public debt amounts relating contingent corporate liabilities paid tyco spinoffs subject allocation provisions separation distribution agreement shared among tyco covidien tyco electronics pursuant allocation ratio described separation distribution agreement tyco electronics covidien jointly severally liable amounts relating previously disclosed securities class action settlement costs expenses tyco incurs connection defense litigation amount judgment settlement allocated manner described borne equally covidien tyco electronics tyco legal matters class actions detailed discussion contingencies related tycos securities class actions class action settlement securities class action proceedings shareholder derivative litigation erisa related litigation tyco litigation former senior management litigation related public debt various legal matters see item 3 legal proceedings generally obligated indemnify directors officers former directors officers named defendants matters extent required bermuda law addition insurance carriers may decline coverage may insufficient cover expenses liability matters may time seek engage plaintiffs counsel settlement discussions unable time estimate ultimate liability matters may possible required pay judgments settlements incur expenses excess insurance coverage aggregate amounts could material adverse effect financial position results operations cash flows investigations detailed discussion contingencies related governmental investigations related tyco see item 3 legal proceedingssubpoenas document requests governmental entities cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government entities instrumentalities turn could negatively impact business nongovernmental customers suffer penalties adverse impacts could material adverse effect business possible estimate amount loss range possible loss might result adverse resolution matters environmental matters detailed discussion contingencies related tycos environmental matters see item 1 businessenvironmental matters asbestos matters tyco subsidiaries certain subsidiaries covidien named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials pursuant separation distribution agreement covidien assumed liabilities pending cases filed covidiens subsidiaries consistent national trend increased asbestosrelated litigation company observed increase number lawsuits past several years limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property majority cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore companys experience large percentage claims never substantiated dismissed courts company continue vigorously defend lawsuits filed subsidiaries date company suffered adverse verdict trial court proceeding related asbestos claims appropriate company settles claims however total amount paid year settle defend asbestos claims immaterial september 28 2007 approximately 5600 asbestos liability cases pending company subsidiaries company estimates pending asbestos claims incurred reported well related insurance indemnification recoveries companys estimate liability pending future claims based claim experience past five years covers claims expected filed next seven years company believes adequate amounts recorded related matters possible time determine certainty ultimate outcome asbestosrelated proceedings company believes final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect companys financial position results operations cash flows income taxes tyco subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies related interest management assessed probable estimable recorded detailed discussion contingencies related tycos income taxes see item 3 legal proceedingsincome tax matters compliance matters tyco received responded various allegations information certain improper payments made tyco subsidiaries recent years previously reported informed two subsidiaries flow control business italy named request criminal charges filed milan public prosecutors office tyco reported us department justice doj sec investigative steps remedial measures taken response allegations tyco also informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance foreign corrupt practices act fcpa would continue make periodic progress reports agencies would present factual findings upon conclusion baseline review company continue communicate doj sec provide updates baseline review conducted outside counsel including appropriate briefings concerning additional instances potential improper payments identified company course ongoing compliance activities covidien tyco electronics agreed connection separation cooperate company response allegations date baseline review revealed business practices may comply tyco fcpa requirements time tyco cannot predict outcome matters allegations reported regulatory law enforcement authorities therefore cannot estimate range potential loss extent risk may result adverse resolution matters however possible company may required pay judgments suffer penalties incur settlements amounts may material adverse effect financial position results operations cash flows detailed discussion contingencies related tycos compliance matters see item 3 legal proceedingscompliance matters company party contract dispute arising earth techs contract city phoenix arizona expansion citys 91st avenue waste water treatment plant earth tech city phoenix filed lawsuits local county superior court alleging party breached contract time tyco cannot predict outcome matter therefore cannot estimate range potential loss extent risk may result adverse resolution matter detailed discussion contingencies related tycos matters see item 3 legal proceedingsother matters company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows backlog september 28 2007 backlog unfilled orders 91 billion compared backlog 82 billion september 29 2006 expect approximately 86 backlog september 28 2007 filled 2008 backlog segment september 28 2007 september 29 2006 follows millions within adt worldwide backlog increased primarily result strong bookings across regions backlog adt worldwide also includes recurring revenueinforce represents 12 months fees monitoring maintenance services contract security business amount recurring revenueinforce september 28 2007 september 29 2006 393 billion 365 billion respectively backlog within fire protection services increased primarily result increased orders north america flow control increased bookings mostly asiapacific europe regions offbalance sheet arrangements sale accounts receivable certain tycos international businesses utilize sale accounts receivable shortterm financing mechanisms aggregate amount outstanding companys remaining international accounts receivable programs 76 million 75 million 79 million september 28 2007 september 29 2006 september 30 2005 respectively guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2008 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien tyco electronics accordance terms separation distribution agreement tax sharing agreement time separation tyco recorded liability necessary recognize fair value guarantees indemnifications accordance financial accounting standards board fasb interpretation fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others fair values determined assistance third party valuation firm liability necessary reflect fair value guarantees indemnifications 543 million included liabilities consolidated balance sheets guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 16 discussion tax sharing agreement addition tyco historically provided support form financial andor performance guarantees various covidien tyco electronics operating entities connection separation company worked guarantee counterparties cancel assign guarantees covidien tyco electronics extent guarantees assigned prior separation date tyco assumed primary liability remaining support estimated fair values obligations 7 million included liabilities offset shareholders equity consolidated balance sheets recorded accordance fin 45 disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see item 1 businessenvironmental matters discussion liabilities normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company records estimated product warranty costs time sale information estimated product warranty see notes 1 14 consolidated financial statements 2001 division safety products initiated voluntary replacement program vrp associated acquisition central sprinkler vrp relates replacement certain oring seal sprinkler heads originally manufactured central sprinkler prior tycos acquisition program sprinkler heads replaced free charge property owners third quarter 2006 company completed comprehensive review reported claims recent claim rates cost trends assessed future program company determined additional liability necessary order satisfy companys obligation vrp result company recorded 100 million charge reflected cost sales may 1 2007 consumer products safety commission company announced august 31 2007 deadline filing claims participate vrp company fulfill valid claims replacement qualifying sprinklers received august 31 2007 fourth quarter 2007 company assessed expected cost complete program light current claims data determined additional accrual 10 million necessary satisfy estimated remaining obligation ultimate cost complete program impacted number factors changes material labor costs actual number sprinkler heads replaced actual results could differ estimate settlements 2007 include cash expenditures 38 million related vrp accounting pronouncements recently adopted accounting pronouncementsin september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r sfas 158 requires employers recognize funded status defined benefit pension postretirement benefit plans net asset liability balance sheet recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized component net periodic benefit cost sfas 158 companies required measure plan assets benefit obligations fiscal year end company presently uses measurement date august 31st sfas 158 also requires additional disclosure notes financial statements recognition provisions sfas 158 effective fiscal 2007 measurement date provisions become effective fiscal 2009 company adopted recognition disclosure provisions sfas 158 september 28 2007 company recognized net 111 million liability reduction shareholders equity september 2006 sec issued staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements sab 108 requires companies utilize dual approach assessing quantitative effects financial statement misstatements dual approach includes income statement focused balance sheet focused assessment sab 108 effective tyco fiscal 2007 implementation sab 108 material impact tycos results operations financial position cash flows recently issued accounting pronouncementsin february 2007 fasb issued statement financial accounting standards sfas 159 fair value option financial assets financial liabilities sfas 159 permits entity contractbycontract basis make irrevocable election account certain types financial instruments warranty insurance contracts fair value rather historical cost changes fair value whether realized unrealized recognized earnings sfas 159 effective tyco first quarter fiscal 2009 company currently assessing impact sfas 159 results operations financial position cash flows september 2006 fasb issued sfas 157 fair value measurements enhances existing guidance measuring assets liabilities fair value sfas 157 defines fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective tyco beginning fiscal 2009 company currently assessing impact sfas 157 results operations financial position cash flows june 2006 fasb issued fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns fin 48 effective tyco first quarter fiscal 2008 company currently implementing assessing expected impact adopting fin 48 based assessment date management expect adoption material effect results operations financial position cash flows forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed sec tycos communications discussions investors analysts normal course business meetings web casts phone calls conference calls regarding expectations respect sales earnings cash flows operating efficiencies product expansion backlog consummation benefits acquisitions divestitures separation matters well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performance achievements factors might affect forwardlooking statements include among things •overall economic business conditions •the demand tycos goods services •competitive factors industries tyco competes •changes tax requirements including tax rate changes new tax laws revised tax law interpretations •results consequences tycos internal investigation governmental investigations concerning companys governance management internal controls operations including business operations outside united states •the outcome litigation governmental proceedings result actions taken former senior corporate management •effect income tax audit settlements •the ratings debt ability repay refinance outstanding indebtedness matures •our ability operate within limitations imposed financing arrangements maintain credit ratings •interest rate fluctuations changes borrowing costs •other capital market conditions including currency exchange rate fluctuations •availability fluctuations prices key raw materials including steel copper •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability achieve cost savings connection companys strategic restructuring six sigma initiatives •potential impairment goodwill andor longlived assets •the impact fluctuations price tyco common shares •changes us nonus governmental laws regulations •the possible effects tyco future legislation united states may limit eliminate potential us tax benefits resulting tycos incorporation bermuda deny us government contracts tyco based upon incorporation bermuda •the potential distraction costs associated negative publicity relating actions former senior corporate management item 7aitem 7 managements discussion analysis financial condition results operations 1income continuing operations year ended september 26 2008 includes class action settlement credit net 10 million 9 million goodwill impairment charge 4 million separation costs restructuring asset impairment divestiture charges net 248 million 42 million incremental stock option charges required statement financial accounting standards sfas 123r sharebased payment 258 million loss extinguishment debt related consent solicitation exchange offers termination bridge loan facility net income also includes 458 million income net income taxes discontinued operations 2loss continuing operations year ended september 28 2007 includes class action settlement charge net 2862 billion 105 million separation costs 46 million goodwill impairment charge related reorganization new management segment reporting structure restructuring asset impairment divestiture charges net 210 million 120 million incremental stock option charges required statement financial accounting standards sfas 123r sharebased payment 259 million loss related early retirement debt 95 million tax charges related separation primarily writeoff deferred tax assets longer realizable net loss also includes 782 million income net income taxes discontinued operations 3income continuing operations year ended september 29 2006 includes charge 100 million related voluntary replacement program included cost sales also included 49 million separation costs restructuring asset impairment divestiture charges net 15 million 84 million incremental stock option charges required sfas 123r 72 million income related settlement former executive 48 million income resulting reduction estimated workers compensation liabilities primarily due favorable claims experience net income includes 2787 million income net income taxes discontinued operations well 14 million loss net income taxes related cumulative effect adjustment recorded conjunction adoption financial accounting standards board fasb interpretation fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 4income continuing operations year ended september 30 2005 includes restructuring asset impairment divestiture charges net 41 million 70 million charge related certain former executives employment 50 million charge related sec enforcement action loss 405 million related retirement debt well 109 million income related courtordered restitution award net income also includes 2500 million income net income taxes discontinued operations well 21 million gain net income taxes related cumulative effect adjustment recorded conjunction change measurement date pension postretirement benefit plans 5income continuing operations year ended september 30 2004 includes charge 59 million related divestitures net restructuring asset impairment charges 275 million loss 113 million related retirement debt net income also includes 2488 million loss net income taxes discontinued operations 6cash dividends per share years ended 2007 2006 2005 2004 represent tyco preseparation included covidien tyco electronics september 9 2008 tycos board directors approved quarterly dividend companys common shares 020 per share paid november 3 2008 shareholders record october 1 2008 september 13 2007 tycos board directors approved quarterly dividend companys common shares 015 per share payable november 1 2007 shareholders record tyco international ltd post separation october 1 2007 december 9 2004 board directors approved increase quarterly dividend companys common shares 005 040 per share result 2005 tyco paid quarterly cash dividend 005 per common share first quarter 2005 040 per common share thereafter prior 2005 tyco paid quarterly cash dividend 005 per common share periods presented 7the decrease total assets longterm debt shareholders equity 2007 primarily related spinoffs covidien tyco electronics item 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information introduction consolidated financial statements include consolidated results tyco international ltd company organized laws bermuda subsidiaries hereinafter collectively referred company tyco prepared united states dollars accordance accounting principles generally accepted united states gaap company operates following business segments •adt worldwide designs sells installs services monitors electronic security systems residential commercial industrial governmental customers •flow control designs manufactures sells services valves pipes fittings valve automation heat tracing products water wastewater markets oil gas energy markets along general process industries •fire protection services designs sells installs services fire detection fire suppression systems commercial industrial governmental customers •electrical metal products designs manufactures sells galvanized steel tubing armored wire cable metal products nonresidential construction electrical fire safety mechanical customers •safety products designs manufactures sells fire protection security life safety products including fire suppression products breathing apparatus intrusion security access control video management systems addition safety products manufactures products installed serviced adt worldwide fire protection services also provide general corporate services segments costs reported corporate references segment data companys continuing operations prior period amounts reclassified exclude results discontinued operations overview outlook fiscal year 2008 year progress tyco revenue increased 9 income continuing operations significantly improved compared 2007 also made significant progress executing business strategies looking forward fiscal 2009 like businesses expect market conditions negatively affect results first 50 revenue generated outside us recent significant appreciation us dollar major currencies could negatively impact revenue 2009 specifically value local currencies used nonus operations declined relative us dollar approximately 20 mostly fourth fiscal quarter october 2008 exchange rates remained levels nonus revenue would likely decline similar magnitude fiscal 2009 second expect operating margins electrical metals segment decline 2009 result declining steel copper prices noted critical accounting policies account inventory firstin firstout basis result declining price environment like one today operating margins likely contract higher priced inventory processed sold lower prices third recently seen decline commercial construction activity united kingdom us expect continued weakness commercial construction market negatively impact results adt worldwide segment operationally 2009 expect continue initiatives improve efficiency manage working capital effectively refine portfolio prudently allocate capital expect internal investments fund growth productivity businesses continue first priority prior years expect remain active making bolton acquisitions continually assess strategic fit value businesses potential success within existing framework 2008 adt worldwide segment acquired firstservice security strengthen systems integration capabilities addition 2008 adt acquired two sensormatic franchisees winner security services llc sensormatic security corp time selectively pursue acquisitions consider divestitures businesses align long term strategy fiscal 2008 part portfolio refinement efforts sold subsidiary makes sells fire protection products japan european manufacturer building products construction industry european manufacturer public address acoustic systems substantially infrastructure services business divestitures resulted cash proceeds approximately 10 billion results businesses included discontinued operations periods presented addition using cash flow fund internal investments make selective acquisitions expect excess cash return shareholders 2008 completed 10 billion share repurchase program approved board directors september 2007 resulted purchase approximately 5 outstanding shares program addition 2008 paid dividends 292 million shareholders september 9 2008 board directors approved increase quarterly dividend common shares 020 per share 015 per share paid november 3 2008 shareholders record october 1 2008 july 10 2008 board directors approved new 10 billion share repurchase program intend use repurchase additional shares depending credit market conditions macroeconomic factors expectations regarding future cash flows finally continue focus operational execution drive earnings growth improve operating efficiency first quarter 2007 launched restructuring program across segments including corporate organization designed streamline businesses reduce operational footprint since inception program end fiscal 2008 incurred charges approximately 395 million identified additional opportunities cost savings restructuring activities fiscal 2009 expect incur restructuring charges approximately 50 million fiscal 2009 believe restructuring activity strengthen competitive position long term legal settlements connection settlement litigation related outstanding public debt june 3 2008 along finance subsidiary tifsa tyco international finance sa tifsa whollyowned subsidiary company successor company tyco international group sa tigsa whollyowned subsidiary company organized laws luxembourg consummated consent solicitations exchange offers related certain series debt issued companys consent payments totaling 250 million recorded 222 million charge expense net loss extinguishment debt also terminated unsecured bridge loan facility entered november 27 2007 connection settlement indenture trustee litigation recorded 36 million charge expense writeoff unamortized debt issuance costs third quarter 2008 company signed definitive agreement plaintiff settle lawsuit entitled new jersey v tyco international ltd et al connection settlement company made payment 7325 million plaintiffs june 2 2008 pursuant separation distribution agreement companys share settlement amount approximately 20 million covidien tyco electronics responsible approximately 30 million 23 million respectively company recorded settlement related receivable covidien tyco electronics respective shares settlement amount second quarter 2008 resulting net charge selling general administrative expenses share settlement approximately 20 million also third quarter 2008 company settled lawsuit entitled ballard v tyco international ltd pursuant settlement company made payment 36 million plaintiffs subject sharing formula contained separation distribution agreement resulted company recording net charge selling general administrative expenses approximately 10 million recording receivables tyco electronics covidien approximately 11 million 15 million respectively third quarter also third quarter 2008 company settled matter entitled bank new york v tyco international group sa lawsuit related separation brought indenture trustee certain tycos public debt connection settlement tyco exchanged approximately 422 million principal amount notes due 2028 707 million principal amount notes due 2029 equal principal amount notes due 2019 2021 respectively terms exchange notes substantially terms notes exchanged addition series notes issued tycos indentures dated june 9 1998 december 31 2003 including exchange notes amended provide noteholders right require tyco repurchase notes purchase price equal 101 principal amount thereof plus accrued unpaid interest date purchase event ratings downgrade occurs connection certain change control transactions also third quarter 2008 company settled matter entitled sensormatic security corp v sensormatic electronics corp adt security services inc wallace computer services inc connection purchase sensormatic franchisees maryland virginia district columbia franchise part settlement franchise acquisition company paid total approximately 86 million franchisee includes 20 million reacquisition franchise rights deemed unfavorable company compared pricing current market transactions similar arrangements 6 million related legal settlement second quarter 2008 company settled contract dispute arising former infrastructure services business relating city phoenixs 91st avenue wastewater treatment plant settlement included general release claims party litigation without party making payment party connection settlement company assessed assets original contract city phoenix concluded assets longer recoverable resulting 51 million charge discontinued operations second quarter 2008 2007 company settled 32 purported securities class action lawsuits arising actions alleged taken prior management 2975 billion amount company contributed 803 million representing share separation distribution agreement 2975 billion escrow account established connection settlement legal contingencies could affected final order approving settlement expired february 21 2008 claims administrator currently processing claims settlement purport resolve securities cases several cases remain outstanding addition settlement release claims arising erisa lawsuits arising thereunder optout deadline tyco received optout notices individuals entities totaling approximately 4 shares owned class members number individuals entities filed claims separately tyco judgments resulting claims filed future would reduce settlement amount generally claims asserted plaintiffs include claims similar asserted settling defendants namely violations disclosure provisions federal securities laws tyco intends vigorously defend litigation resulting optout claims possible predict final outcome estimate amount loss range possible loss might result adverse resolution asserted unasserted claims individuals optedout legacy securities litigation cases result adverse judgment settled significant amount could material adverse effect financial position results operations cash flows terms separation distribution agreement tyco covidien tyco electronics jointly severally liable full amount legacy securities action settlement including erisa claims judgments resulting optout claims additionally separation distribution agreement companies shared liability escrow accounts related class action settlement tyco assuming 27 covidien 42 tyco electronics 31 settlement amount result tyco incurred charge expense tax benefit available current liability 2975 billion third quarter 2007 tyco borrowed unsecured bridge credit facilities fund liability placed proceeds escrow benefit class connection separation covidien tyco electronics assumed portion related borrowing company also recovered certain costs insurers result company recorded 113 million recoveries connection class action settlement consolidated statements operations 2007 based separation distribution agreement company recorded payables covidien tyco electronics portion 2007 recoveries offset shareholders equity company recovered additional 38 million costs insurers 2008 company recorded payables covidien tyco electronics respective shares 2008 recoveries resulting net 10 million credit recorded class action settlement net consolidated statement operations since legal contingencies could affected settlement exhausted february 21 2008 administration distribution settlement funds escrow managed counsel certified class tyco subject liability related class action settlement result tyco extinguished class action liability longer claim escrow account escrow accounts earned interest payable class result interest also accrued class action settlement liability february 21 2008 class action liability escrow account balances including interest 302 billion based separation distribution agreement tyco receivable covidien tyco electronics portion liability 1257 million 927 million respectively september 28 2007 corresponding payables covidien tyco electronics interest escrow accounts receivables payables pertain class action settlement related escrow accounts counterparty presented net consolidated balance sheet tycos portion liability 808 million september 28 2007 amounts extinguished second quarter 2008 operating results net revenue operating income loss net income loss years ended september 26 2008 september 28 2007 september 29 2006 follows millions net revenue increased 17 billion 93 2008 compared 2007 result growth segments led solid year increases flow control adt worldwide electrical metal products increase net revenue flow control resulted volume growth due continued strength industrial end markets significant project growth valves business addition net revenue growth adt worldwide attributable growth geographic regions well growth north american recurring revenue base electrical metal products experienced growth primarily due selling price increases partially offset decrease volume foreign currency exchange rates positively affected 2008 772 million net impact acquisitions divestitures activity positively affected 2008 35 million operating income increased 37 billion 2008 operating loss 2007 included class action settlement charge 2862 billion 2008 operating income included class action benefit 10 million strong year income growth segments led flow control adt worldwide electrical metal products well lower corporate expenses contributed increase operating income operating income also favorably impacted result lower separation related costs goodwill impairment charges separation related costs impacted operating income 4 million 105 million goodwill impairment charges impacted operating income 9 million 46 million 2008 2007 respectively additionally operating income negatively impacted restructuring asset impairment divestiture charges net 248 million 2008 210 million 2007 net revenue increased 14 billion 83 2007 compared 2006 result growth segments increase net revenue largely driven flow control result volume growth continued strength industrial end markets addition adt worldwide strong growth asia latin america well growth recurring revenue base systems installation service north america fire protection services experienced continued growth electronic mechanical contracting foreign currency exchange rates positively affected 2007 580 million net impact acquisitions divestitures negatively affected 2007 48 million operating income decreased 31 billion 2007 operating income primarily impacted class action settlement charge net 2862 billion revenue growth segments partially offset lower margins electrical metal products primarily due unfavorable spreads steel copper products additionally operating income impacted costs incurred relating separation restructuring program announced november 2006 separation related costs impacted operating income 105 million 2007 49 million 2006 restructuring asset impairment divestiture charges net impacted operating income 210 million 15 million 2007 2006 respectively also impacting operating income goodwill impairment charge 46 million due reorganization new management segment reporting structure addition 2006 unfavorably affected 100 million charge relating preexisting voluntary replacement program certain sprinkler heads incremental stock option charges 84 million required sfas 123r sharebased payment separation related costs 49 million operating income 2006 also included 72 million income related extinguishment certain payment obligations split dollar life insurance policy rabbi trust pursuant settlement mr kozlowski former chief executive officer 48 million income resulting reduction estimated workers compensation liabilities primarily due favorable claims experience results geographic area net revenue geographic area years ended september 26 2008 september 28 2007 september 29 2006 follows millions 1revenue attributed individual countries based reporting entity records transaction segment results segment discussions follow describe significant factors contributing changes results segments included continuing operations adt worldwide net revenue operating income operating margin adt worldwide years ended september 26 2008 september 28 2007 september 29 2006 follows millions net revenue geographic area adt worldwide years ended september 26 2008 september 28 2007 september 29 2006 follows millions net revenue adt worldwide increased 369 million 48 2008 product revenue 32 service revenue 57 compared 2007 revenue product sales includes sales installation electronic security systems service revenue comprised electronic security services maintenance including monitoring burglar alarms fire alarms life safety systems well services related retailer antitheft systems approximately 50 adts total net revenue contractual considered recurring revenue overall recurring revenue grew 61 2008 systems installation service revenue grew 37 geographically north america grew 3 resulting largely growth recurring revenue partially offset weakness retailer end market north america net revenue increase also includes impact acquisitions contributed 53 million although experienced yearoveryear net revenue increase north america partially offset retailer end market continued show signs weakness fourth quarter 2008 continue monitor market conditions well current economic environment enter fiscal year 2009 revenue emea region increased 67 million 26 result foreign currency exchange rates favorable impact 151 million increase partially offset decline systems installation service revenue due weakness retailer end market well commercial softness primarily united kingdom 182 revenue growth rest world geographies primarily driven growth recurring revenue contracting across regions rest world increase included favorable impact changes foreign currency exchange rates 30 million overall adt worldwide net revenue increase included favorable impact changes foreign currency exchange rates 213 million net impact acquisitions divestitures activity positively affected revenue 27 million operating margin adt worldwide increased 114 2008 110 2007 north america one profitable geographic areas adt worldwide 2008 2007 operating margin 158 169 respectively margins north america negatively impacted 58 million restructuring asset impairments 2008 compared 8 million 2007 restructuring charges 2008 include 58 million relating reacquisition certain franchise rights deemed unfavorable company charges related reacquisition franchise rights 2007 addition north america incurred 48 million 12 million convert customers analog digital signal transmissions 2008 2007 respectively north america operating margins benefited continued growth recurring revenue partially offset declines retailer end market adt emea 2008 2007 operating margin 46 31 respectively emeas operating income included 52 million restructuring impairments 2008 compared 71 million 2007 emea margins benefited reduced costs result restructuring program partially offset volume decreases discussed attrition rates customers adt worldwide business increased prior year average 129 trailing 12month basis 2008 compared 123 2007 142 2006 increased attrition partially due analog digital conversion project partially due market conditions commercial business included customers switching contractual service agreement time material basis internationally attrition rate continued improve operating income 2008 increased 68 million 81 compared 2007 factors positively impacted operating income included increased volume particularly higher margin recurring revenue operational efficiencies including achieved restructuring activities europe lower depreciation amortization expense lower longlived asset impairment charges decrease depreciation amortization expense occurred primarily north america resulted changes depreciation method estimated useful lives pooled subscriber assets changes estimated useful lives dealer intangible assets reduction depreciation amortization expense partially offset increased net expenses 51 million primarily related converting customers analog digital signal transmissions north america results 2007 include goodwill impairment charges due reorganization management segment reporting structure following separation net revenue adt worldwide increased 61 2007 product revenue 74 service revenue 55 compared 2006 27 revenue growth north america resulted largely increase commercial installations primarily retailer market well increase recurring revenue base revenue emea region grew 98 primarily driven favorable changes foreign currency exchange rates 119 revenue growth rest world geographies primarily driven strong growth asia latin america lesser extent favorable changes foreign currency exchange rates overall net revenue favorably affected 213 million due changes foreign currency exchange rates net impact acquisitions divestitures unfavorably impacted net revenue 3 million operating income 842 million 2007 decreased 65 million 907 million 2006 factors positively impacted operating income included increased volume operational efficiencies reductions depreciation amortization expense 26 million decrease depreciation amortization expense resulted changes depreciation method estimated useful lives pooled subscriber assets changes estimated useful lives dealer intangible assets increases offset goodwill impairment charge 46 million due reorganization management segment reporting structure well increased investment selling marketing americas asia addition results 2007 included restructuring asset impairment divestiture charges net 83 million primarily related actions improve field efficiencies consolidating certain administrative functions europe impairment certain indefinite lived intangible assets restructuring asset impairment divestiture charges net 5 million 2006 flow control net revenue operating income operating margin flow control years ended september 26 2008 september 28 2007 september 29 2006 follows millions net revenue flow control increased 652 million 173 2008 compared 2007 increase net revenue largely driven volume growth continued strength valves thermal businesses lesser extent water business increase valves business primarily driven continued project growth oil gas industry thermal business benefited primarily continued strong project growth coupled increased selling prices revenue within water business increased year project activity declined second half 2008 primarily australia favorable changes foreign currency exchange rates positively impacted revenue 314 million net impact acquisitions divestitures activity positively affected revenue 6 million operating income increased 161 million 352 2008 compared 2007 primarily revenue growth well volume efficiencies flow control incurred restructuring asset impairment divestiture charges net 8 million compared 28 million 2007 additionally selling general administrative expenses 2008 included environmental remediation charge 6 million related closure facility north america compared charges 2007 net revenue flow control increased 631 million 201 2007 compared 2006 increase net revenue largely driven volume growth continued strength industrial end markets significant project growth energy water sectors growth sectors strong across geographical regions particular asiapacific europe favorable changes foreign currency exchange rates positively impacted revenue 197 million net impact acquisitions divestitures unfavorably impacted net revenue 16 million increase operating income 101 million 284 2007 compared 2006 primarily due revenue growth well improved utilization rates increase operating income 2007 partially offset restructuring asset impairment divestiture charges net 28 million includes 6 million cost sales selling general administrative expenses fire protection services net revenue operating income operating margin fire protection services years ended september 26 2008 september 28 2007 september 29 2006 follows millions net revenue fire protection services increased 187 million 56 2008 compared 2007 driven increases product sales service revenues revenue product sales includes sales installation fire protection systems service revenue comprises inspection maintenance service monitoring fire detection suppression systems increase product sales aided foreign currency exchange rates favorable impact 63 million increase service revenue related growth service work sprinkler contracting north america asia primarily result increase demand education healthcare industries north america continued commercial expansion asia pacific region additionally changes foreign currency exchange rates favorable impact 62 million service revenue increase partially offset reduced revenue emea australianew zealand primarily due decline contracting revenue result strategic initiative selective pursuit contracts additionally net revenue increase partially offset due planned exit low performing noncore activities latin america asia overall fire protection services net revenue increase included favorable impact changes foreign currency exchange rates 125 million operating income increased 63 million 244 2008 compared 2007 resulting largely increased volume improved margins primarily north america lesser extent asia emea increase operating income 2008 partially offset 22 million restructuring asset impairment divestiture charges also operating income unfavorably impacted 9 million due goodwill impairment latin america reporting unit net revenue fire protection services increased 216 million 69 2007 compared 2006 driven largely 99 increase revenue product sales increase largely result strong growth regions benefited continuing strength commercial construction activity focused endmarkets changes foreign currency exchange rates favorable impact 101 million divestitures negative impact 30 million operating income increased 17 million 2007 compared 2006 resulting largely increased volume improved margins primarily north america results 2007 included restructuring asset impairment divestiture charges net 23 million 1 million included cost sales primarily related actions improve field efficiencies consolidate certain administrative functions europe operating income unfavorably impacted 1 million divestiture charges compared charges 2006 electrical metal products net revenue operating income operating margin electrical metal products years ended september 26 2008 september 28 2007 september 29 2006 follows millions net revenue electrical metal products increased 298 million 151 2008 compared 2007 increase net revenue largely driven selling price increases steel tubular products lesser extent armored cable products partially offset decreased sales volume products changes foreign currency exchange rates favorable impact 44 million operating income increased 183 million 1151 2008 compared 2007 increase operating income primarily due favorable spreads steel tubular armored cable products inventory replenished higher prices spreads narrow result lower operating income generated higher selling prices steel tubular armored cable products partially offset decreased sales volume products operational excellence initiatives resulted reductions production cost rates steel tubular armored cable products increase operating income 2008 partially offset 43 million restructuring asset impairment divestiture charges compared 7 million 2007 net revenue electrical metal products increased 25 million 13 2007 compared 2006 favorable changes foreign currency exchange rates 20 million contributed increase revenue increase net revenue largely driven increased sales volume armored cable products steel tubular products higher selling prices sales volumes brazil increases largely offset impact lower selling prices steel tubular products north america decrease operating income 160 million 502 2007 compared 2006 primarily due unfavorable spreads steel tubular armored cable products income generated higher sales volume armored cable steel tubular products offset lower selling prices higher raw material prices results 2007 included restructuring asset impairment divestiture charges net 7 million compared charges 2006 safety products net revenue operating income operating margin safety products years ended september 26 2008 september 28 2007 september 29 2006 follows millions net revenue safety products increased 215 million 125 2008 compared 2007 primarily strong performance fire suppression lesser extent electronic security life safety businesses increase fire suppression business driven continued growth energy marine sectors favorable product mix increased selling prices offset increasing raw material costs increase life safety business primarily driven growth north america result increased spending fire departments due release federal funds increased selling prices increase electronic security business partially due higher volume new product introductions primarily related casinos schools favorable changes foreign currency exchange rates 76 million also contributed increase revenue operating income increased 10 million 36 2008 compared 2007 increase operating income primarily attributable increased sales volume along impact cost savings operational excellence initiatives increase operating income 2008 partially offset 73 million restructuring asset impairment divestiture charges net compared 29 million 2007 net revenue safety products increased 95 million 58 2007 compared 2006 primarily strong performance fire suppression electronic security businesses favorable changes foreign currency exchange rates 49 million also contributed increase revenue increase fire suppression business driven continued growth energy marine sectors americas middle east well increased selling prices help offset significant cost increase raw materials electronic security business also experienced favorable growth result new product introductions new market expansions increases partially offset continued softness life safety business north america due delays federal assistance provided fire departments operating income increased 78 million 274 million year ended september 28 2007 compared prior year prior year results included 100 million charge related preexisting voluntary replacement program vrp sprinkler heads fire suppression business deadline filing claims participate vrp ended august 31 2007 light current claims data additional 10 million charge recorded fourth quarter 2007 also results include effect restructuring asset impairment divestiture charges net 29 million corporate expense 2008 32 billion lower compared prior year primarily resulting various charges 2007 including class action settlement charge 2862 billion separation costs 117 million net restructuring asset impairment charges 40 million primarily related consolidation certain headquarter functions corporate expense 2008 included net charges 28 million composed 29 million charge legacy legal settlement 4 million separation costs 5 million restructuring asset impairment divestiture charges net offset credit 10 million class action settlement recoveries remaining decrease corporate expense primarily related cost reduction initiatives restructuring program corporate expense 2006 included 72 million income related extinguishment certain payment obligations split dollar life insurance policy rabbi trust pursuant settlement mr kozlowski former chief executive officer 48 million income resulting reduction estimated workers compensation liabilities primarily due favorable claims experience income items partially offset incremental stock option charges 47 million required sfas 123r separation related costs 49 million restructuring divestiture charges 2 million interest income expense interest income 110 million 2008 compared 104 million 46 million 2007 2006 respectively increases interest income 2008 2007 primarily related interest earned class action settlement escrow 47 41 million respectively interest expense 396 million 2008 compared 313 million 2007 279 million 2006 increases interest expense 2008 2007 result interest class action settlement liability 47 41 million respectively increased costs related bridge loan revolving credit facilities weightedaverage interest rate total debt outstanding september 26 2008 september 28 2007 september 29 2006 62 63 60 respectively 2007 2006 net interest amounts proportionally allocated covidien tyco electronics based debt amounts believe utilized covidien tyco electronics historically inclusive amounts directly incurred included discontinued operations allocated net interest calculated using historical weighted average interest rate debt including impact interest rate swap agreements portion tycos interest income allocated covidien tyco electronics 35 million 53 million 2007 2006 respectively portion tycos interest expense allocated covidien tyco electronics 242 million 378 million 2007 2006 respectively expense net expense net 224 million 2008 255 million 2007 expense net 2008 primarily relates loss 258 million extinguishment debt related consent solicitation exchange offers termination bridge loan facility offset income 6 million recorded connection settlement 3125 convertible senior debentures related financial instruments see notes 13 15 consolidated financial statements company also recorded otherthantemporary impairments realized losses sale investments 6 million related primarily investments corporate debt refer note 10 consolidated financial statements additionally company recorded 40 million income result increase receivables due covidien tyco electronics tax sharing agreement upon adoption financial accounting standards board fasb interpretation fin 48 accounting uncertain income taxesan interpretation fasb statement 109 company also recorded 6 million expense activity accordance tax sharing agreements 2008 2007 expense net consisted primarily 259 million loss early extinguishment debt incurred connection debt tender offers undertaken connection separation tax benefit available see note 13 consolidated financial statements charge consists primarily premiums paid writeoff unamortized debt issuance costs discounts total loss early extinguishment debt 647 million 259 million included continuing operations 388 million allocated covidien tyco electronics included discontinued operations income taxes effective income tax rate effective income tax rate 234 2008 income taxes 2008 positively impacted increased profitability lower tax rate jurisdictions release deferred tax valuation allowances partially offset enacted tax law changes negatively impacted nonus deferred tax assets effective tax rate 2007 meaningful primarily result class action settlement charge net 2862 billion loss early extinguishment debt 259 million tax benefit available additionally taxes 2007 negatively impacted tax costs related separation 92 million favorably impacted release deferred tax valuation allowance related nonus tax rulings received period reduced reserve requirements certain legacy tax matters effective income tax rate 2006 271 valuation allowance deferred tax assets 745 million 644 million september 26 2008 september 28 2007 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets valuation allowance calculated accordance provisions sfas 109 accounting income taxes requires valuation allowance established maintained likely portion deferred tax assets realized calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel issues raised taxing authorities adequacy recorded amounts substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year tax sharing agreement connection spinoffs covidien tyco electronics tyco entered tax sharing agreement generally governs covidiens tyco electronics tycos respective rights responsibilities obligations separation respect taxes including ordinary course business taxes incurred result failure distribution shares covidien tyco electronics qualify taxfree distribution us federal income tax purposes within meaning section 355 code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code tax sharing agreement company shares responsibility certain tycos covidiens tyco electronics income tax liabilities based sharing formula periods prior including june 29 2007 specifically tyco covidien tyco electronics share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens tyco electronics us income tax returns costs expenses associated management shared tax liabilities shared equally among parties tyco recorded receivable covidien tyco electronics 113 million september 26 2008 103 million september 28 2007 included assets estimate portion tax sharing obligations liabilities include 554 million 543 million september 26 2008 september 28 2007 respectively fair value tycos obligations tax sharing agreement determined accordance fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others tyco assesses shared tax liabilities related fin 45 liability reporting period receivable liability initially recognized offset shareholders equity 2007 first quarter 2008 connection adoption fin 48 related increase uncertain tax positions shared tax liabilities tax sharing agreement tyco increased receivable covidien tyco electronics tax sharing agreement corresponding increase income net 40 million 008 basic diluted earnings per share addition 6 million expense activity recorded accordance tax sharing agreement 2008 tyco provide payment tax sharing agreement shared income tax liabilities settled settlement expected occur audit process local taxing authorities completed impacted years given nature shared liabilities maximum amount potential future payments determinable event separation determined taxable determination result actions taken separation tyco covidien tyco electronics party responsible failure would responsible taxes imposed tyco covidien tyco electronics result thereof determination result actions taken separation tyco covidien tyco electronics tyco covidien tyco electronics would responsible 27 42 31 respectively taxes imposed tyco covidien tyco electronics result determination tax amounts could significant company responsible taxes shared pursuant tax sharing agreements sharing formula addition covidien tyco electronics responsible tax liabilities subject tax sharing agreements sharing formula party tax sharing agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party would required pay equally nondefaulting party amounts default addition another party tax sharing agreement responsible portion income tax liability default payment liability taxing authority company could legally liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances company may obligated pay amounts excess agreedupon share tycos covidiens tyco electronics tax liabilities see note 14 consolidated financial statements discussion guarantees indemnifications extended tyco covidien tyco electronics income tax matters company subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including internal revenue service irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments management assessed issues related adjustments recognition measurement fin 48 recorded unrecognized tax benefits accordance fin 48 ultimate resolution matters uncertain could result material impact companys financial position results operations cash flows effective tax rate future reporting periods 2004 connection irs audit 1997 2000 years company submitted irs proposed adjustments prior period us federal income tax returns resulting reduction taxable income previously filed 2006 irs accepted substantially proposed adjustments company developed proposed amendments us federal income tax returns additional periods 2002 basis previously accepted amendments company determined adjustments morelikelythannot accepted accordingly recorded consolidated financial statements adjustments material impact companys financial condition results operations cash flows additionally 2008 company completed proposed amendments us federal income tax returns periods subsequent 2002 primarily reflect roll forward 2006 amendments periods 1997 2002 adjustments material impact companys financial condition results operations cash flows final adjustments cannot determined income tax return amendment process irs review completed company believes resulting adjustments material impact financial condition results operations cash flows third quarter 2007 irs concluded field examination certain tycos us federal income tax returns years 1997 though 2000 issued anticipated revenue agents reports rars reflect irs determination proposed tax adjustments periods audit rars propose tax audit adjustments certain companys previously filed tax return positions company agreed irs adjustments totaling 498 million estimated cash impact company 458 million third quarter 2007 company paid 458 million 163 million related companys discontinued operations company appealed proposed tax audit adjustments totaling approximately 1 billion relating tyco covidien tyco electronics audit managing party specified tax sharing agreement company intends vigorously defend prior filed tax return positions second quarter 2008 irs issued additional rars asserting withholding tax liability approximately 106 million associated prior proposed tax adjustments related tyco covidien tyco electronics 1997 2000 period withholding tax amount asserted tyco immaterial first quarter fiscal 2009 company reached agreement irs appeals team work towards timely resolution unagreed issues related time period company audit managing party specified tax sharing agreement intends vigorously defend prior filed tax return positions determined adjustment required companys guarantees indemnifications liability recorded conjunction tax sharing agreement discussed guarantees within managements discussion analysis financial condition results operations additionally irs auditing prior tax returns company include legal entities tyco covidien tyco electronics 2001 2004 period irs issued rars period irs proposed civil fraud penalties prior subsidiary distributed tyco electronics arising alleged actions former executives connection intercompany transfers stock simplex technologies 1998 1999 based statutory guidelines estimate proposed penalties could range 30 million 50 million company audit managing party specified tax sharing agreement intends vigorously oppose assertion penalties tyco electronics part beginning 2003 company discovered investigated reported conduct issue irs fully cooperated criminal prosecution companys former chief tax officer charge willful filing false tax return preseparation shared tax matter tax sharing agreement except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries divestitures held sale reflected continuing operations third quarter 2008 company approved plan sell business safety products segment business presented continuing operations criteria discontinued operations met company assessed determined carrying value business recoverable continue assess recoverability based current fair value less cost sell business sold fair value used impairment assessment based existing market conditions company expects complete sale first half fiscal 2009 discontinued operations company continued assess strategic fit various businesses pursued divestiture certain businesses align longterm strategy 2008 part companys portfolio refinement efforts company sold eteo business ancon business ndc business european manufacturer public address products acoustic systems additionally company substantially completed sale infrastructure services business fourth quarter 2008 businesses met held sale discontinued operations criteria included discontinued operations periods presented may 2008 company sold 100 stock eteo brazilian subsidiary infrastructure services 338 million net cash proceeds recorded pretax gain 232 million including effects economic hedge purchase price discussed gain recorded income loss discontinued operations net income taxes companys consolidated statement operations eteo part companys corporate segment september 2007 tyco entered economic hedge brazilian real denominated contractual sale price eteo business since hedging transaction directly linked proceeds sale business reflected discontinued operations tyco began including impact hedge discontinued operations first quarter 2008 third quarter 2008 tyco incurred pretax loss 36 million hedge impact hedge prior year material february 2008 company executed definitive agreement sell remaining portion infrastructure services excluding earth tech brasil ltda et brasil aecom technologies corporation aecom july 2008 company substantially completed sale aecom sale completed 455 million net 20 million working capital adjustment resulting net cash proceeds 435 million 435 million net cash proceeds includes 53 million sale earth tech uk pretax gain approximately 183 million recorded income discontinued operations net income taxes companys consolidated statements operations order complete sale company required obtain consents approvals transfer legal ownership earth tech uk businesses aecom therefore july 2008 company aecom entered agreement aecom would manage uk businesses behalf company would finance uk businesses operations also part agreement aecom agreed reimburse company funding provided company closing date sale result agreement aecom assumed risks rewards ownership uk businesses september 26 2008 necessary consents approvals obtained company transfer legal ownership earth tech uk businesses aecom company expects record gain related uk businesses upon receipt necessary consents approvals expected occur first half 2009 certain assets china excluded sale expected transferred first half 2009 additional consideration approximately 55 million necessary consents approvals obtained infrastructure services et brasil earthtech uk business china assets discussed part companys corporate segment et brasil excluded sale aecom discussed company recorded pretax impairment charge approximately 16 million write et brasil fair value less cost sell 2008 fair value used impairment assessment based existing market conditions july 2008 company executed definitive agreement sell et brasil approximately 16 million net cash proceeds sale expected close first quarter 2009 upon receipt necessary consents approvals september 26 2008 company assessed determined carrying value remaining assets china et brasil recoverable based current fair value less cost sell company continue assess recoverability assets china et brasil sold 2008 company settled contract dispute arising former infrastructure services business connection settlement company assessed assets original contract concluded assets longer recoverable resulting 51 million charge discontinued operations april 2008 company sold ancon manufacturer stainless steel products used masonry construction ancon part companys corporate segment sale completed 164 million net cash proceeds pretax gain 100 million recorded largely exempt tax gain recorded income discontinued operations net income taxes companys consolidated statement operations fourth quarter 2008 company received additional 6 million proceeds related sale ancon february 2008 company sold ndc company japanese fire protection industry ndc part companys fire protection safety products segments sale completed 50 million net cash proceeds pretax gain 7 million recorded gain recorded income discontinued operations net income taxes companys consolidated statement operations january 2008 company sold european manufacturer public address products acoustic systems part companys fire protection segment recorded 8 million pretax loss sale loss recorded income discontinued operations net income taxes companys consolidated statement operations first quarter 2007 aquas industriales de jose ca aij joint venture majority owned infrastructure services sold 42 million net cash proceeds pretax gain 19 million recorded gain recorded discontinued operations net income taxes companys consolidated statement operations aij part companys corporate segment third quarter 2007 tyco completed separation presented healthcare electronics businesses discontinued operations periods presented period prior separation net interest loss early extinguishment debt included expense net consolidated statements operations amounts proportionally allocated covidien tyco electronics based debt amounts tyco believes utilized covidien tyco electronics historically inclusive amounts directly incurred allocated net interest calculated using historical weightedaverage interest rate debt including impact interest rate swap agreements allocated amounts included discontinued operations 2007 allocated interest income interest expense net 35 million 242 million 388 million respectively 2006 allocated interest income interest expense net 53 million 378 million 0 million respectively 2007 company incurred pretax separation costs related primarily professional services employeerelated costs 154 million 289 million respectively discontinued operations additionally year ended september 28 2007 includes tax charges related separation primarily writeoff deferred tax assets longer realizable 88 million discontinued operations company used available information develop best estimates certain assets liabilities related separation limited instances final determination balances made subsequent periods year ended september 28 2007 72 million recorded shareholders equity primarily related cash trueup adjustment 57 million 15 million items year ended september 26 2008 70 million items recorded shareholders equity items aggregate 85 million reflect immaterial adjustments shareholders equity recorded correct distribution amount date separation adjustments future impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor tyco electronics legal entities certain amended income tax returns periods prior separation may recorded either shareholders equity statement income depending specific item giving rise adjustment net revenue income operations gain loss sale separation costs income tax expense discontinued operations 2008 2007 2006 follows millions balance sheet information pending divestitures september 26 2008 september 28 2007 follows millions losses divestitures 2008 2007 2006 company recorded 1 million 4 million 2 million respectively divestiture charges continuing operations connection writedown fair value less cost sell certain businesses get classified discontinued operations meet criteria classification fair value used impairment assessments primarily based terms conditions included expected included sales agreements acquisitions part companys strategy strengthen product service offerings market positions company acquired winner security services llc winner sensormatic security corp ssc firstservice security firstservice 2008 june 5 2008 companys adt worldwide segment acquired substantially assets winner 90 million franchise originally granted sensormatic electronics corporation granted winner rights sell install service certain sensormatic products entitled winner commissions sensormatic products sold installed shipped franchise territories sensormatic products sold adt worldwide safety products july 9 2008 companys adt worldwide segment acquired substantially assets ssc including franchise rights agreed settle related legal matter total consideration approximately 86 million ssc franchisee sensormatic electronics corporation states virginia maryland district columbia last remaining major sensormatic franchise original franchise agreement ssc granted rights sell install service certain sensormatic products entitled commissions sensormatic products sold installed shipped franchise territories sensormatic ssc also settled previously disclosed litigation parties related ssc franchise 6 million connection transaction value ascribed settlement legal matter determined based consideration paid excess fair value franchise rights acquired transactions accounted business combinations company applied eitf issue 041 accounting preexisting relationships parties business combination since preexisting relationships company winner ssc needed assessed accounted separately assessing specific facts circumstances related transactions company recorded charges 38 million 20 million winner ssc respectively 2008 reacquisition franchise rights deemed unfavorable company compared pricing current market transactions similar arrangements company utilized income method valuation approach measuring value preexisting relationship since charges relate change manner company conduct business territories reflected restructuring charges remaining purchase price winner 52 million consists 46 million indefinitelived intangible asset 1 million customer lists amortizable 10year period 5 million goodwill remaining purchase price ssc 60 million consists 52 million indefinitelived intangible asset 4 million customer lists amortizable 10year period 4 million goodwill associated winner ssc transactions deductible tax purposes june 30 2008 companys adt worldwide segment acquired firstservice security division firstservice corporation approximately 187 million firstservice security commercial security systems integrator provides full range integrated security system services including design engineering installation servicing monitoring access control closedcircuit television intrusion systems purchase price firstservice allocated preliminary basis consists 38 million net working capital assets 5 million property plant equipment net 52 million intangible assets 92 million goodwill associated firstservice transaction deductible tax purposes additionally 2008 cash paid acquisitions included continuing operations primarily within adt worldwide safety products totaled 38 million 2007 cash paid acquisitions included continuing operations primarily within adt worldwide safety products flow control totaled 31 million cash paid acquisitions businesses included continuing operations 2006 5 million acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows aggregate amounts paid acquired businesses allocated assets acquired liabilities assumed based preliminary estimates fair value september 26 2008 purchase price allocation remains subject change based final valuations assets acquired liabilities assumed company expect finalization matters material effect allocations following represents preliminary purchase price allocations acquired businesses million acquisition liabilities september 26 2008 september 28 2007 acquisition liabilities included companys consolidated balance sheets follows millions acquisition liabilities relate facility exit costs employee severance benefits distributor supplier cancellation fees costs company paid 2 million 5 million 5 million fund acquisition liabilities 2008 2007 2006 respectively holdback liabilities company paid cash approximately 5 million 2 million 2007 2006 respectively relating holdback liabilities related certain prior period acquisitions payments 2008 holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet contingencies september 26 2008 september 28 2007 holdback liabilities included companys consolidated balance sheets follows millions adt dealer program 2008 2007 2006 tyco paid 376 million 409 million 373 million cash respectively acquire approximately 370000 415000 401000 customer contracts electronic security services adt dealer program goodwill impairment annually frequently triggering events occur company tests goodwill impairment comparing fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using companys weighted average cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired annual goodwill impairment testing fiscal year ended september 26 2008 carrying amount goodwill latin america fire protection business part fire protection services segment exceeded implied fair value goodwill result company recognized goodwill impairment 9 million fourth quarter 2008 furthermore company believes goodwill balance september 26 2008 recoverable connection separation third quarter 2007 tyco reorganized new management segment reporting structure part organizational changes company assessed new reporting units conducted valuations determine assignment goodwill new reporting units based estimated relative fair values following relative fair value goodwill allocation company tested goodwill impairment comparing fair value reporting unit carrying value amount carrying amount reporting unit exceeded fair value goodwill considered potentially impaired goodwill potentially impaired compared implied fair value reporting unit goodwill carrying amount goodwill carrying amount goodwill exceeded implied fair value goodwill australia new zealand security services business part adt worldwide segment result company recognized goodwill impairment 46 million third quarter 2007 determining fair value management relies number factors including operating results business plans economic projections anticipated future cash flows marketplace data inherent uncertainties related factors judgments applying analysis goodwill impairment however fair value determinations require considerable judgment sensitive changes factors described light current economic conditions additional impairments one reporting units could occur future periods whether connected annual impairment analysis company certain reporting units limited excess fair value carrying value goodwill balance reporting units less ten percent excess fair value carrying value aggregate approximately 24 billion september 26 2008 cumulative effect accounting change 2006 company adopted financial accounting standards board interpretation fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fin 47 clarifies timing liability recognition legal obligations associated asset retirement timing method settling obligation conditional future event may within control entity clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation fin 47 requires conditional asset retirement obligations along associated capitalized asset retirement costs initially reported fair values upon adoption company recognized liability 32 million asset retirement obligations increase 10 million carrying amount related assets 19 million 5 million reflected liabilities assets discontinued operations respectively initial recognition resulted cumulative effect accounting change 14 million aftertax loss 22 million pretax reflecting accumulated depreciation accretion would recognized prior periods provisions fin 47 effect time critical accounting policies estimates preparation consolidated financial statements conformity gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization methods security monitoringrelated assetstyco generally considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition effective beginning third quarter 2007 tyco changed depreciation method estimated useful life used account pooled subscriber system assets primarily north america related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 195 residential subscriber pools 145 265 commercial subscriber pools converts straightline methodology resulting depreciation charge greater accelerated method company continue use straightline method 14year life nonpooled subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination change method estimated useful life used account pooled subscriber system assets related deferred revenue resulted ongoing analysis pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems continue reviewed company balance sheet date assess continued appropriateness methods estimated useful lives effective beginning third quarter 2007 tyco also changed estimated useful life dealer intangibles geographical areas comprising approximately 90 net carrying value dealer intangibles 12 15 years company continues amortize dealer intangible assets accelerated basis change estimated useful life used account dealer intangibles resulted ongoing analysis pertinent factors including actual customer attrition data demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base attrition rates customers adt worldwide business 129 123 142 trailing 12month basis 2008 2007 2006 respectively revenue recognitioncontract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimates inaccurate risk revenue profits period may overstated understated product discounts granted based terms arrangements direct indirect markets participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable income taxesin determining income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future state federal international pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded significant valuation allowances intend maintain likely deferred tax assets realized income tax expense recorded future reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance would result additional income tax expense period could significant impact future earnings change valuation allowance occurs established connection acquisition adjustment may impact goodwill rather income tax provision changes tax laws rates could also affect recorded deferred tax assets liabilities future management aware changes would material effect companys financial condition results operations cash flows addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary tax liabilities relate tax uncertainties existing date acquisition business adjustment tax liabilities result adjustment goodwill recorded date acquisition goodwill indefinitelived intangible assetsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur performing assessments management relies various factors including operating results business plans economic projections anticipated future cash flows comparable transactions market data inherent uncertainties related factors judgment applying analysis goodwill indefinitelived intangible assets impairment since judgment involved performing fair value measurements used goodwill indefinitelived intangible assets impairment analyses risk carrying values goodwill indefinitelived intangible assets may overstated elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets testing goodwill impairment company follows guidance prescribed sfas 142 goodwill intangible assets first company compares fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using companys weighted average cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting unit goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit market capitalization declines may result perform goodwill impairment first step valuation analysis reporting units prior required annual assessment types events resulting analysis could result goodwill impairment charges future determining fair value rely number factors including operating results business plans economic projections anticipated future cash flows marketplace data inherent uncertainties related factors judgments applying analysis goodwill impairment however fair value determinations require considerable judgment sensitive changes factors described light current economic conditions additional impairments one reporting units could occur future periods whether connected annual impairment analysis certain reporting units limited excess fair value carrying value goodwill balance reporting units less ten percent excess fair value carrying value aggregate approximately 24 billion september 26 2008 goodwill impairments related continuing operations 9 million 46 million 2008 2007 respectively goodwill impairments related continuing operations 2006 believe goodwill balance september 26 2008 recoverable indefinite lived intangible assets consisting primarily trade names tested impairment using relief royalty method company believes intangible assets balance september 26 2008 recoverable however fair value determinations require considerable judgment sensitive change light current economic conditions impairments intangible assets could occur future periods longlived assetsassets held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairments longlived assets disposed recorded based upon fair value less cost sell applicable assets calculation fair value longlived assets based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 76 million consider current expected asset allocations pension plans well historical expected longterm rates return types plan assets determining expected longterm return plan assets 50 basis point decrease expected longterm return plan assets would increase pension expense approximately 10 million fiscal 2009 expect recent reductions value certain investments held pension plans increase pension expenses although currently expected may result material impact obligation fund plans cash liquidity capital resources recent global market economic conditions continue disrupted volatile adverse impact financial markets general volatility reached unprecedented levels result concern stability markets strength counterparties many lenders institutional investors reduced cases ceased provide funding borrowers resulting severely diminished liquidity credit availability time extent conditions persist unclear date companys cost availability funding adversely affected illiquid credit markets expect materially impacted near future continue sufficient borrowing capacity foreseeable needs based current cash flow forecast currently two syndicated multiyear revolving credit facilities 125 billion facility maturing april 25 2012 500 million facility maturing june 24 2011 aggregate commitment 175 billion september 15 2008 lehman brothers holdings inc lehman filed petition chapter 11 us bankruptcy code us bankruptcy court southern district new york lehman one lenders 125 billion revolving credit facility commitment 60 million 500 million credit facility commitment lehman exception 60 million commitments 125 billion facility believe lenders revolving credit facilities capable meeting borrowing requests may make september 25 2008 issued borrowing request 300 million 125 billion credit facility accordance terms agreement lehman portion commitment funded resulting total funding 286 million represented total amount outstanding revolving credit facilities september 26 2008 based cash flow forecast believe continue sufficient liquidity meet working capital needs even lehman remains unable unwilling participate another lender assume lehmans commitment future ability access commercial paper market related cost borrowings affected market conditions shortterm borrowing rating june 27 2008 outstanding commercial paper borrowings 358 million scheduled mature fourth quarter fiscal 2008 company intent refinance outstanding borrowings commercial paper market experienced limitations ability access market september 26 2008 successful refinancing 116 million commercial paper outstanding june 27 2008 new commercial paper issuance remaining balance refinanced 125 billion credit facility multiyear revolving credit facilities serve backstop commercial paper program intention fund future maturities commercial paper new commercial paper issuances additional borrowing credit facilities november 12 2008 686 million outstanding revolving credit facility addition available cash operating cash flows additional sources potential liquidity include committed credit lines commercial paper program public debt equity markets well ability sell trade accounts receivable continue balance cash operating investing financing uses cash investment existing core businesses strategic acquisitions divestitures dividends share repurchases believe cash position amounts available credit facilities cash provided operating activities adequate cover operational business needs result declines experienced global financial markets pension funds may continue experience negative return result increase pension costs 2009 continue monitor market conditions assess impact financial position results operations cash flows approximately 100 us 97 nonus funded pension plans invested readilyliquid investments including equity fixed income securities although believe required make material cash contribution next 12 months market conditions continue may required make incremental cash contributions pension protection act us local statutory law sources cash flow operating activities use portion cash operations years ended september 26 2008 september 28 2007 september 29 2006 follows millions 1includes depreciation expense 626 million 635 million 663 million 2008 2007 2006 respectively amortization intangible assets 528 million 513 million 517 million 2008 2007 2006 respectively 2includes net proceeds 28 million 23 million 39 million received saledisposition property plant equipment 2008 2007 2006 respectively net change working capital decreased operating cash flow 646 million 2008 components change set forth detail consolidated statements cash flows significant changes working capital included 176 million increase accounts receivable 138 million increase inventories 152 million decrease accrued liabilities primarily due accrued warranties second quarter 2008 tyco released 2960 million funds placed escrow third quarter 2007 well 60 million interest earned funds benefit class stipulated courts final order related class action settlement 2008 substantially completed sale infrastructure services business net cash proceeds 396 million sold 100 stock eteo 338 million net cash proceeds sold ancon building products 171 million net cash proceeds completed sale ndc 49 million net cash proceeds continue fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards level capital expenditures 2009 expected exceed spending levels 2008 734 million also expected exceed depreciation 626 million july 10 2008 tycos board directors approved 10 billion share repurchase program repurchased 25 million common shares 100 million also repurchased 231 million common shares 944 million 2008 completing 2007 10 billion share repurchase program 2007 repurchased 13 million common shares 56 million 2007 10 billion share repurchase program well 5 million common shares 659 million completing 2006 20 billion share repurchase program 2006 repurchased 13 million common shares 13 billion 2006 20 billion share repurchase program well 11 million common shares 12 billion completing 2005 15 billion share repurchase program first quarter 2007 launched companywide restructuring program september 26 2008 substantially completed since inception program incurred charges 395 million relating program 2008 2007 2006 paid 187 million 70 million 32 million respectively cash related restructuring activities identified additional opportunities cost savings restructuring activities fiscal 2009 expect incur restructuring charges approximately 50 million fiscal 2009 see note 3 consolidated financial statements information regarding restructuring activities income taxes paid net refunds related continuing operations 501 million 649 million 316 million 2008 2007 2006 respectively 2008 2007 2006 tyco paid 376 million 409 million 373 million cash respectively acquire approximately 370000 415000 401000 customer contracts electronic security services adt dealer program 2008 2007 2006 paid 2 million 10 million 7 million respectively cash purchase accounting holdback liabilities holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet contingencies september 26 2008 holdback liabilities consolidated balance sheets 18 million included liabilities september 26 2008 12 million acquisition liabilities remained consolidated balance sheets 3 million included accrued current liabilities 9 million included liabilities previously discussed effective june 29 2007 completed separation connection separation paid 68 million 349 million 96 million separation costs 2008 2007 2006 respectively amounts 36 million 256 million 77 million included cash flows discontinued operating activities respectively previously discussed continue active refining portfolio assessing strategic fit various businesses result continue divest businesses align overall strategy plan use expected proceeds sales well cash generated operations continue make investments businesses intended grow revenue improve productivity including restructuring actions expect also use cash selectively pursue acquisitions additionally expect continue return excess cash shareholders share repurchases dividend payments pursuant share repurchase program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved 10b51 trading plan accordance applicable regulations management believes cash generated available us sufficient fund capital liquidity needs foreseeable future including quarterly dividend payments company intends repurchase additional shares existing 10 billion share repurchase program depending credit market conditions macroeconomic factors expectations regarding future cash flows capitalization shareholders equity 155 billion 3241 per share september 26 2008 compared 156 billion 3150 per share september 28 2007 shareholders equity change significantly 2008 due net income 1553 million offset repurchase common shares subsidiary 854 million repurchase common shares held treasury 192 million dividends declared 313 million foreign currency exchange rates 307 million total debt 43 billion september 26 2008 compared 45 billion september 28 2007 total debt percentage capitalization total debt shareholders equity 22 september 26 2008 september 28 2007 respectively cash balance decreased 15 billion september 26 2008 compared 19 billion september 28 2007 decrease cash primarily due repurchase common shares capital expenditures accounts purchased adt dealer network business acquisitions dividends paid decrease offset cash generated operating segments proceeds divestitures debt tenders connection settlement litigation arising separation related public debt june 3 2008 along finance subsidiary tyco international finance sa tifsa whollyowned subsidiary company successor company tyco international group sa tigsa whollyowned subsidiary company organized laws luxembourg consummated consent solicitations exchange offers related certain series debt issued 1998 2003 indentures connection exchange offers issued 422 million principal amount 70 notes due 2019 exchange equal principal amount 70 notes due 2028 707 million principal amount 6875 notes due 2021 exchange equal principal amount 6875 notes due 2029 connection consent solicitations holders 60 notes due 2013 6125 notes due 2008 6125 notes due 2009 675 notes due 2011 6375 notes due 2011 70 notes due 2028 6875 notes due 2029 collectively received consent payments totaling 250 million terms consent exchange offers evaluated debt modification accordance eitf 9619 debtors accounting modification exchange debt instruments determined 70 notes due 2028 6875 notes due 2029 extinguished cash flows new bonds compared original bonds substantially modified result new bonds 70 notes due 2028 6875 notes due 2029 tendered exchange recorded fair value upon completion exchange offers determining fair value measured bonds initial issuance public done obtaining effective yield data derived comparable pricing received issuance bonds similar ratings covenants large public companies connection consent solicitations exchange offers recorded 222 million charge expense net loss extinguishment debt charge comprised consent payments related extinguished bonds notes due 2028 2029 premium exchanged bonds represents difference fair value book value extinguished bonds writeoff original unamortized debt issuance costs well fees paid third parties associated bonds deemed extinguished remaining portion consent payment issuance costs amortized remaining life bonds may 2008 tifsa commenced issuing commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 26 2008 tifsa 116 million commercial paper outstanding bore interest average rate 295 year ended september 28 2007 recorded 259 million charge expense net loss early extinguishment debt related debt tender offers connection separation bank revolving credit facilities june 24 2008 tyco tifsa entered 500 million senior unsecured revolving credit agreement citibank na administrative agent lenders party thereto credit agreement threeyear term borrowings agreement variable interest rate based libor alternate base rate margin libor vary based changes credit rating facility utilization together existing 125 billion fiveyear senior revolving credit agreement dated april 25 2007 total commitments facilities increased 175 billion revolving credit facilities used working capital expenditures corporate purposes september 26 2008 286 million drawn unsecured revolving credit facilities november 12 2008 686 million outstanding discussed exception 60 million commitments lehman believe lenders revolving credit facility capable meeting borrowing requests tifsa may make april 25 2007 certain subsidiaries syndicate banks entered 364day unsecured bridge loan facility october 1 2007 commitments respect unused portion unsecured bridge loan facility expired subsequently renewed terminated connection overall facilitys termination june 2008 unsecured bridge loan facility provided us sufficient liquidity repay outstanding public debt borrowings 40 billion facility could used repay settle otherwise extinguish public debt subject ongoing litigation us trustee public debt june 2008 settled litigation terminated facility connection facility termination recorded 36 million charge expense net writeoff unamortized debt issuance costs june 21 2007 tyco tifsa entered 500 million letter credit facility citibank na administrative agent scheduled expire june 15 2008 facility provided issuance letters credit supported related line credit facility effective june 6 2008 facility commitments facility terminated tifsas bank credit agreements contain customary terms conditions financial covenants limit ratio debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive business convertible debentures september 28 2007 tifsa 21 million outstanding 3125 convertible senior debentures due 2023 2015 put option 3125 convertible senior debentures august 25 2008 delivered holders notice redemption 19 million remaining principal amount 3125 convertible senior debentures originally convertible tyco shares result separation transactions undertaken us 2007 debentures became convertible common shares tyco international ltd covidien ltd tyco electronics ltd 3125 convertible debentures converted 11496 common shares three separate companies per 1000 principal amount fourth quarter fiscal year 2008 issued 217589 shares tyco common stock obtained shares covidien ltd tyco electronics connection redemption 3125 convertible senior debentures additionally fourth quarter recorded gain 6 million upon exercise conversion option holders see note 15 consolidated financial statements last redemption date september 25 2008 notes outstanding date redeemed available cash september 26 2008 amounts remain outstanding 3125 convertible senior debentures following tables detail longterm shortterm debt ratings september 26 2008 september 28 2007 security ratings set forth recommendation buy sell hold securities may subject revision withdrawal assigning rating organization rating evaluated independently rating commitments contingencies contractual obligations contractual obligations commitments principal debt minimum lease payment obligations noncancelable operating leases obligations september 26 2008 follows millions 1excludes debt discount swap activity includes amounts outstanding revolving credit facilities included amount debt maturing 2009 116 million commercial paper borrowings company classified longterm september 26 2008 debt matures 2009 classified longterm consolidated balance sheet settlement debt expected require use working capital next year company intent ability refinance debt longterm basis 2interest payments consist interest fixed interest rate debt excludes interest variable interest rate debt 3excludes interest 4purchase obligations consist commitments purchases good services 5other longterm liabilities primarily consist following pension postretirement costs income taxes warranty environmental liabilities excluded table unable estimate timing payment items due inherent uncertainties obligations type minimum required contributions pension plans expected approximately 63 million 2009 expect pay 7 million 2009 related postretirement benefit plans 6during first quarter 2008 adopted provisions fin 48 september 26 2008 recorded gross unrecognized tax benefits 369 million gross interest penalties 49 million classified noncurrent liabilities consolidated balance sheet payment expected within one year time unable make reasonably reliable estimate timing payments future years therefore amounts excluded contractual obligation table 6125 public notes due 2008 2009 300 million 215 million mature first second quarter fiscal year 2009 respectively based market conditions liquidity needs intend pay maturities debt either drawing existing credit facility accessing debt market terms acceptable company november 12 2008 total outstanding balance credit facility 686 million june 24 2008 tyco tifsa entered new 500 million senior unsecured revolving credit agreement citibank na administrative agent lenders party therto credit agreement threeyear term borrowings agreement variable interest rate based libor alternate base rate margin libor vary based changes credit rating facility utilization together existing 125 billion fiveyear senior revolving credit agreement dated april 25 2007 total commitments facilities increased 175 billion discussed september 26 2008 total commitments 175 billion revolving credit facilities 500 million matures june 24 2011 125 billion matures april 25 2012 additionally 60 million worth commitments 125 billion facility held lehman defaulted obligations agreement september 26 2008 286 million outstanding revolving credit facilities november 12 2008 686 million outstanding september 26 2008 total outstanding letters credit bank guarantees 633 million may 2008 tifsa commenced issuing commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 26 2008 tifsa 116 million commercial paper outstanding bore interest average rate 295 september 26 2008 classified 116 million shortterm borrowings longterm settlement debt expected require use working capital next year intent ability refinance debt longterm basis normal course business liable contract completion product performance opinion management obligations significantly affect financial position results operations cash flows connection separation entered liability sharing agreement regarding certain class actions pending tyco prior separation distribution agreement covidien tyco electronics jointly severally liable full amount judgments resulting actions subject agreement generally relate legacy claims including erisa fcpa securities claims separation distribution agreement also provides responsible 27 covidien 42 tyco electronics 31 payments resolve matters costs expenses associated management contingencies shared equally among parties addition agreement manage control legal matters related assumed contingent liabilities described separation distribution agreement including defense settlement thereof subject certain limitations tyco assumed 27 covidien assumed 42 tyco electronics assumed 31 certain tyco preseparation contingent corporate liabilities include securities class action litigation employee retirement income security act erisa class action litigation certain legacy tax contingencies actions respect spinoffs distributions made brought third party amounts relating contingent corporate liabilities paid tyco spinoffs subject allocation provisions separation distribution agreement shared among tyco covidien tyco electronics pursuant allocation ratio described separation distribution agreement tyco electronics covidien jointly severally liable amounts relating previously disclosed securities class action settlement costs expenses tyco incurs connection defense litigation amount judgment settlement allocated manner described borne equally covidien tyco electronics tyco legal matters class actions discussion contingencies related tycos securities class actions class action settlement erisa related litigation tyco litigation former senior management litigation related public debt various legal matters see item 3 legal proceedings generally obligated indemnify directors officers former directors officers named defendants matters extent required bermuda law may time seek engage plaintiffs counsel settlement discussions unable time estimate ultimate liability matters may possible required pay judgments settlements incur expenses excess insurance coverage aggregate amounts could material adverse effect financial position results operations cash flows investigations detailed discussion contingencies related governmental investigations related tyco see item 3 legal proceedingssubpoenas document requests governmental entities cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government entities instrumentalities turn could negatively impact business nongovernmental customers suffer penalties adverse impacts could material adverse effect business possible estimate amount loss range possible loss might result adverse resolution matters environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites detailed discussion contingencies related tycos environmental matters see item 1 businessenvironmental matters item 3 legal proceedingsenvironmental matters asbestos matters tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials detailed discussion tycos contingencies related matters see item 3 legal proceedingsasbestos matters income taxes tyco subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies related interest assessed fin 48 recorded appropriate detailed discussion contingencies related tycos income taxes see item 3 legal proceedingsincome tax matters compliance matters tyco received responded various allegations information improper activities conducted tyco employees recent years particular respect doj sec investigations resulted performing companywide baseline review policies controls practices relate foreign corrupt practices act detailed discussion contingencies others related tycos compliance efforts see item 3 legal proceedingscompliance matters company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows backlog september 26 2008 backlog unfilled orders 97 billion compared backlog 90 billion september 28 2007 expect approximately 86 backlog september 26 2008 filled 2009 backlog segment september 26 2008 september 28 2007 follows millions within adt worldwide backlog increased primarily result recurring revenueinforce represents 12 months fees monitoring maintenance services contract security business total account base grew 16 year 72 million accounts amount recurring revenueinforce september 26 2008 september 28 2007 397 billion 393 billion respectively flow control increased bookings mostly asiapacific americas regions backlog within fire protection services increased primarily result increased orders asia north america offbalance sheet arrangements sale accounts receivable certain tycos international businesses utilize sale accounts receivable shortterm financing mechanisms aggregate amount outstanding companys remaining international accounts receivable programs 65 million 76 million 75 million september 26 2008 september 28 2007 september 29 2006 respectively guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2008 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien tyco electronics accordance terms separation distribution agreement tax sharing agreement guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 6 consolidated financial statements discussion tax sharing agreement time separation tyco recorded liability necessary recognize fair value guarantees indemnifications accordance financial accounting standards board fasb interpretation fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others absence observable transactions identical similar guarantees company determined fair value guarantees indemnifications utilizing expected present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using companys incremental borrowing rate liability necessary reflect fair value guarantees indemnifications tax sharing agreement 554 million 543 million included liabilities consolidated balance sheet september 26 2008 september 28 2007 respectively guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 16 consolidated financial statements discussion tax sharing agreement addition tyco historically provided support form financial andor performance guarantees various covidien tyco electronics operating entities connection separation company worked guarantee counterparties cancel assign guarantees covidien tyco electronics extent guarantees assigned prior separation date tyco assumed primary liability remaining support estimated fair values obligations 7 million included liabilities consolidated balance sheets recorded accordance fin 45 offset shareholders equity separation date disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see item 1 businessenvironmental matters discussion liabilities normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company records estimated product warranty costs time sale information estimated product warranty see notes 1 14 consolidated financial statements 2001 division safety products initiated voluntary replacement program vrp associated acquisition central sprinkler vrp relates replacement certain oring seal sprinkler heads originally manufactured central sprinkler prior tycos acquisition program sprinkler heads replaced free charge property owners third quarter 2006 company completed comprehensive review reported claims recent claim rates cost trends assessed future program company determined additional liability necessary order satisfy companys obligation vrp result company recorded 100 million charge reflected cost sales may 1 2007 consumer products safety commission company announced august 31 2007 deadline filing claims participate vrp company fulfill valid claims replacement qualifying sprinklers received august 31 2007 fourth quarter 2007 company assessed expected cost complete program light current claims data determined additional accrual 10 million necessary satisfy estimated remaining obligation ultimate cost complete program impacted number factors changes material labor costs actual number sprinkler heads replaced actual results could differ estimate settlements 2008 include cash expenditures 49 million related vrp accounting pronouncements recently adopted accounting pronouncementsin june 2006 financial accounting standards board fasb issued financial accounting standards board interpretation fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns fin 48 became effective tyco first quarter 2008 result adopting fin 48 tyco increased reserve uncertain tax positions 55 million reduced deferred tax assets 24 million corresponding 79 million cumulative effect adjustment shareholders equity see note 6 consolidated financial statements additional information related adoption fin 48 recently issued accounting pronouncementsin may 2008 fasb issued statement financial accounting standards sfas 162 hierarchy generally accepted accounting principles sfas 162 sfas 162 identifies sources accounting principles framework selecting principles used preparation financial statements sfas 162 effective 60 days following secs approval public company accounting oversight board amendments au section 411 meaning present fairly conformity generally accepted accounting principles company expect standard material impact results operations financial position cash flows april 2008 fasb issued staff position fsp 1423 determination useful life intangible assets fsp 1423 amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset sfas 142 goodwill intangible assets fsp 1423 effective tyco first quarter 2010 company currently assessing impact fsp 1423 results operations financial position cash flows march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities sfas 161 intended improve financial reporting derivative instruments hedging activities requiring enhanced disclosures enable investors better understand effects entitys results operations financial position cash flows disclosure provisions sfas 161 effective tyco second quarter 2009 december 2007 fasb issued sfas 141 revised 2007 business combinations sfas 141r retains underlying concepts sfas 141 business combinations still accounted fair value however accounting certain aspects business combinations affected acquisition costs generally expensed incurred restructuring costs associated business combination generally expensed subsequent acquisition date inprocess research development recorded fair value indefinitelived intangible acquisition date completed abandoned useful life determined changes deferred tax asset valuation allowances uncertain tax positions acquisition date generally impact income tax expense sfas 141r also expands required disclosures surrounding nature financial effects business combinations sfas 141r effective prospective basis tyco first quarter fiscal 2010 december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 sfas 160 requires recognition noncontrolling interest minority interest prior adoption sfas 160 equity consolidated financial statements amount net income attributable noncontrolling interest included consolidated net income face statement income sfas 160 also amends certain accounting research bulletin 51s consolidation procedures order achieve consistency requirements sfas 141r statement also includes expanded disclosure requirements regarding interests parent noncontrolling interest statement effective tyco first quarter fiscal 2010 company currently assessing impact sfas 160 results operations financial position cash flows february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities sfas 159 permits entity contractbycontract basis make irrevocable election account certain types financial instruments warranty insurance contracts fair value rather historical cost changes fair value whether realized unrealized recognized earnings sfas 159 effective tyco first quarter 2009 company currently assessing impact sfas 159 results operations financial position cash flows september 2006 fasb issued sfas 157 fair value measurements enhances existing guidance measuring assets liabilities fair value sfas 157 defines fair value establishes framework measuring fair value expands disclosure fair value measurements february 2008 fasb issued fasb staff position 1571 application fasb statement 157 fasb statement 13 accounting pronouncements address fair value measurements purposes lease classification measurement statement 13 exclude sfas 13 accounting leases accounting pronouncements address fair value measurements purposes lease classification measurement sfas 13 fasb staff position 1572 effective date fasb statement 157 permits companies partially defer effective date sfas 157 one year nonfinancial assets liabilities recognized disclosed fair value financial statements nonrecurring basis october 2008 fasb issued fasb staff position 1573 determining fair value financial asset market asset active clarifies application sfas 157 financial asset active market first quarter 2009 company elected defer adoption sfas 157 one year nonfinancial assets liabilities recognized disclosed fair value financial statements nonrecurring basis sfas 157 effective tyco first quarter 2009 company currently assessing impact sfas 157 results operations financial position cash flows september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r sfas 158 requires employers recognize funded status defined benefit pension postretirement benefit plans net asset liability balance sheet recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized component net periodic benefit cost company adopted recognition disclosure provisions sfas 158 september 28 2007 sfas 158 also requires companies measure plan assets benefit obligations fiscal year end company presently uses measurement date august 31st measurement date provisions become effective fiscal 2009 company currently assessing impact sfas 158 measurement date provisions results operations financial position cash flows june 2008 fasb ratified fasb staff position eitf 0361 determining whether instruments granted sharebased payment transactions participating securities fsp eitf 0361 addresses whether instruments granted sharebased payment awards participating securities prior vesting therefore must included earnings allocation calculating earnings per share twoclass method described sfas 128 earnings per share sfas 128 fsp eitf 0361 requires unvested sharebased payment awards contain nonforfeitable rights dividends dividendequivalents treated participating securities calculating earnings per share fsp eitf 0361 effective tyco fiscal 2010 interim periods within fiscal years shall applied retrospectively prior periods currently evaluating effects fsp eitf 0361 may earnings per share forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed security exchange commission sec tycos communications discussions investors analysts normal course business meetings web casts phone calls conference calls regarding expectations respect sales earnings cash flows operating efficiencies product expansion backlog consummation benefits acquisitions divestitures well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performance achievements factors might affect forwardlooking statements include among things •overall economic business conditions •the demand tycos goods services •competitive factors industries tyco competes •changes tax requirements including tax rate changes new tax laws revised tax law interpretations •results consequences tycos internal investigation governmental investigations concerning companys governance management internal controls operations including business operations outside united states •the outcome litigation governmental proceedings •effect income tax audit settlements •the ratings debt ability repay refinance outstanding indebtedness matures •our ability operate within limitations imposed financing arrangements maintain credit ratings •interest rate fluctuations changes borrowing costs •other capital market conditions including availability funding sources currency exchange rate fluctuations •availability fluctuations prices key raw materials including steel copper •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability achieve cost savings connection companys strategic restructuring six sigma initiatives •potential impairment goodwill andor longlived assets •the impact fluctuations price tyco common shares •changes us nonus governmental laws regulations •the possible effects tyco future legislation united states may limit eliminate potential us tax benefits resulting tycos incorporation bermuda deny us government contracts tyco based upon incorporation bermuda item 7aitem 7 managements discussion analysis financial condition results operations following discussion analysis financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information introduction consolidated financial statements include consolidated results tyco international ltd company organized laws switzerland subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance accounting principles generally accepted united states gaap company operates following business segments •adt worldwide designs sells installs services monitors electronic security systems residential commercial industrial governmental customers •flow control designs manufactures sells services valves pipes fittings valve automation heat tracing products oil gas energy markets along general process industries water wastewater markets •fire protection services designs sells installs services fire detection fire suppression systems commercial industrial governmental customers •electrical metal products designs manufactures sells galvanized steel tubing armored wire cable metal products nonresidential construction electrical fire safety mechanical customers •safety products designs manufactures sells fire suppression electronic security life safety products including fire suppression products breathing apparatus intrusion security access control video management systems addition safety products manufactures products installed serviced adt worldwide fire protection services also provide general corporate services segments costs reported corporate references segment data companys continuing operations certain prior period amounts reclassified conform current period presentation company realigned certain business operations september 27 2008 resulted certain prior period segment amounts recast see note 20 consolidated financial statements overview outlook overall fiscal year 2009 results negatively affected economic downturn adversely impacted businesses across nearly geographies industries revenue decreased 30 billion 147 compared 2008 goodwill intangible asset impairment charges largely responsible operating loss 15 billion year compared operating income 19 billion 2008 approximately one half 2009 revenue decline due general strengthening us dollar 2009 half revenue generated outside us remaining revenue decline due large part electrical metal products business saw historically low volumes 2009 impact weakened global economy product systems installation revenue also significantly contributed yearoveryear decline hand service revenue continued grow percentage overall revenue 35 2008 39 2009 service revenues principally derived adt worldwide fire protection services businesses represent predictable consistent source revenue recurring revenue adt worldwide business represents approximately 55 adts total revenue compared approximately 50 2008 fire protection services business service revenue increased percentage fire protections total revenue 48 2008 49 2009 operating income declined 2009 compared 2008 due large part noncash goodwill intangible asset impairment charges approximately 27 billion 2009 operating income also negatively affected charges related restructuring asset impairment divestiture activity approximately 251 million charges related legacy legal matters approximately 125 million lesser degree operating income negatively impacted reduced volumes due economic downturn operating income benefited number key cost containment actions taken 2009 2008 well restructuring actions taken prior periods continue aggressive identifying cost saving opportunities restructuring activities benefit company economy improves 2010 expect incur additional 100 million 150 million charges related restructuring activity september 25 2009 companys cash balance 24 billion compared 15 billion september 26 2008 increase 2008 2009 primarily due cash flow operating activities proceeds received issuance longterm debt 2010 expect continue use cash fund internal growth opportunities improve productivity across businesses make acquisitions strategically fit within adt worldwide fire protection services flow control businesses return capital shareholders 2010 expect continue portfolio refinement efforts exiting areas provided expected provide adequate return investment finally 2010 continue focus growing revenue key emerging markets noted taking advantage restructuring opportunities expected provide significant future cost savings goodwill intangible asset impairments annually fiscal fourth quarter frequently triggering events occur company tests goodwill indefinitelived intangible assets impairment comparing fair value reporting unit indefinitelived intangible assets carrying amount second quarter 2009 company concluded emea security emea fire reporting units within adt worldwide fire protection services segments respectively electrical metal products reporting unit within electrical metal products segment access control video systems acvs life safety sensormatic retail solutions srs reporting units within safety products segment experienced triggering events carrying values reporting units likely exceeded fair values result triggering events company performed longlived asset goodwill intangible asset impairment tests reporting units certain companys trade names franchise rights results goodwill impairment tests indicated implied goodwill amount less carrying amount goodwill aforementioned reporting units company recorded aggregate noncash impairment charge 26 billion 26 billion aftertax second quarter 2009 noncash impairment charge recorded goodwill intangible asset impairments companys consolidated statements operations quarter ended march 27 2009 also second quarter 2009 companys estimates future cash flows used determining fair value safety products segment sensormatic tradename well certain adt worldwide segment franchise rights revised downward relative estimates used companys tests fourth quarter 2008 results impairment test indicated safety products sensormatic tradename adt worldwide franchise rights estimated fair values less respective carrying amounts result company recorded aggregate noncash impairment charge 64 million 40 million aftertax second quarter 2009 noncash impairment charge recorded goodwill intangible asset impairments companys consolidated statements operations quarter ended march 27 2009 operating results net revenue operating loss income net loss income years ended september 25 2009 september 26 2008 september 28 2007 follows millions net revenue decreased 30 billion 147 2009 compared 2008 large part due changes foreign currency exchange rates negatively affected 2009 15 billion remaining decrease revenue driven primarily lower volume steel products electrical metal products segment weakness commercial markets including retailer end market negatively impacted adt worldwide safety products segments revenues positively affected 110 million acquisitions divestitures primarily adt worldwide segment operating income decreased 34 billion operating loss 15 billion 2009 operating loss included aggregate goodwill impairment charge 26 billion relating reporting units electrical metal products adt worldwide fire protection services safety products segments intangible asset impairment charges 64 million relating assets adt worldwide safety products segments 2009 additionally lower volumes primarily electrical metal products safety products segments negatively impacted operating income addition 2009 included legacy legal settlement charges 125 million well restructuring asset impairment divestiture charges net 251 million operating income 2008 included separation related costs 4 million restructuring asset impairment divestiture charges net 247 million legacy settlement charge 29 million offset credit 10 million class action settlement recoveries changes foreign currency exchange rates negatively affected operating income 61 million 2009 results geographic area net revenue geographic area years ended september 25 2009 september 26 2008 september 28 2007 follows millions 1revenue attributed individual countries based reporting entity records transaction segment results segment discussions follow describe significant factors contributing changes results segments included continuing operations adt worldwide net revenue goodwill intangible asset impairments operating income operating margin adt worldwide years ended september 25 2009 september 26 2008 september 28 2007 follows millions 1certain operating margins presented management believes calculations meaningful net revenue geographic area adt worldwide years ended september 25 2009 september 26 2008 september 28 2007 follows millions net revenue adt worldwide decreased 716 million 93 2009 compared 2008 decrease primarily driven unfavorable impact changes foreign currency exchange rates 590 million revenue positively affected 152 million net impact acquisitions divestitures revenue product sales decreased 166 service revenue decreased 54 revenue product sales includes sales installation electronic security systems service revenue comprised electronic security services maintenance including monitoring burglar alarms fire alarms life safety systems well services related retailer antitheft systems approximately 55 adts total net revenue contractual considered recurring revenue recurring revenue declined 36 2009 primarily result changes foreign currency exchange rates unfavorably impacted recurring revenue 75 offset growth north america asia systems installation service revenue declined 153 partially due result changes foreign currency exchange rates unfavorably impacted system installation service revenue 83 lower sales volume due continued weakness commercial markets including retailer end market geographically revenue north america decreased 48 million 11 resulting reduced spending primarily commercial markets including retailer end market revenue emea decreased 521 million 221 largely result foreign currency exchange rates unfavorable impact 323 million remaining decrease emea primarily result decline systems installation service revenue due slowdown commercial markets including retailer end market revenue declined 147 million 127 rest world geographies primarily due unfavorable impact changes foreign currency exchange rates 219 million partially offset growth asia latin america attrition rates customers adt worldwide business increased prior year 134 trailing 12month basis 2009 compared 129 2008 123 2007 increased attrition primarily due adverse market conditions united kingdom continental europe south africa asia australia operating income 2009 decreased 673 million compared 2008 based deterioration commercial markets including retailer end market discussed company recorded goodwill impairment charge 613 million related adt emea reporting unit intangible asset impairment charges 22 million related certain franchise rights within north america second quarter 2009 decrease also related unfavorable impact changes foreign currency exchange rates 44 million decrease driven decline sales volume well increase bad debt charges result weakness experienced commercial markets including retailer end market current adverse global economic conditions additionally advertising costs increased adversely affected operating income operating income negatively impacted restructuring asset impairment divestiture charges 87 million 2009 operating income 2008 included restructuring charges 94 million expenses 51 million primarily convert customers analog digital signal transmission north america charges related converting customers digital signal 2009 decline operating income partially offset savings realized cost containment restructuring actions net revenue adt worldwide increased 443 million 61 2008 product revenue 50 service revenue 67 compared 2007 approximately 50 adts total net revenue contractual considered recurring revenue overall recurring revenue grew 72 2008 systems installation service revenue grew 49 geographically north america grew 3 resulting largely growth recurring revenue partially offset weakness retailer end market north america net revenue increase also includes impact acquisitions contributed 53 million yearoveryear net revenue increase north america partially offset weakness retailer end market fourth quarter 2008 revenue emea region increased 141 million 64 result foreign currency exchange rates favorable impact 142 million increase partially offset decline systems installation service revenue due weakness retailer end market well commercial softness primarily united kingdom 182 revenue growth rest world geographies primarily driven growth recurring revenue contracting across regions rest world increase included favorable impact changes foreign currency exchange rates 30 million overall adt worldwide net revenue increase included favorable impact changes foreign currency exchange rates 204 million net impact acquisitions divestitures activity positively affected revenue 27 million operating margin adt worldwide increased 117 2008 112 2007 north america one profitable geographic areas adt worldwide 2008 2007 operating margin 158 169 respectively margins north america negatively impacted 57 million restructuring asset impairments 2008 compared 6 million 2007 restructuring charges 2008 include 58 million relating reacquisition certain franchise rights deemed unfavorable company charges related reacquisition franchise rights 2007 addition north america incurred 48 million 12 million convert customers analog digital signal transmissions 2008 2007 respectively north america operating margins benefited growth recurring revenue partially offset declines retailer end market adt emea 2008 2007 operating margin 50 25 respectively emeas operating income included 34 million restructuring impairments 2008 compared 67 million 2007 emea margins benefited reduced costs result restructuring program partially offset volume decreases discussed operating income 2008 increased 89 million 109 compared 2007 factors positively impacted operating income included increased volume particularly higher margin recurring revenue operational efficiencies including achieved restructuring activities europe lower depreciation amortization expense lower longlived asset impairment charges decrease depreciation amortization expense occurred primarily north america resulted changes depreciation method estimated useful lives pooled subscriber assets changes estimated useful lives dealer intangible assets reduction depreciation amortization expense partially offset increased net expenses 51 million primarily related converting customers analog digital signal transmissions north america results 2007 include goodwill impairment charges due reorganization management segment reporting structure following separation flow control net revenue operating income operating margin flow control years ended september 25 2009 september 26 2008 september 28 2007 follows millions net revenue flow control decreased 568 million 129 2009 compared 2008 decrease net revenue primarily driven unfavorable impact changes foreign currency exchange rates 462 million revenue also decreased due reduced volume water business reduced project activity energy end market thermal controls business decrease revenue partially offset increase valves business primarily energy end market emea net impact acquisitions divestitures unfavorably impacted net revenue 3 million 2009 favorably impacted net revenue 16 million 2008 operating income decreased 100 million 162 2009 compared 2008 decrease operating income primarily due unfavorable impact changes foreign currency exchange rates 73 million well decreased volume water businesses discussed offset margin improvements valves business margins also negatively impacted restructuring asset impairment divestiture charges 29 million additionally management estimates 5 million additional charges resulting restructuring actions incurred 2009 restructuring asset impairment divestiture charges 8 million 2008 additionally selling general administrative expenses 2008 included environmental remediation charge 6 million related closure facility north america decline operating income partially offset savings realized cost containment restructuring actions net revenue flow control increased 652 million 173 2008 compared 2007 increase net revenue largely driven volume growth continued strength valves thermal businesses lesser extent water business increase valves business primarily driven project growth oil gas industry thermal business benefited primarily strong project growth coupled increased selling prices revenue within water business increased yearoveryear project activity declined second half 2008 primarily australia favorable changes foreign currency exchange rates positively impacted revenue 314 million net impact acquisitions divestitures activity positively affected revenue 6 million operating income increased 161 million 352 2008 compared 2007 primarily revenue growth well volume efficiencies flow control incurred restructuring asset impairment divestiture charges net 8 million compared 28 million 2007 additionally selling general administrative expenses 2008 included environmental remediation charge 6 million related closure facility north america compared charges 2007 fire protection services net revenue goodwill intangible asset impairments operating income operating margin fire protection services years ended september 25 2009 september 26 2008 september 28 2007 follows millions 1certain operating margins presented management believes calculations meaningful net revenue fire protection services decreased 411 million 107 2009 compared 2008 decrease primarily due impact unfavorable changes foreign currency exchange rates 294 million additionally revenue declined due continued weakness commercial market current adverse global economic conditions revenue product sales includes sales installation fire protection systems service revenue consists inspection maintenance service monitoring fire detection suppression systems geographically revenue international fire businesses decreased 294 million largely due impact unfavorable changes foreign currency exchange rates discussed well continued weakness european commercial markets additionally revenue north america simplexgrinnell business decreased 116 million primarily due decline systems installation upgrade activity sprinkler business operating income decreased 257 million 2009 compared 2008 decrease primarily due 180 million goodwill impairment emea recorded 2009 compared 9 million goodwill impairment latin america recorded 2008 decrease driven decline sales volume discussed well increase bad debt charges result weakness experienced commercial markets current adverse global economic conditions restructuring asset impairment divestiture charges 45 million 2009 compared 25 million 2008 additionally operating income decreased due unfavorable impact changes foreign currency exchange rates 9 million decline operating income partially offset savings realized cost containment restructuring actions net revenue fire protection services increased 113 million 30 2008 compared 2007 driven increases product sales service revenues increase product sales aided foreign currency exchange rates favorable impact 74 million increase service revenue related growth service work sprinkler contracting north america asia primarily result increase demand education healthcare industries north america commercial expansion asia region additionally changes foreign currency exchange rates favorable impact 60 million service revenue increase partially offset reduced revenue emea australianew zealand primarily due decline contracting revenue result strategic initiative selective pursuit contracts additionally net revenue increase partially offset due planned exit low performing noncore activities latin america asia overall fire protection services net revenue increase included favorable impact changes foreign currency exchange rates 134 million operating income increased 42 million 148 2008 compared 2007 resulting largely increased volume improved margins primarily north america lesser extent asia emea increase operating income 2008 partially offset 25 million restructuring asset impairment divestiture charges also operating income unfavorably impacted 9 million due goodwill impairment latin america reporting unit electrical metal products net revenue goodwill intangible asset impairments operating income operating margin electrical metal products years ended september 25 2009 september 26 2008 september 28 2007 follows millions 1certain operating margins presented management believes calculations meaningful net revenue electrical metal products decreased 880 million 387 2009 compared 2008 decrease revenue primarily due lower volume selling prices steel products largely resulting decline commercial market north america lower volume selling prices armored cable products also contributed decline changes foreign currency exchange rates unfavorable impact 52 million net impact acquisitions divestitures negatively affected revenue approximately 31 million operating income decreased 13 billion 2009 compared 2008 based sales volume decrease well significant decline price steel company recorded goodwill impairment charge 935 million second quarter 2009 goodwill impairment recorded 2008 decrease operating income also related volume declines well lower spreads steel products spreads steel products continued decline direct result higher raw material costs lower selling prices lower restructuring divestiture charges incurred 2009 compared similar charges incurred 2008 partially offset decline operating income discussed results 2009 included restructuring divestiture charges 21 million compared 43 million 2008 additionally management estimates 1 million additional charges resulting restructuring actions incurred 2009 net revenue electrical metal products increased 298 million 151 2008 compared 2007 increase net revenue largely driven selling price increases steel tubular products lesser extent armored cable products partially offset decreased sales volume products changes foreign currency exchange rates favorable impact 44 million operating income increased 183 million 1151 2008 compared 2007 increase operating income primarily due favorable spreads steel tubular armored cable products income generated higher selling prices steel tubular armored cable products partially offset decreased sales volume products operational excellence initiatives resulted reductions production cost rates steel tubular armored cable products increase operating income 2008 partially offset 43 million restructuring asset impairment divestiture charges compared 7 million 2007 safety products net revenue goodwill intangible asset impairments operating income operating margin safety products years ended september 25 2009 september 26 2008 september 28 2007 follows millions 1certain operating margins presented management believes calculations meaningful net revenue safety products decreased 382 million 198 2009 compared 2008 decrease primarily related reduced volume fire suppression business life safety electronic security businesses continued impacted soft economic conditions remaining decrease related unfavorable impact changes foreign currency exchange rates 122 million decrease fire suppression business primarily due reduced spending commercial construction market decrease life safety business primarily due reduced municipal spending electronic security business decrease primarily due slow retail sector retail capital projects new store openings canceled delayed operating income decreased 11 billion 2009 compared 2008 decline primarily attributable goodwill intangible impairment charges 955 million recorded quarter ended march 27 2009 result continued slowdown commercial retail markets discussed decreased sales volume within fire suppression life safety electronic security businesses also negatively impacted operating income operating income negatively impacted restructuring asset impairment divestiture charges 46 million 2009 additionally management estimates 9 million additional charges resulting restructuring actions incurred 2009 period prior year included 73 million restructuring asset impairment charges operating income also decreased 18 million due unfavorable changes foreign currency exchange rates operating income also negatively impacted charge 8 million relating amount depreciation amortization expense would recorded business previously classified held sale continuously classified held used see note 2 consolidated financial statements net revenue safety products increased 215 million 125 2008 compared 2007 primarily strong performance fire suppression lesser extent electronic security life safety businesses increase fire suppression business driven continued growth energy marine sectors favorable product mix increased selling prices offset increasing raw material costs increase life safety business primarily driven growth north america result increased spending fire departments increased selling prices increase electronic security business partially due higher volume new product introductions primarily related casinos schools favorable changes foreign currency exchange rates 76 million also contributed increase revenue operating income increased 10 million 36 2008 compared 2007 increase operating income primarily attributable increased sales volume along impact cost savings operational excellence initiatives increase operating income 2008 partially offset 73 million restructuring asset impairment divestiture charges net compared 29 million 2007 corporate expense 2009 43 million higher compared prior year primarily resulting charge 125 million related settlement legacy securities matters partially offset 16 million benefit related settlement reached former executive additionally corporate expense 2009 included 16 million restructuring asset impairment divestiture charges corporate expense 2008 included net charges 28 million composed 29 million charge legacy legal settlement 4 million separation costs 5 million restructuring asset impairment divestiture charges net offset credit 10 million class action settlement recoveries remaining decrease corporate expense primarily related cost reduction initiatives restructuring program corporate expense 2008 32 billion lower compared prior year primarily resulting various charges 2007 including class action settlement charge 2862 billion separation costs 117 million net restructuring asset impairment charges 40 million primarily related consolidation certain headquarter functions corporate expense 2008 included net charges 28 million composed 29 million charge legacy legal settlement 4 million separation costs 5 million restructuring asset impairment divestiture charges net offset credit 10 million class action settlement recoveries remaining decrease corporate expense primarily related cost reduction initiatives restructuring program legal settlements first half fiscal 2009 company settled number legal matters stemming alleged violations federal securities laws committed former senior management including several lawsuits plaintiffs opted june 2007 class action settlement aggregate amount approximately 90 million pursuant separation distribution agreement companys share amount approximately 24 million covidien tyco electronics responsible approximately 38 million 28 million respectively second quarter 2009 company concluded best estimate probable loss unresolved legacy securities matters 375 million due fact payments ultimately made connection matters would subject sharing provisions separation distribution agreement company also recorded receivables covidien tyco electronics amounts 158 million 116 million respectively result company recorded net charge 101 million quarter ended march 27 2009 selling general administrative expenses related unresolved matters second half fiscal 2009 company agreed settle remaining plaintiffs optedout class action settlement well plaintiffs brought erisa related claims total 271 million pursuant separation distribution agreement companys share settlement amount approximately 73 million covidien tyco electronics responsible approximately 114 million 84 million respectively settlement activity result company recording charge consolidated statements operations company established reserve best estimate amount loss second quarter 2009 discussed company continues believe accrual remaining september 25 2009 best estimate remaining unresolved claims although company reserved best estimate probable loss related unresolved legacy securities claims ultimate resolution could differ estimate could material adverse effect companys financial position results operations cash flows interest income expense interest income 44 million 2009 compared 110 million 104 million 2008 2007 respectively decrease interest income 2009 increase interest income 2008 primarily related 47 million interest earned funds held escrow prior settlement class action 2008 lower investment yields 2009 interest expense 301 million 2009 compared 396 million 2008 313 million 2007 decrease interest expense 2009 primarily relates interest class action settlement liability 47 million cost related bridge loan 48 million 2008 increase interest expense 2008 result 47 million interest funds held escrow related class action settlement liability increased costs related bridge loan revolving credit facilities weightedaverage interest rate total debt outstanding september 25 2009 september 26 2008 september 28 2007 66 62 63 respectively 2007 net interest amounts proportionally allocated covidien tyco electronics based debt amounts believe utilized covidien tyco electronics historically inclusive amounts directly incurred included discontinued operations allocated net interest calculated using historical weightedaverage interest rate debt including impact interest rate swap agreements portion tycos interest income allocated covidien tyco electronics 35 million 2007 portion tycos interest expense allocated covidien tyco electronics 242 million 2007 expense net expense net 7 million 2009 compared 224 million 2008 255 million 2007 expense net 2009 primarily relates 14 million charge recorded result decrease receivables due covidien tyco electronics tax sharing agreement partially offset income 5 million relating gain derivative contracts used economically hedge foreign currency risk related swiss franc denominated dividends expense net 2008 includes 258 million extinguishment debt related consent solicitation exchange offers termination bridge loan facility offset income 6 million recorded connection settlement 3125 convertible senior debentures related financial instruments see notes 12 14 consolidated financial statements also recorded otherthantemporary impairments realized losses sale investments 6 million related primarily investments corporate debt see note 9 consolidated financial statements additionally recorded 40 million income result increase receivables due covidien tyco electronics tax sharing agreement connection adoption guidance pertaining accounting uncertain income taxes also recorded 6 million expense activity accordance tax sharing agreement 2008 2007 expense net consisted primarily 259 million loss early extinguishment debt incurred connection debt tender offers undertaken connection separation tax benefit available charge consists primarily premiums paid writeoff unamortized debt issuance costs discounts total loss early extinguishment debt 647 million 259 million included continuing operations 388 million allocated covidien tyco electronics included discontinued operations income taxes effective income tax rate effective income tax rate 2009 meaningful primarily result loss driven goodwill impairment charges 26 billion almost tax benefit available effective income tax rate 234 2008 income taxes 2008 positively impacted increased profitability lower tax rate jurisdictions release deferred tax valuation allowances partially offset enacted tax law changes negatively impacted nonus deferred tax assets effective tax rate 2007 meaningful primarily result class action settlement charge net 2862 billion loss early extinguishment debt 259 million tax benefit available additionally taxes 2007 negatively impacted tax costs related separation favorably impacted release deferred tax valuation allowance related nonus tax rulings received period reduced reserve requirements certain legacy tax matters valuation allowance deferred tax assets 791 million 742 million september 25 2009 september 26 2008 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions valuation allowance calculated recorded determined morelikelythannot portion deferred tax assets would realized believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year income tax matters connection spinoffs covidien tyco electronics tyco entered tax sharing agreement governs rights obligations party respect certain preseparation income tax liabilities specifically tyco covidien tyco electronics share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens tyco electronics us certain nonus income tax returns costs expenses associated management shared tax liabilities shared equally among parties consistent sharing provisions tax sharing agreement tyco net receivable covidien tyco electronics 98 million 126 million september 25 2009 september 26 2008 respectively addition september 25 2009 september 26 2008 tyco recorded liability 554 million representing fair value tycos obligations tax sharing agreement tyco subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies related interest assessed uncertain income tax positions recorded appropriate detailed discussion contingencies related tycos income taxes see note 6 consolidated financial statements divestitures continued assess strategic fit various businesses pursue divestiture businesses align longterm strategy held sale reflected continuing operations fourth quarter 2009 approved plan sell business adt worldwide segment business classified held sale however results operations presented continuing operations criteria discontinued operations met assessed determined carrying value business recoverable continue assess recoverability based current fair value less cost sell business sold fair value used impairment assessment based existing market conditions expect complete sale fiscal 2010 third quarter 2008 approved plan sell business safety products segment business classified held sale historical consolidated balance sheets second quarter 2009 due change strategy management decided sell business result business longer satisfied requirements classified held sale consolidated balance sheet march 27 2009 accordingly consolidated balance sheet september 26 2008 recast reclassify business held sale held used measured business lower carrying amount classified held sale adjusted depreciation amortization expense would recognized business continuously classified held used ii fair value date decision sell made recorded charge 8 million second quarter 2009 relating amount depreciation amortization expense would recorded asset continuously classified held used discontinued operations previously reported periodic filings july 2008 substantially completed sale infrastructure services business met criteria presented discontinued operations order complete sale earth tech brasil ltda et brasil earth tech uk businesses certain assets china required obtain consents approvals transfer legal ownership business assets january 22 2009 received necessary consents approvals transfer legal ownership et brasil business carioca christianinielsen engenharia sa received cash proceeds 13 million fourth quarter 2008 sold earth tech uk business received net cash proceeds 53 million however gain deferred receipt necessary consents approvals may 12 2009 received necessary consents approvals transfer legal ownership earth tech uk business aecom technologies corporation aecom realized deferred gain consolidated statements operations third quarter 2009 furthermore february 27 2009 received necessary consents transfer certain china assets received cash proceeds 18 million may 8 2009 received necessary consents transfer additional china assets received cash proceeds 6 million july 2 2009 received necessary consents approvals transfer remaining assets china received cash proceeds 24 million result fiscal 2009 dispositions net pretax gain 33 million recorded income discontinued operations net income taxes consolidated statements operations year ended september 25 2009 2008 sold empresa de transmissao de energia oeste ltda eteo business ancon building products ancon business nippon drychemical co ltd ndc business european manufacturer public address products acoustic systems discussed substantially completed sale infrastructure services business fourth quarter 2008 businesses met held sale discontinued operations criteria included discontinued operations periods presented may 2008 sold 100 stock eteo brazilian subsidiary infrastructure services business 338 million net cash proceeds recorded pretax gain 232 million including effects economic hedge purchase price discussed gain recorded income discontinued operations net income taxes consolidated statements operations year ended september 26 2008 eteo part corporate segment september 2007 entered economic hedge brazilian real denominated contractual sale price eteo business since hedging transaction directly linked proceeds sale business reflected discontinued operations began including impact hedge discontinued operations first quarter 2008 third quarter 2008 incurred pretax loss 36 million hedge impact hedge 2007 material additionally fiscal year 2008 settled contract dispute arising former infrastructure services business connection settlement assessed assets original contract concluded assets longer recoverable resulting 51 million charge discontinued operations april 2008 sold ancon manufacturer stainless steel products used masonry construction ancon part corporate segment sale completed 164 million net cash proceeds pretax gain 100 million recorded largely exempt tax gain recorded income discontinued operations net income taxes consolidated statements operations year ended september 26 2008 fourth quarter 2008 received additional 6 million proceeds related sale ancon february 2008 sold ndc company japanese fire protection industry ndc part fire protection services safety products segments sale completed 50 million net cash proceeds pretax gain 7 million recorded gain recorded income discontinued operations net income taxes consolidated statements operations year ended september 26 2008 january 2008 sold european manufacturer public address products acoustic systems part fire protection services segment recorded 8 million pretax loss sale loss recorded income discontinued operations net income taxes consolidated statements operations first quarter 2007 aquas industriales de jose ca aij joint venture majority owned infrastructure services sold 42 million net cash proceeds pretax gain 19 million recorded gain recorded discontinued operations net income taxes consolidated statements operations aij part corporate segment third quarter 2007 completed separation presented healthcare electronics businesses discontinued operations periods presented period prior separation net interest loss early extinguishment debt included expense net consolidated statements operations amounts proportionally allocated covidien tyco electronics based debt amounts believe utilized covidien tyco electronics historically inclusive amounts directly incurred allocated net interest calculated using historical weightedaverage interest rate debt including impact interest rate swap agreements allocated amounts included discontinued operations 2007 allocated interest income interest expense net 35 million 242 million 388 million respectively 2007 incurred pretax separation costs related primarily professional services employeerelated costs 154 million 289 million respectively discontinued operations additionally year ended september 28 2007 includes tax charges related separation primarily writeoff deferred tax assets longer realizable 88 million discontinued operations used available information develop best estimates certain assets liabilities related separation limited instances final determination balances made subsequent periods year ended september 28 2007 72 million recorded shareholders equity primarily related cash trueup adjustment 57 million 15 million items year ended september 26 2008 70 million items recorded shareholders equity year ended september 25 2009 43 million recorded shareholders equity 9 million related preseparation income tax filing nonus jurisdiction 34 million items discussed aggregate 119 million reflect immaterial adjustments shareholders equity recorded correct distribution amount date separation adjustments future impact filing final income tax returns certain jurisdictions returns include combination covidien andor tyco electronics legal entities certain amended income tax returns periods prior separation may recorded either shareholders equity consolidated statements operations depending specific item giving rise adjustment acquisitions year ended september 25 2009 cash paid acquisitions totaled 50 million primarily related acquisition vue technology inc provider radio frequency identification rfid technology safety products segment year ended september 26 2008 cash paid acquisitions totaled 401 million primarily related acquisition winner security services llc winner sensormatic security corp ssc first service security firstservice 2007 cash paid acquisitions totaled 31 million primarily within adt worldwide safety products flow control segments acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows detailed discussion acquisitions see note 4 consolidated financial statements critical accounting policies estimates preparation consolidated financial statements conformity gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization methods security monitoringrelated assetstyco generally considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition effective beginning third quarter 2007 tyco changed depreciation method estimated useful life used account pooled subscriber system assets primarily north america related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 195 residential subscriber pools 145 265 commercial subscriber pools converts straightline methodology resulting depreciation charge greater accelerated method company continue use straightline method 14year life nonpooled subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination change method estimated useful life used account pooled subscriber system assets related deferred revenue resulted ongoing analysis pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems continue reviewed company balance sheet date assess continued appropriateness methods estimated useful lives effective beginning third quarter 2007 tyco also changed estimated useful life dealer intangibles geographical areas comprising approximately 90 net carrying value dealer intangibles 12 15 years company continues amortize dealer intangible assets accelerated basis change estimated useful life used account dealer intangibles resulted ongoing analysis pertinent factors including actual customer attrition data demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base attrition rates customers adt worldwide business 134 129 123 trailing 12month basis 2009 2008 2007 respectively revenue recognitioncontract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimates inaccurate risk revenue profits period may overstated understated product discounts granted based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable income taxesin determining income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded significant valuation allowances intend maintain morelikelythannot deferred tax assets realized income tax expense recorded future may reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance could result additional income tax expense period could significant impact future earnings changes tax laws rates could also affect recorded deferred tax assets liabilities future management currently aware changes would material effect companys financial condition results operations cash flows addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur performing assessments management relies various factors including operating results business plans economic projections anticipated future cash flows comparable transactions market data inherent uncertainties related factors require judgment applying analysis goodwill indefinitelived intangible assets impairment since judgment involved performing fair value measurements used goodwill indefinitelived intangible assets impairment analyses risk carrying values goodwill indefinitelived intangible assets may overstated elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets first step goodwill impairment test company compares fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using market participants weightedaverage cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting unit goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill longlived assetsassets held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairments longlived assets disposed recorded based upon fair value less cost sell applicable assets calculation fair value longlived assets based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 77 million consider current expected asset allocations pension plans well historical expected longterm rates return types plan assets determining expected longterm return plan assets 50 basis point decrease expected longterm return plan assets would increase pension expense approximately 7 million fiscal 2010 expect recent declines interest rates increase pension expense expected materially increase required contributions liquidity capital resources september 30 2009 tyco international finance sa tifsa issued 500 million aggregate principle amount 4125 notes due 2014 notes fully unconditionally guaranteed company tifsa received net proceeds approximately 496 million underwriting discounts estimated offering expenses january 9 2009 tifsa issued 750 million aggregate principle amount 85 notes due january 15 2019 fully unconditionally guaranteed company 2019 notes additionally holders 2019 notes right require company repurchase portion 2019 notes july 15 2014 purchase price equal 100 principal amount notes tendered plus accrued unpaid interest otherwise 2019 notes mature january 15 2019 tifsa received net proceeds approximately 745 million underwriting discounts offering expenses net proceeds aforementioned offerings may used general corporate purposes may include repayment indebtedness acquisitions additions working capital repurchase common shares capital expenditures investments companys subsidiaries january 2009 tifsa made payment 215 million extinguish 6125 notes due 2009 additionally november 2008 tifsa made payment 300 million extinguish 6125 notes due 2008 additionally january 2009 repaid entire outstanding balance 686 million revolving credit facilities september 25 2009 amounts drawn revolving credit facilities september 25 2009 aggregate available commitment senior revolving credit facilities 169 billion 200 million dedicated backstop commercial paper outstanding date continually monitor developments regarding availability funds revolving credit facilities although risk financial institutions fail perform contractual obligations particularly times credit market distress believe lenders revolving credit facilities capable meeting borrowing requests may make foreseeable future discussed september 25 2009 200 million commercial paper outstanding continue experience increased availability within commercial paper markets multiyear revolving credit facilities serve backstop commercial paper program addition available cash operating cash flows additional sources potential liquidity include committed credit lines commercial paper program public debt equity markets well ability sell trade accounts receivable continue balance operating investing financing uses cash investment existing core businesses strategic acquisitions divestitures dividends share repurchases believe cash position amounts available credit facilities cash provided operating activities adequate cover operational business needs result recent declines interest rates 2009 pension costs may increase fiscal 2010 continue monitor market conditions assess impact financial position results operations cash flows approximately 100 us 95 nonus funded pension plans invested marketable investments including publiclytraded equity fixed income securities although believe required make materially higher cash contributions next 12 months market conditions worsen may required make incremental cash contributions local statutory law sources cash flow operating activities use portion cash operations years ended september 25 2009 september 26 2008 september 28 2007 follows millions 1includes depreciation expense 617 million 626 million 635 million 2009 2008 2007 respectively amortization intangible assets 516 million 528 million 513 million 2009 2008 2007 respectively 2includes net proceeds 13 million 28 million 23 million received saledisposition property plant equipment 2009 2008 2007 respectively net change working capital increased operating cash flow 142 million 2009 components change set forth detail consolidated statements cash flows significant changes working capital included 367 million decrease inventory 207 million decrease accounts receivable 106 million decrease contracts progress offset 352 million decrease accounts payable 148 million decrease income taxes net 2009 completed sale remaining infrastructure services businesses net cash proceeds 66 million continue fund capital expenditures grow business improve cost structure businesses invest new processes technology maintain high quality production standards level capital expenditures 2010 expected exceed spending levels 2009 also expected exceed depreciation 2009 2008 2007 paid 154 million 187 million 70 million respectively cash related restructuring activities see note 3 consolidated financial statements information regarding restructuring activities income taxes paid net refunds related continuing operations 291 million 501 million 649 million 2009 2008 2007 respectively 2009 2008 2007 tyco paid 543 million 376 million 409 million cash respectively acquire approximately 512000 370000 415000 customer contracts electronic security services adt dealer program previously discussed effective june 29 2007 completed separation connection separation paid 68 million 349 million separation costs 2008 2007 respectively amounts 36 million 256 million included cash flows discontinued operating activities respectively second quarter 2008 tyco released 2960 million funds placed escrow third quarter 2007 well 60 million interest earned funds benefit class stipulated courts final order related class action settlement continue divest businesses align overall strategy expect use proceeds sales well cash generated operations continue make investments businesses intended grow revenue improve productivity including restructuring actions expect also use cash selectively pursue acquisitions pursuant share repurchase program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved 10b51 trading plan accordance applicable regulations management believes cash generated available us sufficient fund capital liquidity needs foreseeable future including quarterly dividend payments intend continue repurchase shares existing 10 billion share repurchase program approved board directors july 10 2008 depending credit market conditions macroeconomic factors expectations regarding future cash flows capitalization shareholders equity 129 billion 2730 per share september 25 2009 compared 155 billion 3276 per share september 26 2008 shareholders equity decreased primarily due net loss 18 billion primarily driven goodwill intangible asset impairments dividends declared 472 million 220 million current period change relating companys retirement plans unfavorable changes foreign currency exchange rates 203 million total debt 43 billion september 25 2009 september 26 2008 respectively total debt percentage capitalization total debt shareholders equity 25 september 25 2009 22 september 26 2008 respectively cash balance increased 24 billion september 25 2009 compared 15 billion september 26 2008 increase cash primarily due cash generated operating segments well proceeds issuance longterm debt tenders connection settlement litigation arising separation related public debt june 3 2008 along finance subsidiary tifsa whollyowned subsidiary company successor company tyco international group sa tigsa whollyowned subsidiary company organized laws luxembourg consummated consent solicitations exchange offers related certain series debt issued 1998 2003 indentures connection exchange offers issued 422 million principal amount 70 notes due 2019 exchange equal principal amount 70 notes due 2028 707 million principal amount 6875 notes due 2021 exchange equal principal amount 6875 notes due 2029 connection consent solicitations holders 60 notes due 2013 6125 notes due 2008 6125 notes due 2009 675 notes due 2011 6375 notes due 2011 70 notes due 2028 6875 notes due 2029 collectively received consent payments totaling 250 million terms consent exchange offers evaluated debt modification accordance authoritative guidance debtors accounting modification exchange debt instruments determined 70 notes due 2028 6875 notes due 2029 extinguished cash flows new bonds compared original bonds substantially modified result new bonds 70 notes due 2028 6875 notes due 2029 tendered exchange recorded fair value upon completion exchange offers determining fair value measured bonds initial issuance public done obtaining effective yield data derived comparable pricing received issuance bonds similar ratings covenants large public companies year ended september 26 2008 connection consent solicitations exchange offers recorded 222 million charge expense net loss extinguishment debt charge comprised consent payments related extinguished bonds notes due 2028 2029 premium exchanged bonds represents difference fair value book value extinguished bonds writeoff original unamortized debt issuance costs well fees paid thirdparties associated bonds deemed extinguished remaining portion consent payment issuance costs amortized remaining life bonds year ended september 28 2007 recorded 259 million charge expense net loss early extinguishment debt related debt tender offers connection separation bank revolving credit facilities june 24 2008 tyco tifsa entered 500 million senior unsecured revolving credit agreement citibank na administrative agent lenders party thereto credit agreement threeyear term borrowings agreement variable interest rate based libor alternate base rate margin libor vary based changes credit rating facility utilization together 119 billion fiveyear senior revolving credit agreement dated april 25 2007 total committed revolving credit line 169 billion september 25 2009 revolving credit facilities may used working capital expenditures corporate purposes september 25 2009 amounts drawn facilities although dedicated 200 million availability backstop outstanding commercial paper discussed believe lenders revolving credit facility capable meeting borrowing requests tifsa may make tifsas bank credit agreements contain customary terms conditions financial covenants limit ratio debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive business following tables detail longterm shortterm debt ratings september 25 2009 september 26 2008 security ratings set forth recommendation buy sell hold securities may subject revision withdrawal assigning rating organization rating evaluated independently rating commitments contingencies contractual obligations contractual obligations commitments principal debt minimum lease payment obligations noncancelable operating leases obligations september 25 2009 follows millions 1excludes debt discount swap activity 2interest payments consist interest fixed interest rate debt exclude impact interest rate swaps 3excludes interest 4purchase obligations consist commitments purchases good services 5other longterm liabilities primarily consist following pension postretirement costs income taxes warranties environmental liabilities excluded table unable estimate timing payment items due inherent uncertainties obligations type minimum required contributions pension plans expected approximately 80 million 2010 expect pay 7 million 2010 related postretirement benefit plans 6as september 25 2009 recorded gross unrecognized tax benefits 284 million gross interest penalties 50 million classified noncurrent liabilities consolidated balance sheets payment expected within one year time unable make reasonably reliable estimate timing payments future years therefore amounts excluded contractual obligation table discussed september 25 2009 total commitments 169 billion revolving credit facilities 500 million matures june 24 2011 119 billion matures april 25 2012 september 25 2009 amounts drawn revolving credit facilities september 25 2009 aggregate available commitment senior revolving credit facilities 169 billion 200 million dedicated backstop commercial paper outstanding date may 2008 tifsa commenced issuing commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 25 2009 tifsa 200 million commercial paper outstanding bore interest average rate 033 september 25 2009 classified outstanding commercial paper balance 200 million shortterm intend repay amount next twelve months september 26 2008 classified 116 million shortterm commercial paper longterm settlement amount outstanding expected require use working capital next twelve months intent ability refinance debt longterm basis september 25 2009 total outstanding letters credit bank guarantees 659 million normal course business liable contract completion product performance opinion management obligations significantly affect financial position results operations cash flows connection separation entered liability sharing agreement regarding certain actions pending tyco prior separation distribution agreement tax sharing agreement assumed 27 covidien assumed 42 tyco electronics assumed 31 certain tyco preseparation contingent corporate liabilities include certain outstanding legacy tax contingencies actions respect spinoffs distributions made brought third party amounts relating contingent corporate liabilities paid tyco spinoffs subject allocation provisions separation distribution agreement tax sharing agreement shared among tyco covidien tyco electronics pursuant allocation ratio legal matters class action legacy securities matters discussion contingencies related tycos legacy securities litigation various legal matters see item 3 legal proceedingsclass action settlement legacy securities matters adverse outcomes certain actions party could material adverse effect financial position results operations cash flows environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites detailed discussion contingencies related tycos environmental matters see item 1 businessenvironmental matters item 3 legal proceedingsenvironmental matters asbestos matters tyco certain subsidiaries named defendants bodily injury lawsuits based alleged exposure asbestoscontaining materials detailed discussion tycos contingencies related asbestosrelated matters see note 15 consolidated financial statements income taxes tyco subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies related interest assessed uncertain income tax positions recorded appropriate detailed discussion contingencies related tycos income taxes see note 6 consolidated financial statements compliance matters tyco received responded various allegations information improper activities conducted tyco employees recent years particular respect doj sec investigations resulted performing companywide baseline review policies controls practices relate foreign corrupt practices act detailed discussion contingencies others related tycos compliance efforts see item 3 legal proceedingscompliance matters company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows backlog september 25 2009 backlog unfilled orders 90 billion compared backlog 96 billion september 26 2008 expect approximately 86 backlog september 25 2009 filled 2010 backlog segment september 25 2009 september 26 2008 follows millions backlog decreased 624 million 65 96 billion september 26 2008 90 billion september 25 2009 unfavorable changes foreign currency exchange rates resulted decrease 87 million adt worldwides backlog decreased 9 million 02 september 25 2009 decrease primarily due unfavorable exchange rates 83 million partially offset increase net bookings 74 million adt worldwides total account base grew 29 2009 74 million accounts amount recurring revenueinforce september 25 2009 september 26 2008 40 billion 39 billion respectively increase recurring revenueinforce primarily result increase account base discussed partially offset unfavorable changes foreign currency exchange rates recurring revenueinforce represents 12 months fees monitoring maintenance services contract security business flow controls backlog decreased 385 million primarily due decreased bookings 398 million offset favorable exchange rates 13 million fire protection services backlog decreased 145 million primarily due unfavorable exchange rates 15 million decreased bookings 130 million offbalance sheet arrangements sale accounts receivable certain tycos international businesses utilize sale accounts receivable shortterm financing mechanisms aggregate amount outstanding companys remaining international accounts receivable programs 55 million 65 million 76 million september 25 2009 september 26 2008 september 28 2007 respectively guarantees certain business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2009 completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien tyco electronics accordance terms separation distribution agreement tax sharing agreement guarantees primarily relate certain contingent tax liabilities included tax sharing agreement time separation recorded liability necessary recognize fair value guarantees indemnifications absence observable transactions identical similar guarantees determined fair value guarantees indemnifications utilizing expected present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using incremental borrowing rate liability necessary reflect fair value guarantees indemnifications tax sharing agreement 554 million included liabilities consolidated balance sheets september 25 2009 september 26 2008 guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 6 consolidated financial statements discussion tax sharing agreement addition historically provided support form financial andor performance guarantees various covidien tyco electronics operating entities connection separation worked guarantee counterparties cancel assign guarantees covidien tyco electronics extent guarantees assigned prior separation date assumed primary liability remaining support estimated fair value obligations 4 million 7 million included liabilities consolidated balance sheets september 25 2009 september 26 2008 respectively offset shareholders equity separation date disposing assets businesses often provide representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition reason believe uncertainties would material adverse effect financial position results operations cash flows recorded liabilities known indemnifications included part environmental liabilities see item 1 businessenvironmental matters note 15 consolidated financial statements discussion liabilities normal course business liable contract completion product performance opinion management obligations significantly affect financial position results operations cash flows september 25 2009 total outstanding letters credit bank guarantees 659 million record estimated product warranty costs time sale information estimated product warranty see notes 1 13 consolidated financial statements 2001 division safety products initiated voluntary replacement program vrp associated acquisition central sprinkler vrp relates replacement certain oring seal sprinkler heads originally manufactured central sprinkler prior tycos acquisition program sprinkler heads replaced free charge property owners may 1 2007 along consumer products safety commission announced august 31 2007 deadline filing claims participate vrp fulfill valid claims replacement qualifying sprinklers received august 31 2007 settlements 2009 2008 2007 include cash expenditures 33 million 49 million 38 million respectively related vrp company believes remaining liability represents best estimate cost required complete vrp september 25 2009 material accounting pronouncements recently adopted accounting pronouncementsin june 2009 financial accounting standards board fasb issued authoritative guidance established fasb standards accounting codification source authoritative gaap recognized fasb applied nongovernmental entities rules interpretive releases sec authoritative gaap sec registrants codification supersedes existing nonsec accounting reporting standards upon effective date subsequently fasb issue new standards form statements fasb staff positions emerging issues task force abstracts guidance intended change alter existing gaap guidance became effective tyco fourth quarter 2009 guidance impact companys financial position results operations cash flows references previous numbering fasb statements fasb staff positions emerging issues task force abstracts removed financial statements accompanying footnotes may 2009 fasb issued authoritative guidance subsequent events guidance provides authoritative accounting literature related evaluating subsequent events previously addressed auditing literature guidance similar current guidance exceptions intended result significant change current practice guidance defines subsequent events also requires disclosure date entity evaluated subsequent events basis date company adopted disclosure provisions guidance june 26 2009 adoption impact companys financial position results operations cash flows april 2009 fasb issued authoritative guidance interim disclosures fair value financial instruments amended existing guidance requires disclosures fair value financial instruments interim financial statements well annual financial statements company adopted disclosure provisions guidance june 26 2009 see note 14 consolidated financial statements additional information related adoption guidance adoption impact companys financial position results operations cash flows march 2008 fasb issued authoritative guidance disclosures derivative instruments hedging activities guidance intended improve financial reporting derivative instruments hedging activities requiring enhanced disclosures enable investors better understand effects entitys results operations company adopted disclosure provisions guidance december 27 2008 see note 14 consolidated financial statements additional information related adoption guidance adoption impact companys financial position results operations cash flows february 2007 fasb issued authoritative guidance fair value option financial assets financial liabilities guidance permits entity contractbycontract basis make irrevocable election account certain types financial instruments warranty insurance contracts fair value rather historical cost changes fair value whether realized unrealized recognized earnings guidance became effective company first quarter 2009 time company elect fair value option eligible items september 2006 fasb issued authoritative guidance fair value measurements enhances existing guidance measuring assets liabilities fair value guidance defines fair value establishes framework measuring fair value expands disclosure fair value measurements february 2008 fasb issued authoritative guidance permits companies partially defer effective date guidance one year nonfinancial assets liabilities recognized disclosed fair value financial statements nonrecurring basis first quarter 2009 company elected defer adoption guidance one year nonfinancial assets liabilities recognized disclosed fair value financial statements nonrecurring basis effective tyco first quarter fiscal 2010 prospective basis guidance became effective tyco first quarter fiscal 2009 financial assets liabilities adoption material impact companys financial position results operations cash flows see note 14 consolidated financial statements additional information related adoption guidance september 2006 fasb issued authoritative guidance employers accounting defined benefit pension postretirement plans guidance requires employers recognize funded status defined benefit pension postretirement benefit plans net asset liability consolidated balance sheets recognize component accumulated comprehensive loss income net income taxes gains losses prior service costs credits arise period recognized component net periodic benefit cost company adopted recognition disclosure provisions guidance september 28 2007 guidance also requires companies measure plan assets benefit obligations fiscal year end company adopted measurement date provisions guidance september 27 2008 result tyco measured plan assets benefit obligations september 26 2008 adjusted opening balances accumulated deficit earnings accumulated comprehensive loss income change net periodic benefit cost fair value respectively previously used measurement date august 31 2008 adoption measurement date provisions resulted net decrease accumulated deficit earnings 5 million net income tax benefit 2 million net increase accumulated comprehensive loss income 61 million net income taxes 28 million 2009 see note 16 consolidated financial statements additional information related adoption guidance recently issued accounting pronouncementsin september 2009 fasb issued authoritative guidance accounting revenue arrangements multiple deliverables guidance establishes selling price hierarchy determining selling price deliverable selling price used deliverable based vendorspecific objective evidence available thirdparty evidence vendorspecific objective evidence available estimated selling price neither vendorspecific evidence thirdparty evidence available guidance requires arrangements multiple revenue generating activities performed allocated inception residual method existing accounting guidance eliminated guidance expands disclosure requirements related multipledeliverable revenue arrangements guidance becomes effective revenue arrangements entered materially modified beginning fiscal 2011 early adoption permitted guidance applies prospective basis unless company specifically elects apply guidance retrospectively company currently assessing impact guidance financial position results operations cash flows well timing adoption guidance june 2009 fasb issued authoritative guidance amended existing guidance consolidation variable interest entities address elimination concept qualifying special purpose entity guidance also replaces quantitativebased risks rewards calculation determining enterprise controlling financial interest variable interest entity approach focused identifying enterprise power direct activities variable interest entity obligation absorb losses entity right receive benefits entity additionally guidance requires enterprise holds variable interest variable interest entity provide enhanced disclosures provide users financial statements transparent information enterprises involvement variable interest entity guidance effective tyco first quarter fiscal 2011 company currently assessing impact guidance financial position results operations cash flows december 2008 fasb issued authoritative guidance employers disclosures postretirement benefit plan assets guidance requires additional disclosures plan assets related employers defined benefit pension postretirement plans enable investors better understand investment decisions made major categories plan assets inputs valuation techniques used measure fair value plan assets effect fair value measurements using significant unobservable inputs level 3 changes plan assets period significant concentrations risk within plan assets disclosure provisions guidance effective tyco first quarter fiscal 2010 june 2008 fasb ratified authoritative guidance determining whether instruments granted sharebased payment transactions participating securities guidance addresses whether instruments granted sharebased payment awards participating securities prior vesting therefore must included earnings allocation calculating earnings per share twoclass method guidance requires unvested sharebased payment awards contain nonforfeitable rights dividends dividendequivalents treated participating securities calculating earnings per share guidance effective tyco starting first quarter fiscal 2010 shall applied retrospectively prior periods company believes guidance material impact financial position results operations cash flows april 2008 fasb issued authoritative guidance determining useful life intangible assets guidance amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset guidance effective tyco first quarter fiscal 2010 company determined guidance material impact financial position results operations cash flows december 2007 fasb revised authoritative guidance business combinations revised guidance retains underlying concepts existing guidance business combinations still accounted fair value however accounting certain aspects business combinations affected acquisition costs generally expensed incurred restructuring costs associated business combination generally expensed subsequent acquisition date inprocess research development recorded fair value indefinitelived intangible acquisition date completed abandoned useful life determined changes deferred tax asset valuation allowances uncertain tax positions acquisition date generally impact income tax expense revised guidance also expands required disclosures surrounding nature financial effects business combinations revised guidance effective prospective basis tyco first quarter fiscal 2010 december 2007 fasb issued authoritative guidance noncontrolling interests consolidated financial statements guidance requires recognition noncontrolling interest minority interest prior adoption guidance equity consolidated financial statements amount net income attributable noncontrolling interest included consolidated net income face consolidated statements operations guidance also amends certain existing consolidation procedures order achieve consistency requirements revised authoritative guidance business combinations discussed guidance also includes expanded disclosure requirements regarding interests parent noncontrolling interest guidance effective tyco first quarter fiscal 2010 implementation guidance material impact companys financial position results operations cash flows forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed securities exchange commission sec tycos communications discussions investors analysts normal course business meetings web casts phone calls conference calls regarding expectations respect sales earnings cash flows operating efficiencies product expansion backlog consummation benefits acquisitions divestitures well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performance achievements factors might affect forwardlooking statements include among things •overall economic business conditions •the demand tycos goods services •competitive factors industries tyco competes •changes tax requirements including tax rate changes new tax laws revised tax law interpretations •results consequences tycos internal investigation governmental investigations concerning companys governance management internal controls operations including business operations outside united states •the outcome litigation governmental proceedings •effect income tax audit settlements •our ability repay refinance outstanding indebtedness matures •our ability operate within limitations imposed financing arrangements maintain credit ratings •interest rate fluctuations changes borrowing costs •other capital market conditions including availability funding sources currency exchange rate fluctuations •availability fluctuations prices key raw materials including steel copper •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability achieve cost savings connection companys strategic restructuring six sigma initiatives ability execute portfolio refinement acquisition strategies •potential impairment goodwill andor longlived assets •the impact fluctuations price tyco common shares •risks associated change jurisdiction incorporation bermuda switzerland including possibility reduced flexibility respect certain aspects capital management increased different regulatory burdens possibility may realize anticipated tax benefits •changes us nonus governmental laws regulations •the possible effects tyco future legislation united states may limit eliminate potential us tax benefits resulting tycos jurisdiction incorporation deny us government contracts tyco based upon jurisdiction incorporation item 7aitem 7 managements discussion analysis financial condition results operations results operations following discussion analysis companys financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report company believe historical operating results indicative future operating results discussion analysis contains forwardlooking statements involve risks uncertainties assumptions companys actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information introduction consolidated financial statements include consolidated results tyco international ltd company organized laws switzerland subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance accounting principles generally accepted united states gaap company operates following business segments •adt worldwide designs sells installs services monitors electronic security systems residential commercial industrial governmental customers addition adt worldwide manufactures certain products related retailer antitheft systems •flow control designs manufactures sells services valves pipes fittings valve automation heat tracing products general process energy mining markets well water wastewater markets •fire protection services designs sells installs services fire detection fire suppression systems commercial industrial governmental customers •electrical metal products designs manufactures sells galvanized steel tubing armored wire cable metal products nonresidential construction electrical fire safety mechanical customers •safety products designs manufactures sells fire suppression electronic security life safety products including fire sprinklers breathing apparatus intrusion security access control video management systems addition safety products manufactures products installed serviced adt worldwide fire protection services also provide general corporate services segments costs reported corporate references segment data companys continuing operations certain prior period amounts reclassified conform current period presentation company reclassified certain businesses satisfied criteria presented discontinued operations income discontinued operations consolidated statements operations assets liabilities held sale within consolidated balance sheets see note 2 consolidated financial statements additionally company realigned certain business operations first quarter fiscal 2010 resulting prior period segment amounts recast see note 19 consolidated financial statements may 14 2010 acquired outstanding equity brinks home security holdings inc bhs broadview security cashandstock transaction valued approximately 20 billion 585 million cash used fund acquisition broadview security integrated companys adt worldwide segment broadview securitys core business provide security alarm monitoring services residential commercial properties north america large residential recurring customer base enhanced adts presence north american residential security business broadview security also leader technologies services expected enhance adt worldwides service offerings customers connection integration broadview security adt worldwide segment broadview security brand discontinued expect realize cost savings synergies operational efficiencies including consolidation marketing general administrative functions fourth quarter fiscal 2010 initiated program fully integrate broadview security adt worldwide segment anticipate broadview security fully integrated adt worldwide segments north america business first half 2011 result broadview securitys operating results including revenue income continuing operations reflected operating results adt north america business longer reported separately due integration operations estimated broadview security contributed approximately 193 million consolidated net revenue loss continuing operations 25 million 2010 incurred approximately 17 million costs directly related acquisition 18 million integration costs total 35 million 2010 amount 32 million recorded adt worldwide segment 3 million corporate acquisition integration costs recorded within selling general administrative expenses consolidated statement operations 2010 addition adt worldwide segment recorded 14 million restructuring expenses related combining broadview security adt worldwide businesses recorded within restructuring asset impairments divestiture charges net consolidated statement operations 2010 also third quarter 2010 announced intention pursue taxfree spinoff electrical metal products business november 9 2010 announced agreement sell 51 interest electrical metal products business connection announcement longer plan pursue taxfree spinoff electrical metal products business proposed april 27 2010 see note 25 consolidated financial statements overview net revenue 2010 increased 134 million 08 compared 2009 increase primarily driven favorable impact changes foreign currency exchange rates 624 million 37 increase partially offset net revenue declines experienced flow control fire protection services segments flow controls decline net revenue primarily result reduced volume valves business driven decreased demand end markets weakness commercial end market resulted decline product systems installation revenue within fire protection services segment service revenue continued grow percentage overall revenue 41 2010 compared 40 36 2009 2008 respectively service revenues principally derived adt worldwide fire protection services businesses represent predictable consistent source revenue recurring revenue adt worldwide business represents approximately 58 adts total revenue compared approximately 54 2009 51 2008 recurring revenue represents revenue associated monitoring maintenance services contractual arrangements fire protection services business service revenue continued increase percentage fire protections total revenue 52 2010 compared 49 48 2009 2008 respectively net revenue also favorably impacted approximately 69 million 04 net acquisitions divestitures primarily related acquisition broadview security partially offset sale french security business operating income 2010 16 billion compared operating loss 15 billion 2009 operating income 2009 negatively affected goodwill intangible asset impairment charges approximately 27 billion legacy legal settlement charges approximately 125 million 2009 operating income 2010 favorably impacted efficiencies gained cost containment actions taken fiscal 2010 2009 restructuring actions taken prior years restructuring asset impairment charges decreased 145 million 2010 232 million 2009 operating income 2010 favorably impacted net gains divestitures 40 million compared loss divestitures 15 million 2009 also incurred acquisition integration charges 35 million 2010 related acquisition broadview security changes foreign currency exchange rates favorably impacted operating income 80 million 2010 september 24 2010 cash balance 18 billion compared 24 billion september 25 2009 generated approximately 26 billion cash operating activities offset 600 million cash used acquisitions net cash acquired primarily related acquisition broadview security accounts purchased adt capital expenditures 13 billion approximately 900 million repurchase common shares dividends paid 416 million net debt repayment 204 million expect continue use cash fund internal growth opportunities improve productivity across businesses make acquisitions strategically fit within adt worldwide fire protection services flow control businesses return capital shareholders september 8 2010 board directors approved new 10 billion share repurchase program 2010 repurchase program remaining capacity existing 10 billion share repurchase program substantially utilized end august 2010 repurchase shares new program 2010 also continued portfolio refinement efforts exiting areas provided expected provide adequate return investment taking advantage restructuring opportunities expected provide future cost savings 2010 incurred approximately 145 million restructuring asset impairment charges substantially completing 2009 restructuring program fiscal 2010 identified additional opportunities cost savings restructuring activities fiscal 2011 expect incur restructuring related charges approximately 150 million fiscal 2011 last years explored alternatives underperforming nonstrategic businesses including divestiture sold french security business part adt worldwide segment resulting pretax gain 53 million 2010 gain results operations french security business presented continuing operations criteria discontinued operations met discussed first quarter fiscal 2011 announced intention sell 51 interest electrical metal products business see notes 25 consolidated financial statements additionally third quarter fiscal 2010 board directors approved plan sell european water business part flow control segment business met held sale discontinued operations criteria included discontinued operations periods presented september 30 2010 received necessary consents approval complete sale business received net cash proceeds approximately 267 million expect recognize gain transaction operating results net revenue operating income loss net income loss years ended september 24 2010 september 25 2009 september 26 2008 follows millions segment results segment discussions follow describe significant factors contributing changes results segments included continuing operations adt worldwide net revenue goodwill intangible asset impairments operating income loss operating margin adt worldwide years ended september 24 2010 september 25 2009 september 26 2008 follows millions 1as discussed note 1 consolidated financial statements revenue related sale electronic tags labels classified revenue product sales fiscal 2010 fiscal 2009 2008 sale electronic tags labels misclassified service revenue service revenue product sales fiscal 2009 2008 changed misclassification effect material impact misclassification fiscal 2009 would decrease service revenue 286 million corresponding increases revenue product sales impact misclassification fiscal 2008 would decrease service revenue 364 million corresponding increases revenue product sales 2certain operating margins percentages presented management believes calculations meaningful revenue product sales includes sales installation electronic security life safety systems well products related retailer antitheft systems service revenue comprised electronic security services maintenance including monitoring burglar alarms fire alarms life safety systems well security services net revenue adt worldwide increased 310 million 44 2010 compared 2009 net revenue favorably impacted changes foreign currency exchange rates 218 million 31 net revenue also favorably impacted net impact acquisitions divestitures 72 million 10 primarily result 193 million net revenue estimated contributed broadview security acquisition partially offset 109 million divested revenue relating french security business approximately 58 54 adt worldwides total net revenue 2010 2009 respectively represents revenue associated monitoring maintenance services contractual arrangements considered recurring revenue recurring revenue increased 435 million 113 approximately 43 billion result growth customer accounts approximately 15 million 205 total approximately 89 million accounts september 24 2010 approximately 14 million customer accounts acquired may 14 2010 connection broadview security acquisition approximately 501000 customer accounts acquired adt dealer program 2010 net impact acquisitions divestitures changes foreign currency exchange rates favorably impacted recurring revenue 148 million 2010 38 116 million 30 respectively systems installation product sales service revenue declined 125 million 39 approximately 31 billion due lower sales volume primarily result continued weakness commercial end market declined slower rate period prior year changes foreign currency exchange rates favorably impacted systems installation product sales service revenue 102 million 32 net impact acquisitions divestitures resulted unfavorable impact 76 million 24 net revenue geographic area adt worldwide years ended september 24 2010 september 25 2009 september 26 2008 follows millions geographically north america net revenue increased 251 million 60 2010 primarily result net impact acquisitions divestitures favorably impacted net revenue estimated 193 million 46 result acquisition broadview security partially offsetting increase decline systems installation product sales result continued weakness commercial market although rate decline slower period prior year changes foreign currency exchange rates also favorably impacted net revenue 48 million 11 net revenue emea decreased 137 million 73 favorable changes foreign currency exchange rates 60 million 32 offset decline systems installation service revenue result continued weakness commercial end market although rate decline slower period prior year additionally emea net revenue unfavorably impacted 121 million 65 due impact divestitures net revenue increased 196 million 194 rest world geographies primarily due recurring revenue growth latin american asia pacific regions adt worldwide continues focus building customer account recurring revenue base markets asiapacific region experienced increase system installation products sales service revenue partially offset decrease latin american region due continued slowdown commercial retailer end markets net revenue rest world geographies also favorably impacted changes foreign currency exchange rates 110 million 109 attrition rates decreased 2010 compared 2009 shown following table 1attrition rates years ended september 25 2009 september 26 2008 recast reflect divestiture french security business resulted reductions 01 amounts previously reported september 25 2009 september 26 2008 respectively operating income increased approximately 13 billion 2010 compared 2009 operating income 2009 negatively affected goodwill impairment charges 959 million recorded adt emea sensormatic retail solutions reporting units intangible asset impairment charges 64 million operating income 2010 positively impacted shift higher margin recurring revenue additionally 2010 operating income favorably impacted net impact savings realized previous restructuring actions savings realized cost containment actions curtailment gain 12 million recognized certain defined benefit pension plans frozen united kingdom increases partially offset increase amortization intangible assets primarily relating broadview security acquisition 2010 60 million net restructuring charges incurred 14 million related restructuring actions associated acquisition broadview security compared 103 million restructuring charges net 2009 fiscal year 2010 also included 45 million gain divestitures net primarily related sale french security business 32 million acquisition integration costs related acquisition broadview security compared 6 loss nil divestiture acquisition costs respectively 2009 changes foreign currency exchange rates favorably impacted operating income 30 million net revenue adt worldwide decreased 736 million 94 2009 compared 2008 decrease primarily driven unfavorable impact changes foreign currency exchange rates 614 million revenue positively affected 152 million net impact acquisitions divestitures revenue product sales decreased 168 service revenue decreased 55 recurring revenue declined 35 2009 primarily result changes foreign currency exchange rates unfavorably impacted recurring revenue 75 offset growth north america asia product sales installation service revenue declined 156 partially due result changes foreign currency exchange rates unfavorably impacted system installation service revenue 83 lower sales volume due weakness commercial markets including retailer end market geographically revenue north america decreased 46 million 11 resulting reduced spending primarily commercial markets including retailer end market revenue emea decreased 528 million 220 largely result foreign currency exchange rates unfavorable impact 328 million remaining decrease emea primarily result decline product sales systems installation service revenue due slowdown commercial markets including retailer end market revenue declined 162 million 138 rest world geographies primarily due unfavorable impact changes foreign currency exchange rates 223 million partially offset growth asia latin america operating income 2009 decreased 11 billion compared 2008 based deterioration commercial markets including retailer end market discussed company recorded goodwill impairment charge 959 million related adt emea reporting unit intangible asset impairment charges 64 million related certain franchise rights within north america second quarter 2009 decrease also related unfavorable impact changes foreign currency exchange rates 45 million decrease driven decline sales volume well increase bad debt charges result weakness experienced commercial markets including retailer end market adverse global economic conditions operating income negatively impacted restructuring asset impairment divestiture charges 109 million 2009 operating income 2008 included restructuring charges 119 million expenses 51 million primarily convert customers analog digital signal transmission north america charges related converting customers digital signal 2009 decline operating income partially offset savings realized cost containment restructuring actions flow control net revenue operating income operating margin flow control years ended september 24 2010 september 25 2009 september 26 2008 follows millions net revenue flow control decreased 122 million 35 2010 compared 2009 decrease net revenue primarily driven reduced volume valves business driven decreased demand end markets changes foreign currency exchange rates favorably impacted net revenue 218 million 62 well net impact acquisitions divestitures 10 million 03 decrease operating income 86 million 173 2010 compared 2009 primarily due decreased volume valves business expected loss related completion longterm construction project approximately 18 million declines partially offset favorable changes foreign currency exchange rates 31 million 63 decline operating income also partially offset savings realized cost containment restructuring actions operating income negatively impacted 24 million restructuring divestiture charges net 2010 2009 additionally management estimated 5 million additional charges resulting restructuring actions incurred 2009 net revenue flow control decreased 457 million 116 2009 compared 2008 decrease net revenue primarily driven unfavorable impact changes foreign currency exchange rates 418 million 106 revenue also decreased due reduced volume water business reduced project activity energy end market thermal controls business decrease revenue partially offset increase valves business primarily energy end market emea net impact acquisitions divestitures unfavorably impacted net revenue 3 million 2009 favorably impacted net revenue 16 million 2008 operating income decreased 78 million 136 2009 compared 2008 decrease operating income primarily due unfavorable impact changes foreign currency exchange rates 71 million well decreased volume water businesses discussed offset margin improvements valves business margins also negatively impacted restructuring asset impairment divestiture charges 24 million additionally management estimates 5 million additional charges resulting restructuring actions incurred 2009 restructuring asset impairment divestiture charges 6 million 2008 additionally selling general administrative expenses 2008 included environmental remediation charge 6 million related closure facility north america decline operating income partially offset savings realized cost containment restructuring actions fire protection services net revenue goodwill impairment operating income operating margin fire protection services years ended september 24 2010 september 25 2009 september 26 2008 follows millions 1certain operating margins percentage changes presented management believes calculations meaningful revenue product sales includes sales installation fire protection systems service revenue consists inspection maintenance service monitoring fire detection suppression systems net revenue geographic area fire protection services follows millions net revenue fire protection services decreased 55 million 16 2010 compared 2009 decrease primarily due continued weakness commercial markets shift lower margin projects higher projects offset favorable changes foreign currency exchange rates 118 million 35 geographically net revenue north america decreased 54 million 27 primarily due continued decline systems installation upgrade activity sprinkler business reduced systems installation upgrade activity electronic business well service revenue sprinkler suppression businesses also contributed decrease although much lesser extent declines partially offset increase service revenue electronic business changes foreign currency exchange rates favorably impacted revenue north america 28 million 14 although net revenue international fire businesses decreased 1 million changes foreign currency exchange rates favorably impacted net revenue 90 million 64 almost entirely offset decrease revenue due continued weakness european commercial markets net impact acquisitions divestitures unfavorably impacted revenue 6 million 02 operating income increased 202 million 2010 compared 2009 operating income 2009 negatively affected goodwill impairment charge 180 million recorded emea fire reporting unit additionally operating income 2010 favorably impacted savings realized cost containment actions lesser extent curtailment gain approximately 7 million recognized certain defined benefit pension plans frozen united kingdom 2010 34 million restructuring divestiture charges net incurred compared 45 million restructuring charges 2009 changes foreign currency exchange rates favorably impacted operating income 11 million net increase operating income partially offset decreased sales volume discussed net revenue fire protection services decreased 403 million 106 2009 compared 2008 decrease primarily due impact unfavorable changes foreign currency exchange rates 293 million 77 additionally revenue declined due weakness commercial market adverse global economic conditions geographically revenue international fire businesses decreased 286 million 168 largely due impact unfavorable changes foreign currency exchange rates discussed well weakness european commercial markets additionally revenue north america simplexgrinnell business decreased 117 million 55 primarily due decline systems installation upgrade activity sprinkler business operating income decreased 263 million 2009 compared 2008 decrease primarily due 180 million goodwill impairment emea recorded 2009 compared 9 million goodwill impairment latin america recorded 2008 decrease driven decline sales volume discussed well increase bad debt charges result weakness experienced commercial markets adverse global economic conditions restructuring asset impairment divestiture charges 45 million 2009 compared 26 million 2008 additionally operating income decreased due unfavorable impact changes foreign currency exchange rates 10 million decline operating income partially offset savings realized cost containment restructuring actions electrical metal products net revenue goodwill impairment operating income loss operating margin electrical metal products years ended september 24 2010 september 25 2009 september 26 2008 follows millions 1certain operating margins percentage changes presented management believes calculations meaningful net revenue electrical metal products increased 7 million 05 2010 compared 2009 increase revenue primarily due favorable changes foreign currency exchange rates 37 million 27 24 million 17 due favorable net impact acquisitions divestitures increases partially offset decline volume armored cable products lesser extent steel products higher selling prices armored cable products almost entirely offset lower selling prices steel products operating income increased approximately 10 billion 2010 compared 2009 operating income 2009 negatively affected goodwill impairment charges 935 million recorded electrical metal products reporting unit also contributing increase operating income higher spreads steel products resulting lower raw material costs offset lower selling prices increases operating income partially offset lower volumes well higher raw material costs offset higher selling prices armor cable products 2010 13 million restructuring charges incurred compared 21 million restructuring divestiture charges 2009 additionally 1 million additional charges resulting restructuring actions incurred 2009 compared additional charges 2010 net revenue electrical metal products decreased 880 million 387 2009 compared 2008 decrease revenue primarily due lower volume selling prices steel products largely resulting decline commercial market north america lower volume selling prices armored cable products also contributed decline changes foreign currency exchange rates unfavorable impact 52 million 23 net impact acquisitions divestitures negatively affected revenue approximately 31 million 14 operating income decreased 13 billion 2009 compared 2008 based sales volume decrease well significant decline price steel company recorded goodwill impairment charge 935 million second quarter 2009 goodwill impairment recorded 2008 decrease operating income also related volume declines well lower spreads steel products spreads steel products continued decline direct result higher raw material costs lower selling prices lower restructuring divestiture charges incurred 2009 compared similar charges incurred 2008 partially offset decline operating income discussed results 2009 included restructuring divestiture charges 21 million compared 42 million 2008 additionally management estimates 1 million additional charges resulting restructuring actions incurred 2009 safety products net revenue goodwill impairments operating income loss operating margin safety products years ended september 24 2010 september 25 2009 september 26 2008 follows millions 1certain operating margins percentage changes presented management believes calculations meaningful net revenue safety products decreased 6 million 04 2010 compared 2009 decrease net revenue primarily due lower volume fire suppression business partially offset higher volume experienced electronic security life safety businesses decrease fire suppression business primarily due reduced spending commercial construction market increase electronic security life safety businesses due higher volume primarily related introduction several new products net revenue favorably impacted changes foreign currency exchange rates 33 million 22 almost entirely offset unfavorable impact divestitures 31 million 20 operating income increased 588 million 2010 compared 2009 operating income 2009 negatively affected goodwill impairment charges 567 million recorded access controls video systems acvs life safety reporting units increase operating income attributable increased sales volume electronic security life safety businesses shift product mix higher margin products across businesses partially offset fire suppression sales volume decline discussed increased sales marketing expense restructuring asset impairment divestiture charges net 12 million 2010 compared 32 million restructuring charges 2009 additionally management estimated 7 million additional charges resulting restructuring actions incurred 2009 compared additional charges 2010 savings realized cost containment restructuring actions also contributed increase operating income changes foreign currency exchange rates favorably impacted operating income 6 million net revenue safety products decreased 370 million 196 2009 compared 2008 decrease primarily related reduced volume fire suppression business life safety electronic security businesses impacted soft economic conditions remaining decrease related unfavorable impact changes foreign currency exchange rates 114 million 60 decrease fire suppression business primarily due reduced spending commercial construction market decrease life safety business primarily due reduced municipal spending electronic security business decrease primarily due slow retail sector retail capital projects new store openings canceled delayed operating income decreased 668 million 2009 compared 2008 decline primarily attributable goodwill intangible impairment charges 567 million recorded quarter ended march 27 2009 result slowdown commercial retail markets discussed decreased sales volume within fire suppression life safety electronic security businesses also negatively impacted operating income operating income negatively impacted restructuring charges 32 million 2009 additionally management estimates 7 million additional charges resulting restructuring actions incurred 2009 period prior year included 47 million restructuring asset impairment charges net operating income 2009 also decreased 16 million due unfavorable changes foreign currency exchange rates operating income also negatively impacted charge 8 million relating amount depreciation amortization expense would recorded business previously classified held sale continuously classified held used see note 2 consolidated financial statements corporate expense decreased 104 million 184 461 million 2010 compared 565 million 2009 corporate expense 2009 negatively affected approximately 125 million charges related legacy securities matters partially offset 16 million benefit related settlement reached former executive restructuring charges decreased 1 million 2010 compared 10 million 2009 corporate expense also favorably impacted savings realized cost containment restructuring charges decreases corporate expenses partially offset 52 million net asbestos charge recorded third quarter 2010 compared 37 million net asbestos charge 2009 recorded conjunction valuation asbestosrelated liabilities insurance assets addition 4 million divestiture charges net 3 million acquisition costs recorded 2010 compared 6 million divestiture charges net nil acquisition costs 2009 corporate expense 2009 45 million higher compared prior year primarily resulting charge approximately 125 million related settlement legacy securities matters partially offset 16 million benefit related settlement reached former executive additionally corporate expense 2009 included 16 million restructuring asset impairment divestiture charges net corporate expense 2008 included net charges 28 million composed 29 million charge legacy legal settlement 4 million separation costs 5 million restructuring asset impairment divestiture charges net offset credit 10 million class action settlement recoveries remaining decrease corporate expense primarily related cost reduction initiatives restructuring program interest income expense interest income 31 million 2010 compared 44 million 112 million 2009 2008 respectively decrease interest income 2009 primarily related lower investment yields interest expense 284 million 2010 compared 301 million 396 million 2009 2008 respectively decrease interest expense primarily related savings interest rate swaps amounts drawn revolving credit facilities 2010 partially offset additional interest associated january october 2009 debt issuances weightedaverage interest rate total debt outstanding september 24 2010 september 25 2009 september 26 2008 63 66 62 respectively expense net expense net 75 million 2010 primarily relates charge 87 million loss extinguishment debt redemption 6375 public notes due 2011 7 notes due 2028 6875 notes due 2029 see note 11 loss partially offset 8 million gain recorded result increase receivables due covidien tyco electronics tax sharing agreement see note 6 expense net 7 million 2009 primarily relates 14 million charge recorded result decrease receivables due covidien tyco electronics tax sharing agreement partially offset income 5 million relating gain derivative contracts used economically hedge foreign currency risk related swiss franc denominated dividends expense net 223 million 2008 primarily relates charge 258 million loss extinguishment debt related consent solicitation exchange offers termination bridge loan facility offset income 6 million recorded connection settlement 3125 convertible senior debentures related financial instruments also recorded otherthantemporary impairments realized losses sale investments 6 million related primarily investments corporate debt additionally recorded 40 million income result increase receivables due covidien tyco electronics tax sharing agreement connection adoption guidance pertaining accounting uncertain income taxes also recorded 6 million expense activity accordance tax sharing agreement 2008 income taxes effective income tax rate effective income tax rate 109 2010 tax rate favorably impacted pretax income tax jurisdictions low tax rates additionally 2010 tax rate reduced limited tax certain business dispositions release deferred tax valuation allowances nonrecurring item generating tax benefit effective income tax rate 2009 meaningful primarily result loss driven goodwill impairment charges 26 billion almost tax benefit available additionally taxes 2009 positively impacted increased profitability lower tax rate jurisdictions release contingency reserves partially offset enacted tax law changes foreign exchange rates negatively impacted nonus deferred tax assets effective income tax rate 235 2008 income taxes 2008 positively impacted increased profitability lower tax rate jurisdictions release deferred tax valuation allowances partially offset enacted tax law changes negatively impacted nonus deferred tax assets valuation allowance deferred tax assets 1379 million 766 million september 24 2010 september 25 2009 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions valuation allowance calculated recorded determined morelikelythannot portion deferred tax assets would realized believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year income tax matters connection spinoffs covidien tyco electronics tyco entered tax sharing agreement governs rights obligations party respect certain preseparation income tax liabilities specifically tyco covidien tyco electronics share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens tyco electronics us certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties consistent sharing provisions tax sharing agreement tyco net receivable covidien tyco electronics 114 million 106 million september 24 2010 september 25 2009 respectively addition september 24 2010 tyco recorded liability 554 million 156 million included accrued current liabilities remaining amount liabilities representing fair value tycos obligations tax sharing agreement date separation liability 554 million september 25 2009 recorded liabilities fourth quarter 2010 reclassified 156 million liabilities accrued current liabilities expect make payment within next twelve months covidien tyco electronics related resolution certain irs audit matters tyco subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies related interest assessed uncertain income tax positions recorded appropriate detailed discussion contingencies related tycos income taxes see note 6 consolidated financial statements 2009 goodwill intangible asset impairments annually fiscal fourth quarter frequently triggering events occur test goodwill indefinitelived intangible assets impairment comparing fair value reporting unit indefinitelived intangible assets carrying amount began experience decline revenue first quarter 2009 adt worldwide fire protection services safety products segments result slowdown commercial markets including retailer end market well decline sales volume electrical metal products segments although considered concluded factors constitute triggering events first quarter 2009 continued existence conditions second quarter 2009 along downward revisions forecasted results restructuring actions weaker industry outlooks caused us conclude sufficient indicators impairment existed reporting units within adt worldwide fire protection services safety products segments continued negatively impacted result slowdown commercial markets including retailer end market additionally electrical metal products reporting unit continued negatively impacted decline sales volume due downturn nonresidential construction market determined underlying events circumstances constituted triggering events six reporting units events would likely reduce fair value respective carrying amounts specifically concluded emea security emea fire reporting units within adt worldwide fire protection services segments electrical metal products reporting unit within electrical metal products segment acvs life safety sensormatic retail solutions srs reporting units within safety products segment experienced triggering events carrying values reporting units likely exceeded fair values furthermore determined certain indefinitelived intangible assets required impairment testing based underlying events circumstances described well continued deterioration business environment related retailer end market adt worldwide safety products segments result triggering events performed longlived asset goodwill intangible asset impairment tests reporting units certain trade names franchise rights fair value reporting unit determined utilizing discounted cash flow analysis based forecast cash flows including underlying revenue operating income growth rates discounted using estimated weightedaverage cost capital market participants determining fair value management relied considered number factors including operating results business plans economic projections including timing economic recovery cash flow forecasts market data overall market capitalization based factors described actual anticipated reductions demand reporting units products services well increased risk due economic uncertainty estimates future cash flows used second quarter 2009 discounted cash flow analyses revised downward recent test conducted fiscal fourth quarter 2008 furthermore range weightedaverage cost capital utilized increased reflect increased risk due economic volatility uncertainties related demand products services results goodwill impairment tests indicated implied goodwill amount less carrying amount goodwill aforementioned reporting units recorded aggregate noncash impairment charge 26 billion 26 billion aftertax second quarter 2009 noncash impairment charge recorded goodwill intangible asset impairments consolidated statements operations quarter ended march 27 2009 indefinitelived intangible assets consisting primarily trade names franchise rights tested impairment using either relief royalty method excess earnings method include selection appropriate discount rates royalty rates terminal year growth rate assumptions estimates amount timing future cash flows attributable underlying intangible assets also second quarter 2009 estimates future cash flows used determining fair value safety products segment sensormatic tradename well certain adt worldwide segment franchise rights revised downward relative estimates used tests fourth quarter 2008 results impairment test indicated safety products sensormatic tradename adt worldwide franchise rights estimated fair values less respective carrying amounts result recorded aggregate noncash impairment charge 64 million 40 million aftertax second quarter 2009 noncash impairment charge recorded goodwill intangible asset impairments consolidated statements operations quarter ended march 27 2009 critical accounting policies estimates preparation consolidated financial statements conformity us gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization methods security monitoringrelated assetstyco considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets primarily north america related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 195 residential subscriber pools 145 265 commercial subscriber pools converts straight line methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination revenue recognitioncontract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts provisions anticipated losses made period become determinable product discounts granted based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable asbestosrelated contingencies insurance receivableswe certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials estimate liability corresponding insurance recovery pending future claims defense costs predominantly based claim experience past five years projection covers claims expected filed including related defense costs next seven years undiscounted basis due high degree uncertainty regarding pattern length time claims made settled litigated use multiple estimation methodologies based varying scenarios potential outcomes estimate range loss concluded estimating liability beyond seven year period provide reasonable estimate uncertainties increase significantly projection period lengthens connection recognition liabilities asbestosrelated matters record asbestosrelated insurance recoveries probable estimate asbestosrelated insurance recoveries represents estimated amounts due us previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable consider number factors including available insurance allocation methodologies solvency creditworthiness insurers annually perform detailed analysis assistance outside legal counsel experts review update appropriate underlying assumptions used estimated asbestosrelated assets liabilities quarterly basis reevaluate assumptions used perform annual analysis record expense necessary reflect changes estimated liability related insurance asset see note 14 financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities income taxesin determining taxable income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded valuation allowances maintain morelikelythannot deferred tax assets realized income tax expense recorded future may reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance could result additional income tax expense period could significant impact future earnings changes tax laws rates could also affect recorded deferred tax assets liabilities future management records affect tax rate law change companys deferred tax assets liabilities period enactment future tax rate law changes could material effect companys financial condition results operations cash flows addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur performing assessments management relies various factors including operating results business plans economic projections including expectations assumptions regarding timing degree economic recovery anticipated future cash flows comparable market transactions extent available market data elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets first step goodwill impairment test compare fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based forecast cash flows including estimated underlying revenue operating income growth rates discounted using estimated weightedaverage cost capital market participants market approach utilizing observable market data comparable companies similar lines business publicly traded part public private transaction extent available used corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test compare implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined allocate fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill based recent annual goodwill impairment assessment performed fourth quarter fiscal 2010 determined none reporting units significant goodwill risk failing step one goodwill impairment test fair value determinations require considerable judgment sensitive changes underlying assumptions factors result assurance estimates assumptions made purposes annual goodwill impairment test prove accurate predictions future examples events circumstances could reasonably expected negatively affect underlying key assumptions ultimately impact estimated fair value aforementioned reporting units may include items follows •a prolonged downturn business environment reporting units operate ie sales volumes prices especially commercial construction retailer end markets •an economic recovery significantly differs assumptions timing degree •volatility equity debt markets resulting higher discount rates •unexpected regulatory changes historical performance current expectations resulted fair values goodwill excess carrying values assumptions realized possible future impairment charge may need recorded however possible time determine impairment charge would result charge would material longlived assetsasset groups held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events changes business circumstances indicate carrying amount asset group may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairments longlived assets disposed recorded based upon fair value less cost sell applicable assets calculation fair value longlived assets based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions resulting actuarial gains losses active plans actuarial gains losses amortized average expected service period participants case inactive plans average remaining life expectancy participants discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 89 million increase annual pension expense approximately 7 million consider relative weighting plan assets class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions determining expected longterm return plan assets 50 basis point decrease expected longterm return plan assets would increase annual pension expense approximately 8 million liquidity capital resources fundamental objective company sufficient liquidity balance sheet strength financial flexibility fund operating capital requirements core businesses around world primary source funds finance operations capital expenditures cash generated operations addition maintain commercial paper program access committed revolving credit lines access equity debt capital public private sources continue balance operating investing financing uses cash investment core businesses strategic acquisitions divestitures dividends share repurchases believe cash position amounts available credit facilities cash provided operating activities adequate cover operational business needs 18 billion 24 billion cash equivalents september 24 2010 september 25 2009 respectively cash generated operating activities increased 26 billion 2010 fiscal year compared 24 billion fiscal 2009 cash used investing activities 18 billion 2010 fiscal year compared 13 billion fiscal 2009 cash used financing activities 14 billion 2010 fiscal year compared 03 billion fiscal 2009 september 24 2010 shareholders equity 141 billion total debt 42 billion addition lines credit totaling approximately 17 billion none drawn ratio total debt total capital sum short longterm debt shareholders equity 23 september 24 2010 25 september 25 2009 ratio measure longterm liquidity indicator financial flexibility continue monitor market conditions assess impact financial position results operations cash flows 95 us nonus funded pension plans invested marketable investments including publiclytraded equity fixed income securities funding policy make contributions accordance laws customs various countries operate well make discretionary contributions time anticipate contribute least minimum required pension plans 2011 12 million us plans 52 million nonus plans also anticipate making discretionary contributions approximately 20 million us plans 2011 cash flow operating activities sources cash flow operating activities use portion cash operations years ended september 24 2010 september 25 2009 september 26 2008 follows millions 1includes depreciation expense 654 million 610 million 620 million 2010 2009 2008 respectively amortization intangible assets 549 million 516 million 528 million 2010 2009 2008 respectively 2includes net proceeds received saledisposition property plant equipment 29 million 12 million 25 million 2010 2009 2008 respectively net change working capital increased operating cash flow 106 million 2010 components change set forth detail consolidated statements cash flows significant changes working capital included 119 million increase accounts payable 88 million decrease prepaid current assets partially offset 108 million increase inventories net change working capital increased operating cash flow 128 million 2009 components change set forth detail consolidated statements cash flows significant changes working capital included 346 million decrease inventory 191 million decrease accounts receivable 106 million net decrease contracts progress partially offset 337 million decrease accounts payable 138 million decrease income taxes net change working capital decreased operating cash flow 640 million 2008 components change set forth detail consolidated statements cash flows significant changes working capital included 186 million increase accounts receivable 140 million increase inventories 155 million decrease accrued liabilities 2010 2009 2008 paid approximately 160 million inclusive 2 million relating french security business classified held sale 152 million 186 million respectively cash related restructuring activities see note 3 consolidated financial statements information regarding restructuring activities income taxes paid net refunds related continuing operations 255 million 281 million 489 million 2010 2009 2008 respectively cash flow investing activities made capital expenditures 718 million 702 million 722 million 2010 2009 2008 level capital expenditures fiscal year 2011 expected exceed spending levels fiscal year 2010 also expected exceed depreciation 2010 2009 2008 paid approximately 559 million 543 million 376 million cash respectively acquire approximately 501000 512000 370000 customer contracts electronic security services within adt worldwide segment 2010 net cash paid broadview security totaled 448 million companys adt worldwide segment addition net cash paid acquire broadview security issued approximately 14 billion common shares consideration paid cash acquisitions included continuing operations totaling 152 million net cash acquired 1 million additionally flow control segment acquired two brazilian valve companies including hiter industria e comercio de controle termohidraulico ltda hiter valve manufacturer serves variety industries including oil gas chemical petrochemical markets net cash paid brazilian valve companies totaled 104 million electrical metal products segment acquired certain assets business 39 million safety products segment acquired business 9 million 2010 received cash proceeds net cash retained amount 21 million divestitures included continuing operations primarily within safety products flow control adt worldwide segments second quarter 2008 tyco released 2960 million funds placed escrow third quarter 2007 well 60 million interest earned funds benefit class stipulated courts final order related class action settlement claims alleging securities fraud actions taken former senior management cash flow financing activities may 5 2010 tyco international finance sa tifsa finance subsidiary issued 500 million aggregate principal amount 3375 notes due october 15 2015 fully unconditionally guaranteed us received net cash proceeds approximately 495 million may 28 2010 used net proceeds aforementioned offering additional cash hand redeem notes aggregated 878 million principal amount notes redeemed tifsas 6375 notes due 2011 7 notes due 2028 6875 notes due 2029 october 5 2009 tifsa issued 500 million aggregate principal amount 4125 notes due october 15 2014 fully unconditionally guaranteed us received net cash proceeds approximately 495 million net repayments shortterm debt approximately 243 million 2010 primarily related extinguishment 200 million outstanding commercial paper first quarter 2010 september 24 2010 commercial paper outstanding additionally repayments longterm debt 962 million primarily related redemption 6375 public notes due 2011 7 notes due 2028 6875 notes due 2029 repayments longterm debt offset approximately 10 billion proceeds received issuance longterm debt pursuant share repurchase program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved 10b51 trading plan accordance applicable regulations year ended september 24 2010 repurchased approximately 24 million common shares remaining 900 million authorized 10 billion share repurchase program approved board directors july 10 2008 see note 16 consolidated financial statements september 8 2010 board directors approved new 10 billion share repurchase program 2010 share repurchase program march 10 2010 shareholders approved annual dividend common shares chf 090 per share paid form return capital four installments chf 022 chf 022 chf 023 chf 023 february 2011 2010 2009 2008 paid cash dividends approximately 416 million 388 million 292 million respectively management believes cash generated available us sufficient fund capital liquidity needs foreseeable future including quarterly dividend payments share repurchases commitments contingencies contractual obligations contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases obligations september 24 2010 follows millions 1excludes debt discount swap activity interest 2interest payments consist interest fixed interest rate debt exclude impact interest rate swaps september 24 2010 swapped aggregate approximately 15 billion fixed floating rate debt 3excludes interest 4purchase obligations consist commitments purchases goods services 5other longterm liabilities excluded contractual obligation table primarily consist following pension postretirement costs income taxes warranties environmental liabilities unable estimate timing payment items due inherent uncertainties related obligations however minimum required contributions pension plans expected approximately 64 million 2011 expect pay 6 million 2011 related postretirement benefit plans addition expect make payment 156 million resolution certain outstanding irs audit matters within next twelve months see note 6 september 24 2010 recorded gross unrecognized tax benefits 318 million gross interest penalties 63 million unable make reasonably reliable estimate timing payments future years unrecognized tax benefits therefore amounts excluded contractual obligation table however based current status income tax audits believe reasonably possible 18 million 140 million unrecognized tax benefits may resolved next twelve months september 24 2010 total commitments 169 billion revolving credit facilities 500 million expires june 24 2011 119 billion expires april 25 2012 september 24 2010 amounts drawn revolving credit facilities tifsas bank credit agreements contain customary terms conditions financial covenants limit ratio debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive business may 2008 tifsa commenced issuing commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 24 2010 tifsa commercial paper outstanding normal course business liable contract completion product performance opinion management obligations significantly affect financial position results operations cash flows connection separation entered liability sharing agreement regarding certain actions pending tyco prior separation distribution agreement tax sharing agreement assumed 27 covidien assumed 42 tyco electronics assumed 31 certain tyco preseparation contingent corporate liabilities september 24 2010 primarily relate tax contingencies potential actions respect spinoffs distributions made brought third party backlog september 24 2010 backlog unfilled orders 95 billion compared backlog 89 billion september 25 2009 expect approximately 87 backlog september 24 2010 filled next 12 months backlog segment follows millions backlog increased 569 million 64 95 billion september 24 2010 increase backlog primarily due increase recurring revenueinforce adt worldwide segment partially offset decreased bookings flow control segment adt worldwides backlog includes recurring revenueinforce longterm deferred revenue upfront fees paid customers adt owned security systems revenueinforce represents 12 months revenue associated monitoring maintenance services contract security business adt worldwides backlog 66 billion 59 billion september 24 2010 september 25 2009 respectively consists primarily 48 billion 40 billion recurring revenueinforce september 24 2010 september 25 2009 respectively 11 billion deferred revenue september 24 2010 september 25 2009 adt worldwides backlog increased 673 million primarily driven increase revenueinforce 724 million including 540 million estimated contributed broadview security acquisition favorable changes foreign currency 15 million increases partially offset decrease bookings 48 million adt emea operations reduction deferred revenue 36 million flow controls backlog decreased 164 million primarily due decreased bookings 162 million several large projects completed fiscal 2010 fire protections backlog increased 25 million primarily due increase 100 million asiapacific region favorable changes foreign currency 14 million increases partially offset decreases experienced emea north america 57 million 18 million respectively backlog within safety products increased 19 million primarily result increased orders across various businesses offbalance sheet arrangements sale accounts receivable certain international businesses utilize sale accounts receivable shortterm financing mechanisms aggregate amount outstanding international accounts receivable programs material september 24 2010 september 25 2009 september 26 2008 guarantees certain business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien tyco electronics accordance terms separation distribution agreement tax sharing agreement guarantees primarily relate certain contingent tax liabilities included tax sharing agreement time separation recorded liability necessary recognize fair value guarantees indemnifications see note 6 consolidated financial statements discussion tax sharing agreement addition prior separation provided support form financial andor performance guarantees various covidien tyco electronics operating entities extent guarantees assigned connection separation assumed primary liability remaining support obligations material us september 24 2010 disposing assets businesses often provide representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition reason believe uncertainties would material adverse effect financial position results operations cash flows recorded liabilities known indemnifications included part environmental liabilities see note 14 consolidated financial statements discussion liabilities normal course business liable contract completion product performance record estimated product warranty costs time sale opinion management obligations significantly affect financial position results operations cash flows september 24 2010 total outstanding letters credit bank guarantees approximately 740 million detailed discussion guarantees indemnifications see note 12 consolidated financial statements accounting pronouncements see note 1 consolidated financial statements recently adopted accounting pronouncements recently issued accounting pronouncements forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed securities exchange commission sec tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect sales earnings cash flows operating tax efficiencies product expansion backlog consummation benefits acquisitions divestitures well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forwardlooking statements include among things •overall economic business conditions •the demand tycos goods services •competitive factors industries tyco competes •changes tax requirements including tax rate changes new tax laws treaties revised tax law interpretations •results consequences tycos internal investigations governmental investigations concerning companys governance management internal controls operations including business operations outside united states •the outcome litigation arbitrations governmental proceedings •effect income tax audit settlement appeals •our ability repay refinance outstanding indebtedness matures •our ability operate within limitations imposed financing arrangements maintain credit ratings •interest rate fluctuations changes borrowing costs •other capital market conditions including availability funding sources currency exchange rate fluctuations •availability fluctuations prices key raw materials including steel copper •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability achieve cost savings connection companys strategic restructuring six sigma initiatives •our ability execute portfolio refinement acquisition strategies •potential impairment goodwill intangibles andor longlived assets •the impact fluctuations price tyco common shares •risks associated change swiss incorporation including possibility reduced flexibility respect certain aspects capital management increased different regulatory burdens possibility may realize anticipated tax benefits •changes us nonus government laws regulations •the possible effects tyco future legislation united states may limit eliminate potential us tax benefits resulting tyco internationals swiss incorporation deny us government contracts tyco based upon swiss incorporation item 7aitem 7 managements discussion analysis financial condition results operations results operations following discussion analysis companys financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions companys actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information introduction consolidated financial statements include consolidated results tyco international ltd company organized laws switzerland subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance accounting principles generally accepted united states gaap first quarter fiscal 2011 realigned safety products segment adt worldwide fire protection segments create two new segments tyco security solutions tyco fire protection tyco security solutions consists former adt worldwide segment well portion former safety products segment manufactures security products including intrusion security access control video management systems tyco fire protection consists former fire protection services segment well number businesses former safety products segment including fire suppression fire detection life safety products businesses addition various businesses realigned tyco security solutions tyco fire protection result realignment well sale majority interest electrical metal products business described began operating following business segments •tyco security solutions designs sells installs services monitors electronic security productivity lifestyle enhancement systems residential commercial industrial governmental customers addition tyco security solutions designs manufactures sells security products including intrusion security access control electronic article surveillance video management systems •tyco fire protection designs manufactures sells installs services fire detection fire suppression systems building life safety products commercial industrial governmental customers •tyco flow control designs manufactures sells services valves pipes fittings valve automation heat tracing products general process energy mining markets well water wastewater markets also provide general corporate services segments costs reported corporate overview net revenue year ended september 30 2011 increased 339 million 20 174 billion compared year ended september 24 2010 net revenue increased fiscal 2011 despite sale majority interest electrical metal products business contributed 14 billion revenue year ended september 24 2010 347 million year ended september 30 2011 net revenue increased across segments mainly attributable strength tyco security solutions tyco fire protection segments lesser extent tyco flow control segment favorable changes foreign currency exchange rates also impacted net revenue 503 million 30 addition companys fiscal year ends last friday september fiscal 2011 consisted 53 weeks compared 52 weeks fiscal 2010 2009 result fiscal year 2011 includes estimated 143 million 08 revenue additional week service revenue primarily recurring nature represented approximately 45 overall revenue year ended september 30 2011 compared 41 40 2010 2009 respectively service revenue percentage net revenue increased due divestiture electrical metal products business significant service component well due strength tyco security solutions tyco fire protection businesses service revenues principally derived tyco security solutions tyco fire protection businesses represent consistent source revenue monitoring maintenance services contractual agreements recurring revenue tyco security solutions business grew approximately 57 tyco security solutions total revenue year ended september 30 2011 primarily due integration broadview security compared approximately 56 year ended september 24 2010 52 year ended september 25 2009 tyco fire protection business service revenue remained steady percentage tyco fire protections total revenue 38 2011 2010 compared 36 2009 year ended september 30 2011 nonservice revenue tyco security solutions tyco fire protection improved slightly compared prior annual periods due strength systems installation related products product sales tyco security solutions product sales tyco fire protection improvements partially offset continued weakness tyco flow control segments water environmental systems business operating income year ended september 30 2011 increased 521 million 33 21 billion compared operating income 16 billion year ended september 24 2010 operating income year ended september 30 2011 includes net gain divestitures 230 million primarily related sale majority interest electrical metal products business compared net gain divestitures 40 million year ended september 24 2010 operating income also favorably impacted changes foreign currency exchange rates 60 million 38 increase operating income 2011 also reflects strong growth tyco security solutions business operating income favorably impacted year ended september 30 2011 due lower restructuring asset impairment charges 87 million compared 145 million year ended september 24 2010 operating income year ended september 30 2011 included acquisition integration costs 39 million compared 35 million year ended september 24 2010 cash balance 14 billion 18 billion september 30 2011 september 24 2010 respectively generated approximately 24 billion cash operating activities utilized 13 billion cash investing activities 15 billion cash financing activities year ended september 30 2011 year ended september 30 2011 approximately 10 billion cash generated divestitures primarily related 713 million sale majority interest electrical metal products business 264 million sale european water business presented net cash provided used discontinued investing activities consolidated statement cash flows year ended september 30 2011 uses cash primarily included 13 billion repurchase common shares 788 million capital expenditures 656 million acquisitions net cash acquired 614 million purchase customer contracts tyco security solutions segment 458 million pay cash dividends recent transactions september 19 2011 company announced board directors approved plan separate company three separate publicly traded companies consisting companys north american residential security business flow control business commercial fire security business 2012 separation expected completed end third calendar quarter 2012 taxfree pro rata distribution equity interest flow control north american residential security business completion proposed separation subject certain conditions including final approval tyco board directors shareholders receipt tax opinions rulings filing effectiveness registration statements sec separation also subject completion necessary financing fiscal 2011 made number strategic investments within three core businesses april 29 2011 tyco security solutions segment completed acquisition signature security group 184 million net cash acquired 2 million signature security group electronic security company operating australia new zealand primarily small business residential markets june 29 2011 companys flow control segment finalized acquisition 75 equity interest privatelyheld kef holdings ltd kef vertically integrated valve manufacturer middle east approximately 295 million net cash acquired 1 million additionally connection acquisition acquired 64 million debt substantially paid september 30 2011 september 1 2011 fire protection segment completed acquisition chemguard inc chemguard approximately 130 million net cash acquired 1 million chemguard provider firefighting foam concentrates equipment foam systems services specialty chemicals september 15 2011 company reached agreement acquire visonic ltd visonic global developer manufacturer electronic security systems components approximately 100 million cash transaction expected close first quarter fiscal 2012 following close transaction company intends combine visonic companys tyco security solutions segment see note 5 consolidated financial statements november 9 2010 announced entered investment agreement sell majority interest electrical metal products business affiliate private equity firm clayton dubilier rice llc investor formed newly incorporated holding company atkore international group inc atkore hold electrical metal products business december 22 2010 transaction closed investor acquired shares newlycreated class cumulative convertible preferred stock atkore preferred stock preferred stock initially represented 51 outstanding capital stock asconverted basis atkore connection closing received cash proceeds approximately 713 million recorded gain 259 million first quarter 2011 year ended september 30 2011 recorded working capital adjustments 11 million reduced gain disposal gain disposal recorded within restructuring asset impairments divestiture gains charges net consolidated statement operations september 30 2010 sold water business europe part tyco flow control segment business met discontinued operations criteria included discontinued operations periods presented sale completed approximately 264 million cash proceeds net 7 million cash divested sale pretax gain 172 million largely exempt tax gain recorded income discontinued operations net income taxes companys consolidated statement operations references segment data companys continuing operations discussed company realigned certain business operations first quarter fiscal 2011 accordingly recast prior period segment amounts see note 21 consolidated financial statements operating results 1on december 22 2010 sold majority interest electrical metal products business closing december 22 2010 net revenue operating income business 347 million 7 million respectively year ended september 30 2011 net revenue 14 billion year ended september 24 2010 september 25 2009 operating income 100 million year ended september 24 2010 operating loss 938 million year ended september 25 2009 annual discussion relating electrical metal products business information provided order reconcile net revenue operating income years ended september 30 2011 september 24 2010 september 25 2009 segment results segment discussions follow describe significant factors contributing changes results segments included continuing operations tyco security solutions net revenue net revenue tyco security solutions years ended september 30 2011 september 24 2010 september 25 2009 follows millions 1as discussed note 1 consolidated financial statements revenue related sale electronic tags labels utilized retailer antitheft systems classified revenue product sales reporting periods prior first quarter fiscal 2010 revenue related sale electronic tags labels utilized retailer antitheft systems misclassified service revenue item effect net revenue operating income loss net income loss cash flows changes made previously filed financial statements comparative amounts presented herein effect prior periods material revenue related sale electronic tags labels reflected service revenue 286 million 2009 related cost services 176 million 2009 net revenue tyco security solutions 86 billion increased 892 million 115 year ended september 30 2011 compared year ended september 24 2010 net revenue favorably impacted estimated net impact acquisitions divestitures 235 million 30 substantially related acquisition broadview security may 2010 lesser extent signature security group april 2011 offset divested revenue french security business sold march 2010 changes foreign currency exchange rates also favorably impacted net revenue 192 million 25 addition estimated 38 million 05 revenue attributable additional week fiscal 2011 nonrecurring remaining increase net revenue primarily due incremental account growth net attrition recurring revenue businesses north america rest world row strength nonrecurring businesses related construction project activity security system upgrades north america retail store expansion activity row net revenue tyco security solutions 77 billion increased 359 million 49 year ended september 24 2010 compared september 25 2009 net revenue favorably impacted changes foreign currency exchange rates 239 million 32 net revenue also favorably impacted net impact acquisitions divestitures 72 million 10 primarily result 193 million net revenue estimated contributed broadview security acquisition partially offset 109 million divested revenue relating french security business recurring net revenue recurring revenue generated contractual monitoring maintenance agreements longterm nature primarily driven addition loss customer accounts increases decreases average revenue per customer 1the number customer accounts attrition rates average revenue per customer periods exclude impact divestitures 2trailing 52 week attrition rates exclude impact changes foreign currency exchange rates recurring revenue increased 612 million 142 approximately 49 billion year ended september 30 2011 compared year ended september 24 2010 recurring net revenue favorably impacted estimated impact acquisitions divestitures 322 million 75 relating acquisition broadview security may 2010 lesser extent acquisition signature security group april 2011 changes foreign currency exchange rates also favorably impacted recurring revenue 84 million 20 customer accounts grew year ended september 30 2011 approximately 01 million 11 total 90 million accounts increase average monthly revenue per customer 073 year ended september 24 2010 year ended september 30 2011 partially due favorable foreign exchange rates along incremental account growth net attrition north america row regions recurring revenue increased 434 million 112 approximately 43 billion year ended september 24 2010 compared year ended september 25 2009 result growth customer accounts approximately 15 million 203 total approximately 89 million accounts september 24 2010 approximately 14 million customer accounts acquired may 14 2010 connection broadview security acquisition net impact acquisitions divestitures changes foreign currency exchange rates favorably impacted recurring revenue 149 million 39 116 million 30 respectively 2010 nonrecurring net revenue nonrecurring revenue generated product sales including sales installation electronic security products related retailer antitheft systems well life safety systems services provisioning armored guards onetime repair security system upgrades inspection jobs nonrecurring net revenue increased 280 million 81 37 billion year ended september 30 2011 compared year ended september 24 2010 changes foreign currency exchange rates favorably impacted nonrecurring net revenue 108 million 31 addition estimated 38 million 11 nonrecurring revenue attributable additional week fiscal 2011 increases partially offset unfavorable net impact acquisitions divestitures 89 million 26 primarily relating sale french security business march 2010 remaining increase primarily due strength commercial end markets new retail store expansion activity row increased demand within north america construction projects security systems upgrades nonrecurring revenue declined 75 million 21 approximately 34 billion year ended september 24 2010 compared year ended september 25 2009 due lower sales volume primarily result weakness commercial end market declined slower rate period prior year changes foreign currency exchange rates favorably impacted systems installation product sales service revenue 122 million 35 net impact acquisitions divestitures resulted unfavorable impact 76 million 22 revenue geography north american revenue consists residential small business primarily recurring revenue business commercial primarily nonrecurring revenue business europe middle east africa emea row revenue primarily commercial net revenue geography tyco security solutions follows millions 1tyco security products managed global business north america net revenue north america increased 666 million 150 year ended september 30 2011 compared year ended september 24 2010 primarily result acquisition broadview security changes foreign currency exchange rates favorably impacted north american revenue 25 million 06 residential small business net revenue increased 199 compared year ended september 24 2010 primarily due acquisition broadview security commercial net revenue increased 82 compared year ended september 24 2010 primarily result increase construction projects security system upgrades commercial end markets partially offset softness retail market net revenue north america increased 251 million 60 year ended september 24 2010 compared year ended september 25 2009 primarily result net impact acquisitions divestitures favorably impacted net revenue estimated 193 million 46 result acquisition broadview security changes foreign currency exchange rates also favorably impacted net revenue 48 million 11 residential small business net revenue increased 153 compared year ended september 25 2010 primarily due acquisition broadview security commercial net revenue decreased 48 due decline systems installation product sales result weakness commercial market although rate decline slower period prior year europe middle east africa net revenue emea decreased 12 million 07 year ended september 30 2011 compared year ended september 24 2010 primarily due unfavorable net impact acquisitions divestitures 138 million 79 resulting sale certain businesses including french security business march 2010 several smaller businesses europe course fiscal 2010 decrease partially offset favorable changes foreign currency exchange rates 70 million 40 stronger systems installation across continental europe also favorably increased net revenue net revenue emea decreased 137 million 73 year ended september 24 2010 compared year ended september 25 2009 favorable changes foreign currency exchange rates 60 million 32 offset decline systems installation service revenue result weakness commercial end market although rate decline slower period prior year additionally emea net revenue unfavorably impacted 120 million 64 due impact divestitures rest world net revenue row increased 185 million 153 year ended september 30 2011 compared year ended september 24 2010 changes foreign currency exchange rates favorably impacted net revenue 83 million 69 remaining increase net revenue row primarily attributable retail store expansion increases customer account bases increased systems installation activity asia pacific latin america regions net revenue row increased 200 million 199 year ended september 24 2010 compared year ended september 25 2009 primarily due recurring revenue growth latin american asia pacific regions resulting customer account growth asiapacific region experienced increase system installation products sales service revenue partially offset decrease latin american region due slowdown commercial retailer end markets net revenue rest world geographies also favorably impacted changes foreign currency exchange rates 111 million 110 tyco security products net revenue tyco security products increased 53 million 150 year ended september 30 2011 compared year ended september 24 2010 changes foreign currency exchange rates favorably impacted net revenue 14 million 40 remaining increase net revenue primarily due growth across multiple product lines globally net revenue tyco security products increased 45 million 146 year ended september 24 2010 compared year ended september 25 2009 changes foreign currency exchange rates favorably impacted net revenue 20 million 65 additionally net revenue increased due higher volume primarily related introduction several new products operating income operating margin operating income operating margin tyco security solutions follows millions 1certain operating margins percentages presented management believes calculations meaningful operating income 14 billion increased 271 million 249 year ended september 30 2011 compared year ended september 24 2010 operating income operating margin year ended september 30 2011 continued favorably impacted higher sales volume efficiencies gained restructuring actions taken prior years cost containment activities changes foreign currency exchange rates favorably impacted operating income 23 million 21 included operating income year ended september 30 2011 25 million restructuring charges net compared 62 million restructuring charges net year ended september 24 2010 addition included operating income year ended september 30 2011 33 million acquisition integration costs primarily related acquisition broadview security signature security group compared 32 million acquisition integration costs year ended september 24 2010 included operating income prior year comparable period 45 million gain divestitures net primarily related sale french security business curtailment gain 12 million recognized upon freezing certain defined benefit plans united kingdom compared absence similar charges year ended september 30 2011 operating income 11 billion increased 16 billion year ended september 24 2010 compared year ended september 25 2009 operating income year ended september 25 2009 negatively affected goodwill impairment charges 13 billion recorded adt emea access controls video systems acvs sensormatic retail solutions reporting units intangible asset impairment charges 64 million operating income year ended september 24 2010 positively impacted shift higher margin recurring revenue additionally 2010 operating income favorably impacted net impact savings realized previous restructuring cost containment actions curtailment gain 12 million recognized certain defined benefit pension plans frozen united kingdom increases partially offset increase amortization intangible assets primarily relating broadview security acquisition year ended september 24 2010 62 million net restructuring charges incurred 14 million related restructuring actions associated acquisition broadview security compared 118 million restructuring charges net year ended september 25 2009 additionally management estimated 2 million additional charges resulting restructuring actions incurred year ended september 25 2009 fiscal 2010 also included 45 million gain divestitures net primarily related sale french security business 32 million acquisition integration costs related acquisition broadview security compared 6 million loss divestitures nil acquisition costs fiscal 2009 changes foreign currency exchange rates favorably impacted operating income 33 million 64 tyco fire protection net revenue net revenue tyco fire protection years ended september 30 2011 september 24 2010 september 25 2009 follows millions 1revenue related sale certain products classified revenue product sales reporting periods prior first quarter fiscal 2011 revenue related certain systems installation products misclassified service revenue service revenue systems installation revenue years ended september 24 2010 september 25 2009 changed misclassification effect material impact misclassification years ended september 24 2010 september 25 2009 would decrease service revenue 37 million 36 million respectively corresponding increase systems installation within revenue product sales revenue sale products years ended september 24 2010 september 25 2009 classified product sales service revenue would increased 110 million 65 year ended september 30 2011 62 million 38 year ended september 24 2010 addition product sales would increased 123 million 44 year ended september 30 2011 decreased 172 million 58 year ended september 24 2010 net revenue tyco fire protection 47 billion increased 233 million 52 year ended september 30 2011 compared year ended september 24 2010 changes foreign currency exchange rates favorably impacted net revenue 126 million 28 addition estimated 60 million 13 revenue attributable additional week fiscal 2011 deconsolidation joint venture fire protection services business result adopting new accounting standard unfavorably impacted net revenue 72 million 16 remaining increase revenue primarily driven increased volume product sales result generally improved endmarket demand implementation pricing actions offset commodity inflationary pressures increased services revenue result continued focus driving recurring revenue continued emerging markets expansion partially offset decline systems installation revenue result project selectivity across regions net revenue tyco fire protection decreased 110 million 24 year ended september 24 2010 compared year ended september 25 2009 net revenue unfavorably impacted acquisitions divestitures 37 million 08 net revenue favorably impacted changes foreign currency exchange rates 130 million 28 remaining decrease primarily due weakness commercial markets project selectivity resulting focus higher margin projects revenue product sales systems installation related products revenue product sales includes sales installation fire protection systems revenue systems installation decreased 4 million 02 year ended september 30 2011 compared year ended september 24 2010 changes foreign currency exchange rates favorably impacted systems installation revenue 45 million 28 deconsolidation joint venture discussed unfavorably impacted systems installation 51 million 31 revenue systems installation also unfavorably impacted project selectivity resulting focus higher margin projects across regions revenue systems installation decreased 123 million 71 year ended september 24 2010 compared year ended september 25 2009 changes foreign currency exchange rates favorably impacted systems installation revenue 56 million 32 despite favorable impact foreign currency revenue decreased due decreased upgrade activity customers project selectivity resulting focus higher margin project across regions product sales revenue product sales increased 164 million 142 year ended september 30 2011 compared year ended september 24 2010 changes foreign currency exchange rates favorably impacted product revenue 24 million 21 remaining increase net revenue driven increased volumes due improved endmarket demand implementation pricing actions offset commodity inflationary pressures revenue product sales decreased 50 million 41 year ended september 24 2010 compared year ended september 25 2009 product revenue unfavorably impacted estimated impact 32 million 27 divestitures decrease partially offset changes foreign currency exchange rates favorably impacted product revenue 13 million 11 remaining decrease due weakness endmarket demand service revenue service revenue consists inspection maintenance monitoring repair fire detection suppression life safety systems service revenue increased 73 million 42 year ended september 30 2011 compared year ended september 24 2010 changes foreign currency exchange rates favorably impacted service revenue 56 million 32 deconsolidation joint venture discussed unfavorably impacted service revenue 21 million 12 remaining increase service revenue result managements continued focus expanding recurring service revenue across regions service revenue increased 63 million 38 year ended september 24 2010 compared year ended september 25 2009 changes foreign currency exchange rates favorably impacted service revenue 61 million 37 despite favorable impact foreign currency service revenue flat due primarily weakness european markets operating income operating margin operating income operating margin tyco fire protection follows millions 1certain operating margins percentages presented management believes calculations meaningful operating income 534 million increased 74 million 161 year ended september 30 2011 compared year ended september 24 2010 changes foreign currency exchange rates favorably impacted operating income 15 million 33 factors contributed net increase operating income operating margin increased sales volume implementation pricing actions offset commodity inflationary pressures products business project selectivity systems installation business costcontainment initiatives increases partially offset additional environmental remediation costs 11 million net recoveries related isolated site 5 million decrease operating income related deconsolidation joint venture included operating income prior year comparable period curtailment gain 8 million recognized upon freezing certain defined benefit plans united kingdom included operating income year ended september 30 2011 38 million restructuring charges net compared 42 million restructuring charges net year ended september 24 2010 included operating income year ended september 30 2011 29 million losses divestitures compared 2 million losses divestitures year ended september 24 2010 operating income increased 440 million year ended september 24 2010 compared year ended september 25 2009 operating income year ended september 25 2009 negatively affected goodwill impairment charge 420 million recorded emea fire life safety reporting units additionally operating income 2010 favorably impacted savings realized cost containment actions 14 million favorable changes foreign currency exchange rates lesser extent curtailment gain approximately 8 million recognized certain defined benefit pension plans frozen united kingdom 42 million restructuring charges net loss divestiture 2 million year ended september 24 2010 compared 62 million restructuring charges net nil divestiture charges incurred 2009 additionally management estimates 7 million additional charges resulting restructuring actions incurred 2009 operating income 2009 also unfavorably affected decreased sales volume discussed tyco flow control net revenue net revenue tyco flow control years ended september 30 2011 september 24 2010 september 25 2009 follows millions net revenue tyco flow control 36 billion increased 266 million 79 year ended september 30 2011 compared year ended september 24 2010 increase revenue primarily due favorable impacts changes foreign currency exchange rates 183 million 54 addition estimated 45 million 13 revenue attributable additional week fiscal 2011 net revenue favorably impacted estimated net impact acquisitions divestitures 7 million 02 remaining increase primarily due continued strength endmarket demand valves controls thermal controls businesses partially offset weakness water environmental systems business decreased revenue water environmental systems business primarily due completion large desalinization project australia commenced second quarter fiscal 2010 completed beginning second quarter fiscal 2011 net revenue tyco flow control 34 billion decreased 122 million 35 year ended year ended september 24 2010 compared year ended september 25 2009 net revenue favorably impacted changes foreign currency exchange rates 218 million 62 well net impact acquisitions divestitures 10 million 03 offset decreased revenues due reduced volume valves controls business driven decreased demand end markets operating income operating margin operating income operating margin tyco flow control years ended september 30 2011 september 24 2010 september 25 2009 follows millions operating income 413 million increased 3 million 07 year ended september 30 2011 compared year ended september 24 2010 operating income favorably impacted changes foreign currency exchange rates 22 million 54 increase operating income primarily due continued strength valves controls thermal controls businesses offset weakness water environmental systems business restructuring charges net 11 million year ended september 30 2011 compared 25 million prior year ended september 30 2011 included 6 million gain divestiture compared 1 million gain divestiture year ended september 24 2010 operating income 410 million decreased 86 million 173 year ended september 24 2010 compared year ended september 25 2009 primarily due decreased volume valves business expected loss related completion longterm construction project approximately 18 million declines partially offset favorable changes foreign currency exchange rates 31 million 63 decline operating income also partially offset savings realized cost containment restructuring actions operating income unfavorably impacted 24 million restructuring divestiture charges net fiscal 2010 fiscal 2009 additionally management estimated 5 million additional charges resulting restructuring actions incurred year ended september 25 2009 corporate expense decreased 266 million 576 196 million year ended september 30 2011 compared expense 462 million year ended september 24 2010 decrease corporate expense year ended september 30 2011 related 253 million net gain divestitures primarily related divestiture electrical metal products business compared 4 million net loss divestitures year ended september 24 2010 corporate expense also favorably impacted cost containment initiatives year ended september 30 2011 well lower net asbestos charge 11 million recorded connection companys valuation asbestosrelated liabilities year ended september 30 2011 compared 52 million net asbestos charge recorded year ended september 24 2010 corporate also recorded 20 million charge relation legacy legal matter year ended september 30 2011 compared nil year ended september 24 2010 additionally net restructuring charges acquisition charges year ended september 30 2011 12 million 1 million respectively year ended september 24 2010 included restructuring charges acquisition charges 1 million 3 million respectively year ended september 30 2011 included 24 million separation costs primarily related professional fees banking services see note 2 consolidated financial statements information corporate expense decreased 108 million 189 462 million year ended september 24 2010 compared 570 million year ended september 25 2009 corporate expense 2009 negatively affected approximately 125 million charges related legacy securities matters partially offset 16 million benefit related settlement reached former executive restructuring charges decreased 1 million year ended september 24 2010 compared 10 million year ended september 25 2009 corporate expense also favorably impacted savings realized cost containment restructuring charges decreases corporate expenses partially offset 52 million net asbestos charge recorded third quarter 2010 compared 37 million net asbestos charge 2009 recorded conjunction valuation asbestosrelated liabilities insurance assets addition 4 million divestiture charges net 3 million acquisition costs recorded year ended september 24 2010 compared 6 million divestiture charges net nil acquisition costs year ended september 25 2009 interest income expense interest income 34 million 2011 compared 31 million 44 million 2010 2009 respectively interest income increased 2011 primarily due increased investment yields compared 2010 investment yields continue lower experienced 2009 interest expense 244 million 2011 compared 284 million 301 million 2010 2009 respectively weightedaverage interest rate total debt outstanding september 30 2011 september 24 2010 september 25 2009 59 63 66 respectively decreases interest expense weightedaverage interest rate primarily related savings realized replacement higher coupon notes lower coupon notes past year including redemption 6375 notes due 2011 issuance 3375 notes due 2015 third quarter 2010 maturity 675 notes due 2011 issuances 375 notes due 2018 4625 notes due 2023 second quarter 2011 expense net expense net 16 million 2011 primarily relates share atkores net loss 9 million accounted equity method accounting decrease receivables due covidien te connectivity tax sharing agreement 7 million see note 7 consolidated financial statements expense net 75 million 2010 primarily related charge 87 million loss extinguishment debt redemption 6375 public notes due 2011 7 notes due 2028 6875 notes due 2029 see note 12 consolidated financial statements loss partially offset 8 million gain recorded result increase receivables due covidien te connectivity tax sharing agreement expense net 7 million 2009 primarily related 14 million charge recorded result decrease receivables due covidien te connectivity tax sharing agreement partially offset income 5 million relating gain derivative contracts used economically hedge foreign currency risk related swiss franc denominated dividends effective income tax rate effective income tax rate 172 109 years ended september 30 2011 september 24 2010 respectively increase effective income tax rate primarily related tax charge recorded conjunction sale majority interest electrical metal products business first quarter 2011 nonrecurring transaction generating tax benefit 2010 release deferred tax valuation allowance 2010 effective income tax rate positively impacted favorable audit resolutions multiple jurisdictions 2011 rate vary quarter due discrete items settlement income tax audits changes tax laws well recurring factors geographic mix income taxes effective income tax rate 2009 meaningful primarily result loss driven goodwill impairment charges 26 billion almost tax benefit available additionally taxes 2009 positively impacted increased profitability lower tax rate jurisdictions release contingency reserves partially offset enacted tax law changes foreign exchange rates negatively impacted nonus deferred tax assets valuation allowance deferred tax assets 1400 million 1379 million september 30 2011 september 24 2010 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets companys consolidated balance sheets calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year 2009 goodwill intangible asset impairments annually fiscal fourth quarter frequently triggering events occur test goodwill indefinitelived intangible assets impairment comparing fair value reporting unit indefinitelived intangible assets carrying amount began experience decline revenue first quarter 2009 tyco security solutions tyco fire protection segments result slowdown commercial markets including retailer end market well decline sales volume electrical metal products segments although considered concluded factors constitute triggering events first quarter 2009 continued existence conditions second quarter 2009 along downward revisions forecasted results restructuring actions weaker industry outlooks caused us conclude sufficient indicators impairment existed reporting units within tyco security solutions tyco fire protection segments continued negatively impacted result slowdown commercial markets including retailer end market additionally electrical metal products reporting unit continued negatively impacted decline sales volume due downturn nonresidential construction market determined underlying events circumstances constituted triggering events six reporting units events would likely reduce fair value respective carrying amounts specifically concluded emea security acvs sensormatic retail solutions srs reporting units within tyco security solutions segment emea fire life safety reporting units within tyco fire protection segment electrical metal products reporting unit within electrical metal products segment experienced triggering events carrying values reporting units likely exceeded fair values furthermore determined certain indefinitelived intangible assets required impairment testing based underlying events circumstances described well continued deterioration business environment related retailer end market tyco security solutions segments result triggering events performed longlived asset goodwill intangible asset impairment tests reporting units certain trade names franchise rights fair value reporting unit determined utilizing discounted cash flow analysis based forecast cash flows including underlying revenue operating income growth rates discounted using estimated weightedaverage cost capital market participants determining fair value management relied considered number factors including operating results business plans economic projections including timing economic recovery cash flow forecasts market data overall market capitalization based factors described actual anticipated reductions demand reporting units products services well increased risk due economic uncertainty estimates future cash flows used second quarter 2009 discounted cash flow analyses revised downward recent test conducted fiscal fourth quarter 2008 furthermore range weightedaverage cost capital utilized increased reflect increased risk due economic volatility uncertainties related demand products services results goodwill impairment tests indicated implied goodwill amount less carrying amount goodwill aforementioned reporting units recorded aggregate noncash impairment charge 26 billion 26 billion aftertax second quarter 2009 noncash impairment charge recorded goodwill intangible asset impairments consolidated statements operations quarter ended march 27 2009 indefinitelived intangible assets consisting primarily trade names franchise rights tested impairment using either relief royalty method excess earnings method include selection appropriate discount rates royalty rates terminal year growth rate assumptions estimates amount timing future cash flows attributable underlying intangible assets also second quarter 2009 estimates future cash flows used determining fair value tyco security solutions segment sensormatic tradename well certain tyco security solutions segment franchise rights revised downward relative estimates used tests fourth quarter 2008 results impairment test indicated tyco security solutions sensormatic tradename tyco security solutions franchise rights estimated fair values less respective carrying amounts result recorded aggregate noncash impairment charge 64 million 40 million aftertax second quarter 2009 noncash impairment charge recorded goodwill intangible asset impairments consolidated statements operations quarter ended march 27 2009 critical accounting policies estimates preparation consolidated financial statements conformity us gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization methods security monitoringrelated assetstyco considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets primarily north america related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 265 residential subscriber pools 135 360 commercial subscriber pools converts straight line methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination revenue recognitioncontract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts provisions anticipated losses made period become determinable sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements assess revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services product discounts granted based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable asbestosrelated contingencies insurance receivableswe certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials estimate liability corresponding insurance recovery pending future claims defense costs predominantly based claim experience past five years projection covers claims expected filed including related defense costs next seven years undiscounted basis due high degree uncertainty regarding pattern length time claims made settled litigated use multiple estimation methodologies based varying scenarios potential outcomes estimate range loss concluded estimating liability beyond seven year period provide reasonable estimate uncertainties increase significantly projection period lengthens connection recognition liabilities asbestosrelated matters record asbestosrelated insurance recoveries probable estimate asbestosrelated insurance recoveries represents estimated amounts due us previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable consider available insurance allocation methodologies solvency creditworthiness insurers annually perform detailed analysis assistance outside legal counsel experts review update appropriate underlying assumptions used estimated asbestosrelated assets liabilities quarterly basis reevaluate assumptions used perform annual analysis record expense necessary reflect changes estimated liability related insurance asset see note 15 consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities income taxesin determining taxable income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded valuation allowances maintain morelikelythannot deferred tax assets realized income tax expense recorded future may reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance could result additional income tax expense period could significant impact future earnings changes tax laws rates could also affect recorded deferred tax assets liabilities future management records affect tax rate law change companys deferred tax assets liabilities period enactment future tax rate law changes could material effect companys financial condition results operations cash flows addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur performing assessments management relies various factors including operating results business plans economic projections including expectations assumptions regarding timing degree economic recovery anticipated future cash flows comparable market transactions extent available market data elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets first step goodwill impairment test compare fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based forecast cash flows including estimated underlying revenue operating income growth rates discounted using estimated weightedaverage cost capital market participants market approach utilizing observable market data comparable companies similar lines business publicly traded part public private transaction extent available used corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test compare implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined allocate fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill recorded goodwill impairments conjunction annual goodwill impairment assessment performed fourth quarter fiscal 2011 additionally determined part assessment water environmental systems reporting unit within flow control segment limited recoverability goodwill fair value reporting unit exceeded carrying value 69 september 30 2011 water environmental systems goodwill balance 298 million historical performance current expectations resulted fair values goodwill excess carrying values assumptions realized possible future impairment charge may need recorded however possible time determine impairment charge would result charge would material company continue monitor recoverability goodwill fair value determinations require considerable judgment sensitive changes underlying assumptions factors result assurance estimates assumptions made purposes annual goodwill impairment test prove accurate predictions future examples events circumstances could reasonably expected negatively affect underlying key assumptions ultimately impact estimated fair value aforementioned reporting units may include items follows •a prolonged downturn business environment reporting units operate ie sales volumes prices especially commercial construction retailer end markets •an economic recovery significantly differs assumptions timing degree •volatility equity debt markets resulting higher discount rates •unexpected regulatory changes historical performance current expectations resulted fair values goodwill excess carrying values assumptions realized possible future impairment charge may need recorded however possible time determine impairment charge would result charge would material longlived assetsasset groups held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events changes business circumstances indicate carrying amount asset group may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairments longlived assets disposed recorded based upon fair value less cost sell applicable assets calculation fair value longlived assets based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions resulting actuarial gains losses active plans actuarial gains losses amortized average expected service period participants case inactive plans average remaining life expectancy participants discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 75 million increase annual pension expense approximately 2 million consider relative weighting plan assets class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions determining expected longterm return plan assets 25 basis point decrease expected longterm return plan assets would increase annual pension expense approximately 4 million liquidity capital resources fundamental objective company sufficient liquidity balance sheet strength financial flexibility fund operating capital requirements core businesses around world primary source funds finance operations capital expenditures cash generated operations addition maintain commercial paper program access committed revolving credit facilities access equity debt capital public private sources continue balance operating investing financing uses cash investments acquisitions core businesses dividends share repurchases addition currently estimate incur approximately 700 million costs related 2012 separation believe cash position amounts available credit facilities cash provided operating activities adequate cover operational business needs foreseeable future 14 billion 18 billion cash equivalents september 30 2011 september 24 2010 respectively cash generated operating activities decreased 24 billion year ended september 30 2011 compared 26 billion year ended september 24 2010 cash used investing activities 13 billion year ended september 30 2011 compared 18 billion year ended september 24 2010 cash used financing activities 15 billion year ended september 30 2011 compared 14 billion year ended september 24 2010 september 30 2011 shareholders equity 142 billion total debt 41 billion addition lines credit totaling approximately 15 billion none drawn ratio total debt total capital sum short longterm debt shareholders equity 23 september 30 2011 september 24 2010 respectively ratio measure longterm liquidity indicator financial flexibility january 12 2011 tifsa finance subsidiary issued 250 million aggregate principal amount 375 notes due january 15 2018 250 million aggregate principal amount 4625 notes due january 15 2023 fully unconditionally guaranteed company tifsa received net cash proceeds approximately 494 million net proceeds along available funds used fund repayment outstanding 675 notes due february 2011 principal amount 516 million march 24 2011 tifsa borrower company guarantor entered fouryear senior unsecured credit agreement providing revolving credit commitments aggregate amount 750 million credit agreement connection entering credit agreement tifsa company terminated existing threeyear senior unsecured credit agreement dated june 24 2008 provided revolving credit commitments aggregate amount 500 million scheduled expire june 2011 time tifsa also reduced lenders commitments existing fiveyear senior unsecured credit agreement dated april 25 2007 aggregate 119 billion 750 million scheduled expire april 2012 cash flow operating activities sources cash flow operating activities use portion cash operations years ended september 30 2011 september 24 2010 september 25 2009 follows millions 1includes depreciation expense 695 million 654 million 610 million 2011 2010 2009 respectively amortization intangible assets 623 million 549 million 516 million 2011 2010 2009 respectively 2includes net proceeds received saledisposition property plant equipment 9 million 29 million 12 million 2011 2010 2009 respectively net change working capital decreased operating cash flow 584 million 2011 significant changes working capital included 271 million decrease accrued liabilities 187 million increase accounts receivable 137 million increase inventories net change working capital increased operating cash flow 106 million 2010 significant changes working capital included 119 million increase accounts payable 88 million decrease prepaid current assets partially offset 108 million increase inventories net change working capital increased operating cash flow 128 million 2009 significant changes working capital included 346 million decrease inventory 191 million decrease accounts receivable 106 million net decrease contracts progress partially offset 337 million decrease accounts payable 138 million decrease income taxes net 2011 2010 2009 paid approximately 114 million 160 million inclusive 2 million relating french security business classified held sale 152 million respectively cash related restructuring activities see note 4 consolidated financial statements information regarding restructuring activities years ended september 30 2011 september 24 2010 september 25 2009 made required contributions 78 million 82 million 60 million respectively us nonus pension plans also made voluntary contributions approximately 15 million nil 22 million us plans years ended september 30 2011 september 24 2010 september 25 2009 anticipate contributing least minimum required pension plans fiscal year 2012 44 million us plans 60 million nonus plans income taxes paid net refunds related continuing operations 196 million 255 million 281 million 2011 2010 2009 respectively net interest paid related continuing operations 195 million 234 million 249 million 2011 2010 2009 respectively cash flow investing activities made capital expenditures 788 million 718 million 702 million 2011 2010 2009 respectively level capital expenditures fiscal year 2012 expected exceed spending levels fiscal year 2011 also expected exceed depreciation expense 2011 2010 2009 paid approximately 614 million 559 million 543 million cash respectively acquire approximately 565000 501000 512000 customer contracts electronic security services within tyco security solutions segment 2011 paid cash acquisitions included continuing operations totaling 656 million net cash acquired 4 million primarily related acquisitions signature security group within tyco security solutions segment kef holdings ltd within tyco flow control segment chemguard within tyco fire protection segment 2010 cash paid acquisitions included continuing operations totaled 600 million net cash acquired 137 million primarily related acquisition broadview security within tyco security solutions segment hiter within tyco flow control segment 2011 received cash proceeds net cash divested approximately 1 billion divestitures cash proceeds primarily related sale majority interest electrical metal products business 713 million presented continuing operations 264 million sale european water business presented discontinued operations see note 3 consolidated financial statements information cash flow financing activities january 12 2011 tifsa finance subsidiary issued 250 million aggregate principal amount 375 notes due january 15 2018 250 million aggregate principal amount 4625 notes due january 15 2023 fully unconditionally guaranteed company tifsa received net cash proceeds approximately 494 million deducting debt issuance costs debt discount net proceeds along available funds used fund repayment outstanding 675 notes due february 2011 principal amount 516 million connection acquisition kef year ended september 30 2011 company acquired 64 million debt substantially paid september 30 2011 second half fiscal 2011 tifsa issued commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 30 2011 tifsa commercial paper outstanding first quarter fiscal 2010 tifsa made payments 200 million extinguish commercial paper outstanding may 5 2010 tifsa issued 500 million aggregate principal amount 3375 notes due fully unconditionally guaranteed company tifsa received net proceeds approximately 495 million deducting debt issuance costs debt discount may 28 2010 company used net proceeds aforementioned offering additional cash hand redeem 6375 public notes due 2011 7 notes due 2028 6875 notes due 2029 outstanding time aggregated 878 million principal amount october 5 2009 tifsa issued 500 million aggregate principle amount 4125 notes due 2014 fully unconditionally guaranteed company tifsa received net proceeds approximately 495 million deducting debt issuance costs debt discount january 9 2009 tifsa issued 750 million aggregate principal amount 85 notes due january 15 2019 fully unconditionally guaranteed company tifsa received net proceeds approximately 745 million underwriting discounts offering expenses january 15 2009 tifsa made payment 215 million extinguish 6125 notes due 2009 matured date additionally november 2008 tifsa made payment 300 million extinguish 6125 notes due 2008 pursuant share repurchase program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved 10b51 trading plan accordance applicable regulations year ended september 30 2011 repurchased approximately 30 million common shares approximately 13 billion 2011 2010 2008 share repurchase programs completed 2010 2008 programs year ended september 24 2010 repurchased approximately 24 million common shares approximately 900 million 2008 share repurchase program march 9 2011 shareholders approved annual dividend common shares 100 per share paid contributed surplus four installments 025 per share 2011 2010 2009 fiscal years paid cash dividends approximately 458 million 416 million 388 million respectively see note 17 consolidated financial statements information management believes cash generated available us sufficient fund capital operational business needs foreseeable future including capital expenditures quarterly dividend payments share repurchases separationrelated expenses commitments contingencies detailed discussion contingencies related tax litigation matters governmental investigations see notes 7 15 consolidated financial statements contractual obligations contractual obligations commitments debt minimum lease payment obligations noncancellable operating leases obligations september 30 2011 follows millions 1excludes debt discount swap activity interest 2interest payments consist interest fixed interest rate debt exclude impact interest rate swaps september 30 2011 swapped aggregate approximately 12 billion fixed floating rate debt 3excludes interest 4purchase obligations consist commitments purchases goods services 5other longterm liabilities excluded contractual obligation table primarily consist following pension postretirement costs income taxes warranties environmental liabilities unable estimate timing payment items due inherent uncertainties related obligations however minimum required contributions pension plans expected approximately 104 million 2012 expect pay 5 million 2012 related postretirement benefit plans september 30 2011 recorded gross unrecognized tax benefits 270 million gross interest penalties 60 million unable make reasonably reliable estimate timing remaining payments future years therefore amounts excluded contractual obligation table however based current status income tax audits believe reasonably possible nil 60 million unrecognized tax benefits may resolved next twelve months september 30 2011 total commitments 15 billion revolving credit facilities 750 million expires march 24 2015 750 million expires april 25 2012 september 30 2011 amounts drawn revolving credit facilities tifsas bank credit agreements contain customary terms conditions financial covenants limit ratio debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive business second half fiscal 2011 tifsa companys finance subsidiary issued commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 30 2011 september 24 2010 tifsa commercial paper outstanding normal course business liable contract completion product performance opinion management obligations significantly affect financial position results operations cash flows connection 2007 separation entered liability sharing agreement regarding certain actions pending tyco prior 2007 separation distribution agreement tax sharing agreement assumed 27 covidien assumed 42 te connectivity assumed 31 certain tyco preseparation contingent corporate liabilities september 30 2011 primarily relate tax contingencies potential actions respect spinoffs distributions made brought third party backlog unfilled orders 97 billion 95 billion september 30 2011 september 24 2010 respectively expect approximately 88 backlog september 30 2011 filled next 12 months backlog segment follows millions backlog increased 175 million 18 97 billion september 30 2011 net increase backlog primarily related increase recurring revenueinforce tyco security solutions segment increased bookings tyco flow control segment increases partially offset decrease bookings tyco fire protection segment tyco security solutions backlog includes recurring revenueinforce longterm deferred revenue upfront fees paid customers tyco security solutions owned security systems revenueinforce represents 12 months revenue associated monitoring maintenance services contract security business tyco security solutions backlog 68 billion 66 billion september 30 2011 september 24 2010 respectively consists primarily 49 billion 48 billion recurring revenueinforce september 30 2011 september 24 2010 respectively 11 billion deferred revenue september 30 2011 september 24 2010 tyco security solutions backlog increased 166 million 25 net increase primarily due increase revenueinforce partially offset unfavorable changes foreign currency exchange rates 36 million 05 tyco flow controls backlog increased 262 million 177 net increase primarily due increased bookings several large projects within valves controls thermal controls businesses changes foreign currency exchange rates favorably impacted tyco flow controls backlog 7 million 05 increases partially offset decline bookings water environmental systems business tyco fire protections backlog decreased 165 million 127 tyco fire protections backlog unfavorably impacted deconsolidation joint venture result adopting new accounting standard addition backlog decreased emea result project selectivity resulting focus higher margin projects decreases partially offset increases north american global fire safety products businesses changes foreign currency exchange rates also favorably impacted tyco fire protections backlog 17 million 13 offbalance sheet arrangements sale accounts receivable certain international businesses utilize sale accounts receivable shortterm financing mechanisms aggregate amount outstanding international accounts receivable programs material september 30 2011 september 24 2010 guarantees certain business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien te connectivity accordance terms separation distribution agreement tax sharing agreement guarantees primarily relate certain contingent tax liabilities included tax sharing agreement time 2007 separation recorded liability necessary recognize fair value guarantees indemnifications see note 7 consolidated financial statements discussion tax sharing agreement addition prior 2007 separation provided support form financial andor performance guarantees various covidien te connectivity operating entities extent guarantees assigned connection 2007 separation assumed primary liability remaining support obligations material us september 30 2011 disposing assets businesses often provide representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition reason believe uncertainties would material adverse effect financial position results operations cash flows recorded liabilities known indemnifications included part environmental liabilities see note 15 consolidated financial statements discussion liabilities normal course business liable contract completion product performance record estimated product warranty costs time sale opinion management obligations significantly affect financial position results operations cash flows september 30 2011 total outstanding letters credit bank guarantees approximately 724 million detailed discussion guarantees indemnifications see note 13 consolidated financial statements accounting pronouncements see note 1 consolidated financial statements recently adopted accounting pronouncements recently issued accounting pronouncements forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed sec tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect sales earnings cash flows operating tax efficiencies product expansion backlog consummation benefits acquisitions divestitures well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forwardlooking statements include among things •overall economic business conditions overall demand tycos goods services •economic competitive conditions industries end markets regions served businesses •changes tax requirements including tax rate changes new tax laws treaties revised tax law interpretations •results consequences tycos internal investigations governmental investigations concerning companys governance management internal controls operations including business operations outside united states •the outcome litigation arbitrations governmental proceedings •effect income tax audit settlement appeals •our ability repay refinance outstanding indebtedness matures •our ability operate within limitations imposed financing arrangements maintain credit ratings •interest rate fluctuations changes borrowing costs •other capital market conditions including availability funding sources currency exchange rate fluctuations •availability fluctuations prices key raw materials •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability achieve cost savings connection companys strategic restructuring growing lean initiatives •our ability execute portfolio refinement acquisition strategies •potential impairment goodwill intangibles andor longlived assets •the impact fluctuations price tyco common shares including potentially adverse impacts resulting proposed spinoffs flow control north american residential security businesses •risks associated swiss incorporation including possibility reduced flexibility respect certain aspects capital management increased different regulatory burdens possibility may realize anticipated tax benefits •changes us nonus government laws regulations •the possible effects tyco future legislation united states may limit eliminate potential us tax benefits resulting tyco internationals swiss incorporation deny us government contracts tyco based upon swiss incorporation •failure obtain necessary regulatory approvals satisfy condition proposed spinoffs •failure realize expected benefits proposed spinoffs including taxfree nature spinoffs •failure complete proposed spinoffs schedule within estimated costs item 7aitem 7 managements discussion analysis financial condition results operations results operations following discussion analysis companys financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions companys actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information organization consolidated financial statements include consolidated results tyco international ltd company organized laws switzerland subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance accounting principles generally accepted united states gaap effective september 28 2012 tyco completed spinoffs adt corporation adt pentair ltd formerly known tyco flow control international ltd tyco flow control formerly north american residential security flow control businesses respectively separate publicly traded companies form distribution tyco shareholders immediately following spinoff pentair inc merged subsidiary tyco flow control taxfree allstock merger pentair ltd pentair succeeding pentair inc independent publicly traded company distribution made september 28 2012 tyco shareholders record september 17 2012 tyco shareholder received 050 common share adt approximately 024 common share pentair tyco common share held record date distribution structured taxfree tyco shareholders except extent cash received lieu fractional shares distributions merger related transactions collectively referred herein 2012 separation result distribution operations tycos former flow control north american residential security businesses classified discontinued operations periods presented giving effect 2012 separation operate report financial operating information following three segments •north america systems installation services na installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail institutional governmental customers north america •rest world systems installation services row installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers rest world row regions •global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row installation services segments also provide general corporate services segments reported fourth nonoperating segment corporate additionally corporate includes companys former electrical metal products business divested first quarter 2011 references segment data companys continuing operations discussed result 2012 separation company reports new segment structure beginning fourth quarter fiscal 2012 accordingly recast prior period segment amounts see note 19 consolidated financial statements business overview leading global provider security products services fire detection suppression products services life safety products utilize extensive global footprint 1200 locations including manufacturing facilities service distribution centers monitoring centers sales offices provide solutions localized expertise global customer base provide extensive range product service offerings 3 million customers 100 countries multiple channels revenues broadly diversified across united states canada collectively north america central america south america collectively latin america europe middle east africa collectively emea asia pacific region refer latin america emea asiapacific region collectively rest world row following chart reflects fiscal 2012 net revenue region fiscal 2012 net revenue region enduse customers may sell directly wholesalers distributors commercial builders contractors also broadly diversified include •commercial customers including residential commercial property developers financial institutions food service businesses commercial enterprises •industrial customers including companies oil gas power generation mining petrochemical industries •retail customers including international regional local consumer outlets national chains specialty stores •institutional customers including broad range healthcare facilities academic institutions museums foundations •governmental customers including federal state local governments defense installations mass transportation networks public utilities governmentaffiliated entities applications •residential small business customers outside north america including owners single family homes local providers wide range goods services global business varied customer base extensive range products services operations results impacted global regional industry specific factors political factors geographic diversity customer base products services helped mitigate impact one industry economy single country consolidated operating results financial condition cash flows due global nature business variety customers products services single factor predominantly used forecast company results rather management monitors number factors develop expectations regarding future results including activity key competitors customers order rates longer lead time projects capital expenditure budgets spending patterns customers also monitor trends throughout commercial residential fire security markets including building codes firesafety standards commercial installation businesses impacted trends commercial construction starts residential business located outside north america impacted new housing starts recent transactions result 2012 separation incurred expect continue incur separation related costs including debt refinancing tax restructuring professional services restructuring impairment charges employeerelated costs 2012 company incurred pretax costs related 2012 separation 561 million recorded within continuing operations 278 million within discontinued operations costs incurred within continuing operations fiscal 2012 include charge 453 million due early extinguishment debt company refinanced longterm debt result 2012 separation fiscal 2012 company paid 186 million separation costs 18 million included within continuing operations see note 2 consolidated financial statements fourth quarter fiscal 2012 determined certain aged receivables row installation services segment related security contracts china may collectible formal investigation determined certain records relating receivables falsified district level employees located one region china concluded revenue recognition practices related aged receivables dated back fiscal 2008 inappropriate evaluated concluded identified amounts material previously issued annual interim financial statements including effects presenting adt tyco flow control discontinued operations although management determined amounts individually aggregate material prior periods accordance authoritative accounting literature considering effects prior year misstatements quantifying misstatements current year financial statements included herein adjusted correct impact items result revised previously reported operating results reflect certain immaterial adjustments primarily related revenue recognition cost goods sold adjustments reduced previously reported net revenue approximately 49 million 37 million fiscal 2011 2010 respectively reduced previously reported operating income approximately 14 million 2 million fiscal 2011 2010 respectively see note 24 consolidated financial statements additionally reversed approximately 31 million net revenue reduced operating income 17 million fiscal 2012 less 1 million 7 million net revenue operating income respectively recorded fourth quarter fiscal 2012 results operations consolidated financial information follows 1net revenue includes 347 million 14 billion 2011 2010 respectively related companys former electrical metal products business sold first quarter fiscal 2011 2operating income includes 7 million 100 million 2011 2010 respectively related companys former electrical metal products business sold first quarter fiscal 2011 additionally operating income 2011 includes 248 million net gain sale net revenue fiscal net revenue year ended september 28 2012 decreased 154 million 15 104 billion compared net revenue 106 billion year ended september 30 2011 organic basis net revenue grew 247 million 24 year primarily driven global products segment net revenue unfavorably impacted net impact acquisitions divestitures 71 million 07 primarily due sale majority interest companys former electrical metal products business contributed 347 million net revenue year ended september 30 2011 partially offset acquisitions chemguard visonic within companys global products segment unfavorable changes foreign currency exchange rates impacted net revenue 226 million 21 addition companys fiscal year ends last friday september fiscal 2012 consisted 52 weeks compared 53 weeks fiscal 2011 result fiscal year 2011 includes estimated 98 million revenue additional week fiscal 2011 net revenue year ended september 30 2011 decreased 463 million 42 106 billion compared net revenue 110 billion year ended september 24 2010 organic basis net revenue grew 465 million 48 year primarily driven global products na installation services segments net revenue unfavorably impacted net impact acquisitions divestitures 13 billion 118 primarily result sale majority interest companys former electrical metal products business contributed approximately 14 billion net revenue year ended september 24 2010 347 million year ended september 30 2011 net revenue also unfavorably impacted 72 million 07 due deconsolidation joint venture row installation services segment due adoption accounting standard favorable changes foreign currency exchange rates impacted net revenue 306 million 28 addition companys fiscal year ends last friday september fiscal 2011 consisted 53 weeks compared 52 weeks fiscal 2010 result fiscal year 2011 includes estimated 98 million 09 revenue additional week operating income operating income year ended september 28 2012 decreased 297 million 302 685 million compared operating income 982 million year ended september 30 2011 operating income year ended september 28 2012 declined primarily due net gain divestitures 224 million recognized prior year primarily related 248 million net gain related sale majority interest companys former electrical metal products business operating income year ended september 30 2011 increased 367 million 597 982 million compared operating income 615 million year ended september 24 2010 operating income year ended september 30 2011 improved due net gain divestitures pricing initiatives improvement mix driven project selectivity well benefit ongoing cost containment restructuring actions items impacting operating income fiscal 2012 2011 2010 follows 1includes 248 million net gain divestiture majority interest electrical metal products business interest income expense interest income 19 million 2012 compared 27 million 25 million 2011 2010 respectively interest income decreased 2012 primarily due decreased investment yields compared 2011 2010 interest expense 209 million 2012 compared 240 million 279 million 2011 2010 respectively weightedaverage interest rate total debt outstanding september 28 2012 september 30 2011 september 24 2010 65 59 63 respectively decreases interest expense fluctuations weightedaverage interest rate primarily related savings realized 26 billion debt redemptions 2012 replacement higher coupon notes lower coupon notes 2011 see note 11 consolidated financial statements expense net significant components expense net 2012 2011 2010 follows millions effective income tax rate effective income tax rate year ended september 28 2012 meaningful primarily result separation related charges incurred tax benefit recognized well valuation allowance 235 million recorded due net operating loss carryforwards expect realize future periods additionally effective income tax rate year ended september 28 2012 impacted enacted tax law changes favorable audit resolutions multiple jurisdictions nonrecurring item generating tax benefit effective income tax rate 175 benefit 60 years ended september 30 2011 september 24 2010 respectively increase effective income tax rate primarily related tax charge recorded conjunction sale majority interest electrical metal products business first quarter 2011 nonrecurring transaction generating tax benefit 2010 release deferred tax valuation allowance 2010 effective income tax rate positively impacted favorable audit resolutions multiple jurisdictions 2011 rate vary quarter due discrete items settlement income tax audits changes tax laws well recurring factors geographic mix income taxes valuation allowance deferred tax assets 1826 million 1149 million september 28 2012 september 30 2011 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions specifically valuation allowance includes separation related charges associated early extinguishment debt increased net operating loss carryforward 2012 expect realize future periods valuation allowance calculated recorded determined morelikelythannot portion deferred tax assets would realized believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year equity loss income earnings unconsolidated subsidiaries equity loss income earnings unconsolidated subsidiaries 2012 2011 reflects share atkore international group incs atkore net loss accounted equity method accounting equity loss income earnings unconsolidated subsidiaries nil 2010 segment results following chart reflects fiscal 2012 2011 2010 net revenue operating segment chart include net revenue related companys former electrical metal products business divested first quarter fiscal 2011 included within corporate 2011 2010 represents 33 128 respectively net revenue segment discussions follow describe significant factors contributing changes results segments included continuing operations na installation services na installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail institutional governmental customers north america financial information na installation services years ended september 28 2012 september 30 2011 september 24 2010 follows change net revenue compared prior periods attributable following organic revenue decline year ended september 28 2012 driven slow nonresidential market growth well installation project selectivity north america security business partially offset increased service revenue organic revenue growth year ended september 30 2011 driven increased service revenue coupled impact several large installation projects net revenue years ended september 28 2012 september 30 2011 impacted 53rd week revenue fiscal 2011 included within operating income operating income year ended september 28 2012 decreased 51 million 120 374 million compared operating income 425 million year ended september 30 2011 operating income year ended september 28 2012 declined due restructuring asset impairment charges related organizational realignment operating income year ended september 30 2011 increased 76 million 218 425 million compared operating income 349 million year ended september 24 2010 operating income year ended september 30 2011 improved due favorable revenue mix increased project selectivity productivity enhancements along benefit restructuring savings items impacting operating income fiscal 2012 2011 2010 follows row installation services row installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers latin america emea asiapacific regions financial information row installation services years ended september 28 2012 september 30 2011 september 24 2010 follows change net revenue compared prior periods attributable following organic revenue growth year ended september 28 2012 driven increased revenue asia latin america partially offset continued softness europe net revenue year ended september 28 2012 impacted 53rd week revenue fiscal 2011 included within organic revenue growth year ended september 30 2011 primarily driven service revenue across regions europe net revenue year ended september 30 2011 also impacted 72 million due deconsolidation joint venture result adopting new accounting standard partially offset 30 million due impact 53rd week revenue fiscal 2011 included within operating income operating income year ended september 28 2012 increased 51 million 126 456 million compared operating income 405 million year ended september 30 2011 operating income year ended september 28 2012 improved primarily due increased price focus higher margin products services well benefit ongoing cost containment restructuring savings regions operating income year ended september 30 2011 increased 32 million 86 405 million compared operating income 373 million year ended september 24 2010 operating income year ended september 30 2011 improved due increased pricevolume mix well benefit ongoing cost containment initiatives items impacting operating income fiscal 2012 2011 2010 follows global products global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row installation services segments financial information global products years ended september 28 2012 september 30 2011 september 24 2010 follows change net revenue compared prior periods attributable following organic revenue growth year ended september 28 2012 driven continued growth existing product lines expansion key verticals introduction new products organic revenue growth year ended september 30 2011 driven growth existing product lines well expansion key verticals net revenue years ended september 28 2012 september 30 2011 impacted 53rd week revenue fiscal 2011 included within operating income operating income year ended september 28 2012 increased 58 million 197 353 million compared operating income 295 million year ended september 30 2011 operating income year ended september 28 2012 improved primarily due increased volume price discipline offset commodity inflationary pressures integration acquisitions benefit continued investment research development benefit ongoing cost containment restructuring savings benefits partially offset additional environmental remediation costs operating income year ended september 30 2011 increased 50 million 204 295 million compared operating income 245 million year ended september 24 2010 operating income year ended september 30 2011 improved primarily due increased volume well initial return research development spending items impacting operating income fiscal 2012 2011 2010 follows corporate expense increased 355 million 2483 498 million year ended september 28 2012 compared expense 143 million year ended september 30 2011 corporate expense decreased 209 million 594 143 million year ended september 30 2011 compared expense 352 million year ended september 24 2010 key items included corporate expense fiscal 2012 2011 2010 follows additionally corporate expense favorably impacted cost containment initiatives year ended september 28 2012 net gain divestiture 253 million year ended september 30 2011 primarily related divestiture majority interest companys former electrical metal products business fiscal 2011 additionally corporate expense favorably impacted cost containment initiatives year ended september 30 2011 critical accounting policies estimates preparation consolidated financial statements conformity us gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization methods security monitoringrelated assetstyco considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 135 360 commercial subscriber pools dealer intangibles converts straight line methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination revenue recognitioncontract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts provisions anticipated losses made period become determinable sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements assess revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services product discounts granted based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable asbestosrelated contingencies insurance receivableswe certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made future defined period time lookforward period part companys annual valuation process third quarter fiscal 2012 company utilized lookback period three years lookforward period fifteen years except claims made nonoperating subsidiary company pursuing alternatives including negotiated settlement representatives current future asbestos claimants subsidiary connection recognition liabilities asbestosrelated matters record asbestosrelated insurance recoveries probable estimate asbestosrelated insurance recoveries represents estimated amounts due us previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable consider available insurance allocation methodologies solvency creditworthiness insurers annually perform analysis assistance outside counsel experts update estimated asbestosrelated assets liabilities quarterly basis reevaluate assumptions used perform annual analysis record expense necessary reflect changes estimated liability related insurance asset see note 14 consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities income taxesin determining taxable income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded valuation allowances maintain morelikelythannot deferred tax assets realized income tax expense recorded future may reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance could result additional income tax expense period could significant impact future earnings changes tax laws rates could also affect recorded deferred tax assets liabilities future management records effect tax rate law change companys deferred tax assets liabilities period enactment future tax rate law changes could material effect companys financial condition results operations cash flows addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur performing assessments management relies considers number factors including operating results business plans economic projections anticipated future cash flows comparable market transactions extent available market data companys overall market capitalization elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets first step goodwill impairment test compare fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based forecast cash flows including estimated underlying revenue operating income growth rates discounted using estimated weightedaverage cost capital market participants market approach utilizing observable market data comparable companies similar lines business publicly traded part public private transaction extent available used corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test compare implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined allocate fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill recorded goodwill impairments conjunction annual goodwill impairment assessment performed fourth quarter fiscal 2012 fair value determinations require considerable judgment sensitive changes underlying assumptions factors result assurance estimates assumptions made purposes annual goodwill impairment test prove accurate predictions future examples events circumstances could reasonably expected negatively affect underlying key assumptions ultimately impact estimated fair value aforementioned reporting units may include items follows •a prolonged downturn business environment reporting units operate ie sales volumes prices especially commercial construction retailer end markets •an economic recovery significantly differs assumptions timing degree •volatility equity debt markets resulting higher discount rates •unexpected regulatory changes historical performance current expectations resulted fair values goodwill excess carrying values assumptions realized possible future impairment charge may need recorded however possible time determine impairment charge would result charge would material longlived assetsasset groups held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events changes business circumstances indicate carrying amount asset group may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairments longlived assets disposed recorded based upon fair value less cost sell applicable assets calculation fair value longlived assets based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions resulting actuarial gains losses active plans actuarial gains losses amortized average expected service period participants case inactive plans average remaining life expectancy participants discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 77 million increase annual pension expense approximately 1 million consider relative weighting plan assets class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions determining expected longterm return plan assets 25 basis point decrease expected longterm return plan assets would increase annual pension expense approximately 3 million liquidity capital resources fundamental objective company sufficient liquidity balance sheet strength financial flexibility fund operating capital requirements core businesses around world primary source funds finance operations capital expenditures cash generated operations addition maintain commercial paper program access committed revolving credit facility access equity debt capital public private sources continue balance operating investing financing uses cash investments acquisitions core businesses dividends share repurchases addition believe cash position amounts available credit facility commercial paper program cash provided operating activities adequate cover operational business needs foreseeable future september 28 2012 september 30 2011 cash equivalents short longterm debt tyco shareholders equity follows 1cash cash equivalents includes 175 million reserved certain pre2012 separation related tax liabilities timing payment uncertain sources uses cash summary cash flows operating investing financing continuing operations fiscal 2012 2011 2010 follows cash flow operating activities cash flow operating activities fluctuate significantly period working capital needs timing payments items restructuring activities pension funding income taxes items impact reported cash flow net change working capital decreased operating cash flow 489 million 2012 significant changes working capital included 172 million decrease income taxes payable 80 million decrease accrued expenses current liabilities 128 million increase accounts receivable 86 million increase prepaid expenses current assets 72 million increase inventories net change working capital decreased operating cash flow 348 million 2011 significant changes working capital included 216 million decrease accrued liabilities 47 million increase accounts receivable 42 million increase inventories 33 million decrease accounts payable net change working capital decreased operating cash flow 239 million 2010 significant changes working capital included 268 million decrease income taxes payable 127 million increase inventories partially offset 81 million increase accounts payable 63 million decrease prepaid expenses current assets 2012 2011 2010 paid approximately 89 million 90 million 129 million inclusive 2 million relating french security business classified held sale respectively cash related restructuring activities see note 4 consolidated financial statements information regarding restructuring activities connection 2012 separation paid 18 million nil separation costs 2012 2011 2010 respectively years ended september 28 2012 september 30 2011 september 24 2010 made required contributions 88 million 63 million 67 million respectively us nonus pension plans also made voluntary contributions approximately nil 12 million nil us plans years ended september 28 2012 september 30 2011 september 24 2010 company anticipates contribute least minimum required pension plans 2013 11 million us plans 50 million nonus plans income taxes paid net refunds related continuing operations 147 million 121 million 127 million 2012 2011 2010 respectively net interest paid related continuing operations 201 million 195 million 234 million 2012 2011 2010 respectively cash flow investing activities cash flows related investing activities consist primarily cash used capital expenditures acquisitions proceeds derived divestitures businesses assets made capital expenditures 406 million 371 million 351 million 2012 2011 2010 respectively level capital expenditures fiscal year 2013 expected exceed spending levels fiscal year 2012 also expected exceed depreciation expense 2012 paid cash acquisitions included continuing operations totaling 217 million net cash acquired 17 million primarily related acquisition visonic ltd within global products segment 2011 paid cash acquisitions included continuing operations totaling 353 million net cash acquired 3 million primarily related acquisitions signature security group within row installation services segment chemguard within global products segment 2010 cash paid acquisitions included continuing operations totaled 48 million net cash acquired nil 2011 received cash proceeds net cash divested 709 million divestitures cash proceeds primarily related sale majority interest electrical metal products business 713 million see note 3 consolidated financial statements information cash flow financing activities cash flows financing activities relate primarily proceeds received incurring debt issuing stock cash used repay debt repurchase stock make dividend payments shareholders fourth quarter 2012 connection separation tyco finance subsidiary tyco international finance sa tifsa redeemed various debt securities maturing 2023 issued tifsa andor tyco aggregate principal amount 26 billion see note 11 consolidated financial statements information april 25 2012 company amended existing fiveyear senior unsecured credit agreement dated april 25 2007 credit agreement extend expiration date facility april 25 2012 september 30 2012 simultaneous extension total commitments 2007 credit agreement facility reduced aggregate 750 million 654 million june 22 2012 company amended 2007 credit agreement reduce lenders commitments 2007 credit agreement aggregate 654 million 500 million 2007 credit agreement terminated september 28 2012 additionally june 22 2012 tifsa borrower company guarantor entered fiveyear senior unsecured credit agreement expiring june 22 2017 providing revolving credit commitments aggregate amount 10 billion 2012 credit agreement connection entering 2012 credit agreement tifsa company terminated existing fouryear senior unsecured credit agreement dated march 24 2011 provided revolving credit commitments aggregate amount 750 million 2012 tifsa issued commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 28 2012 september 30 2011 tifsa commercial paper outstanding maximum aggregate amount unsecured commercial paper notes available issued private placement basis commercial paper program 1 billion september 28 2012 january 12 2011 tifsa finance subsidiary issued 250 million aggregate principal amount 375 notes due january 15 2018 250 million aggregate principal amount 4625 notes due january 15 2023 fully unconditionally guaranteed company tifsa received net cash proceeds approximately 494 million net proceeds along available funds used fund repayment outstanding 675 notes due february 2011 principal amount 516 million may 5 2010 tifsa issued 500 million aggregate principal amount 3375 notes due 2015 fully unconditionally guaranteed company tifsa received net proceeds approximately 495 million deducting debt issuance costs debt discount may 28 2010 company used net proceeds aforementioned offering additional cash hand redeem 6375 public notes due 2011 7 notes due 2028 6875 notes due 2029 outstanding time aggregated 878 million principal amount october 5 2009 tifsa issued 500 million aggregate principle amount 4125 notes due 2014 fully unconditionally guaranteed company tifsa received net proceeds approximately 495 million deducting debt issuance costs debt discount pursuant share repurchase program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved 10b51 trading plan accordance applicable regulations year ended september 28 2012 repurchased approximately 11 million common shares approximately 500 million 2011 share repurchase program september 28 2012 approximately 200 million share repurchases remain authorized 2011 share repurchase program year ended september 30 2011 repurchased approximately 30 million common shares approximately 13 billion 2011 2010 2008 share repurchase programs completed 2010 2008 programs year ended september 24 2010 repurchased approximately 24 million common shares approximately 900 million 2008 share repurchase program march 7 2012 shareholders approved cash dividend 050 per common share payable shareholders two quarterly installments 025 may 23 2012 august 22 2012 additionally september 17 2012 shareholders approved another cash dividend 030 per common share payable shareholders two quarterly installments 015 per share paid november 15 2012 february 20 2013 030 dividend reflects impact 2012 separation companys dividend policy fiscal 2012 2011 2010 paid cash dividends approximately 461 million 458 million 416 million respectively see note 16 consolidated financial statements information management believes cash generated available us sufficient fund capital operational business needs foreseeable future including capital expenditures quarterly dividend payments share repurchases commitments contingencies detailed discussion contingencies related tax litigation matters governmental investigations see notes 7 14 consolidated financial statements contractual obligations contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases purchase obligations september 28 2012 follows millions 1excludes debt discount swap activity interest 2interest payments consist interest fixed interest rate debt exclude impact interest rate swaps september 28 2012 settled outstanding interest rate swaps 3purchase obligations consist commitments purchases goods services 4other longterm liabilities excluded contractual obligation table primarily consist following pension postretirement costs income taxes warranties environmental liabilities unable estimate timing payment items due inherent uncertainties related obligations however minimum required contributions pension plans expected approximately 61 million 2013 expect make material contributions 2013 related postretirement benefit plans september 28 2012 recorded gross unrecognized tax benefits 121 million gross interest penalties 38 million unable make reasonably reliable estimate timing remaining payments future years therefore amounts excluded contractual obligation table however based current status income tax audits believe reasonably possible nil 30 million unrecognized tax benefits may resolved next twelve months september 28 2012 total commitments 10 billion revolving credit facility expiring june 22 2017 september 28 2012 amounts drawn revolving credit facility tifsas revolving credit facility contains customary terms conditions financial covenants limit ratio debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive business normal course business liable contract completion product performance opinion management obligations significantly affect financial position results operations cash flows connection 2012 separation entered liability sharing agreement regarding certain actions pending tyco prior 2012 separation 2012 tax sharing agreement pentair tyco adt share certain predistribution income tax liabilities arise adjustments made tax authorities tyco flow controls tycos adts us income tax returns ii payments required made tyco respect 2007 tax sharing agreement excluding approximately 175 million pre2012 separation related tax liabilities anticipated paid prior 2012 separation collectively shared tax liabilities company responsible first 500 million shared tax liabilities pentair adt share 42 58 respectively next 225 million shared tax liabilities pentair adt tyco share 20 275 525 respectively shared tax liabilities 725 million connection 2007 separation entered liability sharing agreement regarding certain actions pending tyco prior 2007 separation 2007 separation distribution agreement 2007 tax sharing agreement assumed 27 covidien assumed 42 te connectivity assumed 31 certain tyco preseparation contingent corporate liabilities september 28 2012 primarily relate tax contingencies potential actions respect spinoffs distributions made brought third party backlog unfilled orders 5101 million 4711 million september 28 2012 september 30 2011 respectively backlog segment follows millions 1as result adjustments made china security contracts described note 24 consolidated financial statements row installation services backlog decreased approximately 103 million year ended september 30 2011 companys backlog includes recurring revenueinforce longterm deferred revenue upfront fees revenueinforce represents 12 months revenue associated monitoring maintenance services contract security fire business companys backlog 5101 million 4711 million september 28 2012 september 30 2011 respectively consists primarily 2723 million 2563 million recurring revenue force 395 million 420 million deferred revenue september 28 2012 september 30 2011 respectively na installation services backlog 2507 million 2373 million september 28 2012 september 30 2011 respectively consists primarily 1227 million 1193 million recurring revenue force 325 million 348 million deferred revenue september 28 2012 september 30 2011 respectively row installation services backlog 2421 million 2210 million september 28 2012 september 30 2011 respectively consists primarily 1496 million 1370 million recurring revenue force 70 million 72 million deferred revenue september 28 2012 september 30 2011 respectively backlog increased 390 million 83 5101 million september 28 2012 compared prior year net increase backlog primarily related increase recurring revenueinforce row installation services segment well acquisitions within global products businesses changes foreign currency favorably impacted backlog 41 million 09 guarantees certain business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien te connectivity adt pentair accordance terms 2007 2012 separation distribution agreements tax sharing agreements guarantees primarily relate certain contingent tax liabilities included tax sharing agreement time 2007 2012 separations recorded liabilities necessary recognize fair value guarantees indemnifications see note 7 consolidated financial statements discussion tax sharing agreement addition prior 2007 2012 separations provided support form financial andor performance guarantees various covidien te connectivity adt tyco flow control operating entities extent guarantees assigned connection 2007 2012 separations assumed primary liability remaining support see note 12 consolidated financial statements discussion liabilities disposing assets businesses often provide representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition reason believe uncertainties would material adverse effect financial position results operations cash flows recorded liabilities known indemnifications included part environmental liabilities see note 14 consolidated financial statements discussion liabilities normal course business liable contract completion product performance record estimated product warranty costs time sale opinion management obligations significantly affect financial position results operations cash flows september 28 2012 total outstanding letters credit bank guarantees approximately 425 million detailed discussion guarantees indemnifications see note 12 consolidated financial statements accounting pronouncements see note 1 consolidated financial statements recently adopted accounting pronouncements recently issued accounting pronouncements nonus gaap measure effort provide investors additional information regarding results determined us gaap also disclose nonus gaap measures organic revenue growth decline believe measure useful investors evaluating operating performance periods presented read conjunction us gaap revenue enables investors better evaluate operations without giving effect fluctuations foreign exchange rates may significant period addition organic revenue growth decline factor use internal evaluations overall performance business measure financial measure us gaap considered substitute revenue determined accordance us gaap may comparable similarly titled measures reported companies organic revenue growth decline presented herein defined revenue growth decline excluding effects foreign currency fluctuations acquisitions divestitures changes may reflect underlying results trends example 53rd week operations fiscal year 2011 organic growth decline calculations incorporate estimate prior year reported net revenue associated acquired entities fully integrated within first year exclude prior year net revenue associated entities meet criteria discontinued operations divested within past year adjusted number calculate rate organic growth decline based adjusted number better reflect rate growth decline combined business case acquisitions remaining business case dispositions base rate organic growth decline acquired businesses fully integrated within first year upon unadjusted historical net revenue may use organic revenue growth decline component compensation programs table details components organic revenue growth decline reconciles nonus gaap measure us gaap net revenue growth decline fiscal 2012 1organic revenue growth percentage based adjusted fiscal 2011 base revenue 2amounts represent impact 53rd week revenue segment fiscal 2011 fiscal 2012 foreign exchange rates fiscal 2011 1organic revenue growth percentage based adjusted fiscal 2010 base revenue 2amounts represent impact 53rd week revenue segment fiscal 2011 deconsolidation joint venture row installation services segment 3corporate includes former electrical metal products business divested majority interest first quarter fiscal 2011 forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed sec tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect future events including sales earnings cash flows operating tax efficiencies product expansion backlog consummation benefits acquisitions divestitures well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forwardlooking statements include among things •overall economic business conditions overall demand tycos goods services •economic competitive conditions industries end markets regions served businesses •changes legal tax requirements including tax rate changes new tax laws treaties revised tax law interpretations •results consequences tycos internal investigations governmental investigations concerning companys governance management internal controls operations including business operations outside united states •the outcome litigation arbitrations governmental proceedings •effect income tax audit settlements appeals •our ability repay refinance outstanding indebtedness matures •our ability operate within limitations imposed financing arrangements maintain credit ratings •interest rate fluctuations changes borrowing costs consequences volatility capital credit markets •other capital market conditions including availability funding sources currency exchange rate fluctuations •availability fluctuations prices key raw materials •changes affecting customers suppliers •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability company achieve anticipated cost savings •the ability company execute portfolio refinement acquisition strategies including successfully integrating acquired operations •potential impairment goodwill intangibles andor longlived assets •the ability company realize intended benefits 2012 separation including integration commercial security fire protection businesses •risks associated swiss incorporation including possibility reduced flexibility respect certain aspects capital management increased different regulatory burdens possibility may realize anticipated tax benefits •the possible effects tyco future legislation united states may limit eliminate potential us tax benefits resulting tyco internationals swiss incorporation deny us government contracts tyco based upon swiss incorporation •natural events severe weather fires floods earthquakes acts terrorism item 7aitem 7 managements discussion analysis financial condition results operations results operations following discussion analysis companys financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions companys actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information organization consolidated financial statements include consolidated results tyco international ltd company organized laws switzerland subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance accounting principles generally accepted united states gaap may 30 2014 entered merger agreement merger agreement tyco international plc newlyformed irish public limited company whollyowned subsidiary tyco ireland merger agreement tyco merge tyco ireland tyco ireland surviving company merger result tyco ireland becoming tycos publiclytraded parent company change jurisdiction organization tyco switzerland ireland merger received shareholder approval special general meeting shareholders september 9 2014 expect merger become effective november 2014 operate report financial operating information following three segments • north america installation services na installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail institutional governmental customers north america • rest world installation services row installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers rest world row regions • global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row installation services segments also provide general corporate services segments reported fourth nonoperating segment corporate references segment data companys continuing operations certain prior period amounts reclassified conform current period presentation specifically company reclassified operations adt korea business several row installation services businesses income discontinued operations consolidated statements operations assets liabilities held sale within consolidated balance sheets satisfied criteria presented discontinued operations completed sale adt korea may 22 2014 expect complete sale identified row installation services businesses third quarter fiscal 2015 see note 3 consolidated financial statements additional information recent transactions may 22 2014 company together whollyowned subsidiary tyco far east holdings ltd “seller” completed sale tyco fire security services korea co ltd subsidiaries form operate company’s adt korea business affiliate carlyle group transaction took form sale seller stock tyco fire security services korea co ltd aggregate purchase price 193 billion march 6 2014 company announced atkore international group incs “atkore” intention redeem company’s remaining common equity stake atkore redemption completed april 9 2014 aggregate cash proceeds 250 million effective september 28 2012 tyco completed spinoffs adt corporation adt pentair ltd formerly known tyco flow control international ltd tyco flow control formerly north american residential security flow control businesses respectively separate publicly traded companies form distribution tyco shareholders immediately following spinoff pentair inc merged subsidiary tyco flow control taxfree allstock merger pentair ltd pentair succeeding pentair inc independent publicly traded company distribution made september 28 2012 tyco shareholders record september 17 2012 distributions merger related transactions collectively referred herein 2012 separation result 2012 separation incurred separation related costs fiscal 2014 2013 2012 including professional services marketing information technology related costs expect continue incur separation related costs fiscal 2015 fiscal 2014 company incurred pretax costs related 2012 separation 53 million recorded within continuing operations primarily selling general administrative expenses pretax costs 1 million within discontinued operations 2013 company incurred pretax costs related 2012 separation 69 million recorded within continuing operations primarily within selling general administrative expenses pretax gain 8 million within discontinued operations 2012 incurred separation related costs including debt refinancing tax restructuring professional services restructuring impairment charges employeerelated costs 2012 company incurred pretax costs related 2012 separation 561 million recorded within continuing operations 278 million within discontinued operations costs incurred within continuing operations fiscal 2012 include charge 453 million due early extinguishment debt company refinanced longterm debt result 2012 separation fiscal 2014 2013 respectively company paid 58 million 165 million separation costs included within continuing operations fiscal 2012 company paid 186 million separation costs 18 million included within continuing operations see note 2 consolidated financial statements business overview leading global provider security products services fire detection suppression products services life safety products utilize extensive global footprint approximately 900 locations including manufacturing facilities service distribution centers monitoring centers sales offices provide solutions localized expertise global customer base provide extensive range product service offerings 3 million customers 100 countries multiple channels revenues broadly diversified across united states canada collectively “north america” central america south america collectively “latin america” europe middle east africa collectively “emea” asiapacific geographic areas following chart reflects fiscal 2014 net revenue geographic area fiscal 2014 net revenue geographic area enduse customers may sell directly wholesalers distributors commercial builders contractors also broadly diversified include • commercial customers including residential commercial property developers financial institutions food service businesses commercial enterprises • industrial customers including companies oil gas power generation mining petrochemical industries • retail customers including international regional local consumer outlets national chains specialty stores • institutional customers including broad range healthcare facilities academic institutions museums foundations • governmental customers including federal state local governments defense installations mass transportation networks public utilities governmentaffiliated entities applications • residential small business customers outside north america including owners single family homes local providers wide range goods services global business varied customer base extensive range products services operations results impacted global regional industry specific factors political factors geographic diversity customer base products services helped mitigate impact one industry economy single country consolidated operating results financial condition cash flows due global nature business variety customers products services single factor predominantly used forecast company results rather management monitors number factors develop expectations regarding future results including activity key competitors customers order rates longer lead time projects capital expenditure budgets spending patterns customers also monitor trends throughout commercial residential fire security markets including building codes firesafety standards commercial installation businesses impacted trends commercial construction starts residential business located outside north america impacted new housing starts results operations consolidated financial information follows net revenue fiscal 2014 net revenue year ended september 26 2014 increased 267 million 27 10340 million compared net revenue 10073 million year ended september 27 2013 organic basis net revenue grew 255 million 26 year result growth three segments led primarily global products lesser extent row na installation services net revenue favorably impacted 201 million 20 result acquisitions primarily within row installation services global products segments net revenue growth unfavorably impacted divestitures 107 million 11 primarily row na installation services segments changes foreign currency exchange rates primarily row installation services segment unfavorably impacted net revenue 82 million 08 fiscal 2013 net revenue year ended september 27 2013 increased 181 million 18 10073 million compared net revenue 9892 million year ended september 28 2012 organic basis net revenue grew 82 million 08 year primarily result revenue growth global products segment partially offset decline na installation services segment driven security business net revenue favorably impacted acquisitions 168 million 17 primarily within row installation services global products segments changes foreign currency exchange rates primarily row installation services segment unfavorably impacted net revenue 70 million 07 net revenue growth also unfavorably impacted divestitures 38 million 04 primarily na installation services segment operating income operating income year ended september 26 2014 decreased 12 million 17 697 million compared operating income 709 million year ended september 27 2013 operating income year ended september 26 2014 unfavorably impacted asbestos related charges 225 million relating agreement principle reached creditors yarway indirect subsidiary company 240 million result updated valuation performed companys estimated liability asbestos related claims excluding yarway claims operating income year ended september 26 2014 favorably impacted reversal compensation reserve 92 million established respect legacy litigation former management gain 16 million relating settlement cit former subsidiary company 21 million insurance recovery related china addition year ended september 26 2014 also favorably impacted 100 million decline environmental remediation costs related global products facility marinette wisconsin decrease restructuring charges 62 million see note 13 consolidated financial statements information asbestos environmental legacy legal matters operating income year ended september 27 2013 increased 131 million 227 709 million compared operating income 578 million year ended september 28 2012 operating income year ended september 27 2013 favorably impacted net revenue growth smaller corporate footprint result 2012 separation well higher mix service revenue operational improvements across businesses operating income year ended september 27 2013 also favorably impacted 99 million decline net asbestos charges operating income year ended september 27 2013 unfavorably impacted 83 million increase environmental remediation charges well increase restructuring charges operating income year ended september 27 2013 also unfavorably impacted charge 27 million resulting writeoff insurance receivable established respect legacy claim items impacting operating income fiscal 2014 2013 2012 follows continue identify pursue opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across businesses additionally initiated certain global actions fiscal 2013 designed reduce cost structure improve future profitability streamlining operations better aligning functions refer repositioning actions company expects incur approximately 100 million 150 million restructuring repositioning charges fiscal 2015 see note 4 consolidated financial statements income loss continuing operations attributable tyco common shareholders interest income expense interest income 14 million 2014 compared 16 million 18 million 2013 2012 respectively interest income decreased 2014 compared 2013 primarily due interest income received fiscal 2013 related working capital adjustment related 2012 spinoff tyco flow control interest expense 97 million 2014 compared 100 million 209 million 2013 2012 respectively weightedaverage interest rate total debt outstanding 65 three fiscal years decrease interest expense 2012 2013 primarily related savings realized 26 billion debt redemptions 2012 see note 10 consolidated financial statements income expense net significant components income expense net fiscal 2014 2013 2012 follows effective income tax rate effective income tax rate 39 year ended september 26 2014 effective tax rate affected mix jurisdictions income earned effective tax rate year favorably impacted asbestos related charges generated tax benefit high tax jurisdiction partially offset reversal compensation reserve established respect legacy litigation former management generated tax expense high tax jurisdiction effective income tax rate 181 year ended september 27 2013 effective tax rate year favorably impacted taxes environmental remediation charges incurred second quarter 2013 partially offset tax sharing agreement adjustments incurred throughout year enacted tax law changes fourth quarter 2013 effective income tax rate year ended september 28 2012 meaningful primarily result separation related charges incurred tax benefit recognized well valuation allowance 235 million recorded due net operating loss carryforwards expect realize future periods additionally effective income tax rate year ended september 28 2012 impacted enacted tax law changes favorable audit resolutions multiple jurisdictions nonrecurring item generating tax benefit rate vary period due discrete items settlement income tax audits changes tax laws well recurring factors geographic mix income taxes valuation allowance deferred tax assets 20 billion 19 billion september 26 2014 september 27 2013 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions specifically valuation allowance september 26 2014 september 27 2013 includes separation related charges associated early extinguishment debt increased net operating loss carryforward company expect realize future periods valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets companys consolidated balance sheets calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year equity income loss earnings unconsolidated subsidiaries equity income loss earnings unconsolidated subsidiaries 2014 2013 2012 reflects share atkore international group incs atkore net income loss accounted equity method accounting equity income loss earnings unconsolidated subsidiaries years ended september 26 2014 september 27 2013 september 28 2012 gain 206 million losses 48 million 26 million respectively march 6 2014 announced atkores intention redeem remaining common equity stake atkore april 9 2014 redemption completed aggregate cash proceeds 250 million recognized net gain 216 million related transaction comprised 227 million gain sale equity investment partially offset 11 million loss share loss atkores debt extinguishment undertaken connection redemption see note 3 consolidated financial statements additional information segment results following chart reflects net revenue operating segment well percent net revenue operating segment years ended september 26 2014 september 27 2013 september 28 2012 respectively segment discussions follow describe significant factors contributing changes results segments included continuing operations na installation services na installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail institutional governmental customers north america financial information na installation services years ended september 26 2014 september 27 2013 september 28 2012 follows change net revenue compared prior periods attributable following net revenue decreased 15 million 04 3876 million year ended september 26 2014 compared 3891 million year ended september 27 2013 organic revenue growth year ended september 26 2014 primarily driven increase service installation revenue impact acquisitions 19 million 05 due acquisition westfire inc westfire fire protection services company first quarter fiscal 2014 integrated na installation services row installation services segments see note 5 consolidated financial statements net revenue unfavorably impacted 42 million 11 primarily due divestiture north america guarding business third quarter fiscal 2013 changes foreign currency exchange rates unfavorably impacted net revenue 29 million 07 net revenue decreased 71 million 18 3891 million year ended september 27 2013 compared 3962 million year ended september 28 2012 organic revenue decline year ended september 27 2013 primarily driven decline revenue north america security business result nonresidential construction market project selectivity partially offset increased service revenue growth north america fire business net revenue unfavorably impacted 28 million 07 primarily due divestiture north america guarding business third quarter fiscal 2013 operating income operating income year ended september 26 2014 increased 62 million 160 450 million compared operating income 388 million year ended september 27 2013 operating income year ended september 26 2014 increased due higher mix service revenue improved execution lower restructuring costs savings realized restructuring activities productivity initiatives operating income year ended september 27 2013 increased 14 million 37 388 million compared operating income 374 million year ended september 28 2012 operating income year ended september 27 2013 increased due higher mix service revenue efficiencies gained improved installation execution project selectivity north american security business additionally year ended september 28 2012 included charge 29 million settlement erisa partial withdrawal liability assessment items partially offset unfavorable impacts due separation costs well dissynergy costs related 2012 separation key items impacting operating income years ended september 26 2014 september 27 2013 september 28 2012 follows row installation services row installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers continental europe united kingdom asia pacific growth markets regions collectively row regions financial information row installation services years ended september 26 2014 september 27 2013 september 28 2012 follows change net revenue compared prior periods attributable following net revenue increased 77 million 20 3920 million year ended september 26 2014 compared 3843 million year ended september 27 2013 organic revenue growth year ended september 26 2014 driven service installation growth markets installation growth asia growth regions offset declines service installation revenue pacific lesser extent continental europe regions net revenue favorably impacted 119 million 31 primarily due acquisitions within growth markets pacific regions fiscal 2013 net revenue unfavorably impacted 67 million 17 due divestitures pacific region changes foreign currency exchanges rates unfavorably impacted net revenue 46 million 12 net revenue increased 13 million 03 3843 million year ended september 27 2013 compared 3830 million year ended september 28 2012 organic revenue decline year ended september 27 2013 primarily driven declines united kingdom pacific continental europe partially offset increase growth markets net revenue favorably impacted impact acquisitions 93 million 24 primarily due acquisitions within united kingdom pacific regions fiscal 2013 well acquisitions asia fiscal 2012 net revenue unfavorably impacted impact divestitures 10 million 03 changes foreign currency exchanges rates unfavorably impacted net revenue 64 million 17 operating income operating income year ended september 26 2014 increased 76 million 228 409 million compared operating income 333 million year ended september 27 2013 operating income year ended september 26 2014 favorably impacted decrease restructuring charges loss divestitures 21 million insurance recovery related china benefit ongoing productivity initiatives partially offset lower mix highmargin service revenue pacific region operating income year ended september 27 2013 decreased 16 million 46 333 million compared operating income 349 million year ended september 28 2012 operating income year ended september 27 2013 declined primarily due higher restructuring costs partially offset increased price focus higher margin products services ongoing benefit cost containment restructuring savings regions key items impacting operating income years ended september 26 2014 september 27 2013 september 28 2012 follows global products global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row installation services segments financial information global products years ended september 26 2014 september 27 2013 september 28 2012 follows change net revenue compared prior periods attributable following net revenue increased 205 million 88 2544 million year ended september 26 2014 compared 2339 million year ended september 27 2013 organic revenue growth year ended september 26 2014 driven growth across three product platforms particularly security products impact acquisitions 63 million 27 primarily due acquisition exacq technologies exacq developer open architecture video management systems security surveillance applications 2013 exacq integrated global products segment see note 5 consolidated financial statements net revenue increased 239 million 114 2339 million year ended september 27 2013 compared 2100 million year ended september 28 2012 organic revenue growth year ended september 27 2013 driven growth across three product platforms net revenue favorably impacted acquisitions 68 million 32 primarily due acquisitions within fire security products businesses fiscal 2013 2012 net revenue also favorably impacted contractual revenue adt 2012 separation distribution agreement 39 million 19 included within operating income operating income year ended september 26 2014 increased 151 million 492 458 million compared operating income 307 million year ended september 27 2013 increase driven net revenue growth current year unfavorable impact environmental remediation charge comparable period partially offset additional investments research development sales marketing costs see note 13 consolidated financial statements information operating income year ended september 27 2013 decreased 46 million 130 307 million compared operating income 353 million year ended september 28 2012 operating income year ended september 27 2013 unfavorably impacted charges 100 million recorded first half fiscal 2013 additional environmental remediation activities planned facility located marinette wisconsin operating income year ended september 27 2013 favorably impacted net revenue growth operational improvements partially offset additional investments research development sales marketing costs key items impacting operating income years ended september 26 2014 september 27 2013 september 28 2012 follows corporate expense increased 301 million 944 620 million year ended september 26 2014 compared 319 million year ended september 27 2013 increase corporate expense year ended september 26 2014 primarily due asbestos related charges 225 million relating agreement principle reached creditors yarway indirect subsidiary company 240 million result updated valuation performed companys estimated liability asbestos related claims excluding yarway claims increase expense also due higher restructuring repositioning asset impairment charges partially offset 96 million reversal recoveries settlements former management increase expense also partially offset lesser extent lower separation costs gain related legal settlement cit see note 13 consolidated financial statements additional information related asbestos legacy legal matters corporate expense decreased 179 million 359 319 million year ended september 27 2013 compared 498 million year ended september 28 2012 decrease corporate expense year ended september 27 2013 primarily due smaller corporate footprint result 2012 separation well lower separation costs corporate expense also decreased due decline net asbestos charges 12 million year ended september 27 2013 111 million prior year period net asbestos charges year ended september 27 2013 primarily relate yarway corporation filed bankruptcy protection third quarter fiscal 2013 net asbestos charges year ended september 28 2012 primarily due company revising lookback period historical claim experience lookforward period related projection future claims decreases corporate expense partially offset charge 27 million resulting writeoff insurance receivable established respect legacy claim well net benefit prior year period approximately 33 million primarily resulting reversal compensation reserve established respect legacy litigation former management see note 13 consolidated financial statements additional information related asbestos legacy legal matters key items included corporate expense years ended september 26 2014 september 27 2013 september 28 2012 follows critical accounting policies estimates preparation consolidated financial statements conformity us gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization methods security monitoringrelated assetstyco considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 140 360 commercial subscriber pools dealer intangibles converts straight line methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination revenue recognitioncontract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts provisions anticipated losses made period become determinable sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements assess revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services product discounts granted based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable asbestosrelated contingencies insurance receivableswe certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made future defined period time lookforward period quarterly basis company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable quarterly basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters record asbestosrelated insurance recoveries probable estimate asbestosrelated insurance recoveries represents estimated amounts due us previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable consider available insurance allocation methodologies solvency creditworthiness insurers see note 13 consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return pattern timing future obligation reliably determinable company records receivables third party insurers recovery determined probable income taxesin determining taxable income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded valuation allowances maintain morelikelythannot deferred tax assets realized income tax expense recorded future may reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance could result additional income tax expense period could significant impact future earnings changes tax laws rates could also affect recorded deferred tax assets liabilities future management records effect tax rate law change companys deferred tax assets liabilities period enactment future tax rate law changes could material effect companys financial condition results operations cash flows addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur performing assessments management relies considers number factors including operating results business plans economic projections anticipated future cash flows comparable market transactions extent available market data companys overall market capitalization elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets testing goodwill impairment first assess qualitative factors determine whether likely fair value reporting unit less carrying amount conclude likely fair value reporting unit less carrying amount quantitative fair value test performed based upon recent annual impairment test completed june 30 2014 likely fair value reporting unit excess carrying value recorded goodwill impairments conjunction annual goodwill impairment assessment performed fourth quarter fiscal 2014 fair value determinations require considerable judgment sensitive changes underlying assumptions factors result assurance estimates assumptions made purposes annual goodwill impairment test prove accurate predictions future examples events circumstances could reasonably expected negatively affect underlying key assumptions ultimately impact estimated fair value aforementioned reporting units may include items follows • prolonged downturn business environment reporting units operate ie sales volumes prices especially commercial construction retailer end markets • economic recovery significantly differs assumptions timing degree • volatility equity debt markets resulting higher discount rates • unexpected regulatory changes historical performance current expectations resulted fair values goodwill excess carrying values assumptions realized possible future impairment charge may need recorded however possible time determine impairment charge would result charge would material longlived assetsasset groups held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events changes business circumstances indicate carrying amount asset group may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairments longlived assets disposed recorded based upon fair value less cost sell applicable assets calculation fair value longlived assets based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions resulting actuarial gains losses active plans actuarial gains losses amortized average expected service period participants case inactive plans average remaining life expectancy participants discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 87 million increase annual pension expense approximately 2 million consider relative weighting plan assets class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions determining expected longterm return plan assets 25 basis point decrease expected longterm return plan assets would increase annual pension expense approximately 5 million liquidity capital resources fundamental objective company sufficient liquidity balance sheet strength financial flexibility fund operating capital requirements core businesses around world primary source funds finance operations capital expenditures cash generated operations addition maintain commercial paper program access committed revolving credit facility access equity debt capital public private sources continue balance operating investing financing uses cash investments acquisitions core businesses dividends share repurchases addition believe cash position amounts available credit facility commercial paper program cash provided operating activities adequate cover operational business needs foreseeable future september 26 2014 september 27 2013 cash equivalents short longterm debt tyco shareholders equity follows 1 total capital represents aggregate amount total debt total shareholders equity 6110 million 6561 million september 26 2014 september 27 2013 respectively sources uses cash summary cash flows operating investing financing continuing operations fiscal 2014 2013 2012 follows cash flow operating activities cash flow operating activities fluctuate significantly period working capital needs timing payments items restructuring activities pension funding income taxes items impact reported cash flow net change working capital reduced operating cash flow 53 million fiscal 2014 significant changes working capital included 93 million increase accounts receivable 98 million increase contracts progress 91 million increase prepaid expenses assets partially offset 205 million increase accrued expenses liabilities 53 million increase accounts payable net change working capital reduced operating cash flow 393 million fiscal 2013 significant changes working capital included 226 million decrease accrued expenses liabilities 75 million increase accounts receivable 36 million increase inventories 32 million decrease deferred revenue 31 million decrease income taxes payable partially offset 31 million decrease prepaid expenses assets net change working capital reduced operating cash flow 481 million fiscal 2012 significant changes working capital included 179 million decrease income taxes payable 121 million increase accounts receivable 81 million decrease accrued liabilities 71 million increase inventories partially offset 44 million increase accounts payable fiscal 2014 2013 2012 paid approximately 74 million 81 million 89 million respectively cash related restructuring activities see note 4 consolidated financial statements information regarding restructuring activities connection 2012 separation paid 58 million 165 million 18 million separation costs fiscal 2014 2013 2012 respectively fiscal 2014 2013 2012 made environmental remediation payments related environmental remediation activities facility located marinette wisconsin 63 million 51 million 10 million respectively years ended september 26 2014 september 27 2013 september 28 2012 made required contributions 54 million 50 million 81 million respectively us nonus pension plans also made voluntary contributions nil years ended september 26 2014 september 27 2013 september 28 2012 us plans company anticipates contribute least minimum required pension plans 2015 13 million us plans 23 million nonus plans income taxes paid net refunds related continuing operations 102 million 134 million 129 million fiscal 2014 2013 2012 respectively net interest paid related continuing operations 84 million 80 million 202 million fiscal 2014 2013 2012 respectively cash flow investing activities cash flows related investing activities consist primarily cash used capital expenditures acquisitions proceeds derived divestitures businesses assets purchase sales maturities investments made capital expenditures 288 million 270 million 295 million fiscal 2014 2013 2012 respectively level capital expenditures fiscal year 2015 expected exceed spending levels fiscal year 2014 also expected exceed depreciation expense 2014 paid cash acquisitions included continuing operations totaling 65 million net 1 million cash acquired related acquisitions included na installation services row installation services segments 2013 paid cash acquisitions included continuing operations totaling 229 million net 9 million cash acquired primarily related acquisition exacq technologies within global products segment 2012 paid cash acquisitions included continuing operations totaling 217 million net cash acquired 17 million primarily related acquisition visonic ltd within global products segment fiscal 2014 2013 received cash proceeds net cash divested 1 million 17 million respectively divestitures 2012 cash paid related divestitures 5 million see note 3 consolidated financial statements information maintain captive insurance companies manage certain insurable liabilities captive insurance companies held certain investment accounts purposes providing collateral insurable liabilities fiscal 2014 portfolio investments liquidated provide letters credit collateral fiscal 2014 made net purchases investments 103 million represented purchase time deposits 275 million 62 million trading securities serve partially offset changes market value liabilities unfunded nonqualified defined contribution pension plan purchases partially offset liquidation portfolio investments held captive insurance companies fiscal 2013 2012 made purchases investments 45 million sales investments 41 million respectively see note 12 consolidated financial statements information fiscal 2014 also generated 250 million proceeds sale equity method investment atkore described note 3 consolidated financial statements cash flow financing activities cash flows financing activities relate primarily proceeds received incurring debt issuing stock cash used repay debt repurchase stock make dividend payments shareholders fourth quarter 2012 connection separation tyco finance subsidiary tyco international finance sa tifsa redeemed various debt securities maturing 2013 2023 issued tifsa andor tyco aggregate principal amount 26 billion see note 10 consolidated financial statements information june 22 2012 tifsa borrower company guarantor entered fiveyear senior unsecured credit agreement providing revolving credit commitments aggregate amount 10 billion september 26 2014 amounts drawn revolving credit facility tifsas revolving credit facility contains customary terms conditions financial covenants limit ratio debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive business 2014 2013 2012 tifsa issued commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 26 2014 september 27 2013 tifsa commercial paper outstanding maximum aggregate amount unsecured commercial paper notes available issued private placement basis commercial paper program 1 billion september 26 2014 pursuant share repurchase program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved trading plan accordance applicable regulations january 2013 companys board directors approved 600 million share repurchase program march 2014 september 2014 companys board directors authorized additional 175 billion 1 billion share repurchases year ended september 26 2014 repurchased approximately 42 million common shares approximately 18 billion year ended september 27 2013 repurchased approximately 10 million common shares approximately 300 million year ended september 28 2012 repurchased approximately 11 million common shares approximately 500 million march 5 2014 shareholders approved cash dividend 072 per common share payable shareholders four quarterly installments 018 may 2014 august 2014 november 2014 february 2015 fiscal years 2014 2013 2012 paid cash dividends approximately 311 million 288 million 461 million respectively see note 15 consolidated financial statements information fiscal 2014 paid 66 million cash purchase remaining ownership interest joint venture brazil part companys row installation services segment management believes cash generated available us sufficient fund capital operational business needs foreseeable future including capital expenditures quarterly dividend payments share repurchases separationrelated expenses commitments contingencies detailed discussion contingencies related tax litigation matters governmental investigations see notes 6 13 consolidated financial statements contractual obligations contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases purchase obligations september 26 2014 follows millions 1 debt principal consists aggregate principal amount public debt outstanding excluding debt discount swap activity interest 2 interest payments consist interest fixed interest rate debt 3 purchase obligations consist commitments purchases goods services 4 longterm liabilities excluded contractual obligation table primarily consist following pension postretirement costs see note 14 consolidated financial statements income taxes see note 6 consolidated financial statements contingent consideration see note 5 consolidated financial statements warranties see note 11 consolidated financial statements environmental liabilities see note 13 consolidated financial statements unable estimate timing payment items due inherent uncertainties related obligations however minimum required contributions pension plans expected approximately 36 million 2015 expect make material contributions 2015 related postretirement benefit plans september 26 2014 recorded gross unrecognized tax benefits 267 million gross interest penalties 36 million unable make reasonably reliable estimate timing remaining payments future years therefore amounts excluded contractual obligation table however based current status income tax audits believe reasonably possible nil 20 million unrecognized tax benefits may resolved next twelve months although company unrecognized tax benefits recognized would affect effective tax rate company net operating loss carryforwards would offset cash impact recognition unrecognized tax benefits relating current year normal course business liable contract completion product performance opinion management obligations significantly affect financial position results operations cash flows connection 2012 separation entered liability sharing agreement regarding certain actions pending tyco prior 2012 separation 2012 tax sharing agreement pentair tyco adt share certain predistribution income tax liabilities arise adjustments made tax authorities tyco flow controls tycos adts us income tax returns ii payments required made tyco respect 2007 tax sharing agreement excluding approximately 175 million pre2012 separation related tax liabilities anticipated paid prior 2012 separation collectively shared tax liabilities company responsible first 500 million shared tax liabilities pentair adt share 42 58 respectively next 225 million shared tax liabilities pentair adt tyco share 20 275 525 respectively shared tax liabilities 725 million company expects pay 21 million settle certain pre2012 separation related tax liabilities timing amounts payments subject number uncertainties could change see notes 13 6 respectively consolidated financial statements connection 2007 separation entered liability sharing agreement regarding certain actions pending tyco prior 2007 separation 2007 separation distribution agreement 2007 tax sharing agreement assumed 27 covidien assumed 42 te connectivity assumed 31 certain tyco preseparation contingent corporate liabilities september 26 2014 primarily relate tax contingencies potential actions respect spinoffs distributions made brought third party backlog unfilled orders 4862 million 4812 million september 26 2014 september 27 2013 respectively companys backlog includes recurring revenueinforce longterm deferred revenue upfront fees na row installation services segments revenueinforce represents 12 months revenue associated monitoring maintenance services contract security fire business backlog segment follows millions backlog increased 50 million 10 4862 million september 26 2014 compared 4812 million prior year net increase backlog september 26 2014 primarily due 58 million increase total backlog na installation services segment relating fire business increase partially offset decline recurring revenue force deferred revenue security business 7 million increase row installation services segment total backlog driven increase growth markets asia improved westfire acquisitions total backlog global products segment declined 15 million due fire products life safety businesses partially offset growth security business changes foreign currency unfavorable impact backlog 128 million 27 primarily related row installation services segment guarantees certain business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging fiscal year 2015 completion transactions would typically triggered event nonperformance companys performance guarantees required would material effect financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien te connectivity adt pentair accordance terms 2007 2012 separation distribution agreements tax sharing agreements guarantees primarily relate certain contingent tax liabilities included tax sharing agreements time 2007 2012 separations recorded liabilities necessary recognize fair value guarantees indemnifications see note 6 consolidated financial statements discussion tax sharing agreements addition prior 2007 2012 separations provided support form financial andor performance guarantees various covidien te connectivity adt tyco flow control operating entities extent guarantees assigned connection 2007 2012 separations assumed primary liability remaining support see note 11 consolidated financial statements discussion liabilities disposing assets businesses often provide representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition reason believe uncertainties would material adverse effect financial position results operations cash flows recorded liabilities known indemnifications included part environmental liabilities normal course business liable contract completion product performance record estimated product warranty costs time sale opinion management obligations significantly affect financial position results operations cash flows year ended september 26 2014 tyco replaced available sale investments held collateral companys insurable liabilities letters credit approximately 137 million september 26 2014 september 27 2013 total outstanding letters credit bank guarantees approximately 662 million 424 million respectively detailed discussion guarantees indemnifications see note 11 consolidated financial statements accounting pronouncements see note 1 consolidated financial statements recently adopted accounting pronouncements recently issued accounting pronouncements nonus gaap measure effort provide investors additional information regarding results determined us gaap also disclose nonus gaap measure organic revenue growth decline believe measure useful investors evaluating operating performance periods presented read conjunction us gaap revenue enables investors better evaluate operations without giving effect fluctuations foreign exchange rates acquisition divestiture activity either may significant period addition organic revenue growth decline factor use internal evaluations overall performance business measure financial measure us gaap considered substitute revenue determined accordance us gaap may comparable similarly titled measures reported companies organic revenue growth decline presented herein defined revenue growth decline excluding effects foreign currency fluctuations acquisitions divestitures changes may reflect underlying results trends organic growth decline calculations incorporate estimate prior year reported net revenue associated acquired entities fully integrated within first year exclude prior year net revenue associated entities meet criteria discontinued operations divested within past year adjusted number calculate rate organic growth decline based adjusted number better reflect rate growth decline combined business case acquisitions remaining business case dispositions base rate organic growth decline acquired businesses fully integrated within first year upon unadjusted historical net revenue foreign currency fluctuations calculated subtracting us dollar equivalent local currencies current period using monthly weighted average exchange rates prior period ii us dollar equivalent local currencies current period using monthly weighted average exchange rates current period may use organic revenue growth decline component compensation programs table details components organic revenue growth reconciles nonus gaap measure us gaap net revenue growth fiscal 2014 1 organic revenue growth percentage based adjusted fiscal 2013 base revenue fiscal 2013 1 organic revenue growth percentage based adjusted fiscal 2012 base revenue 2 amount represents contractual revenue adt 2012 separation distribution agreement excluded organic revenue calculation forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties many cases forwardlooking statements identified words variations words “anticipate” “estimate” “believe” “commit” “continue” “could” “intend” “may” “plan” “potential” “predict” “positioned” “should” “will” “expect” “objective” “projection” “forecast” “goal” “guidance” “outlook” “effort” “target” similar words however absence words mean statements forwardlooking statement contained herein press releases written statements documents filed sec tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect future events including sales earnings cash flows operating tax efficiencies product expansion backlog consummation benefits acquisitions divestitures well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forwardlooking statements include among things • overall economic business conditions overall demand tycos goods services • economic competitive conditions industries end markets regions served businesses • changes legal tax requirements including tax rate changes new tax laws treaties revised tax law interpretations • employees agents ability comply complex continually changing laws regulations govern international operations including us foreign corrupt practices act similar antibribery laws jurisdictions variety export control customs currency exchange control transfer pricing regulations corporate policies governing matters • outcome litigation arbitrations governmental proceedings • effect income tax audits litigation settlements appeals • ability repay refinance outstanding indebtedness matures • ability operate within limitations imposed financing arrangements maintain credit ratings • interest rate fluctuations changes borrowing costs consequences volatility capital credit markets • capital market conditions including availability funding sources currency exchange rate fluctuations • availability fluctuations prices key raw materials • changes affecting customers suppliers • economic political conditions international markets including governmental changes restrictions ability transfer capital across borders • ability achieve anticipated cost savings • ability execute portfolio refinement acquisition strategies including successfully integrating acquired operations • potential impairment goodwill intangibles andor longlived assets • ability realize intended benefits 2012 separation including integration commercial security fire protection businesses • risks associated 2012 separation example risk may liable certain contingent liabilities spunoff entities become insolvent • risks associated jurisdiction incorporation including possibility reduced flexibility respect certain aspects capital management corporate governance increased different regulatory burdens possibility may realize anticipated tax benefits • possible effects tyco future legislation united states may limit eliminate potential us tax benefits resulting tyco internationals incorporation outside us deny us government contracts tyco based upon jurisdiction incorporation • risks associated proposed change global headquarters ireland • natural events severe weather fires floods earthquakes acts terrorism cyberattacks item 7aitem 7 management’s discussion analysis financial condition results operations general company operates three primary businesses buildings automotive experience power solutions buildings provides facility systems services including comfort energy management residential nonresidential buildings markets security products services fire detection suppression products services life safety products automotive experience designs manufactures interior products systems passenger cars light trucks including vans pickup trucks sportcrossover utility vehicles power solutions designs manufactures automotive batteries replacement original equipment markets discussion summarizes significant factors affecting consolidated operating results financial condition liquidity company threeyear period ended september 30 2016 discussion read conjunction item 8 consolidated financial statements notes consolidated financial statements fourth quarter fiscal 2016 company changed accounting policy accruing defense costs related asbestos claims discounted basis company’s historical accounting treatment asbestos claim defense costs accrue incurred new policy record accrual future asbestos related defense costs determined probable estimable incurred company believes new policy preferable better reflects economics settlement companys asbestos claims improves comparability among company’s peer group provides greater transparency ongoing operating results changes reported retrospective application new policy periods presented changes impact period presented consolidated statements income refer note 1 summary significant accounting policies notes consolidated financial statements information regarding accounting policy change subsequent event july 24 2015 company announced intent pursue separation automotive experience business spinoff shareholders spinoff completed october 31 2016 new publicly traded company named adient plc fiscal year 2016 compared fiscal year 2015 net sales increase consolidated net sales due higher sales buildings business 3837 million power solutions business 243 million partially offset lower sales automotive experience business 2831 million unfavorable impact foreign currency translation 754 million excluding unfavorable impact foreign currency translation consolidated net sales increased 3 compared prior year increased sales resulted johnson controls hitachi jch joint venture tyco merger well higher volumes buildings systems service north america segment buildings business higher automotive experience volumes globally higher global battery shipments favorable product mix power solutions business partially offset deconsolidation majority automotive experience interiors business prior year refer segment analysis within item 7 discussion net sales segment cost sales gross profit cost sales decreased fiscal 2016 compared fiscal 2015 gross profit percentage sales increasing 210 basis points foreign currency translation favorable impact cost sales approximately 635 million gross profit buildings business included incremental gross profit related jch joint venture tyco merger higher volumes buildings systems service north america segment gross profit automotive experience business favorably impacted higher volumes globally restructuring savings operational efficiencies partially offset unfavorable commercial settlements unfavorable mix gross profit power solutions business favorably impacted higher volumes favorable pricing product mix partially offset higher operating costs net marktomarket adjustments pension postretirement plans net favorable year impact cost sales 43 million 113 million charge fiscal 2016 compared 156 million charge fiscal 2015 primarily due unfavorable us investment returns versus expectations adoption new mortality rate changes us prior year partially offset decrease yearoveryear discount rates refer segment analysis within item 7 discussion segment earnings interest taxes ebit segment selling general administrative expenses selling general administrative expenses sga increased 1339 million year sga percentage sales increased 340 basis points net marktomarket adjustments pension postretirement plans net unfavorable year impact sga 124 million 390 million charge fiscal 2016 compared 266 million charge fiscal 2015 primarily due decrease yearoveryear discount rates partially offset unfavorable us investment returns versus expectations adoption new mortality rate changes us prior year additionally net unfavorable impact sga resulting separation costs 442 million recorded automotive experience segment transaction integration costs 130 million recorded buildings segments excluding impact separation costs automotive experience business sga decreased due deconsolidation majority automotive experience interiors business prior year restructuring savings cost reduction initiatives excluding impact transaction integrations costs buildings business sga increased primarily due incremental sga related jch joint venture tyco merger product sales force investments north america power solutions business sga decreased primarily due lower employee related expenses cost reduction initiatives foreign currency translation favorable impact sga 69 million refer segment analysis within item 7 discussion segment ebit segment restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements disclosure related companys restructuring plans net financing charges net financing charges increased fiscal 2016 compared fiscal 2015 primarily due higher average borrowing levels part due acquisition debt result tyco merger well new debt incurred fiscal 2016 advance spinoff automotive experience business first quarter fiscal 2017 equity income increase equity income primarily due current year income related partiallyowned affiliates jch joint venture buildings business current year income related automotive experience interiors joint venture formed july 2 2015 higher income certain automotive experience seating partiallyowned affiliates partially offset unfavorable impact foreign currency translation 13 million refer segment analysis within item 7 discussion segment ebit segment income tax provision measure meaningful us federal statutory tax rate used comparison since company us domiciled company fiscal 2015 for11 months 2016 effective rate us statutory rate fiscal 2016 primarily due tax consequences surrounding planned spinoff automotive experience business related expenses jurisdictional mix restructuring impairment costs tax impacts merger integration related costs partially offset benefits continuing global tax planning initiatives foreign tax rate differentials effective rate us statutory rate fiscal 2015 primarily due benefits continuing global tax planning initiatives income certain nonus jurisdictions tax rate lower us statutory tax rate adjustments due tax audit resolutions partially offset tax consequences business divestitures significant restructuring impairment costs fiscal 2016 effective tax rate increased compared fiscal 2015 effective tax rate primarily due tax effects transactions predominantly due planned spinoff 1795 million tax effects restructuring impairment costs 74 million partially offset tax planning initiatives 151 million fiscal year 2016 2015 global tax planning initiatives related primarily foreign tax credit planning global financing structures alignment global business functions tax efficient manner refer note 18 income taxes notes consolidated financial statements details valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2016 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined material changes needed valuation allowances therefore impact income tax expense due valuation allowance changes three month period year ended september 30 2016 fourth quarter fiscal 2015 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within spain germany united kingdom would realized likely certain deferred tax assets poland germany would realized impact net valuation allowance provision offset benefit valuation allowance releases net impact income tax expense three month period year ended september 30 2015 uncertain tax positions company subject income taxes us numerous foreign jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities fiscal 2015 company settled significant number tax examinations germany mexico us impacting fiscal years 1998 fiscal 2012 settlement unrecognized tax benefits included cash payments approximately 440 million loss various tax attributes reduction tax positions prior years substantially related foreign exchange rates fourth quarter fiscal 2015 income tax audit resolutions resulted net 99 million benefit income tax expense company’s federal income tax returns certain nonus income tax returns various fiscal years remain various stages audit internal revenue service irs respective nonus tax authorities although outcome tax audits always uncertain management believes appropriate support positions taken tax returns annual tax provisions included amounts sufficient pay assessments may proposed taxing authorities september 30 2016 company recorded liability best estimate probable loss certain tax positions majority included noncurrent liabilities consolidated statements financial position nonetheless amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year tax matters fiscal 2016 2015 company incurred significant charges restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information substantial portion charges cannot benefited tax purposes due companys current tax position jurisdictions underlying tax basis impaired assets resulting 126 million 52 million incremental tax expense fiscal 2016 2015 respectively fourth quarter fiscal 2016 company completed merger tyco result transaction company incurred incremental tax expense 137 million preparation spinoff automotive experience business first quarter fiscal 2017 company incurred incremental tax expense 121 million fiscal 2016 company also completed substantial business reorganizations resulted total tax charges 1891 million fiscal 2016 included amount tax charge provided third quarter fiscal 2016 85 million changes entity tax status charge provided second quarter fiscal 2016 780 million income tax expense foreign undistributed earnings certain nonus subsidiaries fourth quarter fiscal 2015 company completed global automotive interiors joint venture yanfeng automotive trim systems refer note 3 acquisitions divestitures notes consolidated financial statements additional information connection divestiture interiors business company recorded pretax gain divestiture 145 million 38 million net tax impact gain due jurisdictional mix gains losses divestiture resulted nonbenefited expenses certain countries taxable gains countries addition third fourth quarters fiscal 2015 company provided income tax expense repatriation cash tax reserves associated automotive experience interiors joint venture transaction resulted tax charge 75 million 223 million respectively impacts tax legislation change statutory tax rates fourth quarter fiscal 2016 october 13 2016 us treasury irs released final temporary section 385 regulations address whether certain instruments related parties treated debt equity company expect regulations material impact consolidated financial statements lookthrough rule subpart f us internal revenue code expired company september 30 2015 lookthrough rule provided exception us taxation certain income generated foreign subsidiaries rule extended december 2015 retroactive beginning company’s 2016 fiscal year retroactive extension signed legislation made permanent companys 2020 fiscal year second quarter fiscal 2015 tax legislation adopted japan reduced statutory income tax rate result law change company recorded income tax expense 17 million second quarter fiscal 2015 fiscal years ended 2016 2015 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements income discontinued operations net tax measure meaningful refer note 4 discontinued operations notes consolidated financial statements information income attributable noncontrolling interests measure meaningful increase income continuing operations attributable noncontrolling interests fiscal 2016 primarily due current year income related jch joint venture buildings business refer note 4 discontinued operations notes consolidated financial statements information regarding companys discontinued operations net income loss attributable johnson controls measure meaningful decrease net income loss attributable johnson controls primarily due increase income tax provision higher sga primarily due higher separation transaction costs current year current year restructuring impairment costs partially offset higher gross profit fiscal 2016 diluted earnings loss per share attributable johnson controls 130 compared 236 fiscal 2015 comprehensive income loss attributable johnson controls measure meaningful decrease comprehensive income loss attributable johnson controls due lower net income loss attributable johnson controls 2431 million partially offset decrease comprehensive loss attributable johnson controls 724 million primarily related favorable foreign currency translation adjustments yearoveryear favorable foreign currency translation adjustments primarily driven weakening brazilian real canadian dollar colombian peso euro japanese currencies us dollar prior year segment analysis management evaluates performance business units based primarily segment ebit defined income continuing operations income taxes noncontrolling interests excluding net financing charges significant restructuring impairment costs net marktomarket adjustments pension postretirement plans buildings measure meaningful net sales • increase systems service north america due higher volumes controls systems service 183 million partially offset lower volumes related business divestitures 52 million unfavorable impact foreign currency translation 23 million increase volumes primarily attributable market share gains • increase products north america due higher volumes 49 million partially offset unfavorable impact foreign currency translation 11 million increase volumes primarily driven new product offerings • increase asia due incremental sales related jch joint venture 2808 million higher service volumes 56 million higher volumes equipment control systems 30 million partially offset unfavorable impact foreign currency translation 49 million increase volume driven favorable local economic conditions • decrease rest world due unfavorable impact foreign currency translation 80 million lower volumes latin america 22 million europe 16 million middle east 14 million partially offset incremental sales related business acquisition 7 million net decrease volumes primarily attributable unfavorable local market conditions discontinuance certain products • increase tyco due incremental sales related tyco merger 808 million segment ebit • increase systems service north america due lower selling general administrative expenses 63 million result restructuring actions cost reduction initiatives current year gain business divestiture net prior year gain business divestitures higher volumes 42 million prior year transaction integration costs 4 million partially offset current year transaction costs 53 million unfavorable margin rates 8 million lower income due prior year business divestiture 5 million unfavorable impact foreign currency translation 4 million pension settlement loss 2 million • decrease products north america due higher selling general administrative expenses 118 milliondue global product related sales force investments prior year gain business divestitures current year transaction costs 30 million unfavorable margin rates 6 million pension settlement loss 3 million unfavorable impact foreign currency translation 1 million partially offset higher volumes 16 million prior year transaction integration costs 8 million higher equity income 1 million • increase asia due primarily incremental operating income related jch joint venture exclusive global investments related products technologies 293 million higher volumes 29 million prior year transaction integration costs 24 million lower selling general administrative expenses 2 million partially offset current year transaction integration costs 87 million unfavorable margin rates 12 million unfavorable impact foreign currency translation 9 million • decrease rest world due current year transaction costs 21 million lower volumes 13 million higher selling general administrative expenses 5 million unfavorable margin rates 3 million lower equity income 3 million unfavorable impact foreign currency translation 3 million partially offset gain business divestiture 12 million gain acquisition partiallyowned affiliate 4 million prior year transaction costs 1 million • tyco loss due impact nonrecurring purchasing accounting adjustments 74 million current year transaction costs 29 million partially offset incremental operating income period subsequent merger 86 million automotive experience net sales • decrease seating due unfavorable impact foreign currency translation 402 million net unfavorable pricing commercial settlements 142 million partially offset higher volumes 341 million incremental sales related prior year business acquisition 19 million higher volumes attributable growth asia europe partially offset softness americas due changes automotive production levels expiring programs north america • decrease interiors due deconsolidation majority interiors business prior year 2954 million lower volumes primarily due plant wind downs 87 million unfavorable impact foreign currency translation 9 million net unfavorable pricing commercial settlements 8 million segment ebit • decrease seating due current year separation costs related automotive experience spinoff 458 million net unfavorable pricing commercial settlements 33 million unfavorable mix due lower volumes higher margin platforms 26 million unfavorable impact foreign currency translation 16 million prior year gain business divestiture 10 million pension settlement loss 5 million partially offset lower operating costs result restructuring actions operational efficiencies 74 million lower selling general administrative expenses result favorable legal settlement cost reduction initiatives 54 million lower purchasing costs resulting supplier price concessions 46 million higher equity income 37 million higher volumes 35 million lower engineering expenses 32 million prior year separation costs 16 million incremental operating income related business acquisition 2 million • decrease interiors due prior year net gain business divestiture 145 million impact july 2 2015 joint venture transaction related prior year held sale depreciation impact 109 million lower volumes 12 million net unfavorable pricing commercial settlements 7 million current year integration costs 1 million unfavorable impact foreign currency translation 1 million partially offset prior year transaction integration costs 38 million favorable settlements related prior year business divestitures 22 million lower selling general administrative expenses result cost reduction initiatives 21 million lower operating costs 10 million higher equity income 5 million power solutions • net sales increased due higher sales volumes 246 million favorable pricing product mix 105 million partially offset unfavorable impact foreign currency translation 180 million impact lower lead costs pricing 108 million increase volumes primarily driven startstop battery volumes growth china additionally higher startstop volumes contributed favorable product mix • segment ebit increased due higher volumes 77 million favorable pricing product mix 55 million lower selling general administrative expenses due lower employee related expenses cost reduction initiatives 55 million partially offset higher operating costs primarily driven efforts increase supply satisfy growing customer demand launch new capacity china 48 million unfavorable impact foreign currency translation 29 million restructuring impairment costs included equity income 7 million pension settlement loss 1 million transaction costs 1 million lower equity income 1 million fiscal year 2015 compared fiscal year 2014 net sales decrease consolidated net sales due unfavorable impact foreign currency translation 25 billion lower sales automotive experience business 344 million partially offset higher sales building efficiency business 839 million power solutions business 408 million excluding unfavorable impact foreign currency translation consolidated net sales increased 2 compared prior year favorable impacts higher automotive experience volumes globally incremental sales related prior year acquisition adti building efficiency business higher building efficiency volumes north america middle east markets higher global battery shipments favorable product mix power solutions business partially offset deconsolidation majority automotive experience interiors business july 2 2015 incremental sales related business acquisitions 751 million across building efficiency automotive experience segments refer segment analysis within item 7 discussion net sales segment cost sales gross profit decrease cost sales year corresponds sales decrease described foreign currency translation favorable impact cost sales approximately 22 billion gross profit building efficiency business favorably impacted incremental gross profit related adti acquisition favorable margin rates prior year contract related charges middle east higher market demand north america gross profit power solutions business favorably impacted higher volumes lower operating costs gross profit automotive experience business favorably impacted higher volumes globally lower purchasing costs favorable commercial settlements partially offset higher operating costs unfavorable mix net marktomarket adjustments pension postretirement plans net unfavorable year impact cost sales 113 million 156 million charge fiscal 2015 compared 43 million charge fiscal 2014 primarily due unfavorable us investment returns versus expectations adoption new mortality rate changes us current year refer segment analysis within item 7 discussion segment ebit segment selling general administrative expenses selling general administrative expenses sga decreased 230 million year sga percentage sales decreased 20 basis points net marktomarket adjustments pension postretirement plans net unfavorable year impact sga 72 million 266 million charge fiscal 2015 compared 194 million charge fiscal 2014 primarily due unfavorable us investment returns versus expectations adoption new mortality rate changes us current year automotive experience business sga decreased primarily due gains business divestitures prior year net loss business divestitures lower engineering expenses lower employee related costs partially offset transaction integration separation costs building efficiency business sga increased primarily due incremental sga related prior year acquisition adti current year transaction integration costs higher investments power solutions business sga increased primarily due higher employee related expenses foreign currency translation favorable impact sga 189 million refer segment analysis within item 7 discussion segment ebit segment restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements disclosure related companys restructuring plans net financing charges net financing charges increased fiscal 2015 compared fiscal 2014 primarily due higher average borrowing levels related acquisition adti share repurchase program equity income decrease equity income primarily due prior year gains acquisitions partiallyowned affiliates power solutions business 19 million building efficiency business 19 million partially offset higher current year income certain automotive experience partiallyowned affiliates refer segment analysis within item 7 discussion segment ebit segment income tax provision effective rate us statutory rate fiscal 2015 primarily due benefits continuing global tax planning initiatives income certain nonus jurisdictions tax rate lower us statutory tax rate adjustments due tax audit resolutions partially offset tax consequences business divestitures significant restructuring impairment costs effective rate us statutory rate fiscal 2014 primarily due benefits continuing global tax planning initiatives income certain nonus jurisdictions tax rate lower us statutory tax rate partially offset tax consequences business divestitures significant restructuring impairment costs valuation allowance adjustments fiscal 2015 effective tax rate increased compared fiscal 2014 effective tax rate primarily due tax effects business divestitures 283 million partially offset reserve valuation allowance adjustments 133 million fiscal year 2015 2014 global tax planning initiatives related primarily foreign tax credit planning global financing structures alignment global business functions tax efficient manner refer note 18 income taxes notes consolidated financial statements details valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2015 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within spain germany united kingdom would realized likely certain deferred tax assets poland germany realized impact net valuation allowance provision offset benefit valuation allowance releases net impact income tax expense three month period ended september 30 2015 fourth quarter fiscal 2014 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely deferred tax assets within italy would realized therefore company recorded 34 million net valuation allowances income tax expense three month period ended september 30 2014 first quarter fiscal 2014 company determined likely deferred tax asset associated capital loss mexico would utilized therefore company recorded 21 million valuation allowance income tax expense uncertain tax positions company subject income taxes us numerous foreign jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities fiscal 2015 company settled significant number tax examinations germany mexico us impacting fiscal years 1998 fiscal 2012 settlement unrecognized tax benefits included cash payments approximately 440 million loss various tax attributes reduction tax positions prior years substantially related foreign exchange rates fourth quarter fiscal 2015 income tax audit resolutions resulted net 99 million benefit income tax expense company’s federal income tax returns certain nonus income tax returns various fiscal years remain various stages audit irs respective nonus tax authorities although outcome tax audits always uncertain management believes appropriate support positions taken tax returns annual tax provisions included amounts sufficient pay assessments may proposed taxing authorities september 30 2015 company recorded liability best estimate probable loss certain tax positions majority included noncurrent liabilities consolidated statements financial position nonetheless amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year tax matters fiscal 2015 2014 company incurred significant charges restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information substantial portion charges cannot benefited tax purposes due current tax position jurisdictions underlying tax basis impaired assets resulting 52 million 75 million incremental tax expense fiscal 2015 2014 respectively fourth quarter fiscal 2015 company completed global automotive interiors joint venture yanfeng automotive trim systems refer note 3 acquisitions divestitures notes consolidated financial statements additional information connection divestiture interiors business company recorded pretax gain divestiture 145 million 38 million net tax impact gain due jurisdictional mix gains losses divestiture resulted nonbenefited expenses certain countries taxable gains countries addition third fourth quarters fiscal 2015 company provided income tax expense repatriation foreign cash tax reserves associated automotive experience interiors joint venture transaction resulted tax charge 75 million 223 million respectively fourth quarter fiscal 2014 company recorded discrete tax benefit 51 million due change entity status third quarter fiscal 2014 company disposed automotive experience interiors headliner sun visor product lines refer note 3 acquisitions divestitures notes consolidated financial statements additional information result company recorded pretax loss divestiture 95 million income tax expense 38 million income tax expense due jurisdictional mix gains losses sale resulted nonbenefited losses certain countries taxable gains countries impacts tax legislation change statutory tax rates lookthrough rule subpart f us internal revenue code expired company september 30 2015 lookthrough rule provided exception us taxation certain income generated foreign subsidiaries “lookthrough rule” previously expired company september 30 2014 extended retroactively beginning company’s 2015 fiscal year second quarter fiscal 2015 tax legislation adopted japan reduced statutory income tax rate result law change company recorded income tax expense 17 million second quarter fiscal 2015 tax legislation also adopted various jurisdictions fiscal year ended september 30 2015 law changes material impact companys consolidated financial statements result changes mexican tax law first quarter fiscal 2014 company recorded benefit income tax expense 25 million tax legislation also adopted various jurisdictions fiscal year ended september 30 2014 law changes material impact companys consolidated financial statements income loss discontinued operations net tax measure meaningful refer note 4 discontinued operations notes consolidated financial statements information income attributable noncontrolling interests increase income continuing operations attributable noncontrolling interests fiscal 2015 primarily due higher income power solutions partiallyowned affiliate refer note 4 discontinued operations notes consolidated financial statements information regarding companys discontinued operations net income attributable johnson controls increase net income attributable johnson controls primarily due higher income continuing discontinued operations partially offset increase income tax provision fiscal 2015 diluted earnings per share attributable johnson controls 236 compared 180 fiscal 2014 comprehensive income attributable johnson controls increase comprehensive income attributable johnson controls due higher net income attributable johnson controls 348 million partially offset increase comprehensive loss attributable johnson controls 165 million primarily related unfavorable foreign currency translation adjustments yearoveryear unfavorable foreign currency translation adjustments primarily driven weakening brazilian real british pound canadian dollar colombian peso euro currencies us dollar segment analysis management evaluates performance business units based primarily segment ebit defined income continuing operations income taxes noncontrolling interests excluding net financing charges significant restructuring impairment costs net marktomarket adjustments pension postretirement plans building efficiency measure meaningful net sales • increase systems service north america due higher volumes controls systems service 129 million partially offset unfavorable impact foreign currency translation 43 million • increase products north america due incremental sales related adti acquisition 587 million higher volumes residential commercial products 65 million partially offset unfavorable impact foreign currency translation 9 million • decrease asia due unfavorable impact foreign currency translation 107 million lower volumes equipment controls systems 80 million partially offset incremental sales due business acquisitions 58 million higher service volumes 37 million • decrease rest world due unfavorable impact foreign currency translation 255 million lower volumes latin america 72 million partially offset higher volumes middle east 71 million europe 22 million incremental sales related adti acquisition 22 million segment ebit • increase systems service north america due higher volumes 30 million net unfavorable prior year contract related charges 9 million prior year pension settlement loss 3 million partially offset higher selling general administrative expenses net current year gain business divestiture 13 million current year transaction integration costs 4 million unfavorable impact foreign currency translation 4 million • increase products north america due incremental operating income related adti acquisition 53 million prior year acquisition related costs 27 million higher volumes 22 million higher equity income 2 million prior year pension settlement loss 1 million favorable impact foreign currency translation 1 million partially offset higher selling general administrative expenses net current year gains business divestitures 28 million current year transaction integration costs 8 million unfavorable mix margin rates 2 million • decrease asia due higher selling general administrative expenses 26 million current year transaction integration costs 24 million prior year gain acquisition partiallyowned affiliates 19 million lower volumes 17 million unfavorable impact foreign currency translation 17 million partially offset favorable mix margin rates 17 million incremental operating income due business acquisitions 7 million • increase rest world due net unfavorable prior year contract related charges middle east 50 million favorable mix margin rates 49 million higher equity income 7 million higher volumes 4 million lower selling general administrative expenses 1 million incremental operating income due business acquisitions 1 million partially offset unfavorable impact foreign currency translation 15 million current year transaction costs 1 million automotive experience measure meaningful net sales • decrease seating due unfavorable impact foreign currency translation 14 billion partially offset higher volumes 280 million incremental sales related business acquisition 57 million net favorable pricing commercial settlements 51 million • decrease interiors due deconsolidation majority interiors business july 2 2015 924 million lower volumes related prior year business divestiture 248 million unfavorable impact foreign currency translation 229 million unfavorable sales mix 138 million partially offset higher volumes 506 million net favorable pricing commercial settlements 45 million incremental sales related business acquisitions 27 million segment ebit • increase seating due net favorable pricing commercial settlements 65 million lower purchasing costs 64 million higher volumes 56 million lower selling general administrative expenses 30 million lower engineering expenses 29 million higher equity income 20 million gain business divestiture 10 million incremental operating income related business acquisition 7 million prior year pension settlement loss 5 million partially offset higher operating costs 117 million unfavorable impact foreign currency translation 47 million unfavorable mix 31 million current year separation costs 16 million • increase interiors due net gain business divestiture 145 million prior year net loss business divestitures 86 million higher volumes 67 million lower operating costs 23 million lower selling general administrative expenses 16 million lower purchasing costs 6 million lower engineering expenses 5 million higher equity income 3 million incremental operating income related business acquisitions 3 million prior year pension settlement loss 1 million partially offset current year transaction integration costs 38 million unfavorable mix 27 million lower operating income related current year business divestiture 19 million net unfavorable pricing commercial settlements 12 million unfavorable impact foreign currency translation 4 million power solutions • net sales decreased due unfavorable impact foreign currency translation 450 million partially offset higher sales volumes 291 million favorable pricing product mix 117 million • segment ebit increased due higher volumes 90 million lower operating costs 79 million favorable pricing product mix 16 million prior year pension settlement loss 5 million higher equity income 2 million partially offset unfavorable impact foreign currency translation 52 million higher selling general administrative expenses 20 million prior year gain acquisition partiallyowned affiliate 19 million goodwill longlived assets investments goodwill september 30 2016 234 billion 166 billion higher prior year increase primarily due goodwill generated result tyco merger jch joint venture buildings business goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average historical published multiples earnings comparable entities similar operations economic characteristics certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value fiscal 2014 result operating results restructuring actions expected future profitability companys forecasted cash flow estimates used goodwill assessment negatively impacted september 30 2014 building efficiency rest world latin america reporting unit result company concluded carrying value building efficiency rest world latin america reporting unit exceeded fair value september 30 2014 company recorded goodwill impairment charge 47 million fourth quarter fiscal 2014 determined comparing carrying value reporting units goodwill implied fair value goodwill reporting unit building efficiency rest world latin america reporting unit remaining goodwill september 30 2016 2015 assumptions included impairment tests require judgment changes inputs could impact results calculations managements projections future cash flows primary assumptions used impairment tests weightedaverage cost capital longterm growth rates although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit impairment charges noncash expenses recorded within restructuring impairment costs consolidated statements income adversely affect companys debt position cash flow liquidity compliance financial covenants indefinite lived intangible assets also subject least annual impairment testing considerable amount management judgment assumptions required performing impairment tests company believes judgments assumptions used impairment tests reasonable impairment existed fiscal years 2016 2015 2014 different assumptions could change estimated fair values therefore impairment charges could required could material consolidated financial statements company reviews longlived assets including property plant equipment intangible assets definite lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals second third fourth quarters fiscal 2016 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2016 result company reviewed longlived assets impairment recorded 190 million asset impairment charges within restructuring impairment costs consolidated statements income 29 million recorded second quarter 51 million recorded third quarter 110 million recorded fourth quarter total impairment charges 64 million related power solutions segment 55 million related corporate assets 55 million related automotive experience seating segment 8 million related building efficiency products north america segment 4 million related building efficiency asia segment 3 million related building efficiency rest world segment 1 million related automotive experience interiors segment refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fourth quarter fiscal 2015 company concluded triggering events requiring assessment impairment certain longlived assets conjunction announced restructuring actions intention spinoff automotive experience business result company reviewed longlived assets impairment recorded 183 million impairment charge within restructuring impairment costs consolidated statements income total impairment charge 139 million related corporate assets 27 million related automotive experience seating segment 16 million related building efficiency rest world segment 1 million related building efficiency systems service north america segment refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairment measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impairment assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement third fourth quarters fiscal 2014 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2014 addition fourth quarter fiscal 2014 company concluded triggering event requiring assessment impairment longlived assets held building efficiency rest world latin america reporting unit due impairment goodwill quarter result company reviewed longlived assets impairment recorded 91 million impairment charge within restructuring impairment costs consolidated statements income 45 million recorded third quarter 46 million fourth quarter fiscal 2014 total impairment charge 45 million related automotive experience interiors segment 34 million related building efficiency rest world segment 7 million related automotive experience seating segment 5 million related corporate assets addition company recorded 43 million asset investment impairments within discontinued operations third quarter fiscal 2014 related divestiture automotive experience electronics business refer note 4 discontinued operations note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairment measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impairment assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement investments partiallyowned affiliates september 30 2016 27 billion 06 billion higher prior year increase primarily due investment jch joint venture positive earnings certain automotive experience affiliates liquidity capital resources working capital measure meaningful • company defines working capital current assets less current liabilities excluding cash escrow related adient debt shortterm debt current portion longterm debt current portion assets liabilities held sale management believes measure working capital excludes financingrelated items provides useful measurement company’s operating performance • decrease working capital september 30 2016 compared september 30 2015 primarily related increase accounts payable due timing supplier payments timing income tax payments increase restructuring reserves partially offset impact tyco merger impact jch joint venture increase accounts receivable due timing customer receipts • company’s days sales accounts receivable september 30 2016 58 slight increase 56 september 30 2015 significant adverse change level overdue receivables changes revenue recognition methods • company’s inventory turns year ended september 30 2016 slightly lower comparable period ended september 30 2015 primarily due changes inventory production levels • days accounts payable september 30 2016 73 days lower 74 days comparable period ended september 30 2015 cash flows • increase cash provided operating activities primarily due favorable changes assets lower pension contributions partially offset higher income tax payments current year separation costs • increase cash used investing activities primarily due cash received business divestitures prior year cash paid jch joint venture current year increase capital expenditures partially offset cash acquired tyco merger current year • decrease cash used financing activities primarily due increase longterm debt lower stock repurchases current year increase shortterm debt partially offset higher repayments longterm debt increase dividends paid due timing increase dividends paid noncontrolling interests related jch joint venture • increase capital expenditures current year primarily related higher capital investments buildings power solutions businesses partially offset lower capital investments automotive experience business capitalization measure meaningful • company believes percentage total debt total capitalization useful understanding company’s financial condition provides review extent company relies external debt financing funding measure risk shareholders • connection tyco merger september 2 2016 jci inc wholly owned subsidiary company replaced 25 billion committed fiveyear credit facility scheduled mature august 2018 20 billion committed fouryear credit facility scheduled mature august 2020 also connection tyco merger september 2 2016 tyco international holding sàrl tsarl wholly owned subsidiary company entered fouryear 10 billion revolving credit agreement scheduled mature august 2020 • september 30 2016 company committed bilateral us dollar denominated revolving credit facilities totaling 135 million scheduled expire fiscal 2017 draws revolving facilities september 30 2016 • simultaneously closing tyco merger september 2 2016 tsarl borrowed 40 billion term loan credit agreement dated march 10 2016 syndicate lenders providing three half year senior unsecured term loan facility finance cash consideration fees expenses costs incurred connection merger • august 2016 adient global holdings ltd agh whollyowned subsidiary company issued one billion euro 35 fixed rate 8year senior unsecured note scheduled mature august 2024 agh also issued 900 million 4875 10year senior unsecured note scheduled mature august 2026 proceeds notes deposited escrow expected released connection spinoff notes expected guaranteed company subsidiaries adient following spinoff approximately 1500 million proceeds distributed company connection spinoff approximately 500 million proceeds used adients general corporate purposes • july 2016 agh entered 5year 1500 million term loan facility 5year 1500 million revolving credit facility scheduled mature july 2021 term loan fully drawn august 2016 september 30 2016 draws facility upon completion spinoff adient agh become whollyowned subsidiary adient date spinoff adient certain whollyowned subsidiaries guarantee debt guarantees company automatically released company used proceeds term loan early repay four tranches eurodenominated floating rate credit facilities totaling 390 million euro outstanding september 30 2015 three term loans 500 million 200 million 125 million entered fiscal 2016 plus accrued interest 90 million outstanding credit facility remainder proceeds used general corporate purposes • february 2016 company entered ninemonth 100 million floating rate term loan scheduled mature november 2016 proceeds term loan used general corporate purposes • february 2016 company terminated 37 million euro committed revolving credit facility scheduled mature september 2016 subsequently entered ninemonth 100 million euro floating rate term loan scheduled mature october 2016 proceeds term loan used general corporate purposes • january 2016 company entered tenmonth 200 million floating rate term loan scheduled mature october 2016 proceeds term loan used general corporate purposes • january 2016 company entered tenmonth 125 million floating rate term loan scheduled mature october 2016 proceeds term loan used general corporate purposes • january 2016 company retired 800 million principal amount plus accrued interest 55 fixed rate notes matured january 2016 • september 2015 company retired maturity 500 million 150 million 100 million floating rate term loans plus accrued interest entered fiscal 2015 • june 2015 company entered fiveyear 37 billion yen floating rate syndicated term loan scheduled mature june 2020 proceeds syndicated term loan used general corporate purposes • may 2015 company made partial repayment 32 million euro principal amount plus accrued interest 70 million euro floating rate credit facility scheduled mature november 2017 remaining outstanding portion september 30 2015 repaid fiscal 2016 • march 2015 company retired 125 million principal amount plus accrued interest 77 fixed rate notes matured march 2015 • january 2015 company entered oneyear 90 million committed revolving credit facility scheduled mature january 2016 company drew full credit facility quarter ended march 31 2015 proceeds revolving credit facility used general corporate purposes 90 million repaid september 2015 • company also selectively makes use shortterm credit lines company estimates september 30 2016 could borrow 17 billion based average borrowing levels quarter committed credit lines • company believes capital resources liquidity position september 30 2016 adequate meet projected needs company believes requirements working capital expenditures dividends stock repurchases minimum pension contributions debt maturities potential acquisitions fiscal 2017 continue funded operations supplemented short longterm borrowings required company currently manages shortterm debt position us euro commercial paper markets bank loan markets event johnson controls inc tsarl unable issue commercial paper would ability draw 20 billion 10 billion revolving credit facilities respectively facilities mature august 2020 draws revolving credit facilities september 30 2016 company believes sufficient financial resources fund operations meet obligations foreseeable future • company earns significant amount operating income outside parent company outside basis differences subsidiaries deemed permanently reinvested company currently intend foresee need repatriate undistributed earnings included outside basis differences tax efficient manners however fiscal 2016 company provide income tax expense related change companys assertion portion permanently reinvested earnings result planned spinoff automotive experience business except noted company’s intent reduce basis differences would tax efficient company expects existing us cash liquidity continue sufficient fund company’s us operating activities cash commitments investing financing activities least next twelve months thereafter foreseeable future addition company expects existing nonus cash equivalents shortterm investments cash flows operations continue sufficient fund company’s nonus operating activities cash commitments investing activities material capital expenditures least next twelve months thereafter foreseeable future company require capital us generated operations us company could elect raise capital us debt equity issuances addition company require capital luxembourg ireland holding financing entities amounts provided tax efficient methods company could also elect raise capital debt equity issuances alternative could result increased interest expense dilution company’s earnings company borrowed funds us continues ability borrow funds us reasonable interest rates • companys debt financial covenants require maintain minimum consolidated shareholders’ equity attributable johnson controls least 35 billion times allow maximum aggregated amount 10 consolidated shareholders’ equity liens pledges purposes calculating covenants consolidated shareholders’ equity attributable johnson controls calculated without giving effect application asc 71560 defined benefit plans postretirement ii cumulative foreign currency translation adjustment tsarls whollyowned subsidiary johnson controls revolving credit facility contains customary terms conditions financial covenants limit ratio tsarls debt earnings interest taxes depreciation amortization excluding special items 35x limit ability incur subsidiary debt grant liens property september 30 2016 company compliance covenants requirements set forth credit agreements indentures expects remain compliance foreseeable future none company’s debt agreements limit access stated borrowing levels require accelerated repayment event decrease company’s credit rating • better align resources growth strategies reduce cost structure global operations address softness certain underlying markets company committed significant restructuring plan fiscal 2016 recorded 620 million restructuring impairment costs consolidated statements income within continuing operations restructuring action related cost reduction initiatives company’s automotive experience buildings power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments changeincontrol payments immaterial changes estimates prior year plans company currently estimates upon completion restructuring action fiscal 2016 restructuring plan reduce annual operating costs continuing operations approximately 300 million primarily result lower cost sales selling general administrative expenses due reduced employeerelated costs depreciation amortization expense company expects annual benefit actions substantially realized end fiscal 2018 fiscal 2016 significant savings net execution costs realized plan restructuring action expected substantially complete fiscal 2018 restructuring plan reserve balance 445 million september 30 2016 expected paid cash included reserve 78 million committed restructuring actions taken tyco liabilities assumed part tyco acquisition • better align resources growth strategies reduce cost structure global operations address softness certain underlying markets company committed significant restructuring plan fiscal 2015 recorded 397 million restructuring impairment costs consolidated statements income within continuing operations restructuring action related cost reduction initiatives company’s automotive experience building efficiency power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments company currently estimates upon completion restructuring action fiscal 2015 restructuring plan reduce annual operating costs continuing operations approximately 250 million primarily result lower cost sales selling general administrative expenses due reduced employeerelated costs depreciation expense company expects portion savings net execution costs achieved fiscal 2016 full annual benefit actions expected fiscal 2017 fiscal 2016 savings continuing operations net execution costs approximately 55 expected annual operating cost reduction restructuring action expected substantially complete 2016 restructuring plan reserve balance 117 million september 30 2016 expected paid cash • better align resources growth strategies reduce cost structure global operations address softness certain underlying markets company committed significant restructuring plans fiscal 2014 2013 recorded 324 million 903 million respectively restructuring impairment costs consolidated statements income within continuing operations restructuring actions related cost reduction initiatives company’s automotive experience building efficiency power solutions businesses included workforce reductions plant closures asset goodwill impairments company currently estimates upon completion restructuring actions fiscal 2014 2013 restructuring plans reduce annual operating costs continuing operations approximately 175 million 350 million respectively primarily result lower cost sales due reduced employeerelated costs lower depreciation amortization expense full annual benefit actions net execution costs achieved fiscal 2016 restructuring actions substantially complete 2016 respective year’s restructuring plan reserve balances 23 million 24 million respectively september 30 2016 expected paid cash summary company’s significant contractual obligations september 30 2016 follows millions see capitalization additional information related companys longterm debt companys outstanding interest rate swaps asset position included table september 30 2016 indicates company net position receiving cash swaps result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities within noncurrent liabilities consolidated statements financial position liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid 290 million recorded september 30 2016 255 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions payments due period presented due uncertainty liabilities settled paid critical accounting estimates policies company prepares consolidated financial statements conformity accounting principles generally accepted united states america us gaap requires management make estimates assumptions affect reported amounts related disclosures actual results could differ estimates following policies considered management critical understanding judgments involved preparation company’s consolidated financial statements uncertainties could impact company’s results operations financial position cash flows revenue recognition buildings business recognizes revenue certain longterm contracts contractual period poc method accounting method accounting recognizes sales gross profit work performed based relationship actual costs incurred total estimated costs completion recognized revenues billed terms contract later date recorded primarily accounts receivable likewise contracts billings date exceeded recognized revenues recorded primarily current liabilities changes original estimates may required life contract estimates reviewed monthly sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated losses recorded identified claims customers recognized revenue upon settlement use poc method accounting involves considerable use estimates determining revenues costs profits assigning amounts accounting periods periodic reviews resulted adjustments significant company’s results operations company continually evaluates assumptions risks uncertainties inherent application poc method accounting buildings business enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized straightline basis respective contract term buildings business also sells certain heating ventilating air conditioning hvac refrigeration products services bundled arrangements multiple products andor services involved significant deliverables within arrangements include equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition buildings business sells security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered accordance asu 200913 revenue recognition topic 605 multipledeliverable revenue arrangements consensus fasb emerging issues task force company divides bundled arrangements separate deliverables revenue allocated deliverable based relative selling price method order estimate relative selling price market data transfer price studies utilized revenue recognized security monitoring equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship cases company recognizes revenue time title passes customer services performed goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average historical published multiples earnings comparable entities similar operations economic characteristics certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fourth quarters fiscal years 2016 2015 2014 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets consist trademarks tradenames tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests impairment longlived assets company reviews longlived assets including tangible assets intangible assets definite lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2016 2015 2014 employee benefit plans company provides range benefits employees retired employees including pensions postretirement benefits plan assets obligations measured annually frequently remeasurement event based company’s measurement date utilizing various actuarial assumptions discount rates assumed rates return compensation increases turnover rates health care cost trend rates date company reviews actuarial assumptions annual basis makes modifications assumptions based current rates trends appropriate company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans us gaap requires companies recognize statement financial position liability defined benefit pension postretirement plans underfunded unfunded asset defined benefit pension postretirement plans overfunded us gaap also requires companies measure benefit obligations fair value plan assets determine benefit plan’s funded status date employer’s fiscal year end company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates company’s discount rate us pension plans 370 440 september 30 2016 2015 respectively company’s discount rate postretirement plans 330 375 september 30 2016 2015 respectively company’s weighted average discount rate nonus pension plans 190 315 september 30 2016 2015 respectively september 30 2015 company changed method used estimate service interest components net periodic benefit cost pension postretirement benefits plans utilize yield curve approach change compared previous method result different service interest components net periodic benefit cost credit future periods historically company estimated service interest cost components utilizing single weightedaverage discount rate derived yield curve used measure benefit obligation beginning period company elected utilize full yield curve approach estimation components applying specific spot rates along yield curve used determination benefit obligation relevant projected cash flows company made change provide precise measurement service interest costs improving correlation projected benefit cash flows corresponding spot yield curve rates change affect measurement total benefit obligations annual net periodic benefit cost credit change service interest costs completely offset net actuarial gain loss reported change service interest costs significant company accounted change accounting estimate estimating expected return plan assets company considers historical returns plan assets adjusted forwardlooking considerations inflation assumptions impact active management plans’ invested assets reflecting relatively longterm nature plans’ obligations approximately 47 plans’ assets invested fixed income securities 41 equity securities remainder primarily invested alternative investments years ending september 30 2016 2015 company’s expected longterm return us pension plan assets used determine net periodic benefit cost 750 actual rate return us pension plans 750 fiscal 2016 750 fiscal 2015 years ending september 30 2016 2015 company’s weighted average expected longterm return nonus pension plan assets 450 actual rate return nonus pension plans 450 fiscal 2016 approximated 450 2015 years ending september 30 2016 2015 company’s weighted average expected longterm return postretirement plan assets 545 575 respectively actual rate return postretirement plan assets 545 fiscal 2016 575 fiscal 2015 beginning fiscal 2017 company believes longterm rate return approximate 750 340 560 us pension nonus pension postretirement plans respectively differences actual investment results expected longterm asset returns reflected net periodic benefit costs fourth quarter fiscal year company’s actual returns plan assets less company’s expectations additional contributions may required fiscal 2016 total employer contributions defined benefit pension plans 136 million 34 million voluntary contributions made company expects contribute approximately 326 million cash defined benefit pension plans fiscal 2017 including 247 million due changeincontrol provisions triggered tyco merger fiscal 2016 total employer employee contributions postretirement plans 7 million company expects contribute approximately 4 million cash postretirement plans fiscal 2017 based information provided independent actuaries relevant sources company believes assumptions used reasonable however changes assumptions could impact company’s financial position results operations cash flows loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 23 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2069 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2069 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 23 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities product warranties company offers warranties customers depending upon specific product terms customer purchase agreement typical warranty program requires company replace defective products within specified time period date sale company records estimate future warrantyrelated costs based actual historical return rates known factors based analysis return rates factors company’s warranty provisions adjusted necessary september 30 2016 company recorded 396 million warranty reserves including extended warranties deferred revenue recorded company monitors warranty activity adjusts reserve estimates probable future warranty costs different estimates refer note 21 guarantees notes consolidated financial statements disclosure companys product warranty liabilities income taxes company accounts income taxes accordance asc 740 income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled company records valuation allowance primarily represents nonus operating loss carryforwards realization uncertain management judgment required determining company’s provision income taxes deferred tax assets liabilities valuation allowance recorded company’s net deferred tax assets calculating provision income taxes interim basis company uses estimate annual effective tax rate based upon facts circumstances known interim period quarterly basis actual effective tax rate adjusted appropriate based upon actual results compared forecasted beginning fiscal year company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary september 30 2016 company valuation allowance 3564 million 3067 million relates net operating loss carryforwards primarily australia belgium brazil china france spain switzerland luxembourg united kingdom sustainable taxable income demonstrated 497 million deferred tax assets company subject income taxes us numerous nonus jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities september 30 2016 company unrecognized tax benefits 1836 million company generally provide additional us nonus income taxes outside basis differences consolidated subsidiaries included shareholders’ equity attributable johnson controls reduction outside basis differences via sale liquidation subsidiaries andor distributions could create taxable income company’s intent reduce outside basis differences would tax efficient refer capitalization within liquidity capital resources section discussion us nonus cash projections refer note 18 income taxes notes consolidated financial statements companys income tax disclosures new accounting pronouncements recently adopted accounting pronouncements november 2015 fasb issued asu 201517 income taxes topic 740 balance sheet classification deferred taxes asu 201517 requires deferred tax liabilities assets classified noncurrent consolidated statements financial position quarter ended december 31 2015 company early adopted asu 201517 applied change retrospectively periods presented april 2014 fasb issued asu 201408 presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity asu 201408 limits discontinued operations reporting situations disposal represents strategic shift major effect entity’s operations financial results requires expanded disclosures discontinued operations asu 201408 effective company quarter ended december 31 2015 adoption guidance impact companys consolidated financial statements dispositions disposals quarter ended december 31 2015 recently issued accounting pronouncements october 2016 fasb issued asu 201617 consolidations topic 810 interests held related parties common control asu changes single decision maker variable interest entity vie holds indirect interest entity related parties common control determines whether primary beneficiary vie new guidance amends asu 201502 consolidation topic 810 amendments consolidation analysis issued february 2015 guidance applied coincidentally adoption asu 201502 effective company quarter ending december 31 2016 adoption guidance expected significant impact companys consolidated financial statements october 2016 fasb issued asu 201616 accounting income taxes intraentity asset transfers assets inventory asu requires tax effects intraentity sales assets inventory recognized period transaction occurs guidance effective company quarter ending december 31 2018 early adoption permitted first interim period fiscal year changes required applied means cumulativeeffect adjustment recorded retained earnings beginning fiscal year adoption company currently assessing impact adoption guidance consolidated financial statements august 2016 fasb issued asu 201615 statement cash flows topic 230 classification certain cash receipts cash payments asu 201615 provides clarification guidance eight specific cash flow presentation issues order reduce diversity practice asu 201615 effective company quarter ending december 31 2018 early adoption permitted guidance applied retrospectively periods presented unless deem impracticable case prospective application permitted company currently assessing impact adoption guidance consolidated financial statements june 2016 fasb issued asu 201613 financial instruments credit losses topic 326 measurement credit losses financial instruments asu 201613 changes impairment model financial assets measured amortized cost requiring presentation net amount expected collected measurement expected credit losses based upon historical experience current conditions reasonable supportable forecasts availableforsale debt securities unrealized losses recorded allowance credit losses asu 201613 effective company quarter ended december 31 2020 early adoption permitted quarter ended december 31 2019 adoption guidance expected significant impact companys consolidated financial statements march 2016 fasb issued asu 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting asu 201609 impacts certain aspects accounting sharebased payment transactions including income tax consequences classification awards either equity liabilities classification statements cash flows asu 201609 effective company quarter ending december 31 2017 early adoption permitted company currently assessing impact adoption guidance consolidated financial statements march 2016 fasb issued asu 201607 investments equity method joint ventures topic 323 simplifying transition equity method accounting asu 201607 eliminates requirement investment qualifies use equity method accounting result increase level ownership degree influence adjust investment results operations retained earnings retrospectively asu 201607 effective prospectively company increases level ownership interest degree influence result adoption equity method occur quarter ending december 31 2017 early adoption permitted impact guidance company dependent future increases level ownership interest degree influence result adoption equity method february 2016 fasb issued asu 201602 leases topic 842 asu 201602 requires recognition operating leases lease assets liabilities balance sheet disclosure key information leasing arrangements asu 201602 effective retrospectively company quarter ending december 31 2019 early adoption permitted company currently assessing impact adoption guidance consolidated financial statements january 2016 fasb issued asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities asu 201601 amends certain aspects recognition measurement presentation disclosure financial instruments asu 201601 effective company quarter ending december 31 2018 early adoption permitted certain exceptions changes required applied means cumulativeeffect adjustment balance sheet beginning fiscal year adoption company currently assessing impact adoption guidance consolidated financial statements july 2015 fasb issued asu 201511 simplifying measurement inventory asu 201511 requires inventory recorded using firstin firstout method measured lower cost net realizable value asu 201511 effective prospectively company quarter ending december 31 2017 early adoption permitted adoption guidance expected significant impact companys consolidated financial statements may 2015 fasb issued asu 201507 disclosures investments certain entities calculate net asset value per share equivalent asu 201507 removes requirement categorize within fair value hierarchy investments fair value measured using net asset value per share practical expedient investments disclosed separate fair value hierarchy asu 201507 effective retrospectively company quarter ending december 31 2016 early adoption permitted adoption guidance expected impact companys consolidated financial statements impact pension asset disclosures april 2015 fasb issued asu 201503 interest imputation interest subtopic 83530 simplifying presentation debt issuance costs asu 201503 requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability asu 201503 effective retrospectively company quarter ending december 31 2016 early adoption permitted adoption guidance expected significant impact companys consolidated financial statements february 2015 fasb issued asu 201502 consolidation topic 810 amendments consolidation analysis asu 201502 amends analysis performed determine whether reporting entity consolidate certain types legal entities asu 201502 amended asu 201617 consolidations topic 810 interests held related parties common control issued october 2016 asu 201502 effective retrospectively company quarter ending december 31 2016 early adoption permitted adoption guidance expected significant impact companys consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu 201409 clarifies principles recognizing revenue entity either enters contract customers transfer goods services enters contract transfer nonfinancial assets original standard effective retrospectively company quarter ending december 31 2017 however august 2015 fasb issued asu 201514 revenue contracts customers topic 606 deferral effective date defers effective date asu 201409 oneyear entities new standard become effective retrospectively company quarter ending december 31 2018 early adoption permitted original effective date additionally march 2016 fasb issued asu 201608 revenue contracts customers topic 606 principal versus agent considerations reporting revenue gross versus net april 2016 fasb issued asu 201610 revenue contracts customers topic 606 identifying performance obligations licensing may 2016 fasb issued asu 201612 revenue contracts customers topic 606 narrowscope improvements practical expedients provide additional clarification certain topics addressed asu 201409 asu 201608 asu 201610 asu 201612 follow implementation guidelines asu 201409 asu 201514 company currently assessing impact adoption guidance consolidated financial statements risk management company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities interest rates stockbased compensation hedging transactions authorized executed pursuant clearly defined policies procedures strictly prohibit use financial instruments speculative purposes inception hedge company assesses effectiveness hedge instrument designates hedge instrument either 1 hedge recognized asset liability recognized firm commitment fair value hedge 2 hedge forecasted transaction variability cash flows received paid related unrecognized asset liability cash flow hedge 3 hedge net investment nonus operation net investment hedge company performs hedge effectiveness testing ongoing basis depending type hedging instrument used derivatives designated hedging instruments asc 815 derivatives hedging revalued consolidated statements income foreign currency derivative instruments designated cash flow hedges retrospective effectiveness tested monthly basis using cumulative dollar offset test fair value hedged exposures fair value hedge instruments revalued ratio cumulative sum periodic changes value hedge instruments cumulative sum periodic changes value hedge calculated hedge deemed highly effective ratio 80 125 commodity derivative contracts designated cash flow hedges effectiveness tested using regression calculation ineffectiveness minimal company aligns critical terms derivatives supply contracts net investment hedges company assesses net investment positions nonus operations compares outstanding net investment hedges quarterly basis hedge deemed effective aggregate outstanding principal hedge instruments designated net investment hedge nonus operation exceed company’s net investment positions respective nonus operation company selectively uses interest rate swaps reduce market risk associated changes interest rates fixedrate bonds september 30 2016 outstanding interest rate swaps qualify longhaul method company assesses retrospective prospective effectiveness records measured ineffectiveness consolidated statements income monthly basis equity swaps derivative instruments designated hedging instruments asc 815 require assessment effectiveness discussion company’s accounting policies derivative financial instruments included note 1 summary significant accounting policies notes consolidated financial statements disclosure relating derivatives hedging activities included note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements foreign exchange company manufacturing sales distribution facilities around world thus makes investments enters transactions denominated various foreign currencies order maintain strict control achieve benefits company’s global diversification foreign exchange exposures currency netted internally net foreign exchange exposures appropriate hedged financial instruments company hedges 70 90 nominal amount known foreign exchange transactional exposures company primarily enters foreign currency exchange contracts reduce earnings cash flow impact variation nonfunctional currency denominated receivables payables gains losses resulting hedging instruments offset foreign exchange gains losses underlying assets liabilities hedged maturities forward exchange contracts generally coincide settlement dates related transactions realized unrealized gains losses contracts recognized period gains losses hedged items company also selectively hedges anticipated transactions subject foreign exchange exposure primarily foreign currency exchange contracts designated cash flow hedges accordance asc 815 company entered crosscurrency interest rate swaps foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects crosscurrency interest rate swaps debt obligations reflected aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset gains losses recorded company’s net investments globally september 30 2016 2015 company estimates unfavorable 10 change exchange rates would decreased net unrealized gains approximately 297 million 234 million respectively interest rates company uses interest rate swaps offset exposure interest rate movements accordance asc 815 outstanding swaps qualify designated fair value hedges company eight interest rate swaps totaling 850 million outstanding september 30 2016 twelve interest rates swaps totaling 17 billion outstanding september 30 2015 10 increase average cost company’s variable rate debt would resulted unfavorable change pretax interest expense approximately 11 million 6 million year ended september 30 2016 2015 respectively commodities company uses commodity hedge contracts financial derivatives market cases commodity price risk cannot naturally offset hedged supply base fixed price contracts commodity risks systematically managed pursuant policy guidelines cash flow hedge gains losses resulting hedging instruments offset gains losses purchases underlying commodities used business maturities commodity hedge contracts coincide expected purchase commodities environmental health safety matters company’s global operations governed environmental laws worker safety laws various circumstances laws impose civil criminal penalties fines well injunctive remedial relief noncompliance require remediation sites companyrelated substances released environment company expended substantial resources globally financial managerial comply applicable environmental laws worker safety laws protect environment workers company believes substantial compliance laws maintains procedures designed foster ensure compliance however company future may become subject formal informal enforcement actions proceedings regarding noncompliance laws remediation companyrelated substances released environment matters typically resolved regulatory authorities commitments compliance abatement remediation programs cases payment penalties historically neither commitments penalties imposed company material company accrues potential environmental liabilities probable liability incurred amount liability reasonably estimable september 30 2016 reserves environmental liabilities totaled 55 million 15 million recorded within current liabilities 40 million recorded within noncurrent liabilities consolidated statements financial position company’s environmental liabilities take consideration possible recoveries future insurance proceeds uncertainties associated environmental remediation activities sites company may potentially liable future expenses remediate identified sites could considerably higher accrued liability however neither timing amount ultimate costs associated known environmental remediation matters determined time company expect matters material adverse effect financial position results operations cash flows addition company identified asset retirement obligations environmental matters expected addressed retirement disposal removal abandonment existing owned facilities primarily power solutions buildings businesses september 30 2016 company recorded conditional asset retirement obligations 74 million company certain subsidiaries along numerous third parties named defendants personal injury lawsuits based alleged exposure asbestos containing materials cases typically involved product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos used asbestos containing components september 30 2016 companys estimated asbestos related net liability recorded discounted basis within companys consolidated statements financial position 148 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 548 million 35 million recorded current liabilities 513 million recorded noncurrent liabilities company also maintains separate cash investments receivables related insurance recoveries within consolidated statements financial position 400 million 41 million recorded current assets 359 million recorded noncurrent assets include 16 million cash 264 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2016 120 million company believes asbestos related liabilities insurance related receivables recorded september 30 2016 appropriate assets recorded fiscal 2016 result assets acquired part tyco merger company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience september 30 2016 insurable liabilities totaled 473 million 70 million recorded within current liabilities 36 million recorded within accrued compensation benefits 367 million recorded within noncurrent liabilities consolidated statements financial position company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage certain insurable liabilities company involved various lawsuits claims proceedings incident operation businesses including pertaining product liability environmental safety health intellectual property employment commercial contractual matters various casualty matters although outcome litigation cannot predicted certainty lawsuits claims proceedings may disposed unfavorably us management’s opinion none material adverse effect company’s financial position results operations cash flows costs related matters material periods presented refer note 23 commitments contingencies notes consolidated financial statements additional information quarterly financial data 1 fiscal 2016 first quarter net income includes 101 million transaction integration separation costs fiscal 2016 second quarter net loss includes 229 million significant restructuring impairment costs 131 million transaction integration separation costs fiscal 2016 third quarter net income includes 167 million transaction integration separation costs 102 million significant restructuring impairment costs fiscal 2016 fourth quarter net loss includes 514 million net marktomarket settlement losses pension postretirement plans 296 million significant restructuring impairment costs 293 million transaction integration separation costs preceding amounts stated pretax prenoncontrolling interest impact basis 2 basic diluted earnings loss per share crossfoot due impact tyco merger weightedaverage shares included within earnings per share calculation 3 fiscal 2015 first quarter net income includes 20 million transaction integration costs fiscal 2015 second quarter net income includes 28 million transaction integration costs 200 million gain divestiture two gws joint ventures within discontinued operations fiscal 2015 third quarter net income includes 48 million transaction integration separation costs fiscal 2015 fourth quarter net income includes 422 million net marktomarket losses pension postretirement plans 397 million significant restructuring impairment costs 145 million gain divestiture interiors business 82 million transaction integration separation costs 940 million gain divestiture gws within discontinued operations preceding amounts stated pretax basis 4 due use weightedaverage shares outstanding quarter computing earnings per share sum quarterly per share amounts may equal per share amount year item 7aitem 7 management’s discussion analysis financial condition results operations general company operates two primary businesses building technologies solutions power solutions building technologies solutions provides facility systems services including comfort energy management residential nonresidential buildings markets security products services fire detection suppression products services life safety products power solutions designs manufactures automotive batteries replacement original equipment markets discussion summarizes significant factors affecting consolidated operating results financial condition liquidity company threeyear period ended september 30 2017 discussion read conjunction item 8 consolidated financial statements notes consolidated financial statements effective july 1 2017 company reorganized reportable segments within building technologies solutions business align new management reporting structure business activities prior reorganization building technologies solutions comprised five reportable segments financial reporting purposes systems service north america products north america asia rest world tyco result change building technologies solutions comprised four reportable segments financial reporting purposes building solutions north america building solutions emeala building solutions asia pacific global products historical information revised reflect new building technologies solutions reportable segments refer note 7 “goodwill intangible assets” note 19 “segment information” notes consolidated financial statements information fiscal year 2017 compared fiscal year 2016 net sales increase consolidated net sales due higher sales building technologies solutions business 8647 million power solutions business 667 million favorable impact foreign currency translation 21 million increased sales resulted tyco merger well higher volumes global products segment impact higher lead costs pricing favorable pricing product mix power solutions business excluding impact tyco merger foreign currency translation consolidated net sales increased 4 compared prior year refer segment analysis within item 7 discussion net sales segment cost sales gross profit cost sales increased fiscal 2017 compared fiscal 2016 gross profit percentage sales increasing 390 basis points gross profit building technologies solutions business included incremental gross profit related tyco merger higher volumes global products segment gross profit power solutions business favorably impacted favorable pricing product mix net lead cost increases higher volumes partially offset higher operating costs net marktomarket adjustments pension postretirement plans net favorable yearoveryear impact cost sales 169 million 72 million gain fiscal 2017 compared 97 million charge fiscal 2016 primarily due increase yearoveryear discount rates favorable us investment returns versus expectations current year foreign currency translation unfavorable impact cost sales approximately 21 million refer segment analysis within item 7 discussion segment earnings interest taxes amortization ebita segment selling general administrative expenses selling general administrative expenses sga increased 1968 million year sga percentage sales increased 30 basis points building technologies solutions business sga increased primarily due incremental sga related tyco merger partially offset productivity savings cost synergies foreign currency translation unfavorable impact sga 5 million net unfavorable yearoveryear impact sga resulting transaction integration separation costs 149 million net marktomarket adjustments pension postretirement plans net favorable yearoveryear impact sga 644 million 348 million gain fiscal 2017 compared 296 million charge fiscal 2016 primarily due increase yearoveryear discount rates favorable us investment returns versus expectations current year refer segment analysis within item 7 discussion segment ebita segment restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements disclosure related companys restructuring plans net financing charges net financing charges increased fiscal 2017 compared fiscal 2016 primarily due higher interest rates higher average borrowing levels result debt assumed tyco merger new debt issuances second quarter fiscal year 2017 debt exchange offer fees equity income increase equity income primarily due higher income certain partiallyowned affiliates power solutions business johnson controls hitachi jch joint venture building technologies solutions business refer segment analysis within item 7 discussion segment ebita segment income tax provision measure meaningful us federal statutory tax rate used comparison since company us domiciled company 11 months 2016 due companys current legal entity structure effective rate us statutory rate fiscal 2017 primarily due benefits continuing global tax planning initiatives nonus tax rate differentials tax audit closures tax benefit due changes entity tax status partially offset jurisdictional mix significant restructuring impairment costs tyco merger transaction integration costs establishment deferred tax liability outside basis difference companys investment certain subsidiaries related divestiture scott safety business effective rate us statutory rate fiscal 2016 primarily due benefits continuing global tax planning initiatives foreign tax rate differentials partially offset jurisdictional mix restructuring impairment costs tax impacts merger integration related costs fiscal 2017 effective tax rate increased compared fiscal 2016 effective tax rate primarily due tax effects transactions 408 million tax effects restructuring impairment costs 37 million partially offset tax effects reserve valuation allowance adjustments 164 million tax planning initiatives fiscal year 2017 2016 global tax planning initiatives related primarily foreign tax credit planning changes entity tax status global financing structures alignment companys global business functions tax efficient manner refer note 18 income taxes notes consolidated financial statements details valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2017 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily canada china mexico would able realized likely certain deferred tax assets germany would realized therefore company recorded 27 million net valuation allowances income tax expense three month period ended september 30 2017 fourth quarter fiscal 2016 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined material changes needed valuation allowances therefore impact income tax expense due valuation allowance changes three month period year ended september 30 2016 uncertain tax positions company subject income taxes us numerous nonus jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities fiscal 2017 company settled significant number tax examinations impacting fiscal years 2006 fiscal 2014 fourth quarter fiscal 2017 income tax audit resolutions resulted net 191 million benefit income tax expense company’s federal income tax returns certain nonus income tax returns various fiscal years remain various stages audit irs respective nonus tax authorities although outcome tax audits always uncertain management believes appropriate support positions taken tax returns annual tax provisions included amounts sufficient pay assessments may proposed taxing authorities september 30 2017 company recorded liability best estimate probable loss certain tax positions majority included noncurrent liabilities consolidated statements financial position nonetheless amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year tax matters fiscal 2017 company recorded 428 million transaction integration costs generated 69 million tax benefit fiscal 2017 company recorded discrete noncash tax charge 490 million related establishment deferred tax liability outside basis difference companys investment certain subsidiaries scott safety business reported net assets held sale given announced sale 3m company refer note 3 acquisitions divestitures note 4 discontinued operations notes consolidated financial statements additional information fourth quarter fiscal 2017 company recorded tax charge 53 million due change deferred tax liability related outside basis certain nonconsolidated subsidiaries first quarter fiscal 2017 company recorded discrete tax benefit 101 million due changes entity tax status fiscal 2017 2016 company incurred significant charges restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information substantial portion charges generate tax benefit due companys current tax position jurisdictions underlying tax basis impaired assets resulting 65 million 28 million incremental tax expense fiscal 2017 2016 respectively fourth quarter fiscal 2016 company completed merger tyco result transaction company incurred incremental tax expense 137 million preparation spinoff automotive experience business first quarter fiscal 2017 company incurred incremental tax expense continuing operations 26 million fiscal 2016 impacts tax legislation change statutory tax rates october 13 2016 us treasury irs released final temporary section 385 regulations address whether certain instruments related parties treated debt equity company expect regulations material impact consolidated financial statements lookthrough rule subpart f us internal revenue code expired company september 30 2015 lookthrough rule provided exception us taxation certain income generated foreign subsidiaries rule extended december 2015 retroactive beginning company’s 2016 fiscal year retroactive extension signed legislation made permanent companys 2020 fiscal year fiscal years ended 2017 2016 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements loss discontinued operations net tax measure meaningful refer note 4 discontinued operations notes consolidated financial statements information income attributable noncontrolling interests increase income continuing operations attributable noncontrolling interests fiscal 2017 primarily due higher net income related jch joint venture building technologies solutions business refer note 4 discontinued operations notes consolidated financial statements information regarding companys discontinued operations net income loss attributable johnson controls measure meaningful increase net income loss attributable johnson controls primarily due incremental operating income result tyco merger prior year net loss discontinued operations partially offset increase income tax provision higher net financing charges fiscal 2017 diluted earnings loss per share attributable johnson controls 171 compared 129 fiscal 2016 comprehensive income loss attributable johnson controls measure meaningful increase comprehensive income loss attributable johnson controls due higher net income loss attributable johnson controls 2479 million increase comprehensive loss attributable johnson controls 195 million primarily related favorable foreign currency translation adjustments yearoveryear favorable foreign currency translation adjustments primarily driven strengthening euro british pound currencies us dollar partially offset weakening japanese yen currency us dollar segment analysis management evaluates performance business units based primarily segment ebita defined income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges significant restructuring impairment costs net marktomarket adjustments pension postretirement plans building technologies solutions measure meaningful net sales • increase building solutions north america due incremental sales related tyco merger including current year nonrecurring purchase accounting adjustments 3689 million impact prior year nonrecurring purchase accounting adjustments 15 million favorable impact foreign currency translation 5 million partially offset prior year business divestiture 32 million lower installation volumes 23 million • increase building solutions emeala due incremental sales related tyco merger including current year nonrecurring purchase accounting adjustments 1982 million higher volumes 7 million impact prior year nonrecurring purchase accounting adjustments 5 million favorable impact foreign currency translation 3 million partially offset business divestiture 15 million • increase building solutions asia pacific due incremental sales related tyco merger including current year nonrecurring purchase accounting adjustments 653 million higher volumes equipment control systems 41 million higher service volumes 38 million partially offset unfavorable impact foreign currency translation 24 million increase volume driven favorable local economic conditions • increase global products due incremental sales related tyco merger including current year nonrecurring purchase accounting adjustments 2157 million higher volumes 221 million favorable impact foreign currency translation 20 million partially offset lower volumes related business divestitures deconsolidation 91 million increase volumes primarily attributable new product offerings segment ebita • increase building solutions north america due incremental income related tyco merger 567 million net impact prior year current year nonrecurring purchase accounting adjustments 52 million favorable mix 9 million lower selling general administrative expenses 3 million result productivity synergy savings net prior year gain business divestiture favorable impact foreign currency translation 1 million prior year transaction costs 1 million partially offset current year integration costs 42 million higher operating costs result channel investments 25 million current year transaction costs 13 million lower volumes 6 million prior year business divestiture 2 million • increase building solutions emeala due incremental income related tyco merger 221 million net impact prior year current year nonrecurring purchase accounting adjustments 33 million lower selling general administrative expenses result productivity synergy savings 23 million favorable mix 7 million higher volumes 2 million prior year transaction costs 1 million partially offset current year unfavorable arbitration award 50 million current year integration costs 6 million lower equity income 6 million current year transaction costs 5 million unfavorable impact foreign currency translation 3 million prior year business divestiture 1 million • increase building solutions asia pacific due incremental income related tyco merger 73 million lower selling general administrative expenses result productivity savings 24 million higher volumes 20 million favorable impact foreign currency translation 1 million partially offset unfavorable mix 6 million current year integration costs 5 million higher operating costs 4 million current year transaction costs 2 million • increase global products due incremental income related tyco merger 474 million higher volumes 55 million lower selling general administrative expenses result productivity synergy savings 41 million higher equity income 33 million prior year integration costs 20 million prior year transaction costs 14 million lower operating costs 13 million partially offset net impact prior year current year nonrecurring purchase accounting adjustments 42 million current year integration costs 25 million unfavorable mix 16 million current year transaction costs 13 million unfavorable impact foreign currency translation 5 million prior year gain acquisition partiallyowned affiliate 4 million business divestitures 3 million power solutions • net sales increased due impact higher lead costs pricing 427 million favorable pricing product mix 154 million higher sales volumes 86 million favorable impact foreign currency translation 17 million increase volumes driven startstop battery volumes growth china additionally higher startstop volumes contributed favorable product mix • segment ebita increased due favorable pricing product mix net lead cost increases 106 million lower selling general administrative expenses result productivity savings 39 million higher equity income 28 million higher volumes 27 million prior year restructuring impairment costs included equity income 7 million prior year transaction costs 1 million favorable impact foreign currency translation 1 million partially offset higher operating costs primarily driven efforts satisfy growing customer demand 108 million current year transaction costs 1 million fiscal year 2016 compared fiscal year 2015 net sales increase consolidated net sales due higher sales building technologies solutions business 3837 million power solutions business 243 million partially offset unfavorable impact foreign currency translation 343 million excluding unfavorable impact foreign currency translation consolidated net sales increased 24 compared prior year increased sales resulted jch joint venture tyco merger well higher volumes building solutions north america segment higher global battery shipments favorable product mix power solutions business refer segment analysis within item 7 discussion net sales segment cost sales gross profit cost sales increased fiscal 2016 compared fiscal 2015 gross profit percentage sales increasing 60 basis points foreign currency translation favorable impact cost sales approximately 253 million gross profit building technologies solutions business included incremental gross profit related jch joint venture tyco merger higher volumes building solutions north america segment gross profit power solutions business favorably impacted higher volumes favorable pricing product mix partially offset higher operating costs net marktomarket adjustments pension postretirement plans net favorable year impact cost sales 56 million 97 million charge fiscal 2016 compared 153 million charge fiscal 2015 primarily due unfavorable us investment returns versus expectations adoption new mortality rate changes us prior year partially offset decrease yearoveryear discount rates refer segment analysis within item 7 discussion segment ebita segment selling general administrative expenses sga increased 999 million year sga percentage sales increased 140 basis points net marktomarket adjustments pension postretirement plans net unfavorable year impact sga 33 million 296 million charge fiscal 2016 compared 263 million charge fiscal 2015 primarily due decrease yearoveryear discount rates partially offset unfavorable us investment returns versus expectations adoption new mortality rate changes us prior year additionally net unfavorable impact sga resulting transaction integration costs 130 million excluding impact transaction integrations costs building technologies solutions business sga increased primarily due incremental sga related jch joint venture tyco merger product sales force investments north america power solutions business sga decreased primarily due lower employee related expenses cost reduction initiatives foreign currency translation favorable impact sga 44 million refer segment analysis within item 7 discussion segment ebita segment restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements disclosure related companys restructuring plans net financing charges net financing charges increased fiscal 2016 compared fiscal 2015 primarily due higher average borrowing levels part due acquisition debt result tyco merger equity income measure meaningful increase equity income primarily due current year income related partiallyowned affiliates jch joint venture building technologies solutions business refer segment analysis within item 7 discussion segment ebita segment income tax provision measure meaningful us federal statutory tax rate used comparison since company us domiciled company fiscal 2015 11 months 2016 effective rate us statutory rate fiscal 2016 primarily due benefits continuing global tax planning initiatives foreign tax rate differentials partially offset jurisdictional mix restructuring impairment costs tax impacts merger integration related costs effective rate us statutory rate fiscal 2015 primarily due benefits continuing global tax planning initiatives income certain nonus jurisdictions tax rate lower us statutory tax rate adjustments due tax audit resolutions fiscal 2016 effective tax rate increased compared fiscal 2015 effective tax rate primarily due tax effects transactions 163 million reserve valuation allowance adjustments 99 million tax effects restructuring impairment costs 28 million partially offset tax planning initiatives 164 million fiscal year 2016 2015 global tax planning initiatives related primarily foreign tax credit planning global financing structures alignment companys global business functions tax efficient manner refer note 18 income taxes notes consolidated financial statements details valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2016 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined material changes needed valuation allowances therefore impact income tax expense due valuation allowance changes three month period year ended september 30 2016 fourth quarter fiscal 2015 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within spain germany united kingdom would realized likely certain deferred tax assets poland germany would realized impact net valuation allowance provision offset benefit valuation allowance releases net impact income tax expense three month period year ended september 30 2015 uncertain tax positions company subject income taxes us numerous nonus jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities fiscal 2015 company settled significant number tax examinations germany mexico us impacting fiscal years 1998 fiscal 2012 settlement unrecognized tax benefits included cash payments approximately 440 million loss various tax attributes reduction tax positions prior years substantially related foreign exchange rates fourth quarter fiscal 2015 income tax audit resolutions resulted net 99 million benefit income tax expense company’s federal income tax returns certain nonus income tax returns various fiscal years remain various stages audit irs respective nonus tax authorities although outcome tax audits always uncertain management believes appropriate support positions taken tax returns annual tax provisions included amounts sufficient pay assessments may proposed taxing authorities september 30 2016 company recorded liability best estimate probable loss certain tax positions majority included noncurrent liabilities consolidated statements financial position nonetheless amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year tax matters fiscal 2016 2015 company incurred significant charges restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information substantial portion charges generate tax benefit due companys current tax position jurisdictions underlying tax basis impaired assets resulting 28 million incremental tax expense fiscal 2016 fourth quarter fiscal 2016 company completed merger tyco result transaction company incurred incremental tax expense 137 million preparation spinoff automotive experience business first quarter fiscal 2017 company incurred incremental tax expense continuing operations 26 million fiscal 2016 impacts tax legislation change statutory tax rates fourth quarter fiscal 2016 october 13 2016 us treasury irs released final temporary section 385 regulations address whether certain instruments related parties treated debt equity company expect regulations material impact consolidated financial statements lookthrough rule subpart f us internal revenue code expired company september 30 2015 lookthrough rule provided exception us taxation certain income generated foreign subsidiaries rule extended december 2015 retroactive beginning company’s 2016 fiscal year retroactive extension signed legislation made permanent companys 2020 fiscal year second quarter fiscal 2015 tax legislation adopted japan reduced statutory income tax rate result law change company recorded income tax expense 17 million second quarter fiscal 2015 fiscal years ended 2016 2015 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements income loss discontinued operations net tax measure meaningful refer note 4 discontinued operations notes consolidated financial statements information income attributable noncontrolling interests measure meaningful increase income continuing operations attributable noncontrolling interests fiscal 2016 primarily due current year income related jch joint venture building technologies solutions business refer note 4 discontinued operations notes consolidated financial statements information regarding companys discontinued operations net income loss attributable johnson controls measure meaningful decrease net income loss attributable johnson controls primarily due net loss discontinued operations higher sga primarily due higher transaction costs current year increase income tax provision current year restructuring impairment costs partially offset higher gross profit fiscal 2016 diluted earnings loss per share attributable johnson controls 129 compared 236 fiscal 2015 comprehensive income loss attributable johnson controls measure meaningful decrease comprehensive income loss attributable johnson controls due lower net income loss attributable johnson controls 2431 million partially offset decrease comprehensive loss attributable johnson controls 724 million primarily related favorable foreign currency translation adjustments yearoveryear favorable foreign currency translation adjustments primarily driven weakening brazilian real canadian dollar colombian peso euro japanese currencies us dollar prior year segment analysis management evaluates performance business units based primarily segment ebita defined income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges significant restructuring impairment costs net marktomarket adjustments pension postretirement plans building technologies solutions measure meaningful net sales • increase building solutions north america due incremental sales related tyco merger 335 million higher volumes controls systems service 172 million partially offset lower volumes related business divestitures 52 million unfavorable impact foreign currency translation 23 million impact nonrecurring purchase accounting adjustments 15 million increase volumes primarily attributable market share gains • increase building solutions emeala due incremental sales related tyco merger 195 million incremental sales related business acquisition 7 million partially offset unfavorable impact foreign currency translation 77 million lower volumes 56 million impact nonrecurring purchase accounting adjustments 5 million net decrease volumes primarily attributable unfavorable local market conditions • increase building solutions asia pacific due incremental sales related tyco merger 68 million higher volumes 65 million partially offset unfavorable impact foreign currency translation 48 million increase volumes primarily driven favorable local economic conditions • increase global products due incremental sales related jch joint venture 2808 million incremental sales related tyco merger 230 million higher volumes 85 million partially offset unfavorable impact foreign currency translation 15 million increase volume driven new product offerings segment ebita • increase building solutions north america due incremental income related tyco merger 54 million higher volumes 38 million lower selling general administrative expenses 34 million result restructuring actions cost reduction initiatives current year gain business divestiture net prior year gain business divestitures prior year transaction integration costs 4 million partially offset impact nonrecurring purchase accounting adjustments 28 million unfavorable margin rates 13 million lower income due prior year business divestiture 5 million unfavorable impact foreign currency translation 3 million pension settlement loss 2 million current year transaction integration costs 1 million • increase building solutions emeala due incremental income related tyco merger 24 million favorable margin rates 22 million lower selling general administrative expenses 10 million prior year transaction integration costs 1 million partially offset lower volumes 12 million impact nonrecurring purchase accounting adjustments 10 million lower equity income 3 million unfavorable impact foreign currency translation 2 million current year transaction integration costs 1 million • increase building solutions asia pacific due lower selling general administrative expenses 20 million higher volumes 16 million incremental income related tyco merger 6 million prior year transaction integration costs 1 million partially offset unfavorable margin rates 22 million unfavorable impact foreign currency translation 8 million impact nonrecurring purchase accounting adjustments 2 million • increase global products due incremental income related jch joint venture exclusive global investments related products technologies 307 million incremental income related tyco merger 51 million higher volumes 32 million prior year transaction integration costs 31 million gain partiallyowned affiliate 4 million higher equity income 1 million partially offset higher selling general administrative expenses 116 million due global product related sales force investments prior year gain business divestitures current year transaction integration costs 35 million nonrecurring purchase accounting adjustments 29 million unfavorable margin rates 16 million unfavorable impact foreign currency translation 4 million pension settlement loss 3 million power solutions • net sales increased due higher sales volumes 246 million favorable pricing product mix 105 million partially offset unfavorable impact foreign currency translation 180 million impact lower lead costs pricing 108 million increase volumes primarily driven startstop battery volumes growth china additionally higher startstop volumes contributed favorable product mix • segment ebita increased due higher volumes 77 million favorable pricing product mix 55 million lower selling general administrative expenses due lower employee related expenses cost reduction initiatives 41 million partially offset higher operating costs primarily driven efforts increase supply satisfy growing customer demand launch new capacity china 48 million unfavorable impact foreign currency translation 29 million restructuring impairment costs included equity income 7 million pension settlement loss 1 million transaction costs 1 million lower equity income 1 million goodwill longlived assets investments goodwill september 30 2017 197 billion 13 billion lower prior year decrease primarily due business divestitures goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average historical published multiples earnings comparable entities similar operations economic characteristics certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value assumptions included impairment tests require judgment changes inputs could impact results calculations managements projections future cash flows primary assumptions used impairment tests weightedaverage cost capital longterm growth rates although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit indefinitelived intangible assets also subject least annual impairment testing considerable amount management judgment assumptions required performing impairment tests company believes judgments assumptions used impairment tests reasonable impairments goodwill indefinitelived assets existed fiscal years 2017 2016 2015 different assumptions could change estimated fair values therefore impairment charges could required could material consolidated financial statements company reviews longlived assets including property plant equipment intangible assets definite lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written fiscal 2017 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2017 result company reviewed longlived assets impairment recorded 77 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 30 million related building solutions north america segment 20 million related global products segment 19 million related corporate assets 7 million related power solutions segment 1 million related building solutions asia pacific segment refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement second third fourth quarters fiscal 2016 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2016 result company reviewed longlived assets impairment recorded 103 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 64 million related power solutions segment 24 million related corporate assets 8 million related global products segment 4 million related building solutions asia pacific segment 3 million related building solutions emeala segment addition company recorded 87 million asset impairments within discontinued operations related adient fiscal 2016 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fourth quarter fiscal 2015 company concluded triggering events requiring assessment impairment certain longlived assets conjunction announced restructuring actions intention spinoff automotive experience business result company reviewed longlived assets impairment recorded 156 million impairment charge within restructuring impairment costs consolidated statements income total impairment charge 139 million related corporate assets 16 million related building solutions emeala segment 1 million related building solutions north america segment addition company recorded 27 million asset impairments within discontinued operations related adient fiscal 2015 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairment measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement investments partiallyowned affiliates september 30 2017 12 billion 02 billion higher prior year increase primarily due equity income partiallyowned affiliates power solutions business jch joint venture liquidity capital resources working capital measure meaningful • company defines working capital current assets less current liabilities excluding cash shortterm debt current portion longterm debt current portion assets liabilities held sale management believes measure working capital excludes financingrelated items businesses divested provides useful measurement company’s operating performance • increase working capital september 30 2017 compared september 30 2016 primarily due current year income tax payments related adientspin increase inventory meet anticipated customer demand increase accounts receivable due timing customer receipts partially offset increase accounts payable due timing mix supplier payments • company’s days sales accounts receivable september 30 2017 65 slight increase 63 september 30 2016 significant adverse change level overdue receivables changes revenue recognition methods increased volumes certain segments contributed increase • company’s inventory turns year ended september 30 2017 lower comparable period ended september 30 2016 primarily due build power solutions inventory levels meet customer demand • days accounts payable september 30 2017 73 days higher 69 days comparable period ended september 30 2016 cash flows • decrease cash provided operating activities primarily due higher income tax payments related adient spinoff 12 billion first quarter fiscal 2017 movement trade working capital balances • increase cash used investing activities primarily due cash acquired tyco merger prior year increase capital expenditures partially offset cash received business divestitures current year • increase cash provided financing activities primarily due net dividend proceeds adient spinoff increase longterm debt higher dividends paid noncontrolling interests related jch joint venture prior year partially offset net decrease shortterm debt borrowings • increase capital expenditures current year primarily related higher capital investments current year building technologies solutions power solutions businesses partially offset lower capital investments automotive experience business due adient spinoff capitalization • company believes percentage total debt total capitalization useful understanding company’s financial condition provides review extent company relies external debt financing funding measure risk shareholders • shareholders equity attributable johnson controls ordinary shareholders decreased result adient spinoff october 2016 refer note 5 discontinued operations notes consolidated financial statements information • connection tyco merger december 28 2016 company completed offers exchange validly tendered accepted notes certain series existing notes issued jci inc tyco international finance sa tifsa applicable wholly owned subsidiary company new notes new notes issued company related solicitation consents amend indentures governing existing notes offers exchange related consent solicitation together exchange offers pursuant exchange offers company exchanged approximately 56 billion 60 billion aggregate principal amount dollar denominated notes approximately 423 million euro 500 million euro aggregate principal amount euro denominated notes validly tendered accepted existing notes canceled immediately following cancellation 3809 million aggregate principal amount existing notes including tifsa euro notes remained outstanding across seventeen series dollardenominated existing notes 774 million euro aggregate principal amount tifsa euro notes remained outstanding across one series connection settlement exchange offers new notes registered securities act 1933 terms described company’s prospectus dated december 19 2016 filed sec rule 424b3 act date issuance new notes occurred december 28 2016 new notes unsecured unsubordinated obligations company rank equally unsecured unsubordinated indebtedness company issued time • connection tyco merger september 2 2016 jci inc wholly owned subsidiary company replaced 25 billion committed fiveyear credit facility scheduled mature august 2018 20 billion committed fouryear credit facility scheduled expire august 2020 also connection tyco merger september 2 2016 tyco international holding sàrl tsarl wholly owned subsidiary company entered fouryear 10 billion revolving credit agreement scheduled expire august 2020 facilities used support company’s outstanding commercial paper draws either committed credit facility fiscal year ended september 30 2017 • simultaneously closing tyco merger september 2 2016 tsarl borrowed 40 billion term loan credit agreement dated march 10 2016 syndicate lenders providing three half year senior unsecured term loan facility finance cash consideration fees expenses costs incurred connection merger fiscal 2017 company partially repaid 300 million 40 billion floating rate term loan scheduled expire march 2020 september 30 2017 outstanding term loan balance 37 billion october 2017 company completed previously announced sale scott safety business 3m net cash proceeds transaction 19 billion used repay significant portion 40 billion term loan • september 30 2017 company committed bilateral us dollar denominated revolving credit facilities totaling 550 million scheduled expire fiscal 2018 draws revolving facilities september 30 2017 • september 2017 company entered 364day 150 million euro floating rate term loan scheduled expire september 2018 proceeds loan used general corporate purposes • september 2017 company entered fiveyear 35 billion yen syndicated floating rate term loan scheduled expire september 2022 proceeds loan used general corporate purposes • july 2017 company retired 150 million principal amount plus accrued interest 7125 fixed rate notes expired july 2017 • july 2017 company repurchased discount 4 million euro tifsa 1375 fixed rate notes plus accrued interest scheduled expire 2025 • march 2017 company issued one billion euro principal amount 10 senior unsecured fixed rate notes due fiscal 2023 proceeds issuance used repay existing debt general corporate purposes • march 2017 company entered 364day 150 million committed revolving credit facility scheduled expire march 2018 september 30 2017 draws facility • march 2017 company retired 46 million principal amount plus accrued interest 2355 fixed rate notes expired march 2017 • march 2017 february 2017 company repurchased discount 15 million euro tifsa 1375 fixed rate notes plus accrued interest scheduled expire february 2025 • february 2017 company issued 500 million aggregate principal amount 45 senior unsecured fixed rate notes due fiscal 2047 proceeds issuance used repay outstanding commercial paper borrowings general corporate purposes • february 2017 company entered 364day 150 million committed revolving credit facility scheduled expire february 2018 september 30 2017 draws facility • january 2017 company entered 364day 250 million committed revolving credit facility scheduled expire january 2018 september 30 2017 draws facility • december 2016 company retired 400 million principal amount plus accrued interest 26 fixed rate notes expired december 2016 • december 2016 company entered 364day 100 million euro floating rate term loan scheduled mature december 2017 proceeds term loan used general corporate purposes principal accrued interest fully repaid march 2017 • december 2016 100 million committed revolving credit facility expired draws facility • november 2016 company fully repaid 37 billion yen syndicated floating rate term loan plus accrued interest scheduled expire june 2020 • november 2016 35 million committed revolving credit facility expired draws facility • october 2016 company repaid two tenmonth floating rate term loans totaling 325 million plus accrued interest scheduled expire october 2016 • october 2016 company repaid ninemonth 100 million floating rate term loan plus accrued interest scheduled expire november 2016 • october 2016 company repaid ninemonth 100 million euro floating rate term loan plus accrued interest scheduled expire october 2016 • company also selectively makes use shortterm credit lines revolving credit facilities company tsarl company estimates september 30 2017 could borrow 14 billion based average borrowing levels year committed credit lines • company believes capital resources liquidity position september 30 2017 adequate meet projected needs company believes requirements working capital expenditures dividends stock repurchases minimum pension contributions debt maturities potential acquisitions fiscal 2018 continue funded operations supplemented short longterm borrowings required company currently manages shortterm debt position us euro commercial paper markets bank loan markets event company tsarl unable issue commercial paper would ability draw 20 billion 10 billion revolving credit facilities respectively facilities mature august 2020 draws revolving credit facilities september 30 2017 company believes sufficient financial resources fund operations meet obligations foreseeable future • company earns significant amount operating income outside parent company outside basis differences subsidiaries deemed permanently reinvested except limited circumstances however fiscal 2017 company provided income tax expense related change company’s assertion outside basis difference scott safety business result pending divestiture well outside basis certain nonconsolidated subsidiaries addition fiscal 2016 company provided income tax expense related change companys assertion portion permanently reinvested earnings result planned spinoff automotive experience business company currently intend foresee need repatriate undistributed earnings included outside basis differences tax efficient manners except noted company’s intent reduce basis differences would tax efficient company expects existing us cash liquidity continue sufficient fund company’s us operating activities cash commitments investing financing activities least next twelve months thereafter foreseeable future us company require capital generated operations company could elect raise capital us debt equity issuances company borrowed funds us continues ability borrow funds us reasonable interest rates addition company expects existing nonus cash equivalents shortterm investments cash flows operations continue sufficient fund company’s nonus operating activities cash commitments investing activities material capital expenditures least next twelve months thereafter foreseeable future company require capital luxembourg ireland holding financing entities amounts provided tax efficient methods company could also elect raise capital debt equity issuances alternatives could result increased interest expense dilution company’s earnings • company’s debt financial covenant revolving credit facility requires minimum consolidated shareholders’ equity attributable johnson controls least 35 billion times revolving credit facility also limits amount debt secured liens may incurred maximum aggregated amount 10 consolidated shareholders’ equity attributable johnson controls liens pledges purposes calculating covenants consolidated shareholders’ equity attributable johnson controls calculated without giving effect application accounting standards codification asc 71560 defined benefit plans postretirement ii cumulative foreign currency translation adjustment tsarls revolving credit facility contains customary terms conditions financial covenant limits ratio tsarls debt earnings interest taxes depreciation amortization adjusted certain items set forth agreement 35x tsarls revolving credit facility also limits ability incur subsidiary debt grant liens subsidiaries property september 30 2017 company tsarl compliance covenants requirements set forth credit agreements indentures governing notes expect remain compliance foreseeable future none company’s tsarls debt agreements limit access stated borrowing levels require accelerated repayment event decrease respective borrowers credit rating • better align resources growth strategies reduce cost structure global operations certain underlying markets company committed significant restructuring plan fiscal 2017 recorded 367 million restructuring impairment costs consolidated statements income restructuring action related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments company currently estimates upon completion restructuring action fiscal 2017 restructuring plan reduce annual operating costs continuing operations approximately 280 million primarily result lower cost sales selling general administrative expenses due reduced employeerelated costs depreciation amortization expense company expects annual benefit actions substantially realized fiscal 2018 fiscal 2017 savings net execution costs approximately 40 expected annual operating cost reduction restructuring action expected substantially complete fiscal 2018 restructuring plan reserve balance 239 million september 30 2017 expected paid cash • better align resources growth strategies reduce cost structure global operations address softness certain underlying markets company committed significant restructuring plan fiscal 2016 recorded 288 million restructuring impairment costs consolidated statements income restructuring action related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments changeincontrol payments company currently estimates upon completion restructuring action fiscal 2016 restructuring plan reduce annual operating costs continuing operations approximately 135 million primarily result lower cost sales selling general administrative expenses due reduced employeerelated costs depreciation amortization expense company expects annual benefit actions substantially realized end fiscal 2018 fiscal 2017 savings net execution costs approximately 35 expected annual operating cost reduction restructuring action expected substantially complete fiscal 2018 restructuring plan reserve balance 92 million september 30 2017 expected paid cash summary company’s significant contractual obligations continuing operations september 30 2017 follows millions refer note 9 debt financing arrangements notes consolidated financial statements information related companys longterm debt result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities generally recorded within noncurrent liabilities consolidated statements financial position liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid 290 million recorded september 30 2017 2016 255 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions payments due period presented due uncertainty liabilities settled paid certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation tax sharing agreements addition company recorded 11 million tax indemnification liabilities september 30 2017 related divestitures critical accounting estimates policies company prepares consolidated financial statements conformity accounting principles generally accepted united states america us gaap requires management make estimates assumptions affect reported amounts related disclosures actual results could differ estimates following policies considered management critical understanding judgments involved preparation company’s consolidated financial statements uncertainties could impact company’s results operations financial position cash flows revenue recognition building technologies solutions business recognizes revenue certain longterm contracts contractual period percentageofcompletion poc method accounting method accounting recognizes sales gross profit work performed based relationship actual costs incurred total estimated costs completion recognized revenues billed terms contract later date recorded primarily accounts receivable likewise contracts billings date exceeded recognized revenues recorded primarily current liabilities changes original estimates may required life contract estimates reviewed monthly sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated losses recorded identified claims customers recognized revenue upon settlement use poc method accounting involves considerable use estimates determining revenues costs profits assigning amounts accounting periods periodic reviews resulted adjustments significant company’s results operations company continually evaluates assumptions risks uncertainties inherent application poc method accounting building technologies solutions business enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized straightline basis respective contract term building technologies solutions business also sells certain heating ventilating air conditioning hvac refrigeration products services bundled arrangements multiple products andor services involved significant deliverables within arrangements include equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition buildings business sells security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered accordance asu 200913 revenue recognition topic 605 multipledeliverable revenue arrangements consensus fasb emerging issues task force company divides bundled arrangements separate deliverables revenue allocated deliverable based relative selling price method order estimate relative selling price market data transfer price studies utilized revenue recognized security monitoring equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship cases company recognizes revenue time title passes customer services performed goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average historical published multiples earnings comparable entities similar operations economic characteristics certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fourth quarters fiscal years 2017 2016 2015 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets consist trademarks tradenames tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests impairment longlived assets company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2017 2016 2015 employee benefit plans company provides range benefits employees retired employees including pensions postretirement benefits plan assets obligations measured annually frequently remeasurement event based company’s measurement date utilizing various actuarial assumptions discount rates assumed rates return compensation increases turnover rates health care cost trend rates date company reviews actuarial assumptions annual basis makes modifications assumptions based current rates trends appropriate company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans us gaap requires companies recognize statement financial position liability defined benefit pension postretirement plans underfunded unfunded asset defined benefit pension postretirement plans overfunded us gaap also requires companies measure benefit obligations fair value plan assets determine benefit plan’s funded status date employer’s fiscal year end company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates company’s discount rate us pension plans 380 370 september 30 2017 2016 respectively company’s discount rate postretirement plans 370 330 september 30 2017 2016 respectively company’s weighted average discount rate nonus pension plans 240 190 september 30 2017 2016 respectively estimating expected return plan assets company considers historical returns plan assets adjusted forwardlooking considerations inflation assumptions impact active management plans’ invested assets reflecting relatively longterm nature plans’ obligations approximately 45 plans’ assets invested equity securities 44 fixed income securities remainder primarily invested alternative investments years ending september 30 2017 2016 company’s expected longterm return us pension plan assets used determine net periodic benefit cost 750 actual rate return us pension plans 750 fiscal years 2017 2016 years ending september 30 2017 2016 company’s weighted average expected longterm return nonus pension plan assets 460 450 respectively actual rate return nonus pension plans 460 fiscal year 2017 450 fiscal year 2016 years ending september 30 2017 2016 company’s weighted average expected longterm return postretirement plan assets 560 545 respectively actual rate return postretirement plan assets 560 fiscal year 2017 545 fiscal year 2016 beginning fiscal 2018 company believes longterm rate return approximate 750 535 565 us pension nonus pension postretirement plans respectively differences actual investment results expected longterm asset returns reflected net periodic benefit costs fourth quarter fiscal year date remeasurement event company’s actual returns plan assets less company’s expectations additional contributions may required fiscal 2017 total employer contributions defined benefit pension plans 342 million 49 million voluntary contributions made company expects contribute approximately 100 million cash defined benefit pension plans fiscal 2018 fiscal 2017 total employer contributions postretirement plans 5 million company expects contribute approximately 5 million cash postretirement plans fiscal 2018 based information provided independent actuaries relevant sources company believes assumptions used reasonable however changes assumptions could impact company’s financial position results operations cash flows loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 23 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 23 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities product warranties company offers warranties customers depending upon specific product terms customer purchase agreement typical warranty program requires company replace defective products within specified time period date sale company records estimate future warrantyrelated costs based actual historical return rates known factors based analysis return rates factors company’s warranty provisions adjusted necessary september 30 2017 company recorded 409 million warranty reserves continuing operations including extended warranties deferred revenue recorded company monitors warranty activity adjusts reserve estimates probable future warranty costs different estimates refer note 21 guarantees notes consolidated financial statements disclosure companys product warranty liabilities income taxes company accounts income taxes accordance asc 740 income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled company records valuation allowance primarily represents nonus operating loss carryforwards realization uncertain management judgment required determining company’s provision income taxes deferred tax assets liabilities valuation allowance recorded company’s net deferred tax assets calculating provision income taxes interim basis company uses estimate annual effective tax rate based upon facts circumstances known interim period quarterly basis actual effective tax rate adjusted appropriate based upon actual results compared forecasted beginning fiscal year company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary september 30 2017 company valuation allowance 38 billion continuing operations 32 billion relates net operating loss carryforwards primarily australia belgium brazil china france spain switzerland luxembourg united kingdom sustainable taxable income demonstrated 610 million deferred tax assets company subject income taxes us numerous nonus jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities september 30 2017 company unrecognized tax benefits 22 billion continuing operations company generally provide additional us nonus income taxes outside basis differences consolidated subsidiaries included shareholders’ equity attributable johnson controls international plc except limited circumstances including anticipated taxation planned divestitures reduction outside basis differences via sale liquidation subsidiaries andor distributions could create taxable income company’s intent reduce outside basis differences would tax efficient refer capitalization within liquidity capital resources section discussion us nonus cash projections refer note 18 income taxes notes consolidated financial statements companys income tax disclosures new accounting pronouncements refer new accounting pronouncements section within note 1 summary significant accounting policies notes consolidated financial statements risk management company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities interest rates stockbased compensation hedging transactions authorized executed pursuant clearly defined policies procedures strictly prohibit use financial instruments speculative purposes inception hedge company assesses effectiveness hedge instrument designates hedge instrument either 1 hedge recognized asset liability recognized firm commitment fair value hedge 2 hedge forecasted transaction variability cash flows received paid related unrecognized asset liability cash flow hedge 3 hedge net investment nonus operation net investment hedge company performs hedge effectiveness testing ongoing basis depending type hedging instrument used derivatives designated hedging instruments asc 815 derivatives hedging revalued consolidated statements income foreign currency derivative instruments designated cash flow hedges retrospective effectiveness tested monthly basis using cumulative dollar offset test fair value hedged exposures fair value hedge instruments revalued ratio cumulative sum periodic changes value hedge instruments cumulative sum periodic changes value hedge calculated hedge deemed highly effective ratio 80 125 commodity derivative contracts designated cash flow hedges effectiveness tested using regression calculation ineffectiveness minimal company aligns critical terms derivatives supply contracts net investment hedges company assesses net investment positions nonus operations compares outstanding net investment hedges quarterly basis hedge deemed effective aggregate outstanding principal hedge instruments designated net investment hedge nonus operation exceed company’s net investment positions respective nonus operation company selectively uses interest rate swaps reduce market risk associated changes interest rates fixedrate bonds september 30 2017 company outstanding interest rate swaps company assesses retrospective prospective effectiveness records measured ineffectiveness consolidated statements income monthly basis equity swaps derivative instruments designated hedging instruments asc 815 require assessment effectiveness discussion company’s accounting policies derivative financial instruments included note 1 summary significant accounting policies notes consolidated financial statements disclosure relating derivatives hedging activities included note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements foreign exchange company manufacturing sales distribution facilities around world thus makes investments enters transactions denominated various foreign currencies order maintain strict control achieve benefits company’s global diversification foreign exchange exposures currency netted internally net foreign exchange exposures appropriate hedged financial instruments company hedges 70 90 nominal amount known foreign exchange transactional exposures company primarily enters foreign currency exchange contracts reduce earnings cash flow impact variation nonfunctional currency denominated receivables payables gains losses resulting hedging instruments offset foreign exchange gains losses underlying assets liabilities hedged maturities forward exchange contracts generally coincide settlement dates related transactions realized unrealized gains losses contracts recognized period gains losses hedged items company also selectively hedges anticipated transactions subject foreign exchange exposure primarily foreign currency exchange contracts designated cash flow hedges accordance asc 815 company entered foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects debt obligations reflected accumulated comprehensive income aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset gains losses recorded company’s net investments globally september 30 2017 2016 company estimates unfavorable 10 change exchange rates would decreased net unrealized gains approximately 330 million 297 million respectively interest rates company used interest rate swaps offset exposure interest rate movements accordance asc 815 outstanding swaps qualify designated fair value hedges company outstanding interest rate swaps september 30 2017 eight interest rates swaps totaling 850 million outstanding september 30 2016 10 increase average cost company’s variable rate debt would resulted unfavorable change pretax interest expense approximately 13 million 11 million year ended september 30 2017 2016 respectively commodities company uses commodity hedge contracts financial derivatives market cases commodity price risk cannot naturally offset hedged supply base fixed price contracts commodity risks systematically managed pursuant policy guidelines cash flow hedge gains losses resulting hedging instruments offset gains losses purchases underlying commodities used business maturities commodity hedge contracts coincide expected purchase commodities environmental health safety matters company’s global operations governed environmental laws worker safety laws various circumstances laws impose civil criminal penalties fines well injunctive remedial relief noncompliance require remediation sites companyrelated substances released environment company expended substantial resources globally financial managerial comply applicable environmental laws worker safety laws protect environment workers company believes substantial compliance laws maintains procedures designed foster ensure compliance however company future may become subject formal informal enforcement actions proceedings regarding noncompliance laws remediation companyrelated substances released environment matters typically resolved regulatory authorities commitments compliance abatement remediation programs cases payment penalties historically neither commitments penalties imposed company material refer note 23 commitments contingencies notes consolidated financial statements additional information quarterly financial data 1 fiscal 2017 first quarter net income includes 117 million marktomarket gains pension plans 78 million significant restructuring impairment costs 213 million transaction integration separation costs fiscal 2017 second quarter net loss includes 18 million marktomarket gains pension plans 99 million significant restructuring impairment costs 138 million transaction integration costs fiscal 2017 third quarter net income includes 45 million marktomarket losses pension plans 49 million significant restructuring impairment costs 70 million transaction integration costs fiscal 2017 fourth quarter net income includes 330 million net marktomarket gains pension postretirement plans 141 million significant restructuring impairment costs 90 million integration costs 50 million unfavorable arbitration award preceding amounts stated pretax prenoncontrolling interest impact basis include continuing discontinued operations activity 2 due use weightedaverage shares outstanding quarter computing earnings per share sum quarterly per share amounts may equal per share amount year 3 fiscal 2016 first quarter net income includes 101 million transaction integration separation costs fiscal 2016 second quarter net loss includes 229 million significant restructuring impairment costs 131 million transaction integration separation costs fiscal 2016 third quarter net income includes 167 million transaction integration separation costs 102 million significant restructuring impairment costs fiscal 2016 fourth quarter net loss includes 514 million net marktomarket settlement losses pension postretirement plans 296 million significant restructuring impairment costs 293 million transaction integration separation costs preceding amounts stated pretax prenoncontrolling interest impact basis include continuing discontinued operations activity 4 basic diluted earnings loss per share crossfoot due impact tyco merger weightedaverage shares included within earnings per share calculation item 7aitem 7 management’s discussion analysis financial condition results operations general company operates two primary businesses building technologies solutions power solutions building technologies solutions provides facility systems services including comfort energy management residential nonresidential buildings markets security products services fire detection suppression products services power solutions designs manufactures automotive batteries replacement original equipment markets discussion summarizes significant factors affecting consolidated operating results financial condition liquidity company threeyear period ended september 30 2018 discussion read conjunction item 8 consolidated financial statements notes consolidated financial statements fiscal year 2018 compared fiscal year 2017 net sales increase consolidated net sales due higher sales building technologies solutions business 1004 million favorable impact foreign currency translation 512 million higher sales power solutions business 467 million partially offset lower sales due business divestitures 755 million increased sales building technologies solutions business net divestitures primarily related higher volumes across segments increased sales power solutions business primarily resulted impact higher lead costs pricing well favorable pricing product mix excluding impact foreign currency translation impact lead costs pricing business divestitures consolidated net sales also increased 4 compared prior year refer segment analysis within item 7 discussion net sales segment cost sales gross profit cost sales increased fiscal 2018 compared fiscal 2017 gross profit percentage sales decreased 110 basis points gross profit building technologies solutions business increased due prior year nonrecurring purchase accounting adjustments 68 million higher volumes favorable mix across segments partially offset business divestitures higher operating costs gross profit power solutions business impacted higher operating costs primarily driven efforts satisfy customer demand partially offset favorable pricing product mix net marktomarket adjustments pension postretirement plans net unfavorable yearoveryear impact cost sales 88 million 16 million charge fiscal 2018 compared 72 million gain fiscal 2017 primarily due decrease us investment returns foreign currency translation unfavorable impact cost sales approximately 383 million refer segment analysis within item 7 discussion segment earnings interest taxes amortization ebita segment selling general administrative expenses selling general administrative expenses sga decreased 148 million year sga percentage sales decreased 130 basis points decrease sga primarily due productivity savings costs synergies business divestitures gain sale scott safety business building technologies solutions global products segment 114 million net favorable yearoveryear impact sga resulting transaction integration costs 177 million foreign currency translation unfavorable impact sga 78 million net marktomarket adjustments pension postretirement plans net unfavorable yearoveryear impact sga 322 million 26 million gain fiscal 2018 compared 348 million gain fiscal 2017 primarily due decrease us investment returns refer segment analysis within item 7 discussion segment ebita segment restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements disclosure related companys restructuring plans net financing charges refer note 9 debt financing arrangements notes consolidated financial statements disclosure related companys net financing charges equity income decrease equity income primarily due lower income partiallyowned affiliates power solutions business partially offset higher income partiallyowned affiliates building technologies solutions business refer segment analysis within item 7 discussion segment ebita segment income tax provision statutory tax rate ireland used comparison since company domiciled ireland effective rate statutory rate 125 fiscal 2018 primarily due discrete net impacts us tax reform final income tax effects completed divestiture scott safety business legal entity restructuring associated power solutions business valuation allowance adjustments tax rate differentials partially offset benefits continuing global tax planning initiatives tax audit closures tax benefits due changes entity tax status effective rate statutory rate 125 fiscal 2017 primarily due establishment deferred tax liability outside basis difference companys investment certain subsidiaries related divestiture scott safety business income tax effects pension marktomarket gains tax rate differentials partially offset jurisdictional mix significant restructuring impairment costs tyco merger transaction integration costs purchase accounting adjustments tax audit closures tax benefit due changes entity tax status benefits continuing global tax planning initiatives fiscal 2018 effective tax rate decreased compared fiscal 2017 effective tax rate primarily due discrete tax items tax planning initiatives fiscal year 2018 2017 global tax planning initiatives related primarily foreign tax credit planning changes entity tax status global financing structures alignment companys global business functions tax efficient manner refer note 18 income taxes notes consolidated financial statements details valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2018 company performed analysis related realizability worldwide deferred tax assets result considering feasible tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within germany would realized therefore company recorded 56 million valuation allowances income tax expense three month period ended september 30 2018 fourth quarter fiscal 2017 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily canada china mexico would able realized likely certain deferred tax assets germany would realized therefore company recorded 27 million net valuation allowances income tax expense three month period ended september 30 2017 uncertain tax positions company subject income taxes us numerous nonus jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities fiscal 2018 company settled tax examinations impacting fiscal years 2010 fiscal 2012 resulted 25 million net benefit income tax expense fiscal 2017 company settled significant number tax examinations impacting fiscal years 2006 fiscal 2014 fourth quarter fiscal 2017 income tax audit resolutions resulted net 191 million benefit income tax expense company’s federal income tax returns certain nonus income tax returns various fiscal years remain various stages audit irs respective nonus tax authorities although outcome tax audits always uncertain management believes appropriate support positions taken tax returns annual tax provisions included amounts sufficient pay assessments may proposed taxing authorities september 30 2018 company recorded liability best estimate probable loss certain tax positions majority included noncurrent liabilities consolidated statements financial position nonetheless amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year tax matters fourth quarter fiscal 2018 company recorded tax benefit 139 million due changes entity tax status fourth quarter fiscal 2018 company recorded tax charge 129 million due legal entity restructuring associated power solutions business first quarter fiscal 2018 company completed sale scott safety business 3m company connection sale company recorded pretax gain 114 million income tax expense 30 million addition fiscal 2017 company recorded discrete noncash tax charge 490 million related establishment deferred tax liability outside basis difference companys investment certain subsidiaries scott safety business refer note 3 acquisitions divestitures note 4 discontinued operations notes consolidated financial statements additional information fiscal 2018 2017 company recorded transaction integration costs 234 million 428 million respectively costs generated tax benefits 27 million 69 million respectively reflects company’s current tax position jurisdictions fiscal 2018 2017 company incurred significant charges restructuring impairment costs 263 million 367 million respectively refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information costs generated tax benefits 38 million 63 million respectively reflects company’s current tax position jurisdictions fiscal 2018 2017 company recorded pension marktomarket gains 10 million 420 million respectively gains generated tax expense benefit 3 million 126 million respectively reflects company’s current tax position jurisdictions fourth quarter fiscal 2017 company recorded tax charge 53 million due change deferred tax liability related outside basis certain nonconsolidated subsidiaries first quarter fiscal 2017 company recorded discrete tax benefit 101 million due changes entity tax status impacts tax legislation change statutory tax rates december 22 2017 “tax cuts jobs act” hr 1 enacted significantly revises us corporate income tax among things lowering corporate income tax rates imposing onetime transition tax deemed repatriated earnings nonus subsidiaries implementing territorial tax system various base erosion minimum tax provisions connection company’s analysis impact us tax law changes provisional subject change company recorded net tax charge 108 million fiscal 2018 provisional net tax charge arises benefit 108 million due remeasurement us deferred tax assets liabilities offset company’s tax charge relating onetime transition tax deemed repatriated earnings inclusive relevant taxes 216 million company’s estimated benefit remeasurement us deferred tax assets liabilities increased 101 million december 31 2017 108 million september 30 2018 due calculation refinement company’s estimated impact company remeasured certain deferred tax assets liabilities based rates expected reverse future company’s tax charge transition tax decreased 305 million december 31 2017 216 million september 30 2018 due analysis company’s post1986 nonus earnings profits “ep” previously deferred us federal taxation refinement estimated impact tax law changes based effective dates certain aspects us tax law changes various applicable impacts enacted legislation could finalized september 30 2018 company made reasonable estimates impact transition tax final impact us tax law changes may differ estimated impacts due future treasury regulations tax law technical corrections notices rulings refined computations items company finalize provisional amounts within time period prescribed staff accounting bulletin 118 fiscal years ended 2018 2017 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements loss discontinued operations net tax measure meaningful refer note 4 discontinued operations notes consolidated financial statements information income attributable noncontrolling interests measure meaningful increase income continuing operations attributable noncontrolling interests primarily due higher net income related johnson controls hitachi joint venture building technologies solutions business higher net income power solutions partiallyowned affiliate refer note 4 discontinued operations notes consolidated financial statements information regarding companys discontinued operations net income attributable johnson controls increase net income attributable johnson controls primarily due lower income tax provision due higher discrete period net tax charges prior year lower sga lower restructuring impairment costs lower net financing charges higher gross profit fiscal 2018 diluted earnings per share attributable johnson controls 232 compared 171 fiscal 2017 comprehensive income attributable johnson controls decrease comprehensive income attributable johnson controls due decrease comprehensive income attributable johnson controls 572 million resulting primarily unfavorable foreign currency translation adjustments partially offset higher net income attributable johnson controls 551 million yearoveryear unfavorable foreign currency translation adjustments primarily driven weakening british pound euro currencies us dollar segment analysis management evaluates performance business units based primarily segment ebita defined income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges significant restructuring impairment costs net marktomarket adjustments pension postretirement plans building technologies solutions net sales • increase building solutions north america due higher volumes 343 million favorable impact foreign currency translation 20 million partially offset impact prior year nonrecurring purchase accounting adjustments 25 million increase volumes primarily attributable higher hvac controls fire security sales • increase building solutions emeala due favorable impact foreign currency translation 132 million higher volumes 63 million incremental sales related business acquisition 2 million partially offset lower volumes related business divestiture 80 million impact prior year nonrecurring purchase accounting adjustments 16 million increase volumes primarily attributable strong service growth positive across regions led europe latin america • increase building solutions asia pacific due higher volumes 61 million favorable impact foreign currency translation 61 million impact prior year nonrecurring purchase accounting adjustments 1 million partially offset lower volumes related business divestiture 14 million increase volumes primarily attributable higher service sales • increase global products due higher volumes 571 million favorable impact foreign currency translation 103 million impact prior year nonrecurring purchase accounting adjustments 6 million partially offset lower volumes related business divestitures 663 million increase volumes primarily attributable higher building management hvac refrigeration equipment specialty products sales segment ebita • increase building solutions north america due favorable volumes mix 100 million prior year integration costs 42 million prior year transaction costs 13 million favorable impact foreign currency translation 1 million partially offset higher sga including incremental salesforce investments 37 million current year integration costs 25 million prior year nonrecurring purchase accounting adjustments 24 million • increase building solutions emeala due prior year unfavorable arbitration award 50 million favorable volumes mix 26 million lower sga 14 million favorable impact foreign currency translation 7 million prior year integration costs 6 million prior year transaction costs 5 million partially offset prior year nonrecurring purchase accounting adjustments 23 million incremental salesforce investments 14 million current year integration costs 6 million higher operating costs 5 million lower equity income 4 million lower income due business divestiture 2 million • increase building solutions asia pacific due higher volumes mix 33 million prior year integration costs 5 million prior year transaction costs 2 million prior year nonrecurring purchase accounting adjustments 2 million favorable impact foreign currency translation 1 million partially offset higher sga including incremental salesforce investments 15 million unfavorable pricing 4 million • increase global products due favorable volumes mix 219 million gain sale scott safety 114 million prior year nonrecurring purchase accounting adjustments 71 million higher equity income 25 million prior year integration costs 25 million favorable impact foreign currency translation 20 million prior year transaction costs 13 million items partially offset lower income due business divestitures 167 million higher sga operating expenses including planned incremental global product channel investments partially offset productivity savings gains business divestitures 134 million current year integration costs 27 million power solutions • net sales increased due impact higher lead costs pricing 269 million favorable impact foreign currency translation 196 million favorable pricing product mix 159 million higher volumes 39 million increase volumes driven growth china increase startstop battery volumes partially offset changes customer demand patterns north america additionally higher startstop volumes contributed favorable product mix • segment ebita decreased due higher operating costs primarily driven efforts satisfy customer demand including higher transportation costs 112 million incremental investments 31 million lower equity income 20 million current year transaction costs 8 million restructuring costs discontinued operation losses included equity income 7 million partially offset lower sga productivity savings gain business deconsolidation 104 million favorable pricing product mix 35 million favorable impact foreign currency translation 22 million higher volumes 6 million prior year transaction costs 1 million fiscal year 2017 compared fiscal year 2016 net sales increase consolidated net sales due higher sales building technologies solutions business 8647 million power solutions business 667 million favorable impact foreign currency translation 21 million increased sales resulted tyco merger well higher volumes global products segment impact higher lead costs pricing favorable pricing product mix power solutions business excluding impact tyco merger foreign currency translation consolidated net sales increased 4 compared prior year refer segment analysis within item 7 discussion net sales segment cost sales gross profit cost sales increased fiscal 2017 compared fiscal 2016 gross profit percentage sales increasing 390 basis points gross profit building technologies solutions business included incremental gross profit related tyco merger higher volumes global products segment gross profit power solutions business favorably impacted favorable pricing product mix net lead cost increases higher volumes partially offset higher operating costs net marktomarket adjustments pension postretirement plans net favorable yearoveryear impact cost sales 169 million 72 million gain fiscal 2017 compared 97 million charge fiscal 2016 primarily due increase yearoveryear discount rates favorable us investment returns versus expectations current year foreign currency translation unfavorable impact cost sales approximately 21 million refer segment analysis within item 7 discussion segment ebita segment selling general administrative expenses sga increased 1968 million year sga percentage sales increased 30 basis points building technologies solutions business sga increased primarily due incremental sga related tyco merger partially offset productivity savings cost synergies foreign currency translation unfavorable impact sga 5 million net unfavorable yearoveryear impact sga resulting transaction integration separation costs 149 million net marktomarket adjustments pension postretirement plans net favorable yearoveryear impact sga 644 million 348 million gain fiscal 2017 compared 296 million charge fiscal 2016 primarily due increase yearoveryear discount rates favorable us investment returns versus expectations current year refer segment analysis within item 7 discussion segment ebita segment restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements disclosure related companys restructuring plans net financing charges refer note 9 debt financing arrangements notes consolidated financial statements disclosure related companys net financing charges equity income increase equity income primarily due higher income certain partiallyowned affiliates power solutions business johnson controls hitachi joint venture building technologies solutions business refer segment analysis within item 7 discussion segment ebita segment income tax provision measure meaningful statutory tax rate ireland used comparison fiscal 2017 since company domiciled ireland us federal statutory rate used comparison fiscal 2016 since company us domiciled company 11 months fiscal 2016 effective rate statutory rate 125 fiscal 2017 primarily due establishment deferred tax liability outside basis difference companys investment certain subsidiaries related divestiture scott safety business income tax effects pension marktomarket gains tax rate differentials partially offset jurisdictional mix significant restructuring impairment costs tyco merger transaction integration costs purchase accounting adjustments tax audit closures tax benefit due changes entity tax status benefits continuing global tax planning initiatives effective rate us statutory rate 35 fiscal 2016 primarily due benefits continuing global tax planning initiatives foreign tax rate differentials partially offset jurisdictional mix restructuring impairment costs tax impacts merger integration related costs fiscal 2017 effective tax rate increased compared fiscal 2016 effective tax rate primarily due tax effects transactions 408 million tax effects restructuring impairment costs 37 million partially offset tax effects reserve valuation allowance adjustments 164 million tax planning initiatives fiscal year 2017 2016 global tax planning initiatives related primarily foreign tax credit planning changes entity tax status global financing structures alignment companys global business functions tax efficient manner refer note 18 income taxes notes consolidated financial statements details valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2017 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily canada china mexico would able realized likely certain deferred tax assets germany would realized therefore company recorded 27 million net valuation allowances income tax expense three month period ended september 30 2017 fourth quarter fiscal 2016 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined material changes needed valuation allowances therefore impact income tax expense due valuation allowance changes three month period year ended september 30 2016 uncertain tax positions company subject income taxes us numerous nonus jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities fiscal 2017 company settled significant number tax examinations impacting fiscal years 2006 fiscal 2014 fourth quarter fiscal 2017 income tax audit resolutions resulted net 191 million benefit income tax expense company’s federal income tax returns certain nonus income tax returns various fiscal years remain various stages audit irs respective nonus tax authorities although outcome tax audits always uncertain management believes appropriate support positions taken tax returns annual tax provisions included amounts sufficient pay assessments may proposed taxing authorities september 30 2017 company recorded liability best estimate probable loss certain tax positions majority included noncurrent liabilities consolidated statements financial position nonetheless amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year tax matters fiscal 2017 company recorded 428 million transaction integration costs generated 69 million tax benefit fiscal 2017 company recorded discrete noncash tax charge 490 million related establishment deferred tax liability outside basis difference companys investment certain subsidiaries scott safety business reported net assets held sale given announced sale 3m company refer note 3 acquisitions divestitures note 4 discontinued operations notes consolidated financial statements additional information fourth quarter fiscal 2017 company recorded tax charge 53 million due change deferred tax liability related outside basis certain nonconsolidated subsidiaries first quarter fiscal 2017 company recorded discrete tax benefit 101 million due changes entity tax status fiscal 2017 2016 company incurred significant charges restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information costs generated tax benefits 63 million 76 million respectively reflects company’s current tax position jurisdictions fourth quarter fiscal 2016 company completed merger tyco result transaction company incurred incremental tax expense 137 million preparation spinoff automotive experience business first quarter fiscal 2017 company incurred incremental tax expense continuing operations 26 million fiscal 2016 impacts tax legislation change statutory tax rates october 13 2016 us treasury irs released final temporary section 385 regulations address whether certain instruments related parties treated debt equity lookthrough rule subpart f us internal revenue code expired company september 30 2015 lookthrough rule provided exception us taxation certain income generated foreign subsidiaries rule extended december 2015 retroactive beginning company’s 2016 fiscal year retroactive extension signed legislation made permanent companys 2020 fiscal year fiscal years ended 2017 2016 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements loss discontinued operations net tax measure meaningful refer note 4 discontinued operations notes consolidated financial statements information income attributable noncontrolling interests increase income continuing operations attributable noncontrolling interests fiscal 2017 primarily due higher net income related johnson controls hitachi joint venture building technologies solutions business refer note 4 discontinued operations notes consolidated financial statements information regarding companys discontinued operations net income loss attributable johnson controls measure meaningful increase net income loss attributable johnson controls primarily due incremental operating income result tyco merger prior year net loss discontinued operations partially offset increase income tax provision higher net financing charges fiscal 2017 diluted earnings loss per share attributable johnson controls 171 compared 129 fiscal 2016 comprehensive income loss attributable johnson controls measure meaningful increase comprehensive income loss attributable johnson controls due higher net income loss attributable johnson controls 2479 million increase comprehensive loss attributable johnson controls 195 million primarily related favorable foreign currency translation adjustments yearoveryear favorable foreign currency translation adjustments primarily driven strengthening euro british pound currencies us dollar partially offset weakening japanese yen currency us dollar segment analysis management evaluates performance business units based primarily segment ebita defined income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges significant restructuring impairment costs net marktomarket adjustments pension postretirement plans building technologies solutions measure meaningful net sales • increase building solutions north america due incremental sales related tyco merger including current year nonrecurring purchase accounting adjustments 3689 million impact prior year nonrecurring purchase accounting adjustments 15 million favorable impact foreign currency translation 5 million partially offset prior year business divestiture 32 million lower installation volumes 23 million • increase building solutions emeala due incremental sales related tyco merger including current year nonrecurring purchase accounting adjustments 1982 million higher volumes 7 million impact prior year nonrecurring purchase accounting adjustments 5 million favorable impact foreign currency translation 3 million partially offset business divestiture 15 million • increase building solutions asia pacific due incremental sales related tyco merger including current year nonrecurring purchase accounting adjustments 653 million higher volumes equipment control systems 41 million higher service volumes 38 million partially offset unfavorable impact foreign currency translation 24 million increase volume driven favorable local economic conditions • increase global products due incremental sales related tyco merger including current year nonrecurring purchase accounting adjustments 2157 million higher volumes 221 million favorable impact foreign currency translation 20 million partially offset lower volumes related business divestitures deconsolidation 91 million increase volumes primarily attributable new product offerings segment ebita • increase building solutions north america due incremental income related tyco merger 567 million net impact prior year current year nonrecurring purchase accounting adjustments 52 million favorable mix 9 million lower sga 3 million result productivity synergy savings net prior year gain business divestiture favorable impact foreign currency translation 1 million prior year transaction costs 1 million partially offset current year integration costs 42 million higher operating costs result channel investments 25 million current year transaction costs 13 million lower volumes 6 million prior year business divestiture 2 million • increase building solutions emeala due incremental income related tyco merger 221 million net impact prior year current year nonrecurring purchase accounting adjustments 33 million lower sga result productivity synergy savings 23 million favorable mix 7 million higher volumes 2 million prior year transaction costs 1 million partially offset current year unfavorable arbitration award 50 million current year integration costs 6 million lower equity income 6 million current year transaction costs 5 million unfavorable impact foreign currency translation 3 million prior year business divestiture 1 million • increase building solutions asia pacific due incremental income related tyco merger 73 million lower sga result productivity savings 24 million higher volumes 20 million favorable impact foreign currency translation 1 million partially offset unfavorable mix 6 million current year integration costs 5 million higher operating costs 4 million current year transaction costs 2 million • increase global products due incremental income related tyco merger 474 million higher volumes 55 million lower sga result productivity synergy savings 41 million higher equity income 33 million prior year integration costs 20 million prior year transaction costs 14 million lower operating costs 13 million partially offset net impact prior year current year nonrecurring purchase accounting adjustments 42 million current year integration costs 25 million unfavorable mix 16 million current year transaction costs 13 million unfavorable impact foreign currency translation 5 million prior year gain acquisition partiallyowned affiliate 4 million business divestitures 3 million power solutions • net sales increased due impact higher lead costs pricing 427 million favorable pricing product mix 154 million higher sales volumes 86 million favorable impact foreign currency translation 17 million increase volumes driven startstop battery volumes growth china additionally higher startstop volumes contributed favorable product mix • segment ebita increased due favorable pricing product mix net lead cost increases 106 million lower sga result productivity savings 39 million higher equity income 28 million higher volumes 27 million prior year restructuring impairment costs included equity income 7 million prior year transaction costs 1 million favorable impact foreign currency translation 1 million partially offset higher operating costs primarily driven efforts satisfy growing customer demand 108 million current year transaction costs 1 million goodwill longlived assets investments goodwill september 30 2018 195 billion 02 billion lower prior year decrease primarily due impact foreign currency translation goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies companys average historical future financial results certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value assumptions included impairment tests require judgment changes inputs could impact results calculations primary assumptions used impairment tests managements projections future cash flows although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit indefinitelived intangible assets also subject least annual impairment testing considerable amount management judgment assumptions required performing impairment tests company believes judgments assumptions used impairment tests reasonable impairments goodwill indefinitelived assets existed fiscal years 2018 2017 2016 different assumptions could change estimated fair values therefore impairment charges could required could material consolidated financial statements company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 35030 requires intangible assets acquired business combination used research development activities considered indefinite lived completion abandonment associated research development efforts period assets considered indefinite lived shall amortized shall tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value entity shall recognize impairment loss amount equal excess asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written fiscal 2018 company concluded triggering event requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2018 result company reviewed longlived assets impairment recorded 42 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 31 million related global products segment 6 million related power solutions segment 5 million related corporate assets refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured market approach utilizing appraisal determine fair values impaired assets method consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2017 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2017 result company reviewed longlived assets impairment recorded 77 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 30 million related building solutions north america segment 20 million related global products segment 19 million related corporate assets 7 million related power solutions segment 1 million related building solutions asia pacific segment refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2016 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2016 result company reviewed longlived assets impairment recorded 103 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 64 million related power solutions segment 24 million related corporate assets 8 million related global products segment 4 million related building solutions asia pacific segment 3 million related building solutions emeala segment addition company recorded 87 million asset impairments within discontinued operations related adient fiscal 2016 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement investments partiallyowned affiliates september 30 2018 13 billion 01 billion higher prior year increase primarily due equity income partiallyowned affiliates power solutions business johnson controls hitachi joint venture liquidity capital resources working capital • company defines working capital current assets less current liabilities excluding cash shortterm debt current portion longterm debt current portions assets liabilities held sale management believes measure working capital excludes financingrelated items businesses divested provides useful measurement company’s operating performance • increase working capital september 30 2018 compared september 30 2017 primarily due increase accounts receivable due organic sales growth partially offset increase accounts payable due timing mix supplier payments • company’s days sales accounts receivable september 30 2018 66 slight increase 65 september 30 2017 significant adverse change level overdue receivables changes revenue recognition methods • company’s inventory turns year ended september 30 2018 slightly higher comparable period ended september 30 2017 primarily due changes inventory production levels • days accounts payable september 30 2018 73 days higher 70 days comparable period ended september 30 2017 cash flows • increase cash provided operating activities primarily due favorable movements working capital balances higher prior year income tax payments related adient spinoff 12 billion first quarter fiscal 2017 prior year operating cash outflows automotive experience business adient spinoff change control pension payments transactionintegration related payments • increase cash provided investing activities primarily due net cash proceeds received scott safety business divestiture current year decrease capital expenditures • increase cash used financing activities primarily due higher current year repayments longterm debt • decrease capital expenditures current year primarily related lower capital investments current year building technologies solutions power solution businesses prior year capital investments automotive experience business adient spinoff capitalization • net debt net debt percentage total capitalization nongaap financial measures company believes percentage total net debt total capitalization useful understanding company’s financial condition provides review extent company relies external debt financing funding measure risk shareholders • company believes capital resources liquidity position september 30 2018 adequate meet projected needs company believes requirements working capital expenditures dividends stock repurchases minimum pension contributions debt maturities potential acquisitions fiscal 2019 continue funded operations supplemented short longterm borrowings required company currently manages shortterm debt position us euro commercial paper markets bank loan markets event company tyco international holding sarls tsarl unable issue commercial paper would ability draw 20 billion 125 billion revolving credit facilities respectively facilities mature august 2020 draws revolving credit facilities september 30 2018 2017 company also selectively makes use shortterm credit lines revolving credit facilities company tsarl company estimates september 30 2018 could borrow 20 billion based average borrowing levels fourth quarter fiscal 2018 committed credit lines company believes sufficient financial resources fund operations meet obligations foreseeable future • company’s debt financial covenant revolving credit facility requires minimum consolidated shareholders’ equity attributable johnson controls least 35 billion times revolving credit facility also limits amount debt secured liens may incurred maximum aggregated amount 10 consolidated shareholders’ equity attributable johnson controls liens pledges purposes calculating covenants consolidated shareholders’ equity attributable johnson controls calculated without giving effect application accounting standards codification asc 71560 defined benefit plans postretirement ii cumulative foreign currency translation adjustment tsarls revolving credit facility contains customary terms conditions financial covenant limits ratio tsarls debt earnings interest taxes depreciation amortization adjusted certain items set forth agreement 35x tsarls revolving credit facility also limits ability incur subsidiary debt grant liens subsidiaries property september 30 2018 company tsarl compliance covenants requirements set forth credit agreements indentures governing notes expect remain compliance foreseeable future none company’s tsarls debt agreements limit access stated borrowing levels require accelerated repayment event decrease respective borrowers credit rating • company earns significant amount income outside parent company outside basis differences subsidiaries deemed permanently reinvested except limited circumstances including limited accrual related fiscal 2018 us tax reform fiscal 2018 due us tax reform company provided income tax related change company’s assertion outside basis difference certain nonus subsidiaries owned directly indirectly us subsidiaries us tax reform us enacted tax system provides exemption dividends received us corporations 10 owned nonus corporations however certain nonus us state withholding taxes may still apply closing outside basis difference via distribution transactions addition fiscal 2017 company provided income tax expense related change company’s assertion outside basis difference scott safety business result pending divestiture well outside basis certain nonconsolidated subsidiaries also fiscal 2016 company provided income tax expense related change companys assertion portion permanently reinvested earnings result planned spinoff adient business company currently intend foresee need repatriate undistributed earnings included outside basis differences tax efficient manners except noted company’s intent reduce basis differences would tax efficient company expects existing us cash liquidity continue sufficient fund company’s us operating activities cash commitments investing financing activities least next twelve months thereafter foreseeable future us company require capital generated operations company could elect raise capital us debt equity issuances company borrowed funds us continues ability borrow funds us reasonable interest rates addition company expects existing nonus cash equivalents shortterm investments cash flows operations continue sufficient fund company’s nonus operating activities cash commitments investing activities material capital expenditures least next twelve months thereafter foreseeable future company require capital luxembourg ireland holding financing entities amounts provided tax efficient methods company could also elect raise capital debt equity issuances alternatives could result increased interest expense dilution company’s earnings • better align resources growth strategies reduce cost structure global operations certain underlying markets company committed significant restructuring plan fiscal 2018 recorded 263 million restructuring impairment costs consolidated statements income restructuring action related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments company currently estimates upon completion restructuring action fiscal 2018 restructuring plan reduce annual operating costs approximately 300 million primarily result lower cost sales sga due reduced employeerelated costs depreciation amortization expense company expects annual benefit actions substantially realized 2020 fiscal 2018 savings net execution costs approximately 25 expected annual operating cost reduction restructuring action expected substantially complete 2020 restructuring plan reserve balance 174 million september 30 2018 expected paid cash • better align resources growth strategies reduce cost structure global operations certain underlying markets company committed significant restructuring plan fiscal 2017 recorded 367 million restructuring impairment costs consolidated statements income restructuring action related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments company currently estimates upon completion restructuring action fiscal 2017 restructuring plan reduce annual operating costs continuing operations approximately 280 million primarily result lower cost sales sga expenses due reduced employeerelated costs depreciation amortization expense company expects annual benefit actions substantially realized fiscal 2019 fiscal 2018 savings net execution costs approximately 85 expected annual operating cost reduction restructuring actions expected substantially complete fiscal 2019 restructuring plan reserve balance 80 million september 30 2018 expected paid cash • better align resources growth strategies reduce cost structure global operations address softness certain underlying markets company committed significant restructuring plan fiscal 2016 recorded 288 million restructuring impairment costs consolidated statements income restructuring action related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments changeincontrol payments company currently estimates upon completion restructuring action fiscal 2016 restructuring plan reduce annual operating costs continuing operations approximately 135 million primarily result lower cost sales sga due reduced employeerelated costs depreciation amortization expense company expects annual benefit actions substantially realized fiscal 2019 fiscal 2018 savings net execution costs approximately 75 expected annual operating cost reduction restructuring actions expected substantially complete fiscal 2019 restructuring plan reserve balance 73 million september 30 2018 expected paid cash summary company’s significant contractual obligations continuing operations september 30 2018 follows millions refer note 9 debt financing arrangements notes consolidated financial statements information related companys longterm debt result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities generally recorded within noncurrent liabilities consolidated statements financial position liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid september 30 2018 2017 company recorded liabilities 255 million 290 million respectively 255 million recorded september 30 2018 235 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions payments due period presented due uncertainty liabilities settled paid certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation tax sharing agreements critical accounting estimates policies company prepares consolidated financial statements conformity accounting principles generally accepted united states america us gaap requires management make estimates assumptions affect reported amounts related disclosures actual results could differ estimates following policies considered management critical understanding judgments involved preparation company’s consolidated financial statements uncertainties could impact company’s results operations financial position cash flows revenue recognition building technologies solutions business recognizes revenue certain longterm contracts contractual period percentageofcompletion poc method accounting method accounting recognizes sales gross profit work performed based relationship actual costs incurred total estimated costs completion recognized revenues billed terms contract later date recorded primarily accounts receivable likewise contracts billings date exceeded recognized revenues recorded primarily deferred revenue changes original estimates may required life contract estimates reviewed monthly sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated losses recorded identified claims customers recognized revenue upon settlement use poc method accounting involves considerable use estimates determining revenues costs profits assigning amounts accounting periods periodic reviews resulted adjustments significant company’s results operations company continually evaluates assumptions risks uncertainties inherent application poc method accounting building technologies solutions business enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized straightline basis respective contract term building technologies solutions business also sells certain heating ventilating air conditioning hvac refrigeration products services bundled arrangements multiple products andor services involved significant deliverables within arrangements include equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition buildings business sells security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered accordance asu 200913 revenue recognition topic 605 multipledeliverable revenue arrangements consensus fasb emerging issues task force company divides bundled arrangements separate deliverables revenue allocated deliverable based relative selling price method order estimate relative selling price market data transfer price studies utilized revenue recognized security monitoring equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship cases company recognizes revenue time title passes customer services performed goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies companys average historical future financial results certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value fourth quarter fiscal 2018 company changed date annual goodwill impairment test september 30 july 31 change made closely align impairment testing date company’s longterm planning forecasting process change annual impairment testing date delay accelerate avoid impairment charge company determined change accounting principle preferable result adjustments company’s financial statements applied retrospectively refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fourth quarters fiscal years 2018 2017 2016 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets consist trademarks tradenames tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests impairment longlived assets company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 35030 requires intangible assets acquired business combination used research development activities considered indefinite lived completion abandonment associated research development efforts period assets considered indefinite lived shall amortized shall tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value entity shall recognize impairment loss amount equal excess asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2018 2017 2016 employee benefit plans company provides range benefits employees retired employees including pensions postretirement benefits plan assets obligations measured annually frequently significant remeasurement event based company’s measurement date utilizing various actuarial assumptions discount rates assumed rates return compensation increases turnover rates health care cost trend rates date company reviews actuarial assumptions annual basis makes modifications assumptions based current rates trends appropriate company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans us gaap requires companies recognize statement financial position liability defined benefit pension postretirement plans underfunded unfunded asset defined benefit pension postretirement plans overfunded us gaap also requires companies measure benefit obligations fair value plan assets determine benefit plan’s funded status date employer’s fiscal year end company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates company’s weighted average discount rate us pension plans 410 380 september 30 2018 2017 respectively company’s weighted average discount rate postretirement plans 380 370 september 30 2018 2017 respectively company’s weighted average discount rate nonus pension plans 245 240 september 30 2018 2017 respectively estimating expected return plan assets company considers historical returns plan assets adjusted forwardlooking considerations inflation assumptions impact active management plans’ invested assets reflecting relatively longterm nature plans’ obligations approximately 35 plans’ assets invested equity securities 56 fixed income securities remainder primarily invested alternative investments years ending september 30 2018 2017 company’s expected longterm return us pension plan assets used determine net periodic benefit cost 750 actual rate return us pension plans 750 fiscal year 2018 750 fiscal year 2017 years ending september 30 2018 2017 company’s weighted average expected longterm return nonus pension plan assets 535 460 respectively actual rate return nonus pension plans 535 fiscal year 2018 460 fiscal year 2017 years ending september 30 2018 2017 company’s weighted average expected longterm return postretirement plan assets 565 560 respectively actual rate return postretirement plan assets 565 fiscal year 2018 560 fiscal year 2017 beginning fiscal 2019 company believes longterm rate return approximate 710 520 565 us pension nonus pension postretirement plans respectively differences actual investment results expected longterm asset returns reflected net periodic benefit costs fourth quarter fiscal year date significant remeasurement event company’s actual returns plan assets less company’s expectations additional contributions may required fiscal 2018 total employer contributions defined benefit pension plans 53 million 18 million voluntary contributions made company expects contribute approximately 85 million cash defined benefit pension plans fiscal 2019 fiscal 2018 total employer contributions postretirement plans 4 million company expects contribute approximately 15 million cash postretirement plans fiscal 2019 based information provided independent actuaries relevant sources company believes assumptions used reasonable however changes assumptions could impact company’s financial position results operations cash flows loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 22 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage insurable liabilities asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 22 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities product warranties company offers warranties customers depending upon specific product terms customer purchase agreement typical warranty program requires company replace defective products within specified time period date sale company records estimate future warrantyrelated costs based actual historical return rates known factors based analysis return rates factors company’s warranty provisions adjusted necessary september 30 2018 company recorded 392 million warranty reserves continuing operations including extended warranties deferred revenue recorded company monitors warranty activity adjusts reserve estimates probable future warranty costs different estimates refer note 21 guarantees notes consolidated financial statements disclosure companys product warranty liabilities income taxes company accounts income taxes accordance asc 740 income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled company records valuation allowance primarily represents nonus operating loss carryforwards realization uncertain management judgment required determining company’s provision income taxes deferred tax assets liabilities valuation allowance recorded company’s net deferred tax assets calculating provision income taxes interim basis company uses estimate annual effective tax rate based upon facts circumstances known interim period quarterly basis actual effective tax rate adjusted appropriate based upon actual results compared forecasted beginning fiscal year company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary september 30 2018 company valuation allowance 52 billion continuing operations 45 billion relates net operating loss carryforwards primarily australia belgium brazil china france luxembourg spain switzerland united kingdom sustainable taxable income demonstrated 700 million deferred tax assets company subject income taxes us numerous nonus jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities september 30 2018 company unrecognized tax benefits 24 billion company generally provide additional us nonus income taxes outside basis differences consolidated subsidiaries included shareholders’ equity attributable johnson controls international plc except limited circumstances including anticipated taxation planned divestitures reduction outside basis differences via sale liquidation subsidiaries andor distributions could create taxable income company’s intent reduce outside basis differences would tax efficient refer capitalization within liquidity capital resources section discussion us nonus cash projections refer note 18 income taxes notes consolidated financial statements companys income tax disclosures new accounting pronouncements refer new accounting pronouncements section within note 1 summary significant accounting policies notes consolidated financial statements risk management company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities interest rates stockbased compensation hedging transactions authorized executed pursuant clearly defined policies procedures strictly prohibit use financial instruments speculative purposes inception hedge company assesses effectiveness hedge instrument designates hedge instrument either 1 hedge recognized asset liability recognized firm commitment fair value hedge 2 hedge forecasted transaction variability cash flows received paid related unrecognized asset liability cash flow hedge 3 hedge net investment nonus operation net investment hedge company performs hedge effectiveness testing ongoing basis depending type hedging instrument used derivatives designated hedging instruments asc 815 derivatives hedging revalued consolidated statements income foreign currency derivative instruments designated cash flow hedges retrospective effectiveness tested monthly basis using cumulative dollar offset test fair value hedged exposures fair value hedge instruments revalued ratio cumulative sum periodic changes value hedge instruments cumulative sum periodic changes value hedge calculated hedge deemed highly effective ratio 80 125 commodity derivative contracts designated cash flow hedges effectiveness tested using regression calculation ineffectiveness minimal company aligns critical terms derivatives supply contracts net investment hedges company assesses net investment positions nonus operations compares outstanding net investment hedges quarterly basis hedge deemed effective aggregate outstanding principal hedge instruments designated net investment hedge nonus operation exceed company’s net investment positions respective nonus operation company selectively uses interest rate swaps reduce market risk associated changes interest rates fixedrate bonds september 30 2018 company outstanding interest rate swaps company assesses retrospective prospective effectiveness records measured ineffectiveness consolidated statements income monthly basis equity swaps derivative instruments designated hedging instruments asc 815 require assessment effectiveness discussion company’s accounting policies derivative financial instruments included note 1 summary significant accounting policies notes consolidated financial statements disclosure relating derivatives hedging activities included note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements foreign exchange company manufacturing sales distribution facilities around world thus makes investments enters transactions denominated various foreign currencies order maintain strict control achieve benefits company’s global diversification foreign exchange exposures currency netted internally net foreign exchange exposures appropriate hedged financial instruments company hedges 70 90 nominal amount known foreign exchange transactional exposures company primarily enters foreign currency exchange contracts reduce earnings cash flow impact variation nonfunctional currency denominated receivables payables gains losses resulting hedging instruments offset foreign exchange gains losses underlying assets liabilities hedged maturities forward exchange contracts generally coincide settlement dates related transactions realized unrealized gains losses contracts recognized period gains losses hedged items company also selectively hedges anticipated transactions subject foreign exchange exposure primarily foreign currency exchange contracts designated cash flow hedges accordance asc 815 company entered foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects debt obligations reflected accumulated comprehensive income aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset gains losses recorded company’s net investments globally september 30 2018 2017 company estimates unfavorable 10 change exchange rates would decreased net unrealized gains approximately 212 million 330 million respectively interest rates time company may use interest rate swaps offset exposure interest rate movements accordance asc 815 outstanding swaps qualify designated fair value hedges company outstanding interest rate swaps september 30 2018 2017 respectively 10 increase average cost company’s variable rate debt would resulted unfavorable change pretax interest expense approximately 5 million 13 million year ended september 30 2018 2017 respectively commodities company uses commodity hedge contracts financial derivatives market cases commodity price risk cannot naturally offset hedged supply base fixed price contracts commodity risks systematically managed pursuant policy guidelines cash flow hedge gains losses resulting hedging instruments offset gains losses purchases underlying commodities used business maturities commodity hedge contracts coincide expected purchase commodities environmental health safety matters company’s global operations governed environmental laws worker safety laws various circumstances laws impose civil criminal penalties fines well injunctive remedial relief noncompliance require remediation sites companyrelated substances released environment company expended substantial resources globally financial managerial comply applicable environmental laws worker safety laws protect environment workers company believes substantial compliance laws maintains procedures designed foster ensure compliance however company future may become subject formal informal enforcement actions proceedings regarding noncompliance laws remediation companyrelated substances released environment matters typically resolved regulatory authorities commitments compliance abatement remediation programs cases payment penalties historically neither commitments penalties imposed company material refer note 22 commitments contingencies notes consolidated financial statements additional information quarterly financial data 1 fiscal 2018 first quarter net income includes 114 million gain sale scott safety 158 million significant restructuring impairment costs 50 million transaction integration costs fiscal 2018 second quarter net income includes 64 million transaction integration costs fiscal 2018 third quarter net income includes 51 million transaction integration costs fiscal 2018 fourth quarter net income includes 10 million net marktomarket gains pension postretirement plans 105 million significant restructuring impairment costs 69 million transaction integration costs preceding amounts stated pretax prenoncontrolling interest impact basis 2 due use weightedaverage shares outstanding quarter computing earnings per share sum quarterly per share amounts may equal per share amount year 3 fiscal 2017 first quarter net income includes 117 million marktomarket gains pension plans 78 million significant restructuring impairment costs 213 million transaction integration separation costs fiscal 2017 second quarter net loss includes 18 million marktomarket gains pension plans 99 million significant restructuring impairment costs 138 million transaction integration costs fiscal 2017 third quarter net income includes 45 million marktomarket losses pension plans 49 million significant restructuring impairment costs 70 million transaction integration costs fiscal 2017 fourth quarter net income includes 330 million net marktomarket gains pension postretirement plans 141 million significant restructuring impairment costs 90 million integration costs 50 million unfavorable arbitration award preceding amounts stated pretax prenoncontrolling interest impact basis include continuing discontinued operations activity item 7aitem 7 management’s discussion analysis financial condition results operations general company engineers manufactures commissions building products systems including residential commercial hvac equipment industrial refrigeration systems controls security systems fire detection systems fire suppression solutions company serves customers providing technical services including maintenance repair retrofit replacement equipment hvac security fireprotection space energymanagement consulting datadriven “smart building” services solutions powered digital platforms capabilities discussion summarizes significant factors affecting consolidated operating results financial condition liquidity company fiscal year ended september 30 2020 discussion read conjunction item 8 consolidated financial statements notes consolidated financial statements detailed discussion 2019 2018 yearoveryear changes included herein found managements discussion analysis section companys 2019 annual report form 10k filed november 21 2019 impact covid19 pandemic global outbreak covid19 severely restricted level economic activity around world caused significant contraction global economy response outbreak governments many countries states cities geographic regions taken preventative protective actions imposing restrictions travel business operations company’s affiliates employees suppliers customers others may continue restricted prevented conducting normal business activities including result shutdowns travel restrictions actions may requested mandated governmental authorities actions may future prevent company accessing facilities customers deliver install products provide services complete maintenance addition company’s customers chosen delay abandon projects company provides products andor services result actions although governments lifted shutdown orders similar restrictions resurgence spread covid19 could cause reinstitution preventive protective measures substantial portion companys businesses classified essential business jurisdictions facility closures mandated facilities nevertheless ordered close give assurance additional closures future businesses classified essential jurisdictions operate response challenges presented covid19 company focused efforts preserving health safety employees customers well maintaining continuity operations company modified business practices response covid19 outbreak including restricting nonessential employee travel implementation remote work protocols cancellation physical participation meetings events conferences company also instituted preventive measures facilities including enhanced health safety protocols temperature screening requiring face coverings employees encouraging employees follow similar protocols away work company adopted multifaceted framework guide decision making evaluating readiness facilities safely reopen operate continue monitor audit facilities ensure compliance company’s covid19 safety requirements second quarter fiscal 2020 company experienced temporary reduction manufacturing operating capacity china result governmentmandated actions control spread covid19 third quarter fiscal 2020 company experienced similar reductions result governmentmandated actions india mexico fourth quarter fiscal 2020 company’s facilities generally able operate normal levels though manufacturing capacity india continues reduced result continued lockdowns region company experienced may continue experience disruptions delays supply chain result governmentmandated actions resulted higher supply chain costs company order maintain supply materials components products order mitigate disruptions supply chain manufacturing capacity company took actions including redistributing manufacturing capacity facilities regions unaffected shutdown orders accelerating purchase shipment components suppliers identified hot spots diversifying company’s supplier base conducting government outreach support company’s suppliers’ designations essential businesses expanded existing supplier financing programs support supplier viability business continuity actions generally successful preserving company’s supply chain manufacturing capacity potential resurgence covid19 various jurisdictions could lead disruptions company experienced decline demand volumes global businesses result impact efforts contain spread covid19 specifically company experienced lower demand due restricted access customer sites perform service installation work well reduced discretionary capital spending companys customers response company quickly moved execute temporary permanent cost mitigation actions offset portion impact covid19 demand products services deferring reducing capital expenditures implementing cost structure changes shortterm furloughing salaried employees limiting discretionary spending including corporate expense measures addition companys previously disclosed fiscal 2020 restructuring plan although company intends temporary cost mitigation actions initiated fiscal 2020 cease fiscal 2021 necessity future cost mitigation actions depend continued impact covid19 highly uncertain global pandemic also provided company opportunity help customers prepare reopen delivering solutions support enhance safety increase efficiency operations company seen increase demand products solutions promote building health optimize customers’ infrastructure including thermal cameras indoor air quality locationbased services contact tracing touchless access control second quarter fiscal 2020 company determined triggering event requiring assessment impairment certain indefinitelived intangible assets due declines revenue directly attributable covid19 pandemic result company recorded impairment charge 62 million related primarily companys retail business indefinitelived intangible assets within restructuring impairment costs consolidated statements income second quarter fiscal 2020 third quarter fiscal 2020 company determined triggering event requiring assessment impairment certain indefinitelived intangible assets longlived assets goodwill due declines revenue declines forecasted cash flows north america retail reporting unit directly attributable covid19 pandemic result company recorded impairment charge 424 million related companys north america retail reporting units goodwill within restructuring impairment costs consolidated statements income third quarter fiscal 2020 indefinitelived intangibles goodwill impairments resulting fiscal 2020 annual impairment tests performed fourth quarter fiscal 2020 however possible future changes circumstances including prolonged andor severe covid19 pandemic would require company record additional noncash impairment charges company continues actively monitor liquidity position working capital needs company believes following implementation liquidity cost mitigation actions fiscal 2020 remains solid overall capital resources liquidity position adequate meet projected needs result following review liquidity position company resumed share repurchase program july 2020 suspended march 2020 september 2020 company issued 18 billion senior notes portion proceeds together cash operations used repay shortterm debt obligations incurred company onset pandemic preserve nearterm financial flexibility well repay redeem near termindebtedness extent covid19 outbreak continues impact company’s results operations financial condition depend future developments highly uncertain cannot predicted including new information may emerge concerning severity longevity covid19 resurgence covid19 regions begun recover initial impact pandemic impact covid19 economic activity actions contain impact public health global economy see part item 1a risk factors additional discussion risks related covid19 fiscal year 2020 compared fiscal year 2019 net sales decrease net sales due lower organic sales 1543 million unfavorable impact foreign currency translation 150 million lower sales due business divestitures 11 million partially offset acquisitions 53 million excluding impact foreign currency translation business acquisitions divestitures consolidated net sales decreased 6 compared prior year due lower demand primarily attributable covid19 pandemic refer segment analysis within item 7 discussion net sales segment cost sales gross profit cost sales gross profit decreased gross profit percentage sales increased 110 basis points gross profit decreased due organic sales declines primarily due unfavorable impact covid19 pandemic partially offset cost mitigation actions net marktomarket adjustments net favorable yearoveryear impact cost sales 40 million 88 million loss fiscal 2020 compared 128 million loss fiscal 2019 primarily due significant reduction discount rates prior year foreign currency translation favorable impact cost sales approximately 100 million refer segment analysis within item 7 discussion segment earnings interest taxes amortization ebita segment selling general administrative expenses selling general administrative expenses sga decreased 579 million sga percentage sales decreased 70 basis points decrease sga included favorable impact cost mitigation actions reductions discretionary spend current year net marktomarket adjustments net favorable yearoveryear impact sga 304 million 186 million loss fiscal 2020 compared 490 million loss fiscal 2019 primarily due significant reduction discount rates prior year additional favorable impacts included prior year environmental charge 140 million foreign currency translation 30 million items partially offset prior year tax indemnification reserve release 226 million refer segment analysis within item 7 discussion segment ebita segment restructuring impairment costs measure meaningful refer note 7 goodwill intangible assets note 16 significant restructuring impairment costs note 17 impairment longlived assets notes consolidated financial statements disclosure related companys restructuring plans impairment costs net financing charges refer note 9 debt financing arrangements notes consolidated financial statements disclosure related companys net financing charges equity income decrease equity income primarily due lower income certain partiallyowned affiliates johnson controls hitachi joint venture primarily due unfavorable impact covid19 pandemic foreign currency translation unfavorable impact equity income 3 million refer segment analysis within item 7 discussion segment ebita segment income tax provision measure meaningful statutory tax rate ireland 125 used comparison since company domiciled ireland fiscal 2020 effective tax rate continuing operations 12 lower statutory tax rate primarily due tax audit reserve adjustments income tax effects marktomarket adjustments valuation allowance adjustments benefits continuing global tax planning initiatives partially offset discrete tax charge related remeasurement deferred tax assets liabilities result swiss tax reform tax impact impairment charge tax rate differentials fiscal 2019 effective rate continuing operations statutory rate primarily due tax audit reserve adjustments income tax effects marktomarket adjustments tax indemnification reserve release tax benefits asset held sale impairment charge continuing global tax planning initiatives partially offset valuation allowance adjustments result tax law changes discrete tax charge related newly enacted regulations related us tax reform tax rate differentials fiscal 2020 effective tax rate increased compared fiscal 2019 primarily due discrete tax items fiscal year 2020 2019 global tax planning initiatives related primarily changes entity tax status global financing structures alignment companys global business functions tax efficient manner refer note 18 income taxes notes consolidated financial statements details income discontinued operations net tax measure meaningful refer note 3 discontinued operations notes consolidated financial statements information income attributable noncontrolling interests measure meaningful decrease income continuing operations attributable noncontrolling interests primarily due lower net income primarily due covid19 pandemic certain partiallyowned affiliates within global products segment refer note 3 discontinued operations notes consolidated financial statements information regarding companys discontinued operations net income attributable johnson controls decrease net income attributable johnson controls primarily due prior year income discontinued operations higher restructuring impairment charges higher income tax provision unfavorable impact covid19 pandemic partially offset lower sga net financing charges fiscal 2020 diluted earnings per share attributable johnson controls 084 compared 649 fiscal 2019 comprehensive income attributable johnson controls decrease comprehensive income attributable johnson controls due lower net income attributable johnson controls 5043 million partially offset increase comprehensive income attributable johnson controls 343 million resulting primarily foreign currency translation adjustments favorable foreign currency translation adjustments primarily driven weakening british pound euro currencies us dollar prior year segment analysis management evaluates performance business units based primarily segment ebita represents income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges restructuring impairment costs net marktomarket adjustments related pension postretirement plans restricted asbestos investments net sales •the decrease building solutions north america due lower volumes 414 million unfavorable impact foreign currency translation 12 million decrease volumes primarily attributable unfavorable impact covid19 pandemic •the decrease building solutions emeala primarily attributable lower volumes 151 million unfavorable impact foreign currency translation 96 million business divestitures 6 million partially offset incremental sales related business acquisitions 38 million decrease volumes primarily attributable unfavorable impact covid19 pandemic •the decrease building solutions asia pacific due lower volumes 232 million unfavorable impact foreign currency translation 31 million partially offset incremental sales related business acquisition 8 million decrease volumes primarily attributable unfavorable impact covid19 pandemic •the decrease global products due lower volumes 746 million unfavorable impact foreign currency translation 11 million lower volumes related business divestitures 5 million partially offset incremental sales related business acquisitions 7 million decrease volumes primarily attributable unfavorable impact covid19 pandemic segment ebita •the increase building solutions north america due prior year integration costs 26 million partially offset current year integration costs 11 million unfavorable volumes net productivity savings cost mitigation actions 10 million unfavorable impact foreign currency translation 1 million •the decrease building solutions emeala due unfavorable impact foreign currency translation 17 million unfavorable volumes net productivity savings cost mitigation actions 14 million lower equity income 7 million current year integration costs 2 million lower income due business divestitures 1 million partially offset higher income due business acquisitions 7 million prior year integration costs 4 million •the decrease building solutions asia pacific due unfavorable volumes net productivity savings cost mitigation actions 18 million current year integration costs 7 million partially offset prior year integration costs 2 million higher income due business acquisitions 1 million •the decrease global products due unfavorable volumes net favorable pricecost productivity savings cost mitigation actions 143 million compensation charge related noncontrolling interest acquisition 39 million current year integration costs 13 million lower equity income driven primarily unfavorable impact covid19 12 million unfavorable impact foreign currency translation 5 million lower income due business acquisitions 2 million lower income due business divestitures 1 million partially offset prior year environmental charge 140 million prior year integration costs 30 million liquidity capital resources working capital •the company defines working capital current assets less current liabilities excluding cash shortterm debt current portion longterm debt current portions assets liabilities held sale management believes measure working capital excludes financingrelated items businesses divested provides useful measurement company’s operating performance •the decrease working capital september 30 2020 compared september 30 2019 primarily due lower income tax assets decrease accounts receivable establishment operating lease liability balance sheet first quarter fiscal 2020 result adoption accounting standards codification asc 842 partially offset decrease accounts payable due lower spending decrease accrued compensation benefits liabilities •the company’s days sales accounts receivable september 30 2020 63 decrease 67 september 30 2019 significant adverse change level overdue receivables significant changes revenue recognition methods •the company’s inventory turns year ended september 30 2020 higher comparable period ended september 30 2019 primarily due changes inventory production levels •days accounts payable september 30 2020 69 days decrease 72 days comparable period ended september 30 2019 cash flows continuing operations •the increase cash provided operating activities primarily due timing income tax paymentsrefunds favorable changes accounts receivable partially offset unfavorable changes accounts payable accrued liabilities •the decrease cash used investing activities primarily due lower capital expenditures higher cash proceeds business divestitures sale property plant equipment •the decrease cash used financing activities primarily due lower stock repurchases higher longterm debt borrowings net repayments lower shortterm debt repayments capitalization •net debt net debt percentage total capitalization nongaap financial measures company believes percentage total net debt total capitalization useful understanding company’s financial condition provides review extent company relies external debt financing funding measure risk shareholders •the company believes capital resources liquidity position september 30 2020 adequate meet projected needs company believes requirements working capital expenditures dividends stock repurchases minimum pension contributions debt maturities potential acquisitions fiscal 2021 continue funded operations supplemented short longterm borrowings required company currently manages shortterm debt position us euro commercial paper markets bank loan markets event company unable issue commercial paper would ability draw 25 billion revolving credit facility expires december 2024 05 billion revolving credit facility expires december 2020 draws revolving credit facilities september 30 2020 2019 company also selectively makes use shortterm credit lines revolving credit facility company september 30 2020 could borrow 30 billion based committed credit lines addition company held cash equivalents 20 billion september 30 2020 company believes sufficient financial resources fund operations meet obligations foreseeable future •in september 2020 company issued 18 billion senior notes includes 625 million green bonds interest rate 1750 due 2030 €500 million interest rate 0375 due 2027 €500 million interest rate 1000 due 2032 portions issuance proceeds used repay €750 million notes due december 2020 debt issued april 2020 including 675 million european financing arrangements due september 2020 275 million bank term loans due april 2021 july 2020 company repaid 300 million bank term loan issued april 2020 march 2020 company retired 500 million principal amount plus accrued interest 50 fixed rate notes expired march 2020 •financial covenants companys revolving credit facilities requires minimum consolidated shareholders’ equity attributable johnson controls least 35 billion times revolving credit facility also limits amount debt secured liens may incurred maximum aggregated amount 10 consolidated shareholders’ equity attributable johnson controls liens pledges purposes calculating covenants consolidated shareholders’ equity attributable johnson controls calculated without giving effect application asc 71560 defined benefit plans postretirement ii cumulative foreign currency translation adjustment september 30 2020 company compliance covenants requirements set forth credit agreements indentures governing notes expect remain compliance foreseeable future none company’s debt agreements limit access stated borrowing levels require accelerated repayment event decrease companys credit rating •the company earns significant amount income outside parent company outside basis differences subsidiaries deemed permanently reinvested except limited circumstances however fiscal 2019 company provided income tax expense related change companys assertion outside basis differences company’s investment certain subsidiaries result planned divestiture power solutions business also fiscal 2018 due us tax reform company provided income tax related change company’s assertion outside basis difference certain nonus subsidiaries owned directly indirectly us subsidiaries us tax reform us enacted tax system provides exemption dividends received us corporations 10 owned nonus corporations however certain nonus us state withholding taxes may still apply closing outside basis difference via distribution transactions company currently intend foresee need repatriate undistributed earnings included outside basis differences tax efficient manners except noted company’s intent reduce basis differences would tax efficient company expects existing us cash liquidity continue sufficient fund company’s us operating activities cash commitments investing financing activities least next twelve months thereafter foreseeable future us company require capital generated operations company could elect raise capital us debt equity issuances company borrowed funds us continues ability borrow funds us reasonable interest rates addition company expects existing nonus cash equivalents shortterm investments cash flows operations continue sufficient fund company’s nonus operating activities cash commitments investing activities material capital expenditures least next twelve months thereafter foreseeable future company require capital luxembourg ireland holding financing entities amounts provided tax efficient methods company could also elect raise capital debt equity issuances alternatives could result increased interest expense dilution company’s earnings •to better align resources growth strategies reduce cost structure global operations certain underlying markets company committed various restructuring plans restructuring plans generally result charges workforce reductions plant closures asset impairments reported restructuring impairment costs company’s consolidated statements income company expects restructuring actions reduce cost sales sga due reduced employeerelated costs depreciation amortization expense fiscal 2020 company recorded 297 million costs resulting 2020 restructuring plan company currently estimates upon completion restructuring action fiscal 2020 restructuring plans reduce annual operating costs continuing operations approximately 430 million company expects annual benefit actions substantially realized 2021 fiscal 2020 savings net execution costs approximately 30 expected annual operating cost reduction restructuring action expected substantially complete fiscal 2021 company outstanding restructuring reserves 108 million september 30 2020 expected paid cash fiscal 2018 company recorded 255 million costs resulting 2018 restructuring plan company currently estimates upon completion restructuring action fiscal 2018 restructuring plan reduce annual operating costs continuing operations approximately 300 million annual restructuring activities substantially completed final payments expected made fiscal 2021 company outstanding restructuring reserves 30 million september 30 2020 expected paid cash fiscal 2017 company recorded 347 million costs resulting 2017 restructuring plan company currently estimates upon completion restructuring action fiscal 2017 restructuring plan reduce annual operating costs continuing operations approximately 260 million annual restructuring activities substantially completed final payments expected made fiscal 2021 company outstanding restructuring reserves 6 million september 30 2020 expected paid cash •refer note 9 debt financing arrangements notes consolidated financial statements additional information items impacting capitalization coissued securities summarized financial information following information provided compliance rule 1301 regulation sx securities exchange act 1934 respect 625 million aggregate principal amount 1750 senior notes due 2030 “2030 notes” ii €500 million aggregate principal amount 0375 senior notes due 2027 “2027 notes” iii €500 million aggregate principal amount 1000 senior notes due 2032 “2032 notes” together 2030 notes 2027 notes “notes” issued johnson controls international plc parent company tyco fire security finance sca “tfsca” corporate partnership limited shares société en commandite par actions incorporated organized laws grand duchy luxembourg “luxembourg” refer note 9 debt financing arrangements notes consolidated financial statements additional information tfsca whollyowned consolidated subsidiary company 99996 owned directly parent company 0004 owned tfsca’s sole general partner manager tyco fire security sà rl whollyowned company notes parent company’s tfsca’s unsecured unsubordinated obligations parent company incorporated organized laws ireland tfsca incorporated organized laws luxembourg bankruptcy insolvency administrative debtor relief laws luxembourg ireland applicable may materially different conflict united states including areas rights creditors priority governmental creditors ability obtain postpetition interest duration proceeding application laws conflict among could adversely affect noteholders’ ability enforce rights notes jurisdictions limit amounts may receive following tables set forth summarized financial information parent company tfsca collectively “obligor group” combined basis intercompany transactions eliminated including adjustments remove receivable payable balances investment equity earnings subsidiaries parent company tfsca collectively nonobligor subsidiaries following table presents summarized income statement information year ended september 30 2020 millions excluded table intercompany transactions obligor group nonobligor subsidiaries follows millions following table presents summarized balance sheet information september 30 2020 millions excluded table intercompany balances obligor group nonobligor subsidiaries follows millions accounting policies described note 1 summary significant accounting policies notes consolidated financial statements used parent company subsidiaries connection summarized financial information presented contractual obligations summary company’s significant contractual obligations continuing operations september 30 2020 follows millions refer note 9 debt financing arrangements notes consolidated financial statements information related companys longterm debt refer note 8 leases notes consolidated financial statements information related companys leases critical accounting estimates policies company prepares consolidated financial statements conformity accounting principles generally accepted united states america us gaap requires management make estimates assumptions affect reported amounts related disclosures actual results could differ estimates following policies considered management critical understanding judgments involved preparation company’s consolidated financial statements uncertainties could impact company’s results operations financial position cash flows revenue recognition company recognizes revenue certain longterm contracts design manufacture install building products systems well unscheduled repair replacement services time basis progress towards completion measured using costtocost input method based relationship actual costs incurred total estimated costs completion costtocost input method used best depicts transfer control customer occurs company incurs costs changes original estimates may required life contract estimates reviewed monthly contract modifications result additional goods services distinct transferred modification accounted prospectively company entered new contract goods services modification distinct original contract sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated losses recorded identified company adjust promised amount consideration effects significant financing component contract inception company expects receive payment within twelve months transfer goods services company enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized time straightline basis respective contract term company also sells certain hvac refrigeration products services bundled arrangements multiple performance obligations equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition company sells security monitoring systems may multiple performance obligations including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized time costtocost input method revenue monitoring maintenance services recognized time services rendered transaction price allocated performance obligation based relative selling price method order estimate relative selling price market data transfer price studies utilized standalone selling price directly observable company estimates standalone selling price using adjusted market assessment approach expected cost plus margin approach transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized time straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life contract cases company recognizes revenue point time control goods services transfers customer company considers contractual consideration payable customer assesses variable consideration may affect total transaction price including discounts rebates refunds credits similar sources variable consideration determining transaction price contract company includes variable consideration estimated transaction price probable significant reversal revenue recognized would occur uncertainty associated variable consideration subsequently resolved estimates based amount consideration company expects entitled shipping handling costs billed customers included sales related costs included cost sales control transfers customer company presents amounts collected customers sales taxes net related amounts remitted refer note 4 revenue recognition notes consolidated financial statements disclosure companys revenue recognition activity goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies companys average historical future financial results certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value assumptions included impairment tests require judgment changes inputs could impact results calculations primary assumptions used impairment tests managements projections future cash flows although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fiscal years 2020 2019 2018 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets primarily consist trademarks trade names tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests key assumptions used impairment tests longterm revenue growth projections discount rates general industry market macroeconomic conditions company believes judgments assumptions used impairment tests reasonable different assumptions could change estimated fair values therefore future impairment charges could required could material consolidated financial statements impairment longlived assets company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 35030 requires intangible assets acquired business combination used research development activities considered indefinite lived completion abandonment associated research development efforts period assets considered indefinite lived shall amortized shall tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value entity shall recognize impairment loss amount equal excess asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2020 2019 2018 employee benefit plans company provides range benefits employees retired employees including pensions postretirement benefits plan assets obligations measured annually frequently significant remeasurement event based company’s measurement date utilizing various actuarial assumptions discount rates assumed rates return compensation increases turnover rates health care cost trend rates date company reviews actuarial assumptions annual basis makes modifications assumptions based current rates trends appropriate company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans us gaap requires companies recognize statement financial position liability defined benefit pension postretirement plans underfunded unfunded asset defined benefit pension postretirement plans funded us gaap also requires companies measure benefit obligations fair value plan assets determine benefit plan’s funded status date employer’s fiscal year end company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates company’s weighted average discount rate us pension plans 225 295 september 30 2020 2019 respectively company’s weighted average discount rate postretirement plans 190 265 september 30 2020 2019 respectively company’s weighted average discount rate nonus pension plans 135 150 september 30 2020 2019 respectively estimating expected return plan assets company considers historical returns plan assets adjusted forwardlooking considerations inflation assumptions impact active management plans’ invested assets reflecting relatively longterm nature plans’ obligations approximately 27 plans’ assets invested equity securities 63 fixed income securities remainder primarily invested alternative investments years ending september 30 2020 2019 company’s expected longterm return us pension plan assets used determine net periodic benefit cost 690 710 respectively actual rate return us pension plans 690 fiscal year 2020 710 fiscal year 2019 years ending september 30 2020 2019 company’s weighted average expected longterm return nonus pension plan assets 520 respectively actual rate return nonus pension plans 520 fiscal year 2020 520 fiscal year 2019 years ending september 30 2020 2019 company’s weighted average expected longterm return postretirement plan assets 570 565 respectively actual rate return postretirement plan assets 570 fiscal year 2020 565 fiscal year 2019 beginning fiscal 2021 company believes longterm rate return approximate 650 490 530 us pension nonus pension postretirement plans respectively differences actual investment results expected longterm asset returns reflected net periodic benefit costs fourth quarter fiscal year date significant remeasurement event company’s actual returns plan assets less company’s expectations additional contributions may required fiscal 2020 total employer contributions continuing operations defined benefit pension plans 58 million none voluntary contributions made company expects contribute approximately 46 million cash defined benefit pension plans fiscal 2021 fiscal 2020 total employer contributions continuing operations postretirement plans 3 million company expects contribute approximately 3 million cash postretirement plans fiscal 2021 based information provided independent actuaries relevant sources company believes assumptions used reasonable however changes assumptions could impact company’s financial position results operations cash flows loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 22 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage insurable liabilities asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestosrelated defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 22 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities income taxes company accounts income taxes accordance asc 740 income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled company records valuation allowance primarily represents nonus operating loss carryforwards realization uncertain management judgment required determining company’s provision income taxes deferred tax assets liabilities valuation allowance recorded company’s net deferred tax assets calculating provision income taxes interim basis company uses estimate annual effective tax rate based upon facts circumstances known interim period quarterly basis actual effective tax rate adjusted appropriate based upon actual results compared forecasted beginning fiscal year company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary september 30 2020 company valuation allowance 55 billion continuing operations 53 billion relates net operating loss carryforwards primarily france germany ireland luxembourg spain united kingdom us sustainable taxable income demonstrated 02 billion deferred tax assets company’s federal income tax returns certain nonus income tax returns various fiscal years remain various stages audit irs respective nonus tax authorities although outcome tax audits always uncertain management believes appropriate support positions taken tax returns annual tax provisions included amounts sufficient pay assessments may proposed taxing authorities september 30 2020 company recorded liability 25 billion best estimate probable loss certain tax positions majority included noncurrent liabilities consolidated statements financial position nonetheless amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year company generally provide additional us nonus income taxes outside basis differences consolidated subsidiaries included shareholders’ equity attributable johnson controls international plc except limited circumstances including anticipated taxation planned divestitures reduction outside basis differences via sale liquidation subsidiaries andor distributions could create taxable income company’s intent reduce outside basis differences would tax efficient refer capitalization within liquidity capital resources section discussion us nonus cash projections refer note 18 income taxes notes consolidated financial statements companys income tax disclosures new accounting pronouncements refer new accounting pronouncements section within note 1 summary significant accounting policies notes consolidated financial statements risk management company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities stockbased compensation hedging transactions authorized executed pursuant clearly defined policies procedures strictly prohibit use financial instruments speculative purposes inception hedge company assesses effectiveness hedge instrument designates hedge instrument either 1 hedge recognized asset liability recognized firm commitment fair value hedge 2 hedge forecasted transaction variability cash flows received paid related unrecognized asset liability cash flow hedge 3 hedge net investment nonus operation net investment hedge company performs hedge effectiveness testing ongoing basis depending type hedging instrument used derivatives designated hedging instruments asc 815 derivatives hedging revalued consolidated statements income foreign currency derivative instruments designated cash flow hedges retrospective effectiveness tested monthly basis using cumulative dollar offset test fair value hedged exposures fair value hedge instruments revalued ratio cumulative sum periodic changes value hedge instruments cumulative sum periodic changes value hedge calculated hedge deemed highly effective ratio 80 125 commodity derivative contracts designated cash flow hedges effectiveness tested using regression calculation ineffectiveness minimal company aligns critical terms derivatives supply contracts net investment hedges company assesses net investment positions nonus operations compares outstanding net investment hedges quarterly basis hedge deemed effective aggregate outstanding principal hedge instruments designated net investment hedge nonus operation exceed company’s net investment positions respective nonus operation equity swaps derivative instruments designated hedging instruments asc 815 require assessment effectiveness discussion company’s accounting policies derivative financial instruments included note 1 summary significant accounting policies notes consolidated financial statements disclosure relating derivatives hedging activities included note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements foreign exchange company manufacturing sales distribution facilities around world thus makes investments enters transactions denominated various foreign currencies order maintain strict control achieve benefits company’s global diversification foreign exchange exposures currency netted internally net foreign exchange exposures appropriate hedged financial instruments company hedges 70 90 nominal amount known foreign exchange transactional exposures company primarily enters foreign currency exchange contracts reduce earnings cash flow impact variation nonfunctional currency denominated receivables payables gains losses resulting hedging instruments offset foreign exchange gains losses underlying assets liabilities hedged maturities forward exchange contracts generally coincide settlement dates related transactions realized unrealized gains losses contracts recognized period gains losses hedged items company also selectively hedges anticipated transactions subject foreign exchange exposure primarily foreign currency exchange contracts designated cash flow hedges accordance asc 815 company entered foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects debt obligations reflected accumulated comprehensive income aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset gains losses recorded company’s net investments globally september 30 2020 2019 company estimates unfavorable 10 change exchange rates would decreased net unrealized gains approximately 363 million 358 million respectively interest rates substantially companys outstanding debt fixed interest rates 10 increase average cost company’s variable rate debt would immaterial impact pretax interest expense year ended september 30 2020 2019 commodities company uses commodity hedge contracts financial derivatives market cases commodity price risk cannot naturally offset hedged supply base fixed price contracts commodity risks systematically managed pursuant policy guidelines cash flow hedge gains losses resulting hedging instruments offset gains losses purchases underlying commodities used business maturities commodity hedge contracts coincide expected purchase commodities environmental health safety matters company’s global operations governed environmental laws worker safety laws various circumstances laws impose civil criminal penalties fines well injunctive remedial relief noncompliance require remediation sites companyrelated substances released environment company expended substantial resources globally financial managerial comply applicable environmental laws worker safety laws protect environment workers company believes substantial compliance laws maintains procedures designed foster ensure compliance however company future may become subject formal informal enforcement actions proceedings regarding noncompliance laws remediation companyrelated substances released environment matters typically resolved regulatory authorities commitments compliance abatement remediation programs cases payment penalties historically neither commitments penalties imposed company material refer note 22 commitments contingencies notes consolidated financial statements additional information quarterly financial data 1the fiscal 2020 first quarter net income includes 39 million integration costs 10 million marktomarket gains 111 million restructuring impairment costs fiscal 2020 second quarter net income includes 38 million integration costs 32 million marktomarket losses 62 million restructuring impairment costs fiscal 2020 third quarter net income includes 30 million integration costs 132 million marktomarket losses 610 million restructuring impairment costs fiscal 2020 fourth quarter net income includes 28 million integration costs 120 million marktomarket losses 39 million compensation charge related noncontrolling interest acquisition preceding amounts stated pretax prenoncontrolling interest impact basis 2due use weightedaverage shares outstanding quarter computing earnings per share sum quarterly per share amounts may equal per share amount year 3the fiscal 2019 first quarter net income includes 50 million transaction integration costs 21 million marktomarket losses fiscal 2019 second quarter net income includes 70 million transaction integration costs 20 million marktomarket gains fiscal 2019 third quarter net income includes 52 billion gain sale power solutions business net transaction costs 235 million restructuring impairment costs 226 million tax indemnification reserve release 140 million environmental charge 86 million transaction integration costs 60 million loss debt extinguishment 9 million marktomarket gains fiscal 2019 fourth quarter net income includes 626 million net marktomarket losses 111 million transaction integration costs preceding amounts stated pretax prenoncontrolling interest impact basis include continuing discontinued operations activity item 7aitem 7 managements discussion analysis financial condition operating results see managements discussion analysis financial condition operating results appears pages 62 67 form 10k item 7aitem 7 managements discussion analysis financial condition results operations results operations following discussion analysis companys financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions companys actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information organization consolidated financial statements include consolidated results tyco international ltd company organized laws switzerland subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance accounting principles generally accepted united states gaap operate report financial operating information following three segments • north america installation services na installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail institutional governmental customers north america • rest world installation services row installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers rest world row regions • global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row installation services segments also provide general corporate services segments reported fourth nonoperating segment corporate year ended september 30 2011 corporate includes companys former electrical metal products business divested first quarter 2011 references segment data companys continuing operations business overview leading global provider security products services fire detection suppression products services life safety products utilize extensive global footprint 1100 locations including manufacturing facilities service distribution centers monitoring centers sales offices provide solutions localized expertise global customer base provide extensive range product service offerings 3 million customers 100 countries multiple channels revenues broadly diversified across united states canada collectively “north america” central america south america collectively “latin america” europe middle east africa collectively “emea” asia pacific geographic areas following chart reflects fiscal 2013 net revenue geographic area fiscal 2013 net revenue geographic area enduse customers may sell directly wholesalers distributors commercial builders contractors also broadly diversified include • commercial customers including residential commercial property developers financial institutions food service businesses commercial enterprises • industrial customers including companies oil gas power generation mining petrochemical industries • retail customers including international regional local consumer outlets national chains specialty stores • institutional customers including broad range healthcare facilities academic institutions museums foundations • governmental customers including federal state local governments defense installations mass transportation networks public utilities governmentaffiliated entities applications • residential small business customers outside north america including owners single family homes local providers wide range goods services global business varied customer base extensive range products services operations results impacted global regional industry specific factors political factors geographic diversity customer base products services helped mitigate impact one industry economy single country consolidated operating results financial condition cash flows due global nature business variety customers products services single factor predominantly used forecast company results rather management monitors number factors develop expectations regarding future results including activity key competitors customers order rates longer lead time projects capital expenditure budgets spending patterns customers also monitor trends throughout commercial residential fire security markets including building codes firesafety standards commercial installation businesses impacted trends commercial construction starts residential business located outside north america impacted new housing starts recent transactions effective september 28 2012 tyco completed spinoffs adt corporation adt pentair ltd formerly known tyco flow control international ltd tyco flow control formerly north american residential security flow control businesses respectively separate publicly traded companies form distribution tyco shareholders immediately following spinoff pentair inc merged subsidiary tyco flow control taxfree allstock merger pentair ltd pentair succeeding pentair inc independent publicly traded company distribution made september 28 2012 tyco shareholders record september 17 2012 distributions merger related transactions collectively referred herein 2012 separation result distribution operations tycos former flow control north american residential security businesses classified discontinued operations periods presented result 2012 separation incurred separation related costs 2013 including professional services marketing information technology related costs expect continue incur separation related costs fiscal 2014 2012 incurred separation related costs including debt refinancing tax restructuring professional services restructuring impairment charges employeerelated costs 2013 company incurred pretax costs related 2012 separation 69 million recorded within continuing operations pretax gain 8 million within discontinued operations 2012 company incurred pretax costs related 2012 separation 561 million recorded within continuing operations 278 million within discontinued operations costs incurred within continuing operations fiscal 2012 include charge 453 million due early extinguishment debt company refinanced longterm debt result 2012 separation fiscal 2013 company paid 165 million separation costs included within continuing operations fiscal 2012 company paid 186 million separation costs 18 million included within continuing operations fiscal 2011 company incurred pretax costs related 2012 separation 24 million recorded within discontinued operations see note 2 consolidated financial statements results operations consolidated financial information follows 1 net revenue includes 347 million 2011 related companys former electrical metal products business sold first quarter fiscal 2011 2 operating income includes 7 million 2011 related companys former electrical metal products business sold first quarter fiscal 2011 additionally operating income 2011 includes 248 million net gain sale net revenue fiscal 2013 net revenue year ended september 27 2013 increased 244 million 23 10647 million compared net revenue 10403 million year ended september 28 2012 organic basis net revenue grew 130 million 13 year primarily result revenue growth global products segment lesser extent row installation services segment partially offset decline na installation services segment driven security business net revenue favorably impacted acquisitions 168 million 16 primarily within row installation services global products segments changes foreign currency exchange rates primarily row installation services segment unfavorably impacted net revenue 55 million 05 net revenue growth also unfavorably impacted divestitures 38 million 04 primarily na row installation services segments fiscal 2012 net revenue year ended september 28 2012 decreased 154 million 15 10403 million compared net revenue 10557 million year ended september 30 2011 organic basis net revenue grew 247 million 24 year primarily driven global products segment net revenue unfavorably impacted net impact acquisitions divestitures 71 million 07 primarily due sale majority interest companys former electrical metal products business contributed 347 million net revenue year ended september 30 2011 partially offset acquisitions chemguard visonic within companys global products segment unfavorable changes foreign currency exchange rates impacted net revenue 226 million 21 addition companys fiscal year ends last friday september fiscal 2012 consisted 52 weeks compared 53 weeks fiscal 2011 result fiscal year 2011 includes estimated 98 million revenue additional week operating income operating income year ended september 27 2013 increased 124 million 181 809 million compared operating income 685 million year ended september 28 2012 operating income year ended september 27 2013 favorably impacted net revenue growth smaller corporate footprint result 2012 separation well higher mix service revenue operational improvements across businesses operating income year ended september 27 2013 also favorably impacted 99 million decline net asbestos charges operating income year ended september 27 2013 unfavorably impacted 83 million increase environmental remediation charges well increase restructuring repositioning charges operating income year ended september 27 2013 also unfavorably impacted charge 27 million resulting writeoff insurance receivable established respect legacy claim see note 13 consolidated financial statements information asbestos environmental legacy legal matters operating income year ended september 28 2012 decreased 297 million 302 685 million compared operating income 982 million year ended september 30 2011 operating income year ended september 28 2012 declined primarily due net gain divestitures 224 million recognized prior year primarily related 248 million net gain related sale majority interest companys former electrical metal products business items impacting operating income fiscal 2013 2012 2011 follows 1 includes 248 million net gain divestiture majority interest electrical metal products business continue identify pursue opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across businesses additionally initiated certain global actions fiscal 2013 designed reduce cost structure improve future profitability streamlining operations better aligning functions refer repositioning actions company expects incur approximately 75 million 100 million restructuring repositioning charges fiscal 2014 see note 4 consolidated financial statements income loss continuing operations attributable tyco common shareholders interest income expense interest income 17 million 2013 compared 19 million 27 million 2012 2011 respectively interest income decreased 2013 primarily due decreased investment yields compared 2012 2011 interest expense 100 million 2013 compared 209 million 240 million 2012 2011 respectively weightedaverage interest rate total debt outstanding 65 september 27 2013 september 28 2012 59 september 30 2011 decreases interest expense fluctuations weightedaverage interest rate primarily related savings realized 26 billion debt redemptions 2012 replacement higher coupon notes lower coupon notes 2011 see note 10 consolidated financial statements expense net expense net 29 million 2013 compared 454 million 5 million 2012 2011 respectively expense net decreased 2013 due loss extinguishment debt 453 million recorded 2012 effective income tax rate effective income tax rate 179 year ended september 27 2013 effective tax rate affected mix jurisdictions income earned effective tax rate year favorably impacted impact taxes environmental remediation charges incurred second quarter 2013 partially offset tax sharing agreement adjustments incurred throughout year enacted tax law changes fourth quarter 2013 effective income tax rate year ended september 28 2012 meaningful primarily result separation related charges incurred tax benefit recognized well valuation allowance 235 million recorded due net operating loss carryforwards expect realize future periods additionally effective income tax rate year ended september 28 2012 impacted enacted tax law changes favorable audit resolutions multiple jurisdictions nonrecurring item generating tax benefit effective income tax rate 175 year ended september 30 2011 effective income tax rate impacted tax charge recorded conjunction sale majority interest electrical metal products business first quarter 2011 effective income tax rate positively impacted favorable audit resolutions multiple jurisdictions 2011 rate vary period due discrete items settlement income tax audits changes tax laws well recurring factors geographic mix income taxes valuation allowance deferred tax assets 20 billion 18 billion september 27 2013 september 28 2012 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions specifically valuation allowance september 27 2013 september 282012 includes separation related charges associated early extinguishment debt increased net operating loss carryforward company expect realize future periods valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets companys consolidated balance sheets calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year equity loss earnings unconsolidated subsidiaries equity loss earnings unconsolidated subsidiaries 2013 2012 2011 reflects share atkore international group incs atkore net loss accounted equity method accounting included equity loss earnings unconsolidated subsidiaries year ended september 27 2013 21 million charge reflecting share asset impairment charges recorded atkore primarily related impairment long lived assets brazil key items impacting income loss continuing operations attributable tyco common shareholders fiscal 2013 2012 2011 follows segment results following chart reflects net revenue operating segment well percent net revenue operating segment fiscal 2013 2012 2011 respectively chart include net revenue related companys former electrical metal products business divested first quarter fiscal 2011 included within corporate 2011 represents 347 million 33 net revenue segment discussions follow describe significant factors contributing changes results segments included continuing operations na installation services na installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail institutional governmental customers north america financial information na installation services years ended september 27 2013 september 28 2012 september 30 2011 follows change net revenue compared prior periods attributable following net revenue decreased 71 million 18 3891 million year ended september 27 2013 compared 3962 million year ended september 28 2012 organic revenue decline year ended september 27 2013 primarily driven decline revenue north america security business result nonresidential construction market project selectivity partially offset increased service revenue growth north america fire business net revenue unfavorably impacted 28 million 07 primarily due divestiture north america guarding business third quarter fiscal 2013 net revenue decreased 60 million 15 3962 million year ended september 28 2012 compared 4022 million year ended september 30 2011 organic revenue decline year ended september 28 2012 driven slow nonresidential market growth well installation project selectivity north america security business partially offset increased service revenue net revenue year ended september 28 2012 impacted 53rd week revenue fiscal 2011 included within operating income operating income year ended september 27 2013 increased 14 million 37 388 million compared operating income 374 million year ended september 28 2012 operating income year ended september 27 2013 increased due higher mix service revenue efficiencies gained improved installation execution project selectivity north america security business additionally year ended september 28 2012 included charge 29 million settlement erisa partial withdrawal liability assessment items partially offset unfavorable impacts due separation costs well dissynergy costs related 2012 separation operating income year ended september 28 2012 decreased 51 million 120 374 million compared operating income 425 million year ended september 30 2011 operating income year ended september 28 2012 declined due restructuring asset impairment charges related organizational realignment key items impacting operating income fiscal 2013 2012 2011 follows row installation services row installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers continental europe united kingdom asia pacific growth markets regions collectively row regions financial information row installation services years ended september 27 2013 september 28 2012 september 30 2011 follows change net revenue compared prior periods attributable following net revenue increased 76 million 18 4417 million year ended september 27 2013 compared 4341 million year ended september 28 2012 organic revenue growth year ended september 27 2013 driven service revenue growth markets asia continental europe partially offset decline pacific region growth service revenue partially offset decrease installation revenue driven declines continental europe united kingdom offset increase growth markets net revenue favorably impacted impact acquisitions 93 million 21 primarily due acquisitions within united kingdom pacific regions fiscal 2013 well acquisitions asia fiscal 2012 net revenue unfavorably impacted impact divestitures 10 million 02 changes foreign currency exchanges rates unfavorably impacted net revenue 49 million 11 net revenue decreased 93 million 21 4341 million year ended september 28 2012 compared 4434 million year ended september 30 2011 organic revenue growth year ended september 28 2012 driven increased revenue asia growth markets partially offset continued softness continental europe united kingdom net revenue year ended september 28 2012 impacted 53rd week revenue fiscal 2011 included within operating income operating income year ended september 27 2013 decreased 23 million 50 433 million compared operating income 456 million year ended september 28 2012 operating income year ended september 27 2013 decreased primarily due increase restructuring charges loss divestitures partially offset continued focus increasing higher margin service revenue well benefit ongoing cost saving initiatives operating income year ended september 28 2012 increased 51 million 126 456 million compared operating income 405 million year ended september 30 2011 operating income year ended september 28 2012 improved primarily due increased price focus higher margin products services well benefit ongoing cost containment restructuring savings regions key items impacting operating income fiscal 2013 2012 2011 follows global products global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row installation services segments financial information global products years ended september 27 2013 september 28 2012 september 30 2011 follows change net revenue compared prior periods attributable following net revenue increased 239 million 114 2339 million year ended september 27 2013 compared 2100 million year ended september 28 2012 organic revenue growth year ended september 27 2013 driven growth across three product platforms net revenue favorably impacted acquisitions 68 million 32 primarily due acquisitions within fire security products businesses fiscal 2013 2012 net revenue also favorably impacted contractual revenue adt 2012 separation distribution agreement 39 million 19 included within net revenue increased 346 million 197 2100 million year ended september 28 2012 compared 1754 million year ended september 30 2011 organic revenue growth year ended september 28 2012 driven continued growth existing product lines expansion key verticals introduction new products net revenue year ended september 28 2012 impacted 53rd week revenue fiscal 2011 included within operating income operating income year ended september 27 2013 decreased 46 million 130 307 million compared operating income 353 million year ended september 28 2012 operating income year ended september 27 2013 unfavorably impacted charges 100 million recorded first half fiscal 2013 additional environmental remediation activities planned facility located marinette wisconsin see note 13 consolidated financial statements information operating income year ended september 27 2013 favorably impacted net revenue growth operational improvements partially offset additional investments research development sales marketing costs operating income year ended september 28 2012 increased 58 million 197 353 million compared operating income 295 million year ended september 30 2011 operating income year ended september 28 2012 improved primarily due increased volume price discipline offset commodity inflationary pressures integration acquisitions benefit continued investment research development benefit ongoing cost containment restructuring savings benefits partially offset additional environmental remediation costs key items impacting operating income fiscal 2013 2012 2011 follows corporate expense decreased 179 million 359 319 million year ended september 27 2013 compared 498 million year ended september 28 2012 decrease corporate expense year ended september 27 2013 primarily due smaller corporate footprint result 2012 separation well lower separation costs corporate expense also decreased due decline net asbestos charges 12 million year ended september 27 2013 111 million prior year period net asbestos charges year ended september 27 2013 primarily relate yarway corporation one companys indirect subsidiaries filed bankruptcy protection third quarter fiscal 2013 net asbestos charges year ended september 28 2012 primarily due company revising lookback period historical claim experience past five years past three years well lookforward period related projection future claims seven years fifteen years decreases corporate expense partially offset charge 27 million resulting writeoff insurance receivable established respect legacy claim well net benefit prior year period approximately 33 million primarily resulting reversal compensation reserve established respect legacy litigation former management see note 13 consolidated financial statements additional information related asbestos legacy legal matters corporate expense increased 355 million 2483 498 million year ended september 28 2012 compared expense 143 million year ended september 30 2011 increase corporate expense primarily due net gain divestiture 253 million year ended september 30 2011 result divestiture majority interest companys former electrical metal products business fiscal 2011 corporate expense favorably impacted cost containment initiatives year ended september 28 2012 key items included corporate expense fiscal 2013 2012 2011 follows critical accounting policies estimates preparation consolidated financial statements conformity us gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization methods security monitoringrelated assetstyco considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 135 360 commercial subscriber pools dealer intangibles converts straight line methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination revenue recognitioncontract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts provisions anticipated losses made period become determinable sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements assess revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services product discounts granted based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable asbestosrelated contingencies insurance receivableswe certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made future defined period time lookforward period quarterly basis company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable quarterly basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters record asbestosrelated insurance recoveries probable estimate asbestosrelated insurance recoveries represents estimated amounts due us previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable consider available insurance allocation methodologies solvency creditworthiness insurers see note 13 consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return pattern timing future obligation reliably determinable company records receivables third party insurers recovery determined probable income taxesin determining taxable income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded valuation allowances maintain morelikelythannot deferred tax assets realized income tax expense recorded future may reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance could result additional income tax expense period could significant impact future earnings changes tax laws rates could also affect recorded deferred tax assets liabilities future management records effect tax rate law change companys deferred tax assets liabilities period enactment future tax rate law changes could material effect companys financial condition results operations cash flows addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur performing assessments management relies considers number factors including operating results business plans economic projections anticipated future cash flows comparable market transactions extent available market data companys overall market capitalization elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets first step goodwill impairment test compare fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based forecast cash flows including estimated underlying revenue operating income growth rates discounted using estimated weightedaverage cost capital market participants market approach utilizing observable market data comparable companies similar lines business publicly traded part public private transaction extent available used corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test compare implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined allocate fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill recorded goodwill impairments conjunction annual goodwill impairment assessment performed fourth quarter fiscal 2013 fair value determinations require considerable judgment sensitive changes underlying assumptions factors result assurance estimates assumptions made purposes annual goodwill impairment test prove accurate predictions future examples events circumstances could reasonably expected negatively affect underlying key assumptions ultimately impact estimated fair value aforementioned reporting units may include items follows • prolonged downturn business environment reporting units operate ie sales volumes prices especially commercial construction retailer end markets • economic recovery significantly differs assumptions timing degree • volatility equity debt markets resulting higher discount rates • unexpected regulatory changes historical performance current expectations resulted fair values goodwill excess carrying values assumptions realized possible future impairment charge may need recorded however possible time determine impairment charge would result charge would material longlived assetsasset groups held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events changes business circumstances indicate carrying amount asset group may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairments longlived assets disposed recorded based upon fair value less cost sell applicable assets calculation fair value longlived assets based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions resulting actuarial gains losses active plans actuarial gains losses amortized average expected service period participants case inactive plans average remaining life expectancy participants discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 79 million increase annual pension expense approximately 2 million consider relative weighting plan assets class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions determining expected longterm return plan assets 25 basis point decrease expected longterm return plan assets would increase annual pension expense approximately 5 million liquidity capital resources fundamental objective company sufficient liquidity balance sheet strength financial flexibility fund operating capital requirements core businesses around world primary source funds finance operations capital expenditures cash generated operations addition maintain commercial paper program access committed revolving credit facility access equity debt capital public private sources continue balance operating investing financing uses cash investments acquisitions core businesses dividends share repurchases addition believe cash position amounts available credit facility commercial paper program cash provided operating activities adequate cover operational business needs foreseeable future september 27 2013 september 28 2012 cash equivalents short longterm debt tyco shareholders equity follows company expects pay approximately 100 million within next 12 months settle intercompany liabilities due yarway ii 163 million settle certain pre2012 separation related tax liabilities although timing amounts payments subject number uncertainties company expects issue 500 million longterm debt throughout fiscal 2014 ensure sufficient funds available costeffective basis general corporate purposes see notes 13 6 respectively consolidated financial statements sources uses cash summary cash flows operating investing financing continuing operations fiscal 2013 2012 2011 follows cash flow operating activities cash flow operating activities fluctuate significantly period working capital needs timing payments items restructuring activities pension funding income taxes items impact reported cash flow net change working capital decreased operating cash flow 415 million 2013 significant changes working capital included 213 million decrease accrued expenses current liabilities 87 million increase accounts receivable 34 million increase inventories partially offset 52 million decrease prepaid expenses current assets net change working capital decreased operating cash flow 489 million 2012 significant changes working capital included 172 million decrease income taxes payable 80 million decrease accrued expenses current liabilities 128 million increase accounts receivable 86 million increase prepaid expenses current assets 72 million increase inventories net change working capital decreased operating cash flow 348 million 2011 significant changes working capital included 216 million decrease accrued liabilities 47 million increase accounts receivable 42 million increase inventories 33 million decrease accounts payable 2013 2012 2011 paid approximately 84 million 89 million 90 million respectively cash related restructuring activities see note 4 consolidated financial statements information regarding restructuring activities connection 2012 separation paid 165 million 18 million nil separation costs 2013 2012 2011 respectively 2013 2012 2011 made environmental remediation payments related environmental remediation activities facility located marinette wisconsin 51 million 10 million 5 million respectively years ended september 27 2013 september 28 2012 september 30 2011 made required contributions 56 million 88 million 63 million respectively us nonus pension plans also made voluntary contributions nil years ended september 27 2013 september 28 2012 approximately 12 million year ended september 30 2011 us plans company anticipates contribute least minimum required pension plans 2014 25 million us plans 35 million nonus plans income taxes paid net refunds related continuing operations 155 million 147 million 121 million 2013 2012 2011 respectively net interest paid related continuing operations 79 million 201 million 195 million 2013 2012 2011 respectively cash flow investing activities cash flows related investing activities consist primarily cash used capital expenditures acquisitions proceeds derived divestitures businesses assets made capital expenditures 377 million 406 million 371 million 2013 2012 2011 respectively level capital expenditures fiscal year 2014 expected exceed spending levels fiscal year 2013 also expected exceed depreciation expense 2013 paid cash acquisitions included continuing operations totaling 229 million net 9 million cash acquired primarily related acquisition exacq technologies within global products segment 2012 paid cash acquisitions included continuing operations totaling 217 million net cash acquired 17 million primarily related acquisition visonic ltd within global products segment 2011 paid cash acquisitions included continuing operations totaling 353 million net cash acquired 3 million primarily related acquisitions signature security group within row installation services segment chemguard within global products segment 2013 2011 received cash proceeds net cash divested 17 million 709 million respectively divestitures 2012 cash paid related divestitures 5 million cash proceeds 2011 primarily related sale majority interest electrical metal products business 713 million see note 3 consolidated financial statements information maintain captive insurance companies manage certain insurable liabilities captive insurance companies hold certain investment accounts purposes providing collateral insurable liabilities year ended september 27 2013 captive insurance companies made net purchases investments 45 million years ended september 28 2012 september 30 2011 captive insurance companies made net sales investments 41 million 26 million respectively cash flow financing activities cash flows financing activities relate primarily proceeds received incurring debt issuing stock cash used repay debt repurchase stock make dividend payments shareholders fourth quarter 2012 connection separation tyco finance subsidiary tyco international finance sa tifsa redeemed various debt securities maturing 2013 2023 issued tifsa andor tyco aggregate principal amount 26 billion see note 10 consolidated financial statements information june 22 2012 tifsa borrower company guarantor entered fiveyear senior unsecured credit agreement providing revolving credit commitments aggregate amount 10 billion 2012 credit agreement connection entering 2012 credit agreement tifsa company terminated existing fouryear senior unsecured credit agreement dated march 24 2011 provided revolving credit commitments aggregate amount 750 million additionally companys fiveyear senior unsecured credit agreement dated april 25 2007 terminated september 28 2012 result entering 2012 credit agreement terminations described total commitments september 27 2013 10 billion revolving credit facility september 27 2013 amounts drawn revolving credit facility tifsas revolving credit facility contains customary terms conditions financial covenants limit ratio debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive business 2013 2012 tifsa issued commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 27 2013 september 28 2012 tifsa commercial paper outstanding maximum aggregate amount unsecured commercial paper notes available issued private placement basis commercial paper program 1 billion september 27 2013 january 12 2011 tifsa issued 250 million aggregate principal amount 375 notes due january 15 2018 notes 250 million aggregate principal amount 4625 notes due january 15 2023 notes fully unconditionally guaranteed company tifsa received net cash proceeds approximately 494 million net proceeds along available funds used fund repayment outstanding 675 notes due february 2011 principal amount 516 million 183 million aggregate principal amount 2018 notes 208 million aggregate principal amount 2023 notes redeemed fourth quarter 2012 connection separation described pursuant share repurchase program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved trading plan accordance applicable regulations january 2013 companys board directors approved additional 600 million share repurchase authority year ended september 27 2013 repurchased approximately 10 million common shares approximately 300 million 2011 2013 share repurchase programs completed 2011 program year ended september 28 2012 repurchased approximately 11 million common shares approximately 500 million 2011 share repurchase program year ended september 30 2011 repurchased approximately 30 million common shares approximately 13 billion 2011 2010 2008 share repurchase programs completed 2010 2008 programs march 6 2013 shareholders approved cash dividend 064 per common share payable shareholders four quarterly installments 016 may 2013 august 2013 november 2013 february 2014 march 7 2012 shareholders approved cash dividend 050 per common share payable shareholders two quarterly installments 025 may 23 2012 august 22 2012 additionally september 17 2012 shareholders approved another cash dividend 030 per common share payable shareholders two quarterly installments 015 per share paid november 15 2012 february 20 2013 030 dividend reflects impact 2012 separation companys dividend policy fiscal 2013 2012 2011 paid cash dividends approximately 288 million 461 million 458 million respectively see note 15 consolidated financial statements information management believes cash generated available us sufficient fund capital operational business needs foreseeable future including capital expenditures quarterly dividend payments share repurchases commitments contingencies detailed discussion contingencies related tax litigation matters governmental investigations see notes 6 13 consolidated financial statements contractual obligations contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases purchase obligations september 27 2013 follows millions 1 debt principal consists aggregate principal amount public debt outstanding excluding debt discount swap activity interest 2 interest payments consist interest fixed interest rate debt 3 purchase obligations consist commitments purchases goods services 4 longterm liabilities excluded contractual obligation table primarily consist following pension postretirement costs see note 14 consolidated financial statements income taxes see note 6 consolidated financial statements contingent consideration see note 5 consolidated financial statements warranties see note 11 consolidated financial statements environmental liabilities see note 13 consolidated financial statements unable estimate timing payment items due inherent uncertainties related obligations however minimum required contributions pension plans expected approximately 60 million 2014 expect make material contributions 2014 related postretirement benefit plans september 27 2013 recorded gross unrecognized tax benefits 257 million gross interest penalties 41 million unable make reasonably reliable estimate timing remaining payments future years therefore amounts excluded contractual obligation table however based current status income tax audits believe reasonably possible nil 30 million unrecognized tax benefits may resolved next twelve months although company unrecognized tax benefits recognized would affect effective tax rate company net operating loss carryforwards would offset cash impact recognition unrecognized tax benefits relating current year normal course business liable contract completion product performance opinion management obligations significantly affect financial position results operations cash flows connection 2012 separation entered liability sharing agreement regarding certain actions pending tyco prior 2012 separation 2012 tax sharing agreement pentair tyco adt share certain predistribution income tax liabilities arise adjustments made tax authorities tyco flow controls tycos adts us income tax returns ii payments required made tyco respect 2007 tax sharing agreement excluding approximately 175 million pre2012 separation related tax liabilities anticipated paid prior 2012 separation collectively shared tax liabilities company responsible first 500 million shared tax liabilities pentair adt share 42 58 respectively next 225 million shared tax liabilities pentair adt tyco share 20 275 525 respectively shared tax liabilities 725 million company expects pay 163 million settle certain pre2012 separation related tax liabilities timing amounts payments subject number uncertainties could change see notes 13 6 respectively consolidated financial statements connection 2007 separation entered liability sharing agreement regarding certain actions pending tyco prior 2007 separation 2007 separation distribution agreement 2007 tax sharing agreement assumed 27 covidien assumed 42 te connectivity assumed 31 certain tyco preseparation contingent corporate liabilities september 27 2013 primarily relate tax contingencies potential actions respect spinoffs distributions made brought third party backlog unfilled orders 5326 million 5142 million september 27 2013 september 28 2012 respectively companys backlog includes recurring revenueinforce longterm deferred revenue upfront fees na row installation services segments revenueinforce represents 12 months revenue associated monitoring maintenance services contract security fire business backlog segment follows millions backlog increased 184 million 36 5326 million september 27 2013 compared 5142 million prior year net increase backlog september 27 2013 due 211 million increase total backlog row installation services segment partially offset 64 million decrease total backlog na installation services segment increase total backlog september 27 2013 row installation services segment primarily due 106 million increase recurring revenueinforce across regions well 105 million increase backlog across regions driven part acquisitions asiapacific region decrease total backlog september 27 2013 na installation services segment driven 47 million decrease backlog 12 million increase recurring revenueinforce 29 million decrease deferred revenue result continued pressure north america security business partially offset improvements north america fire business changes foreign currency unfavorable impact backlog 67 million 13 guarantees certain business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien te connectivity adt pentair accordance terms 2007 2012 separation distribution agreements tax sharing agreements guarantees primarily relate certain contingent tax liabilities included tax sharing agreements time 2007 2012 separations recorded liabilities necessary recognize fair value guarantees indemnifications see note 6 consolidated financial statements discussion tax sharing agreements addition prior 2007 2012 separations provided support form financial andor performance guarantees various covidien te connectivity adt tyco flow control operating entities extent guarantees assigned connection 2007 2012 separations assumed primary liability remaining support see note 11 consolidated financial statements discussion liabilities disposing assets businesses often provide representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition reason believe uncertainties would material adverse effect financial position results operations cash flows recorded liabilities known indemnifications included part environmental liabilities normal course business liable contract completion product performance record estimated product warranty costs time sale opinion management obligations significantly affect financial position results operations cash flows september 27 2013 total outstanding letters credit bank guarantees approximately 424 million detailed discussion guarantees indemnifications see note 11 consolidated financial statements accounting pronouncements see note 1 consolidated financial statements recently adopted accounting pronouncements recently issued accounting pronouncements nonus gaap measure effort provide investors additional information regarding results determined us gaap also disclose nonus gaap measure organic revenue growth decline believe measure useful investors evaluating operating performance periods presented read conjunction us gaap revenue enables investors better evaluate operations without giving effect fluctuations foreign exchange rates acquisition divestiture activity either may significant period addition organic revenue growth decline factor use internal evaluations overall performance business measure financial measure us gaap considered substitute revenue determined accordance us gaap may comparable similarly titled measures reported companies organic revenue growth decline presented herein defined revenue growth decline excluding effects foreign currency fluctuations acquisitions divestitures changes may reflect underlying results trends example 53rd week operations fiscal year 2011 organic growth decline calculations incorporate estimate prior year reported net revenue associated acquired entities fully integrated within first year exclude prior year net revenue associated entities meet criteria discontinued operations divested within past year adjusted number calculate rate organic growth decline based adjusted number better reflect rate growth decline combined business case acquisitions remaining business case dispositions base rate organic growth decline acquired businesses fully integrated within first year upon unadjusted historical net revenue foreign currency fluctuations calculated subtracting us dollar equivalent local currencies current period using monthly weighted average exchange rates prior period ii us dollar equivalent local currencies current period using monthly weighted average exchange rates current period may use organic revenue growth decline component compensation programs table details components organic revenue growth decline reconciles nonus gaap measure us gaap net revenue growth decline fiscal 2013 1 organic revenue growth percentage based adjusted fiscal 2012 base revenue 2 amount represents contractual revenue adt 2012 separation distribution agreement excluded organic revenue calculation fiscal 2012 1 organic revenue growth percentage based adjusted fiscal 2011 base revenue 2 amounts represent impact 53rd week revenue segment fiscal 2011 fiscal 2012 foreign exchange rates 3 corporate includes former electrical metal products business divested majority interest first quarter 2011 forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed sec tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect future events including sales earnings cash flows operating tax efficiencies product expansion backlog consummation benefits acquisitions divestitures well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forwardlooking statements include among things • overall economic business conditions overall demand tycos goods services • economic competitive conditions industries end markets regions served businesses • changes legal tax requirements including tax rate changes new tax laws treaties revised tax law interpretations • results consequences tycos internal investigations governmental investigations concerning companys governance management internal controls operations including business operations outside united states • outcome litigation arbitrations governmental proceedings • effect income tax audits litigation settlements appeals • ability repay refinance outstanding indebtedness matures • ability operate within limitations imposed financing arrangements maintain credit ratings • interest rate fluctuations changes borrowing costs consequences volatility capital credit markets • capital market conditions including availability funding sources currency exchange rate fluctuations • availability fluctuations prices key raw materials • changes affecting customers suppliers • economic political conditions international markets including governmental changes restrictions ability transfer capital across borders • ability achieve anticipated cost savings • ability execute portfolio refinement acquisition strategies including successfully integrating acquired operations • potential impairment goodwill intangibles andor longlived assets • ability realize intended benefits 2012 separation including integration commercial security fire protection businesses • risks associated 2012 separation example risk may liable certain contingent liabilities spunoff entities become insolvent • risks associated swiss incorporation including possibility reduced flexibility respect certain aspects capital management corporate governance increased different regulatory burdens possibility may realize anticipated tax benefits • possible effects tyco future legislation united states may limit eliminate potential us tax benefits resulting tyco internationals swiss incorporation deny us government contracts tyco based upon swiss incorporation • natural events severe weather fires floods earthquakes acts terrorism cyberattacks item 7aitem 7 managements discussion analysis financial condition results operations results operations following discussion analysis companys financial condition results operations read together selected financial data consolidated financial statements related notes included elsewhere annual report discussion analysis contains forwardlooking statements involve risks uncertainties assumptions companys actual results may differ materially anticipated forwardlooking statements result many factors including limited headings risk factors forwardlooking information organization consolidated financial statements include consolidated results tyco international plc subsidiaries hereinafter collectively referred company tyco ireland tyco financial statements prepared united states dollars usd accordance gaap fourth quarter fiscal 2015 company changed name north america installation services rest world installation services segments north america integrated solutions services rest world integrated solutions services respectively segment reporting structure consistent management reviews businesses makes investing resource decisions assesses operating performance name changes better reflect companys focus providing technology solutions encompass mix products services consultation tailored unique needs customer changes made current segment structure underlying financial data comprise segment result name changes impact previously disclosed segment information operate report financial operating information following three segments • north america integrated solutions services na integrated solutions services designs sells installs services monitors integrated electronic security systems integrated fire detection suppression systems commercial industrial retail small business institutional governmental customers north america • rest world integrated solutions services row integrated solutions services designs sells installs services monitors integrated electronic security systems integrated fire detection suppression systems commercial industrial retail residential small business institutional governmental customers rest world row regions • global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row integrated solutions services segments also provide general corporate services segments reported fourth nonoperating segment corporate references segment data companys continuing operations certain prior period amounts reclassified conform current period presentation completed sale several row integrated solutions services businesses third quarter fiscal 2015 assets liabilities related row integrated solutions services businesses classified held sale september 26 2014 results operations two businesses included discontinued operations periods presented criteria presented discontinued operation satisfied third business company expects complete sale another row integrated solutions services businesses first half fiscal 2016 assets liabilities business classified held sale results operations presented discontinued operations periods presented see note 3 consolidated financial statements recent transactions following completion 2012 separation company began implementation planned transition holding company structure focused operating company structure connection transition company identified pursued opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across companys businesses also initiated certain global actions designed reduce cost structure improve future profitability streamlining operations better aligning functions actions collectively referred restructuring repositioning actions fiscal years ended september 25 2015 september 26 2014 september 27 2013 company recorded restructuring repositioning charges 289 million 93 million 131 million respectively company substantially completed many actions expected take connection transition expects incur future restructuring repositioning charges significantly less amounts recorded fiscal 2015 based current outlook end market economic conditions company expects incur 75 million 100 million restructuring repositioning charges fiscal 2016 see note 4 consolidated financial statements fiscal 2014 company incurred net charges approximately 462 million related asbestos claims primarily yarway grinnell subsidiaries respect grinnell second quarter fiscal 2015 company completed series restructuring transactions related establishment funding structure dedicated resolving certain historic grinnell asbestos liabilities pursuant transaction subsidiary company acquired certain assets grinnell transferred cash assets totaling approximately 278 million structure subsidiaries structure assumed certain liabilities related historic grinnell scott figgie operations including historical grinnell asbestos liabilities respect yarway fourth quarter fiscal 2015 bankruptcy court overseeing yarway’s previously disclosed chapter 11 bankruptcy proceeding issued order confirming yarway’s chapter 11 plan august 19 2015 chapter 11 plan became effective time subsidiary company contributed approximately 325 million cash 524g trust established yarway company certain parties received benefit release yarway injunction section 524g bankruptcy code permanently enjoining assertion yarway asbestos claims parties result effectiveness chapter 11 plan ownership yarway transferred yarway trust longer consolidated subsidiary company see note 12 consolidated financial statements details asbestos second quarter fiscal 2015 tyco’s finance subsidiary tyco international finance sa “tifsa” issued €500 million aggregate principal amount 1375 notes due february 25 2025 euro notes fully unconditionally guaranteed company tyco fire security finance sca “tifsca” tifsa received total net proceeds approximately 563 million made available general corporate purposes addition september 14 2015 tifsa issued 750 million aggregate principal amount 39 notes due february 14 2026 notes 750 million aggregate principal amount 5125 notes due september 14 2045 notes fully unconditionally guaranteed company tifsca tifsa received total net proceeds approximately 1477 million september october 2015 net proceeds 2026 notes 2045 notes used fund redemption companys outstanding 85 notes due 2019 70 notes due 2019 6875 notes due 2021 aggregated 1068 million principal amount make associated makewhole payments early redemption notes contribute repayment 258 million principal amount 3375 notes matured october 2015 result redemption 85 notes occurred fiscal 2015 company recorded charge expense net within consolidated statement operations loss extinguishment debt 81 million fourth quarter fiscal 2015 company record charge 168 million loss extinguishment debt within consolidated statements operations related early extinguishment 70 notes due 2019 6875 notes due 2021 first quarter fiscal 2016 result issuance debt redemptions described company’s outstanding longterm debt october 15 2015 2159 million weighted average annual interest rate 37 compared 1443 million weighted average annual interest rate 65 september 26 2014 see note 9 consolidated financial statements business overview leading global provider security products services fire detection suppression products services life safety products utilize extensive global footprint approximately 900 locations including manufacturing facilities service distribution centers monitoring centers sales offices provide solutions localized expertise global customer base provide extensive range product service offerings 3 million customers 100 countries multiple channels revenues broadly diversified across united states canada collectively “north america” central america south america collectively “latin america” europe middle east africa collectively “emea” asiapacific geographic areas following chart reflects fiscal 2015 net revenue geographic area fiscal 2015 net revenue geographic area enduse customers may sell directly wholesalers distributors commercial builders contractors also broadly diversified include • commercial customers including residential commercial property developers financial institutions food service businesses commercial enterprises • industrial customers including companies oil gas power generation mining petrochemical industries • retail small business customers including international regional local consumer outlets national chains specialty stores • institutional customers including broad range healthcare facilities academic institutions museums foundations • governmental customers including federal state local governments defense installations mass transportation networks public utilities governmentaffiliated entities applications • residential customers outside north america including owners single family homes local providers wide range goods services global business varied customer base extensive range products services operations results impacted global regional industry specific factors political factors geographic diversity customer base products services helped mitigate impact one industry economy single country consolidated operating results financial condition cash flows due global nature business variety customers products services single factor predominantly used forecast company results rather management monitors number factors develop expectations regarding future results including activity key competitors customers order rates longer lead time projects capital expenditure budgets spending patterns customers also monitor trends throughout commercial residential fire security markets including building codes firesafety standards commercial installation businesses impacted trends commercial construction starts residential business located outside north america impacted new housing starts global business approximately 51 revenue generated outside united states financial statements prepared us dollars results operations impacted changes foreign currency exchange rates year us dollar remained strong currencies significant nonus jurisdictions operate significant impact results due strengthening us dollar compared euro unfavorably impacted revenue operating income fiscal 2015 average us dollar euro exchange rate fiscal 2015 115 compared 136 fiscal 2014 assuming exchange rates principal nonus currencies euro british pound canadian australian dollars remain current levels throughout 2016 expect foreign currency exchange rates unfavorably impact gaap reported revenue operating income fiscal 2016 addition company sells products services petrochemical oil gas market revenue market vertical spread across company’s segments significant exposure united kingdom row integrated solutions services segment fire protection products business global products segment result volatility oil prices year market vertical seen significant changes spending patterns particular respect capital expenditures revenue tied market vertical unfavorably impacted fiscal 2015 expect weakness sector continue fiscal 2016 results operations consolidated financial information follows net revenue net revenue year ended september 25 2015 decreased 430 million 42 9902 million compared net revenue 10332 million year ended september 26 2014 changes foreign currency exchange rates unfavorable impact 622 million 60 net revenue net revenue growth also unfavorably impacted divestitures 67 million 06 row integrated solutions services segment declines partially offset impact acquisitions contributed 199 million 19 organic basis net revenue grew 60 million 06 year result growth global products lesser extent na integrated solutions services segments partially offset decline row integrated solutions services segment net revenue year ended september 26 2014 increased 274 million 27 10332 million compared net revenue 10058 million year ended september 27 2013 organic basis net revenue grew 262 million 26 year result growth three segments led primarily global products lesser extent row na integrated solutions services net revenue favorably impacted acquisitions contributed 201 million 20 primarily within row integrated solutions services global products segments net revenue growth unfavorably impacted divestitures 107 million 11 row na integrated solutions services segments changes foreign currency exchange rates primarily row integrated solutions services segment also unfavorably impacted net revenue 82 million 08 cost revenue selling general administrative sga significant components cost product sales include material costs labor overhead costs product shipping warehousing costs significant components cost services include labor employee related costs depreciation expense costs associated equipment fleet vehicles telecommunication costs material costs significant components sga include compensation related costs facility maintenance expenses professional fees operating income operating income year ended september 25 2015 increased 184 million 263 884 million compared operating income 700 million year ended september 26 2014 increase primarily due 452 million decline asbestosrelated charges well 51 million reduction separation costs year ended september 25 2015 addition improved execution benefits costcontainment previous restructuring productivity initiatives favorable impact operating income items partially offset 196 million increase restructuring repositioning charges compared prior year 88 million decrease legacy legal gains 33 million increase loss divestitures foreign currency exchange rates unfavorable impact 47 million addition 21 million insurance recovery related china operations 16 million gain related settlement former subsidiary cit fiscal year 2014 recur fiscal year 2015 operating income year ended september 26 2014 decreased 12 million 17 700 million compared operating income 712 million year ended september 27 2013 operating income year ended september 26 2014 unfavorably impacted asbestos related charges 225 million relating yarway subsidiary company time 240 million result asbestos related claims operating income year ended september 26 2014 favorably impacted reversal compensation reserve 92 million established respect legacy litigation former management gain 16 million relating settlement cit 21 million insurance recovery related china operations addition year ended september 26 2014 also favorably impacted 100 million decline environmental remediation costs related global products facility marinette wisconsin decrease restructuring repositioning charges 38 million see note 12 consolidated financial statements details asbestos environmental legacy legal matters items impacting operating income fiscal 2015 2014 2013 follows continue identify pursue opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across businesses additionally initiated certain global actions designed reduce cost structure improve future profitability streamlining operations better aligning functions refer repositioning actions based current outlook end market economic conditions company expects incur 75 million 100 million restructuring repositioning charges fiscal 2016 see note 4 consolidated financial statements income loss continuing operations attributable tyco ordinary shareholders interest income expense interest income 15 million 2015 compared 14 million 16 million 2014 2013 respectively interest expense 102 million 2015 compared 97 million 100 million 2014 2013 respectively weightedaverage interest rate total debt outstanding 438 fiscal 2015 65 fiscal 2014 2013 increase interest expense fiscal 2015 primarily due net increase debt fiscal 2015 resulting various debt transactions february september described see note 9 consolidated financial statements result debt refinancing company expects weighted average interest rate 37 2016 approximately 22 billion longterm debt see note 21 consolidated financial statements expense net significant components expense net fiscal 2015 2014 2013 follows effective income tax rate effective income tax rate 140 year ended september 25 2015 effective tax rate affected mix jurisdictions income earned effective tax rate year unfavorably impacted increase valuation allowance company determined morelikelythan portion state deferred tax assets would realized partially offset reversal valuation allowance tax law change nonus jurisdiction affected company’s ability determine morelikelythannot deferred tax assets would realized year favorably impacted increase nonrecurring repositioning restructuring expenses described primarily incurred high tax jurisdictions effective income tax rate 39 year ended september 26 2014 effective tax rate affected mix jurisdictions income earned effective tax rate year favorably impacted asbestos related charges generated tax benefit high tax jurisdiction partially offset reversal compensation reserve established respect legacy litigation former management generated tax expense high tax jurisdiction effective income tax rate 180 year ended september 27 2013 effective tax rate year favorably impacted taxes environmental remediation charges incurred second quarter 2013 partially offset tax sharing agreement adjustments incurred throughout year enacted tax law changes fourth quarter 2013 rate vary quarter due discrete items settlement income tax audits changes tax laws well recurring factors geographic mix income taxes company operations taxable presence nearly 60 countries outside us countries tax rate lower rate us countries company material presence lower tax rates compared us include canada australia ireland germany switzerland united kingdom companys ability obtain benefit lower tax rates outside us dependent relative levels income countries outside us statutory tax rates tax laws countries based dispersion companys nonus income management’s current assessment likelihood magnitude potential change statutory tax rates tax laws affecting company changes expected materially affect companys income tax provision net income aside onetime adjustment reflect impact change tax rate companys deferred tax balances valuation allowance deferred tax assets 20 billion september 25 2015 september 26 2014 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions specifically valuation allowance september 25 2015 september 26 2014 includes separation related charges associated early extinguishment debt increased net operating loss carryforward company expect realize future periods valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets within companys consolidated balance sheets calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust liabilities light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities substantially potential tax liabilities recorded liabilities within consolidated balance sheets payment expected within one year equity income loss earnings unconsolidated subsidiaries equity income loss earnings unconsolidated subsidiaries nil fiscal 2015 fiscal 2014 2013 reflect share atkores net income loss accounted equity method accounting equity income loss earnings unconsolidated subsidiaries years ended september 26 2014 september 27 2013 gain 206 million loss 48 million respectively april 9 2014 atkore redeemed remaining common equity stake aggregate cash proceeds 250 million recognized net gain 216 million related transaction comprised 227 million gain sale equity investment partially offset 11 million loss share loss atkores debt extinguishment undertaken connection redemption see note 3 consolidated financial statements segment results following chart reflects net revenue segment well percent net revenue segment years ended september 25 2015 september 26 2014 september 27 2013 respectively segment discussions follow describe significant factors contributing changes results segments included continuing operations na integrated solutions services na integrated solutions services designs sells installs services monitors integrated electronic security systems integrated fire detection suppression systems commercial industrial retail small business institutional governmental customers north america financial information na integrated solutions services years ended september 25 2015 september 26 2014 september 27 2013 follows revenue change net revenue compared prior periods attributable following net revenue increased 3 million 3879 million year ended september 25 2015 compared 3876 million year ended september 26 2014 organic basis net revenue grew 44 million 11 driven increases integrated solutions service revenue net revenue also favorably impacted 11 million 03 due acquisitions made fiscal 2015 changes foreign currency exchange rates unfavorably impacted net revenue 52 million 13 net revenue decreased 15 million 04 3876 million year ended september 26 2014 compared 3891 million year ended september 27 2013 organic basis net revenue grew 37 million 10 due increases integrated solutions service revenue impact acquisitions 19 million 05 due acquisition westfire inc westfire fire protection services company first quarter fiscal 2014 integrated na integrated solutions services row integrated solutions services segments net revenue unfavorably impacted 42 million 11 primarily due divestiture north america guarding business third quarter fiscal 2013 operating income operating income year ended september 25 2015 increased 92 million 204 542 million compared operating income 450 million year ended september 26 2014 operating income year ended september 25 2015 increased due 49 million decline separation costs addition improved execution cost containment benefits previous restructuring productivity initiatives favorable impact operating income fiscal year items partially offset 36 million increase restructuring repositioning charges operating income year ended september 26 2014 increased 62 million 160 450 million compared operating income 388 million year ended september 27 2013 operating income year ended september 26 2014 increased due higher mix service revenue improved execution lower restructuring repositioning charges savings realized restructuring activities productivity initiatives key items impacting operating income years ended september 25 2015 september 26 2014 september 27 2013 follows row integrated solutions services row integrated solutions services designs sells installs services monitors integrated electronic security systems integrated fire detection suppression systems commercial industrial retail residential small business institutional governmental customers continental europe united kingdom asia pacific growth markets regions collectively row regions financial information row integrated solutions services years ended september 25 2015 september 26 2014 september 27 2013 follows revenue change net revenue compared prior periods attributable following net revenue decreased 480 million 123 3432 million year ended september 25 2015 compared 3912 million year ended september 26 2014 changes foreign currency exchanges rates unfavorably impacted net revenue 422 million 108 net revenue also unfavorably impacted 67 million 17 due divestitures asia pacific regions organic basis net revenue declined 51 million 13 primarily united kingdom pacific regions result pressure within oil gas mining industries respectively partially offset increase within growth markets net revenue favorably impacted 60 million 15 primarily due acquisitions within growth markets united kingdom net revenue increased 84 million 22 3912 million year ended september 26 2014 compared 3828 million year ended september 27 2013 organic basis net revenue grew 78 million 21 driven integrated solutions service growth markets integrated solutions growth asia growth regions offset declines integrated solutions service revenue pacific lesser extent continental europe regions net revenue favorably impacted 119 million 31 primarily due acquisitions within growth markets pacific regions fiscal 2014 2013 net revenue unfavorably impacted 67 million 18 due divestitures pacific region changes foreign currency exchanges rates unfavorably impacted net revenue 46 million 12 operating income operating income year ended september 25 2015 decreased 169 million 410 243 million compared operating income 412 million year ended september 26 2014 operating income unfavorably impacted 73 million increase restructuring repositioning charges 13 million increase loss divestitures foreign currency exchange rates unfavorable impact 27 million addition operating income fiscal 2014 included china insurance recovery 21 million recur fiscal 2015 impact lower revenue partially offset benefits costcontainment initiatives previous productivity restructuring actions operating income year ended september 26 2014 increased 76 million 226 412 million compared operating income 336 million year ended september 27 2013 operating income year ended september 26 2014 favorably impacted decrease restructuring repositioning charges loss divestitures 21 million insurance recovery related china benefit ongoing productivity initiatives partially offset lower mix highmargin service revenue pacific region key items impacting operating income years ended september 25 2015 september 26 2014 september 27 2013 follows global products global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row integrated solutions services segments financial information global products years ended september 25 2015 september 26 2014 september 27 2013 follows revenue change net revenue compared prior periods attributable following net revenue increased 47 million 18 2591 million year ended september 25 2015 compared 2544 million year ended september 26 2014 organic basis net revenue grew 67 million 26 primarily driven security products life safety businesses net revenue favorably impacted 128 million 50 acquisitions across three businesses primarily life safety fire products businesses changes foreign currency exchange rates unfavorably impacted net revenue 148 million 58 net revenue increased 205 million 88 2544 million year ended september 26 2014 compared 2339 million year ended september 27 2013 organic basis net revenue grew 147 million 63 driven increases across three product platforms primarily security products impact acquisitions 63 million 27 primarily due acquisition exacq technologies developer open architecture video management systems security surveillance applications 2013 operating income operating income year ended september 25 2015 decreased 53 million 116 405 million compared operating income 458 million year ended september 26 2014 decrease driven mainly 21 million increase restructuring repositioning charges 17 million loss divestiture additional investments research development foreign currency exchange rates unfavorable impact 16 million items partially offset net revenue growth well benefit costcontainment initiatives previous productivity restructuring actions operating income year ended september 26 2014 increased 151 million 492 458 million compared operating income 307 million year ended september 27 2013 increase driven net revenue growth fiscal 2014 unfavorable impact environmental remediation charge fiscal 2013 partially offset additional investments research development sales marketing costs see note 12 consolidated financial statements key items impacting operating income years ended september 25 2015 september 26 2014 september 27 2013 follows corporate expense decreased 314 million 506 306 million year ended september 25 2015 compared 620 million year ended september 26 2014 decrease expense primarily due reduction 452 million asbestosrelated charges compared prior period partially offset 66 million increase restructuring repositioning charges 87 million decrease legacy legal gains lesser extent 16 million gain related settlement former subsidiary recur fiscal 2015 corporate expense increased 301 million 944 620 million year ended september 26 2014 compared 319 million year ended september 27 2013 increase corporate expense year ended september 26 2014 primarily due asbestos related charges 225 million relating yarway 240 million related asbestos related claims increase expense also due higher restructuring repositioning asset impairment charges partially offset 96 million reversal recoveries settlements former management increase expense also partially offset lesser extent lower separation costs gain related legal settlement cit see note 12 consolidated financial statements key items included corporate expense years ended september 25 2015 september 26 2014 september 27 2013 follows critical accounting policies estimates preparation consolidated financial statements conformity gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenue expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period depreciation amortization methods security monitoringrelated assetstyco considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 140 360 commercial subscriber pools dealer intangibles converts straight line methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination revenue recognitioncontract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts provisions anticipated losses made period become determinable sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements assess revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services product discounts granted based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis loss contingenciesaccruals recorded various contingencies including legal proceedings selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable asbestosrelated contingencies insurance receivableswe certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2056 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates periodically company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable periodic basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters record asbestosrelated insurance recoveries probable estimate asbestosrelated insurance recoveries represents estimated amounts due us previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable consider available insurance allocation methodologies solvency creditworthiness insurers see note 12 consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return pattern timing future obligation reliably determinable company records receivables third party insurers recovery determined probable income taxesin determining taxable income financial statement purposes must make certain estimates judgments estimates judgments affect calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent years forecast future taxable income estimating future taxable income develop assumptions including amount future pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses currently recorded valuation allowances maintain morelikelythannot deferred tax assets realized income tax expense recorded future may reduced extent decreases valuation allowances realization remaining deferred tax assets primarily dependent future taxable income appropriate jurisdiction reduction future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance could result additional income tax expense period could significant impact future earnings changes tax laws rates could also affect recorded deferred tax assets liabilities future management records effect tax rate law change companys deferred tax assets liabilities period enactment future tax rate law changes could material effect companys financial condition results operations cash flows addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities would result tax benefits recognized period determine liabilities longer necessary goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur performing assessments management relies considers number factors including operating results business plans economic projections anticipated future cash flows comparable market transactions extent available market data companys overall market capitalization elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets testing goodwill impairment first assess qualitative factors determine whether likely fair value reporting unit less carrying amount conclude likely fair value reporting unit less carrying amount quantitative fair value test performed based upon recent annual impairment test completed june 29 2015 likely fair value reporting unit excess carrying value recorded goodwill impairments conjunction annual goodwill impairment assessment performed fourth quarter fiscal 2015 indefinitelived intangible assets consisting primarily trade names franchise rights tested impairment using either relieffromroyalty method excess earnings method respectively fair value determinations require considerable judgment sensitive changes underlying assumptions factors result assurance estimates assumptions made purposes annual goodwill impairment test prove accurate predictions future examples events circumstances could reasonably expected negatively affect underlying key assumptions ultimately impact estimated fair value aforementioned reporting units may include items follows • prolonged downturn business environment reporting units operate ie sales volumes prices especially commercial construction retailer end markets • economic recovery significantly differs assumptions timing degree • volatility equity debt markets resulting higher discount rates • unexpected regulatory changes historical performance current expectations resulted fair values goodwill excess carrying values assumptions realized possible future impairment charge may need recorded however possible time determine impairment charge would result charge would material longlived assetsasset groups held used company including property plant equipment amortizable intangible assets reviewed impairment whenever events changes business circumstances indicate carrying amount asset group may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairments longlived assets disposed recorded based upon fair value less cost sell applicable assets calculation fair value longlived assets based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value useful lives longlived assets risk carrying value longlived assets may overstated understated pension postretirement benefitsour pension expense obligations developed actuarial valuations two critical assumptions determining pension expense obligations discount rate expected longterm return plan assets evaluate assumptions least annually assumptions reflect demographic factors retirement mortality turnover evaluated periodically updated reflect actual experience actual results may differ actuarial assumptions resulting actuarial gains losses active plans actuarial gains losses amortized average expected service period participants case inactive plans average remaining life expectancy participants discount rate represents market rate highquality fixed income investments used calculate present value expected future cash flows benefit obligations pension plans decrease discount rate increases present value pension benefit obligations 25 basis point decrease discount rate would increase present value pension obligations approximately 86 million increase annual pension expense approximately 1 million consider relative weighting plan assets class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions determining expected longterm return plan assets 25 basis point decrease expected longterm return plan assets would increase annual pension expense approximately 5 million liquidity capital resources fundamental objective company sufficient liquidity balance sheet strength financial flexibility fund operating capital requirements core businesses around world primary source funds finance operations capital expenditures cash generated operations addition maintain 15 billion commercial paper program backed committed revolving credit facility access equity debt capital public private sources continue balance operating investing financing uses cash investments acquisitions core businesses dividends share repurchases addition believe available cash amounts available credit facility commercial paper program cash provided operating activities adequate cover operational capital business needs foreseeable future extent necessary us finance cash needs issuance commercial paper accessing committed revolving credit facility public private sources cost funding may increase depending market conditions time borrowing september 25 2015 september 26 2014 cash equivalents short longterm debt carrying value tyco shareholders equity follows 1 october 14 2015 company redeemed outstanding 242 million aggregate principal amount 70 notes due 2019 462 million aggregate principal amount 6875 notes due 2021 classified current september 25 2015 october 15 2015 company repaid 258 million aggregate principal amount 3375 notes due 2015 matured date see note 21 consolidated financial statements repayments companys total debt total debt percentage total capital 2178 million 350 respectively 2 total capital represents aggregate amount total debt total shareholders equity 7187 million 6110 million september 25 2015 september 26 2014 respectively significant uses capital expected near midterm include expenditures capital expenditures dealer investments annual amounts expected approximate 3 35 total revenues ii funding potential tax liabilities settlements see note 6 consolidated financial statements including respect divestiture adt korea business see note 3 consolidated financial statements respect amounts timing uncertain iii estimated restructuring payments 145 million accrued current liability september 25 2015 see note 4 consolidated financial statements iv quarterly dividend payments 87 million accrued september 25 2015 see note 14 consolidated financial statements company intends fund capital uses combination available cash generated operations borrowing commercial paper market revolving credit facility borrowing public private markets debt securities addition company intends discretion pursue strategically important acquisitions may repurchase shares time may engage capital market activities case depending number factors including company’s strategic priorities financial condition results operations capital requirements company’s businesses industry capital markets factors relevant factors sources uses cash summary cash flows operating investing financing continuing operations fiscal 2015 2014 2013 follows cash flow operating activities cash flow operating activities fluctuate significantly period working capital needs timing payments items restructuring activities pension funding income taxes asbestos liabilities items impact reported cash flow net change working capital reduced operating cash flow 671 million fiscal 2015 significant changes working capital included 338 million decrease gross asbestos liabilities 149 million increase accounts receivable 44 million increase inventories 33 million increase prepaid expenses current assets 32 million decrease deferred revenue partially offset 32 million decrease asbestos insurance assets january 9 2015 company completed series restructuring transactions related establishment funding structure dedicated resolving certain historic grinnell asbestos liabilities pursuant transaction subsidiary company acquired certain assets grinnell transferred cash assets totaling approximately 278 million structure cash assets transferred structure designated restricted company addition effective date yarway’s chapter 11 plan reorganization occurred august 2015 company contributed approximately 325 million asbestos settlement trust conformed provisions section 524g us bankruptcy code see note 12 consolidated financial statements information regarding asbestos net change working capital reduced operating cash flow 56 million fiscal 2014 significant changes working capital included 327 million decrease accrued expenses liabilities 99 million increase contracts progress 96 million increase accounts receivable 93 million increase asbestos insurance assets partially offset 532 million increase gross asbestos liabilities 54 million increase accounts payable net change working capital reduced operating cash flow 384 million fiscal 2013 significant changes working capital included 141 million decrease accrued liabilities 80 million decrease gross asbestos liabilities 73 million increase accounts receivable 61 million increase prepaid expenses assets 36 million increase inventories 33 million decrease deferred revenue partially offset 94 million decrease asbestos insurance assets fiscal 2015 2014 2013 paid approximately 101 million 74 million 81 million respectively cash related restructuring activities see note 4 consolidated financial statements connection 2012 separation paid 2 million 58 million 165 million separation costs fiscal 2015 2014 2013 respectively fiscal 2015 2014 2013 made environmental remediation payments related environmental remediation activities facility located marinette wisconsin 7 million 63 million 51 million respectively fiscal 2015 2014 2013 made required contributions 34 million 54 million 50 million respectively us nonus pension plans also made voluntary contributions nil years ended september 25 2015 september 26 2014 september 27 2013 us plans company anticipates contribute least minimum required pension plans 2016 3 million us plans 26 million nonus plans income taxes paid net refunds related continuing operations 98 million 102 million 134 million fiscal 2015 2014 2013 respectively interest paid net interest received related continuing operations 87 million 84 million 80 million fiscal 2015 2014 2013 respectively cash flow investing activities cash flows related investing activities consist primarily cash used capital expenditures acquisitions proceeds derived divestitures businesses assets purchase sales maturities investments made capital expenditures 246 million 288 million 269 million fiscal 2015 2014 2013 respectively level capital expenditures fiscal year 2016 expected exceed spending levels fiscal year 2015 also expected exceed depreciation expense fiscal 2015 paid cash acquisitions totaling 583 million net 28 million cash acquired 5 million contingent consideration 12 acquisitions largest acquisition industrial safety technologies ist 327 million net 5 million cash acquired integrated global products segment 2014 paid cash acquisitions totaling 65 million net 1 million cash acquired related acquisitions included na integrated solutions services row integrated solutions services segments 2013 paid cash acquisitions totaling 229 million net 9 million cash acquired primarily related acquisition exacq technologies within global products segment see note 5 consolidated financial statements fiscal 2015 2014 2013 received cash proceeds net cash divested 3 million 1 million 17 million respectively divestitures see note 3 consolidated financial statements fiscal 2015 made net purchases investments 2 million represented purchase 290 million investments primarily consisting exchange traded equity fixed income funds classified availableforsale investments classified restricted related funding asbestos matters see note 12 consolidated financial statements details asbestos purchases partially offset 288 million receipts primarily related maturity time deposits fiscal 2014 made net purchases investments 103 million primarily related purchase time deposits 275 million 62 million trading securities serve partially offset changes market value liabilities unfunded nonqualified defined contribution pension plan purchases partially offset liquidation portfolio investments held captive insurance companies served collateral insurable liabilities provide letters credit collateral fiscal 2013 made net purchases investments 45 million fiscal 2014 also generated 250 million proceeds sale equity method investment atkore see note 3 consolidated financial statements cash flow financing activities cash flows financing activities relate primarily proceeds received incurring debt issuing stock cash used repay debt repurchase stock make dividend payments shareholders 2015 tifsa issued €500 million aggregate principal amount 1375 notes due 2025 750 million aggregate principal amount 39 notes due 2026 750 million aggregate principal amount 5125 notes due 2045 fully unconditionally guaranteed company tifsca tifsa received proceeds issuance costs approximately 2059 million 2015 company used net proceeds aforementioned offering paid cash 445 million redeem 364 million aggregate principal amount 85 notes due 2019 resulting loss extinguishment debt 81 million loss represents makewhole premium related 2019 notes recorded expense net within consolidated statements operations see note 9 consolidated financial statements addition subsequent fiscal year end october 14 2015 company redeemed outstanding 242 million aggregate principal amount 70 notes due 2019 462 million aggregate principal amount 6875 notes due 2021 classified current september 25 2015 also october 15 2015 company repaid 258 million aggregate principal amount 3375 notes due 2015 matured date see note 21 consolidated financial statements august 7 2015 tifsa entered amended restated fiveyear senior unsecured credit agreement aggregate amount 15 billion “2015 credit agreement” 2015 credit agreement amends restates tifsas existing fiveyear senior unsecured credit agreement dated june 22 2012 “2012 credit agreement” provided revolving credit commitments aggregate amount 10 billion scheduled expire june 22 2017 september 25 2015 september 26 2014 amounts drawn revolving credit facilities see note 9 consolidated financial statements tifsas revolving credit facility contains customary terms conditions financial covenants limit ratio debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive business september 25 2015 september 26 2014 tifsa commercial paper outstanding maximum aggregate amount unsecured commercial paper notes available issued private placement basis commercial paper program 15 billion september 25 2015 pursuant share repurchase program may repurchase tyco shares time open market purchases prevailing market prices negotiated transactions market pursuant approved trading plan accordance applicable regulations january 2013 companys board directors approved 600 million share repurchase program march 2014 september 2014 companys board directors authorized additional 175 billion 1 billion share repurchases respectively year ended september 25 2015 repurchased approximately 10 million ordinary shares 417 million year ended september 26 2014 repurchased approximately 42 million ordinary shares 18 billion year ended september 27 2013 repurchased approximately 10 million ordinary shares 300 million see note 14 consolidated financial statements fiscal years 2015 2014 2013 paid cash dividends approximately 324 million 311 million 288 million respectively see note 14 consolidated financial statements fiscal 2014 paid 66 million cash purchase remaining ownership interest joint venture brazil part companys row integrated solutions services segment fiscal years 2015 2013 paid cash nil relating purchases ownership interests joint ventures fiscal year 2015 paid contingent consideration 24 million 23 million related successful transfer business license china tyco management believes cash generated available us sufficient fund capital operational business needs foreseeable future commitments contingencies detailed discussion contingencies related tax litigation matters governmental investigations see notes 6 12 consolidated financial statements contractual obligations contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases purchase obligations september 25 2015 follows millions 1 debt principal consists aggregate principal amount public debt outstanding excluding debt discount premium swap activity interest 2 interest payments consist interest fixed interest rate debt 3 fiscal year end october 14 2015 company completed redemption outstanding 242 million aggregate principal amount 70 notes due 2019 462 million aggregate principal amount 6875 notes due 2021 interest payments 2016 include 172 million makewhole premium related redemption notes addition october 15 2015 company repaid maturity 258 million principal amount 3375 notes due 2015 4 purchase obligations consist commitments purchases goods services 5 longterm liabilities excluded contractual obligation table primarily consist following pension postretirement costs see note 13 consolidated financial statements income taxes see note 6 consolidated financial statements warranties see note 10 consolidated financial statements environmental liabilities see note 12 consolidated financial statements unable estimate timing payment items due inherent uncertainties related obligations however minimum required contributions pension plans expected approximately 29 million 2016 expect make material contributions 2016 related postretirement benefit plans september 25 2015 recorded gross unrecognized tax benefits 302 million accrued interest penalties 40 million unable make reasonably reliable estimate timing remaining payments future years therefore amounts excluded contractual obligation table however based current status income tax audits company believe unrecognized tax benefits may resolved next twelve months material although company unrecognized tax benefits recognized would affect effective tax rate company net operating loss carryforwards would offset cash impact recognition unrecognized tax benefits relating current year normal course business liable contract completion product performance opinion management obligations significantly affect financial position results operations cash flows connection 2012 separation entered liability sharing agreement regarding certain actions pending tyco prior 2012 separation 2012 tax sharing agreement pentair tyco adt share certain predistribution income tax liabilities arise adjustments made tax authorities tyco flow controls tycos adts us income tax returns ii payments required made tyco respect 2007 tax sharing agreement excluding approximately 175 million pre2012 separation related tax liabilities anticipated paid prior 2012 separation collectively shared tax liabilities company responsible first 500 million shared tax liabilities pentair adt share 42 58 respectively next 225 million shared tax liabilities pentair adt tyco share 20 275 525 respectively shared tax liabilities 725 million timing amounts payments subject number uncertainties could change see notes 6 12 respectively consolidated financial statements connection 2007 separation entered liability sharing agreement regarding certain actions pending tyco prior 2007 separation 2007 separation distribution agreement 2007 tax sharing agreement assumed 27 medtronic assumed 42 te connectivity assumed 31 certain tyco preseparation contingent corporate liabilities september 25 2015 primarily relate tax contingencies potential actions respect spinoffs distributions made brought third party backlog unfilled orders 4562 million 4857 million september 25 2015 september 26 2014 respectively companys backlog includes recurring revenueinforce longterm deferred revenue upfront fees na row integrated solutions services segments revenueinforce represents 12 months revenue associated monitoring maintenance services contract security fire business backlog segment follows millions backlog decreased 295 million 61 4562 million september 25 2015 compared 4857 million prior year net decrease backlog september 25 2015 driven primarily unfavorable impact changes foreign currency 355 million 73 primarily related row integrated solutions services addition divestiture business row integrated solutions services segment unfavorable impact 104 million 21 impacts partially offset increase na integrated solutions services backlog lesser extent favorable impact acquisitions guarantees certain business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging fiscal year 2015 completion transactions would typically triggered event nonperformance companys performance guarantees required would material effect financial position results operations cash flows certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation distribution agreements tax sharing agreements guarantees primarily relate certain contingent tax liabilities included tax sharing agreements time 2007 2012 separations recorded liabilities necessary recognize fair value guarantees indemnifications see note 6 consolidated financial statements discussion tax sharing agreements addition prior 2007 2012 separations provided support form financial andor performance guarantees various medtronic te connectivity adt tyco flow control operating entities extent guarantees assigned connection 2007 2012 separations assumed primary liability remaining support see note 10 consolidated financial statements discussion liabilities disposing assets businesses often provide representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition reason believe uncertainties would material adverse effect financial position results operations cash flows recorded liabilities known indemnifications included part environmental liabilities normal course business liable contract completion product performance record estimated product warranty costs time sale opinion management obligations significantly affect financial position results operations cash flows year ended september 26 2014 tyco replaced available sale investments held collateral companys insurable liabilities letters credit september 25 2015 september 26 2014 total outstanding letters credit bank guarantees approximately 581 million 662 million respectively detailed discussion guarantees indemnifications see note 10 consolidated financial statements accounting pronouncements see note 1 consolidated financial statements recently adopted accounting pronouncements recently issued accounting pronouncements nonus gaap measure effort provide investors additional information regarding results determined us gaap also disclose nonus gaap measure organic revenue growth decline believe measure useful investors evaluating operating performance periods presented read conjunction us gaap revenue enables investors better evaluate operations without giving effect fluctuations foreign exchange rates acquisition divestiture activity either may significant period addition organic revenue growth decline factor use internal evaluations overall performance business measure financial measure us gaap considered substitute revenue determined accordance us gaap may comparable similarly titled measures reported companies organic revenue growth decline presented herein defined revenue growth decline excluding effects foreign currency fluctuations acquisitions divestitures changes may reflect underlying results trends organic growth decline calculations incorporate estimate prior year reported net revenue associated acquired entities fully integrated within first year exclude prior year net revenue associated entities meet criteria discontinued operations divested within past year adjusted number calculate rate organic growth decline based adjusted number better reflect rate growth decline combined business case acquisitions remaining business case dispositions base rate organic growth decline acquired businesses fully integrated within first year upon unadjusted historical net revenue foreign currency fluctuations calculated subtracting us dollar equivalent local currencies current period using monthly weighted average exchange rates prior period ii us dollar equivalent local currencies current period using monthly weighted average exchange rates current period may use organic revenue growth decline component compensation programs tables detail components organic revenue growth reconciles nonus gaap measure us gaap net revenue growth fiscal 2015 1 organic revenue growth percentage based adjusted fiscal 2014 base revenue fiscal 2014 1 organic revenue growth percentage based adjusted fiscal 2013 base revenue forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties many cases forwardlooking statements identified words variations words “anticipate” “estimate” “believe” “commit” “continue” “could” “intend” “may” “plan” “potential” “predict” “positioned” “should” “will” “expect” “objective” “projection” “forecast” “goal” “guidance” “outlook” “effort” “target” similar words however absence words mean statements forwardlooking statement contained herein press releases written statements documents filed sec tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect future events including sales earnings cash flows operating tax efficiencies product expansion backlog consummation benefits acquisitions divestitures well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forwardlooking statements include among things • overall economic business conditions overall demand tycos goods services • economic competitive conditions industries end markets regions served businesses • changes legal tax requirements including tax rate changes new tax laws treaties revised tax law interpretations • employees agents ability comply complex continually changing laws regulations govern international operations including us foreign corrupt practices act similar antibribery laws jurisdictions variety export control customs privacy currency exchange control transfer pricing regulations corporate policies governing matters • outcome litigation arbitrations governmental proceedings • effect income tax audits litigation settlements appeals • ability repay refinance outstanding indebtedness matures • ability operate within limitations imposed financing arrangements maintain credit ratings • interest rate fluctuations changes borrowing costs consequences volatility capital credit markets • capital market conditions including availability funding sources • currency exchange rate fluctuations • availability fluctuations prices key raw materials • changes affecting customers suppliers • economic political conditions international markets including governmental changes restrictions ability transfer capital across borders • ability achieve anticipated cost savings • ability predict enduser demand new enhanced product service offerings • ability execute portfolio refinement acquisition strategies including successfully integrating acquired operations • potential impairment goodwill intangibles andor longlived assets • ability realize intended benefits 2012 separation including integration commercial security fire protection businesses • risks associated 2012 separation example risk may liable certain contingent liabilities spunoff entities become insolvent • risks associated jurisdiction incorporation including possibility reduced flexibility respect certain aspects capital management corporate governance increased different regulatory burdens possibility may realize anticipated tax benefits • possible effects tyco future legislation united states may limit eliminate potential us tax benefits resulting tyco internationals incorporation outside united states deny us government contracts tyco based upon jurisdiction incorporation • natural events severe weather fires floods earthquakes • acts terrorism cyberattacks inability maintain adequate security related information networks data item 7aitem 7 managements discussion analysis financial condition results operations see managements discussion analysis financial condition results operations appears pages 91 113 form 10k item 7aitem 7 management’s discussion analysis financial condition results operations general company provides facility systems services including comfort energy management residential nonresidential buildings markets security products services fire detection suppression products services discussion summarizes significant factors affecting consolidated operating results financial condition liquidity company threeyear period ended september 30 2019 discussion read conjunction item 8 consolidated financial statements notes consolidated financial statements fiscal year 2019 compared fiscal year 2018 net sales increase net sales due higher organic sales 1181 million acquisitions 22 million partially offset unfavorable impact foreign currency translation 463 million lower sales due business divestitures 172 million increase organic sales related higher volumes across segments excluding impact foreign currency translation business acquisitions divestitures net sales increased 5 compared prior year refer segment analysis within item 7 discussion net sales segment cost sales gross profit cost sales increased gross profit percentage sales decreased 70 basis points gross profit increased due higher volumes across segments partially offset business divestitures higher operating costs net marktomarket adjustments net unfavorable yearoveryear impact cost sales 123 million 128 million charge fiscal 2019 compared 5 million charge fiscal 2018 primarily due decrease discount rates current year foreign currency translation favorable impact cost sales approximately 304 million refer segment analysis within item 7 discussion segment earnings interest taxes amortization ebita segment selling general administrative expenses selling general administrative expenses sga increased 602 million sga percentage sales increased 200 basis points increase sga primarily due net marktomarket adjustments 114 million gain sale scott safety business global products segment prior year current year environmental charge partially offset productivity savings cost synergies net incremental investments current year tax indemnification reserve release net marktomarket adjustments net unfavorable yearoveryear impact sga 519 million 490 million loss fiscal 2019 compared 29 million gain fiscal 2018 primarily due decrease discount rates current year foreign currency translation favorable impact sga 94 million refer segment analysis within item 7 discussion segment ebita segment restructuring impairment costs refer note 16 significant restructuring impairment costs note 17 impairment longlived assets notes consolidated financial statements disclosure related companys restructuring plans impairment costs net financing charges refer note 9 debt financing arrangements notes consolidated financial statements disclosure related companys net financing charges equity income increase equity income primarily due higher income certain partiallyowned affiliates within building solutions emeala segment johnson controls hitachi joint venture refer segment analysis within item 7 discussion segment ebita segment income tax provision measure meaningful statutory tax rate ireland used comparison since company domiciled ireland effective rate continuing operations statutory rate 125 fiscal 2019 primarily due tax audit reserve adjustments income tax effects marktomarket adjustments tax indemnification reserve release tax benefits asset held sale impairment charge continuing global tax planning initiatives partially offset valuation allowance adjustments result tax law changes discrete tax charge related newly enacted regulations related us tax reform tax rate differentials effective rate continuing operations statutory rate 125 fiscal 2018 primarily due discrete net impacts us tax reform final income tax effects completed divestiture scott safety business valuation allowance adjustments partially offset tax audit closures tax benefits due change entity tax status benefits continuing global tax planning initiatives tax rate differentials fiscal 2019 effective tax rate decreased compared fiscal 2018 effective tax rate primarily due discrete tax items described tax planning initiatives fiscal year 2019 2018 global tax planning initiatives related primarily changes entity tax status global financing structures alignment companys global business functions tax efficient manner refer note 18 income taxes notes consolidated financial statements details income discontinued operations net tax measure meaningful refer note 3 discontinued operations notes consolidated financial statements information income attributable noncontrolling interests increase income continuing operations attributable noncontrolling interests primarily due higher net income certain partiallyowned affiliates within global products segment refer note 3 discontinued operations notes consolidated financial statements information regarding companys discontinued operations net income attributable johnson controls measure meaningful increase net income attributable johnson controls primarily due gain sale power solutions business lower income tax provision partially offset higher sga fiscal 2019 diluted earnings per share attributable johnson controls 649 compared 232 fiscal 2018 comprehensive income attributable johnson controls measure meaningful increase comprehensive income attributable johnson controls due higher net income attributable johnson controls 3512 million increase comprehensive income attributable johnson controls 149 million resulting primarily foreign currency translation adjustments yearoveryear favorable foreign currency translation adjustments primarily driven weakening euro british pound currencies us dollar prior year segment analysis october 1 2018 company adopted accounting standards update asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities new standard requires marktomarket marketable securities investments previously recorded within accumulated comprehensive income statement financial position recorded statement income prospective basis beginning adoption date restricted investments relate underlying operating performance business company’s definition segment earnings excludes marktomarket adjustments beginning first quarter fiscal 2019 management evaluates performance business units based primarily segment ebita represents income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges restructuring impairment costs net marktomarket adjustments related pension postretirement plans restricted asbestos investments net sales • increase building solutions north america due higher volumes 380 million partially offset unfavorable impact foreign currency translation 28 million increase volumes primarily attributable higher installation service sales • decrease building solutions emeala due unfavorable impact foreign currency translation 206 million lower volumes due business divestitures 5 million partially offset higher volumes 165 million incremental sales related business acquisition 5 million increase volumes primarily attributable higher installation service sales • increase building solutions asia pacific due higher volumes 190 million incremental sales related business acquisition 1 million partially offset unfavorable impact foreign currency translation 86 million increase volumes primarily attributable higher installation service sales • increase global products due higher volumes 446 million incremental sales related business acquisitions 16 million partially offset lower volumes related business divestitures 167 million unfavorable impact foreign currency translation 143 million increase volumes primarily attributable higher building management hvac refrigeration equipment specialty products sales segment ebita • increase building solutions north america due favorable volumes 92 million prior year integration costs 25 million partially offset higher sga including incremental salesforce investments unfavorable mix 45 million current year integration costs 26 million unfavorable impact foreign currency translation 2 million • increase building solutions emeala due favorable volumes mix 57 million higher equity income 11 million prior year integration costs 6 million incremental income related business acquisition 1 million partially offset unfavorable impact foreign currency translation 35 million higher sga including incremental salesforce investments 12 million current year integration costs 4 million • decrease building solutions asia pacific due higher sga including incremental salesforce investments 18 million unfavorable impact foreign currency translation 8 million current year integration costs 2 million lower equity income 1 million partially offset net favorable volumes mix 23 million • decrease global products due current year environmental charge 140 million prior year gain sale scott safety 114 million higher sga operating expenses including product investments prior year gains business divestitures net productivity savings 32 million current year integration costs 30 million unfavorable impact foreign currency translation 20 million lower income due business divestitures acquisitions 19 million items partially offset favorable volumes mix 166 million prior year integration costs 27 million higher equity income 3 million fiscal year 2018 compared fiscal year 2017 net sales increase net sales due higher sales 1004 million favorable impact foreign currency translation 316 million partially offset lower sales due business divestitures 755 million increase sales related higher volumes across segments excluding impact foreign currency translation business divestitures nonrecurring purchase accounting adjustments net sales increased 5 compared prior year refer segment analysis within item 7 discussion net sales segment cost sales gross profit cost sales increased gross profit percentage sales decreased 20 basis points gross profit increased due prior year nonrecurring purchase accounting adjustments 68 million higher volumes favorable mix across segments partially offset business divestitures higher operating costs net marktomarket adjustments net unfavorable yearoveryear impact cost sales 45 million 5 million charge fiscal 2018 compared 40 million gain fiscal 2017 primarily due decrease us investment returns foreign currency translation unfavorable impact cost sales approximately 221 million refer segment analysis within item 7 discussion ebita segment selling general administrative expenses sga decreased 81 million sga percentage sales decreased 100 basis points decrease sga primarily due productivity savings costs synergies business divestitures gain sale scott safety business global products segment 114 million net favorable yearoveryear impact sga resulting transaction integration costs 184 million foreign currency translation unfavorable impact sga 66 million net marktomarket adjustments net unfavorable yearoveryear impact sga 315 million 29 million gain fiscal 2018 compared 344 million gain fiscal 2017 primarily due decrease us investment returns refer segment analysis within item 7 discussion segment ebita segment restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements disclosure related companys restructuring plans net financing charges refer note 9 debt financing arrangements notes consolidated financial statements disclosure related companys net financing charges equity income increase equity income primarily due higher income johnson controls hitachi joint venture refer segment analysis within item 7 discussion segment ebita segment income tax provision statutory tax rate ireland used comparison since company domiciled ireland effective rate continuing operations statutory rate 125 fiscal 2018 primarily due discrete net impacts us tax reform final income tax effects completed divestiture scott safety business valuation allowance adjustments partially offset tax audit closures tax benefits due change entity tax status benefits continuing global tax planning initiatives tax rate differentials effective rate statutory rate 125 fiscal 2017 primarily due establishment deferred tax liability outside basis difference companys investment certain subsidiaries related divestiture scott safety business income tax effects marktomarket adjustments tax rate differentials partially offset jurisdictional mix significant restructuring impairment costs tyco merger transaction integration costs purchase accounting adjustments tax audit closures tax benefit due changes entity tax status benefits continuing global tax planning initiatives fiscal 2018 effective tax rate decreased compared fiscal 2017 effective tax rate primarily due discrete tax items tax planning initiatives fiscal year 2018 2017 global tax planning initiatives related primarily foreign tax credit planning changes entity tax status global financing structures alignment companys global business functions tax efficient manner refer note 18 income taxes notes consolidated financial statements details loss discontinued operations net tax refer note 3 discontinued operations notes consolidated financial statements information income attributable noncontrolling interests increase income continuing operations attributable noncontrolling interests primarily due higher net income related johnson controls hitachi joint venture refer note 3 discontinued operations notes consolidated financial statements information regarding companys discontinued operations net income attributable johnson controls increase net income attributable johnson controls primarily due higher gross profit lower income tax provision lower restructuring impairment costs lower sga lower net financing charges fiscal 2018 diluted earnings per share attributable johnson controls 232 compared 171 fiscal 2017 comprehensive income attributable johnson controls decrease comprehensive income attributable johnson controls due decrease comprehensive income attributable johnson controls 572 million resulting primarily unfavorable foreign currency translation adjustments partially offset higher net income attributable johnson controls 551 million yearoveryear unfavorable foreign currency translation adjustments primarily driven weakening british pound euro currencies us dollar segment analysis management evaluates performance business units based primarily segment ebita represents income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges restructuring impairment costs net marktomarket adjustments related pension postretirement plans restricted asbestos investments measure meaningful net sales • increase building solutions north america due higher volumes 343 million favorable impact foreign currency translation 20 million partially offset impact prior year nonrecurring purchase accounting adjustments 25 million increase volumes primarily attributable higher hvac controls fire security sales • increase building solutions emeala due favorable impact foreign currency translation 132 million higher volumes 63 million incremental sales related business acquisition 2 million partially offset lower volumes related business divestiture 80 million impact prior year nonrecurring purchase accounting adjustments 16 million increase volumes primarily attributable strong service growth positive across regions led europe latin america • increase building solutions asia pacific due higher volumes 61 million favorable impact foreign currency translation 61 million impact prior year nonrecurring purchase accounting adjustments 1 million partially offset lower volumes related business divestiture 14 million increase volumes primarily attributable higher service sales • increase global products due higher volumes 571 million favorable impact foreign currency translation 103 million impact prior year nonrecurring purchase accounting adjustments 6 million partially offset lower volumes related business divestitures 663 million increase volumes primarily attributable higher building management hvac refrigeration equipment specialty products sales segment ebita • increase building solutions north america due favorable volumes mix 100 million prior year integration costs 42 million prior year transaction costs 13 million favorable impact foreign currency translation 1 million partially offset higher sga including incremental salesforce investments 37 million current year integration costs 25 million prior year nonrecurring purchase accounting adjustments 24 million • increase building solutions emeala due prior year unfavorable arbitration award 50 million favorable volumes mix 26 million lower sga 14 million favorable impact foreign currency translation 7 million prior year integration costs 6 million prior year transaction costs 5 million partially offset prior year nonrecurring purchase accounting adjustments 23 million incremental salesforce investments 14 million current year integration costs 6 million higher operating costs 5 million lower equity income 4 million lower income due business divestiture 2 million • increase building solutions asia pacific due higher volumes mix 33 million prior year integration costs 5 million prior year transaction costs 2 million prior year nonrecurring purchase accounting adjustments 2 million favorable impact foreign currency translation 1 million partially offset higher sga including incremental salesforce investments 15 million unfavorable pricing 4 million • increase global products due favorable volumes mix 219 million gain sale scott safety 114 million prior year nonrecurring purchase accounting adjustments 71 million higher equity income 25 million prior year integration costs 25 million favorable impact foreign currency translation 20 million prior year transaction costs 13 million items partially offset lower income due business divestitures 167 million higher sga operating expenses including planned incremental global product channel investments partially offset productivity savings gains business divestitures 134 million current year integration costs 27 million goodwill longlived assets investments goodwill september 30 2019 182 billion 02 billion lower prior year decrease primarily due impact foreign currency translation goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies companys average historical future financial results certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value assumptions included impairment tests require judgment changes inputs could impact results calculations primary assumptions used impairment tests managements projections future cash flows although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit indefinitelived intangible assets also subject least annual impairment testing considerable amount management judgment assumptions required performing impairment tests company believes judgments assumptions used impairment tests reasonable impairments goodwill indefinitelived assets existed fiscal years 2019 2018 2017 different assumptions could change estimated fair values therefore impairment charges could required could material consolidated financial statements company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 35030 requires intangible assets acquired business combination used research development activities considered indefinite lived completion abandonment associated research development efforts period assets considered indefinite lived shall amortized shall tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value entity shall recognize impairment loss amount equal excess asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written fiscal 2019 company concluded triggering event requiring assessment impairment certain longlived assets conjunction plans dispose business within global products segment met criteria classified held sale assets liabilities held sale required recorded lower carrying value fair value less costs sell accordingly company recorded impairment charge 235 million within restructuring impairment costs consolidated statements income fiscal 2019 write carrying value assets held sale fair value less costs sell inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2018 company concluded triggering event requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2018 result company reviewed longlived assets impairment recorded 36 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 31 million related global products segment 5 million related corporate assets addition company recorded 6 million asset impairments within discontinued operations related power solutions segment fiscal 2018 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured market approach utilizing appraisal determine fair values impaired assets method consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2017 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2017 result company reviewed longlived assets impairment recorded 70 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 30 million related building solutions north america segment 20 million related global products segment 19 million related corporate assets 1 million related building solutions asia pacific segment addition company recorded 7 million asset impairments within discontinued operations related power solutions segment fiscal 2017 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement investments partiallyowned affiliates september 30 2019 853 million 5 million higher prior year liquidity capital resources working capital • company defines working capital current assets less current liabilities excluding cash shortterm debt current portion longterm debt current portions assets liabilities held sale management believes measure working capital excludes financingrelated items businesses divested provides useful measurement company’s operating performance • increase working capital september 30 2019 compared september 30 2018 primarily due increase accounts receivable due organic sales growth current assets partially offset increase accounts payable due timing mix supplier payments current liabilities • company’s days sales accounts receivable september 30 2019 67 slight decrease 68 september 30 2018 significant adverse change level overdue receivables significant changes revenue recognition methods • company’s inventory turns year ended september 30 2019 slightly higher comparable period ended september 30 2018 primarily due changes inventory production levels • days accounts payable september 30 2019 72 days comparable period ended september 30 2018 cash flows continuing operations • increase cash provided operating activities primarily due lower restructuring payments higher partiallyowned affiliate dividends • increase cash used investing activities primarily due net cash proceeds received scott safety business divestiture prior year partially offset lower capital expenditures • increase cash used financing activities primarily due higher stock repurchases higher net repayments debt capitalization • net debt net debt percentage total capitalization nongaap financial measures company believes percentage total net debt total capitalization useful understanding company’s financial condition provides review extent company relies external debt financing funding measure risk shareholders • third quarter fiscal 2019 company began deploying net cash proceeds power solution sale included reduction debt approximately 34 billion share repurchases debt reduction included shortterm longterm debt repayments including 15 billion debt tender described • company believes capital resources liquidity position september 30 2019 adequate meet projected needs company believes requirements working capital expenditures dividends stock repurchases minimum pension contributions debt maturities potential acquisitions fiscal 2020 continue funded operations supplemented short longterm borrowings required company currently manages shortterm debt position us euro commercial paper markets bank loan markets event company unable issue commercial paper would ability draw 20 billion revolving credit facility matures august 2020 draws revolving credit facility september 30 2019 2018 company also selectively makes use shortterm credit lines revolving credit facility company september 30 2019 could borrow 28 billion based committed credit lines addition company held cash equivalents 28 billion september 30 2019 company believes sufficient financial resources fund operations meet obligations foreseeable future • june 2019 company completed modified dutch auction tender offer repurchase approximately 40 billion ordinary shares price 3925 per share • may 2019 company completed debt tender offer purchase 15 billion aggregate principal amount certain outstanding notes 16 billion total consideration company recognized loss extinguishment debt 60 million recorded within net financing charges consolidated statements income • company’s debt financial covenant revolving credit facility requires minimum consolidated shareholders’ equity attributable johnson controls least 35 billion times revolving credit facility also limits amount debt secured liens may incurred maximum aggregated amount 10 consolidated shareholders’ equity attributable johnson controls liens pledges purposes calculating covenants consolidated shareholders’ equity attributable johnson controls calculated without giving effect application accounting standards codification asc 71560 defined benefit plans postretirement ii cumulative foreign currency translation adjustment september 30 2019 company compliance covenants requirements set forth credit agreements indentures governing notes expect remain compliance foreseeable future none company’s debt agreements limit access stated borrowing levels require accelerated repayment event decrease companys credit rating • company earns significant amount income outside parent company outside basis differences subsidiaries deemed permanently reinvested except limited circumstances however fiscal 2019 company provided income tax expense related change companys assertion outside basis differences company’s investment certain subsidiaries result planned divestiture power solutions business also fiscal 2018 due us tax reform company provided income tax related change company’s assertion outside basis difference certain nonus subsidiaries owned directly indirectly us subsidiaries us tax reform us enacted tax system provides exemption dividends received us corporations 10 owned nonus corporations however certain nonus us state withholding taxes may still apply closing outside basis difference via distribution transactions addition fiscal 2017 company provided income tax expense related change company’s assertion outside basis difference scott safety business result pending divestiture well outside basis certain nonconsolidated subsidiaries company currently intend foresee need repatriate undistributed earnings included outside basis differences tax efficient manners except noted company’s intent reduce basis differences would tax efficient company expects existing us cash liquidity continue sufficient fund company’s us operating activities cash commitments investing financing activities least next twelve months thereafter foreseeable future us company require capital generated operations company could elect raise capital us debt equity issuances company borrowed funds us continues ability borrow funds us reasonable interest rates addition company expects existing nonus cash equivalents shortterm investments cash flows operations continue sufficient fund company’s nonus operating activities cash commitments investing activities material capital expenditures least next twelve months thereafter foreseeable future company require capital luxembourg ireland holding financing entities amounts provided tax efficient methods company could also elect raise capital debt equity issuances alternatives could result increased interest expense dilution company’s earnings • better align resources growth strategies reduce cost structure global operations certain underlying markets company committed significant restructuring plan fiscal 2018 recorded 255 million restructuring impairment costs continuing operations consolidated statements income restructuring action related cost reduction initiatives company’s building technologies solutions business corporate costs consist primarily workforce reductions plant closures asset impairments company currently estimates upon completion restructuring action fiscal 2018 restructuring plan reduce annual operating costs continuing operations approximately 300 million primarily result lower cost sales sga due reduced employeerelated costs depreciation amortization expense company expects annual benefit actions substantially realized 2020 fiscal 2019 savings net execution costs approximately 70 expected annual operating cost reduction restructuring action expected substantially complete 2020 restructuring plan reserve balance 102 million september 30 2019 expected paid cash • better align resources growth strategies reduce cost structure global operations certain underlying markets company committed significant restructuring plan fiscal 2017 recorded 347 million restructuring impairment costs continuing operations consolidated statements income restructuring action related cost reduction initiatives company’s building technologies solutions business corporate costs consist primarily workforce reductions plant closures asset impairments company currently estimates upon completion restructuring action fiscal 2017 restructuring plan reduce annual operating costs continuing operations continuing operations approximately 260 million primarily result lower cost sales sga expenses due reduced employeerelated costs depreciation amortization expense company substantially realized annual benefit actions fiscal 2019 restructuring actions expected substantially complete fiscal 2020 restructuring plan reserve balance 61 million september 30 2019 expected paid cash • better align resources growth strategies reduce cost structure global operations address softness certain underlying markets company committed significant restructuring plan fiscal 2016 recorded 222 million restructuring impairment costs continuing operations consolidated statements income restructuring action related cost reduction initiatives company’s building technologies solutions business corporate costs consist primarily workforce reductions plant closures asset impairments changeincontrol payments restructuring action reduced annual operating costs continuing operations approximately 127 million primarily result lower cost sales sga due reduced employeerelated costs depreciation amortization expense restructuring actions substantially complete final payments expected made fiscal 2020 restructuring plan reserve balance 32 million september 30 2019 expected paid cash • refer note 9 debt financing arrangements notes consolidated financial statements additional information items impacting capitalization summary company’s significant contractual obligations continuing operations september 30 2019 follows millions refer note 9 debt financing arrangements notes consolidated financial statements information related companys longterm debt critical accounting estimates policies company prepares consolidated financial statements conformity accounting principles generally accepted united states america us gaap requires management make estimates assumptions affect reported amounts related disclosures actual results could differ estimates following policies considered management critical understanding judgments involved preparation company’s consolidated financial statements uncertainties could impact company’s results operations financial position cash flows revenue recognition company recognizes revenue certain longterm contracts design manufacture install building products systems well unscheduled repair replacement services time basis progress towards completion measured using costtocost input method based relationship actual costs incurred total estimated costs completion costtocost input method used best depicts transfer control customer occurs company incurs costs changes original estimates may required life contract estimates reviewed monthly contract modifications result additional goods services distinct transferred modification accounted prospectively company entered new contract goods services modification distinct original contract sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated losses recorded identified company adjust promised amount consideration effects significant financing component contract inception company expects receive payment within twelve months transfer goods services company enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized time straightline basis respective contract term company also sells certain hvac refrigeration products services bundled arrangements multiple performance obligations equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition company sells security monitoring systems may multiple performance obligations including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized time costtocost input method revenue monitoring maintenance services recognized time services rendered transaction price allocated performance obligation based relative selling price method order estimate relative selling price market data transfer price studies utilized standalone selling price directly observable company estimates standalone selling price using adjusted market assessment approach expected cost plus margin approach transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized time straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life contract cases company recognizes revenue point time control goods services transfers customer company considers contractual consideration payable customer assesses variable consideration may affect total transaction price including discounts rebates refunds credits similar sources variable consideration determining transaction price contract company includes variable consideration estimated transaction price probable significant reversal revenue recognized would occur uncertainty associated variable consideration subsequently resolved estimates based amount consideration company expects entitled shipping handling costs billed customers included sales related costs included cost sales control transfers customer company presents amounts collected customers sales taxes net related amounts remitted refer note 4 revenue recognition notes consolidated financial statements disclosure companys revenue recognition activity goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies companys average historical future financial results certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fiscal years 2019 2018 2017 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets consist trademarks tradenames tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests impairment longlived assets company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 35030 requires intangible assets acquired business combination used research development activities considered indefinite lived completion abandonment associated research development efforts period assets considered indefinite lived shall amortized shall tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value entity shall recognize impairment loss amount equal excess asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2019 2018 2017 employee benefit plans company provides range benefits employees retired employees including pensions postretirement benefits plan assets obligations measured annually frequently significant remeasurement event based company’s measurement date utilizing various actuarial assumptions discount rates assumed rates return compensation increases turnover rates health care cost trend rates date company reviews actuarial assumptions annual basis makes modifications assumptions based current rates trends appropriate company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans us gaap requires companies recognize statement financial position liability defined benefit pension postretirement plans underfunded unfunded asset defined benefit pension postretirement plans overfunded us gaap also requires companies measure benefit obligations fair value plan assets determine benefit plan’s funded status date employer’s fiscal year end company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates company’s weighted average discount rate us pension plans 295 410 september 30 2019 2018 respectively company’s weighted average discount rate postretirement plans 290 380 september 30 2019 2018 respectively company’s weighted average discount rate nonus pension plans 150 245 september 30 2019 2018 respectively estimating expected return plan assets company considers historical returns plan assets adjusted forwardlooking considerations inflation assumptions impact active management plans’ invested assets reflecting relatively longterm nature plans’ obligations approximately 28 plans’ assets invested equity securities 59 fixed income securities remainder primarily invested alternative investments years ending september 30 2019 2018 company’s expected longterm return us pension plan assets used determine net periodic benefit cost 710 750 respectively actual rate return us pension plans 710 fiscal year 2019 750 fiscal year 2018 years ending september 30 2019 2018 company’s weighted average expected longterm return nonus pension plan assets 520 535 respectively actual rate return nonus pension plans 520 fiscal year 2019 535 fiscal year 2018 years ending september 30 2019 2018 company’s weighted average expected longterm return postretirement plan assets 565 actual rate return postretirement plan assets 565 fiscal year 2019 2018 beginning fiscal 2020 company believes longterm rate return approximate 690 520 570 us pension nonus pension postretirement plans respectively differences actual investment results expected longterm asset returns reflected net periodic benefit costs fourth quarter fiscal year date significant remeasurement event company’s actual returns plan assets less company’s expectations additional contributions may required fiscal 2019 total employer contributions continuing operations defined benefit pension plans 50 million none voluntary contributions made company expects contribute approximately 50 million cash defined benefit pension plans fiscal 2020 fiscal 2019 total employer contributions continuing operations postretirement plans 3 million company expects contribute approximately 4 million cash postretirement plans fiscal 2020 based information provided independent actuaries relevant sources company believes assumptions used reasonable however changes assumptions could impact company’s financial position results operations cash flows loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 22 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage insurable liabilities asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 22 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities product warranties company offers warranties customers depending upon specific product terms customer purchase agreement typical warranty program requires company replace defective products within specified time period date sale company records estimate future warrantyrelated costs based actual historical return rates known factors based analysis return rates factors company’s warranty provisions adjusted necessary september 30 2019 company recorded 285 million warranty reserves continuing operations including extended warranties deferred revenue recorded company monitors warranty activity adjusts reserve estimates probable future warranty costs different estimates refer note 21 guarantees notes consolidated financial statements disclosure companys product warranty liabilities income taxes company accounts income taxes accordance asc 740 income taxes deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled company records valuation allowance primarily represents nonus operating loss carryforwards realization uncertain management judgment required determining company’s provision income taxes deferred tax assets liabilities valuation allowance recorded company’s net deferred tax assets calculating provision income taxes interim basis company uses estimate annual effective tax rate based upon facts circumstances known interim period quarterly basis actual effective tax rate adjusted appropriate based upon actual results compared forecasted beginning fiscal year company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary september 30 2019 company valuation allowance 51 billion continuing operations 45 billion relates net operating loss carryforwards primarily australia brazil france germany ireland luxembourg spain switzerland united kingdom us sustainable taxable income demonstrated 600 million deferred tax assets company’s federal income tax returns certain nonus income tax returns various fiscal years remain various stages audit irs respective nonus tax authorities although outcome tax audits always uncertain management believes appropriate support positions taken tax returns annual tax provisions included amounts sufficient pay assessments may proposed taxing authorities september 30 2019 company recorded liability 25 billion best estimate probable loss certain tax positions majority included noncurrent liabilities consolidated statements financial position nonetheless amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year company generally provide additional us nonus income taxes outside basis differences consolidated subsidiaries included shareholders’ equity attributable johnson controls international plc except limited circumstances including anticipated taxation planned divestitures reduction outside basis differences via sale liquidation subsidiaries andor distributions could create taxable income company’s intent reduce outside basis differences would tax efficient refer capitalization within liquidity capital resources section discussion us nonus cash projections refer note 18 income taxes notes consolidated financial statements companys income tax disclosures new accounting pronouncements refer new accounting pronouncements section within note 1 summary significant accounting policies notes consolidated financial statements risk management company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities stockbased compensation hedging transactions authorized executed pursuant clearly defined policies procedures strictly prohibit use financial instruments speculative purposes inception hedge company assesses effectiveness hedge instrument designates hedge instrument either 1 hedge recognized asset liability recognized firm commitment fair value hedge 2 hedge forecasted transaction variability cash flows received paid related unrecognized asset liability cash flow hedge 3 hedge net investment nonus operation net investment hedge company performs hedge effectiveness testing ongoing basis depending type hedging instrument used derivatives designated hedging instruments asc 815 derivatives hedging revalued consolidated statements income foreign currency derivative instruments designated cash flow hedges retrospective effectiveness tested monthly basis using cumulative dollar offset test fair value hedged exposures fair value hedge instruments revalued ratio cumulative sum periodic changes value hedge instruments cumulative sum periodic changes value hedge calculated hedge deemed highly effective ratio 80 125 commodity derivative contracts designated cash flow hedges effectiveness tested using regression calculation ineffectiveness minimal company aligns critical terms derivatives supply contracts net investment hedges company assesses net investment positions nonus operations compares outstanding net investment hedges quarterly basis hedge deemed effective aggregate outstanding principal hedge instruments designated net investment hedge nonus operation exceed company’s net investment positions respective nonus operation equity swaps derivative instruments designated hedging instruments asc 815 require assessment effectiveness discussion company’s accounting policies derivative financial instruments included note 1 summary significant accounting policies notes consolidated financial statements disclosure relating derivatives hedging activities included note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements foreign exchange company manufacturing sales distribution facilities around world thus makes investments enters transactions denominated various foreign currencies order maintain strict control achieve benefits company’s global diversification foreign exchange exposures currency netted internally net foreign exchange exposures appropriate hedged financial instruments company hedges 70 90 nominal amount known foreign exchange transactional exposures company primarily enters foreign currency exchange contracts reduce earnings cash flow impact variation nonfunctional currency denominated receivables payables gains losses resulting hedging instruments offset foreign exchange gains losses underlying assets liabilities hedged maturities forward exchange contracts generally coincide settlement dates related transactions realized unrealized gains losses contracts recognized period gains losses hedged items company also selectively hedges anticipated transactions subject foreign exchange exposure primarily foreign currency exchange contracts designated cash flow hedges accordance asc 815 company entered foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects debt obligations reflected accumulated comprehensive income aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset gains losses recorded company’s net investments globally september 30 2019 2018 company estimates unfavorable 10 change exchange rates would decreased net unrealized gains approximately 358 million 212 million respectively interest rates substantially companys outstanding debt fixed interest rates 10 increase average cost company’s variable rate debt would immaterial impact pretax interest expense year ended september 30 2019 unfavorable impact approximately 5 million year ended september 30 2018 commodities company uses commodity hedge contracts financial derivatives market cases commodity price risk cannot naturally offset hedged supply base fixed price contracts commodity risks systematically managed pursuant policy guidelines cash flow hedge gains losses resulting hedging instruments offset gains losses purchases underlying commodities used business maturities commodity hedge contracts coincide expected purchase commodities environmental health safety matters company’s global operations governed environmental laws worker safety laws various circumstances laws impose civil criminal penalties fines well injunctive remedial relief noncompliance require remediation sites companyrelated substances released environment company expended substantial resources globally financial managerial comply applicable environmental laws worker safety laws protect environment workers company believes substantial compliance laws maintains procedures designed foster ensure compliance however company future may become subject formal informal enforcement actions proceedings regarding noncompliance laws remediation companyrelated substances released environment matters typically resolved regulatory authorities commitments compliance abatement remediation programs cases payment penalties historically neither commitments penalties imposed company material refer note 22 commitments contingencies notes consolidated financial statements additional information quarterly financial data 1 fiscal 2019 first quarter net income includes 50 million transaction integration costs 21 million marktomarket losses fiscal 2019 second quarter net income includes 70 million transaction integration costs 20 million marktomarket gains fiscal 2019 third quarter net income includes 52 billion gain sale power solutions business net transaction costs 235 million significant restructuring impairment costs 226 million tax indemnification reserve release 140 million environmental charge 86 million transaction integration costs 60 million loss debt extinguishment 9 million marktomarket gains fiscal 2019 fourth quarter net income includes 626 million net marktomarket losses 111 million transaction integration costs preceding amounts stated pretax prenoncontrolling interest impact basis include continuing discontinued operations activity 2 due use weightedaverage shares outstanding quarter computing earnings per share sum quarterly per share amounts may equal per share amount year 3 fiscal 2018 first quarter net income includes 114 million gain sale scott safety 158 million significant restructuring impairment costs 50 million transaction integration costs fiscal 2018 second quarter net income includes 64 million transaction integration costs fiscal 2018 third quarter net income includes 51 million transaction integration costs fiscal 2018 fourth quarter net income includes 10 million net marktomarket gains pension postretirement plans 105 million significant restructuring impairment costs 69 million transaction integration costs preceding amounts stated pretax prenoncontrolling interest impact basis include continuing discontinued operations activity item 7a nanitem 7a financial instrument disclosure see managements discussion analysis financial condition operating results appears pages 65 69 form 10k item 8item 7a quantitative qualitative disclosures market risk see managements discussion analysis financial condition results operations appears pages 68 84 form 10ka item 8item 7a quantitative qualitative disclosures market risk see managements discussion analysis financial condition results operations appears pages 81 98 form 10k item 8item 7a quantitative qualitative disclosures market risk see managements discussion analysis financial condition results operations appears pages 123 160 form 10k item 8item 7a quantitative qualitative disclosures market risk see managements discussion analysis financial condition results operations appears pages 126 172 form 10k item 8item 7a quantitative qualitative disclosures market risk net revenue derived sales nonus markets 2004 2003 2002 474 450 418 respectively expect revenue nonus markets continue represent significant portion net revenue therefore us dollar strengthens relation foreign currencies countries sell products euro us dollarreported revenue income decrease changes relative values currencies occur time may instances significant effect results operations financial statements reflect recalculations items denominated nonus currencies us dollars functional currency large buyer steel resin united states also large buyer commodities including copper brass gold paper pulp cotton volatility prices commodities could increase costs products services may able pass costs customers could material adverse effect results operations cash flows monitor exposures integral part overall risk management program cases purchase hedges enter contracts insulate results operations fluctuations nevertheless changes currency exchange rates commodity prices interest rates may material adverse effects results operations financial condition subject variety litigation course business could cause material adverse effect results operations financial condition ordinary course business subject significant amount litigation including litigation alleging infringement intellectual property rights litigation alleging anticompetitive behavior product liability litigation certain circumstances patent infringement antitrust laws permit successful plaintiffs recover treble damages addition healthcare business subject regulation potential litigation defense lawsuits may divert managements attention may incur significant expenses defending lawsuits addition may required pay damage awards settlements become subject injunctions equitable remedies could cause material adverse effect financial condition results operations healthcare business subject extensive regulation government failure comply regulations could material adverse effect results operations financial condition us food drug administration regulates approval manufacturing sale marketing many healthcare products failure comply current good manufacturing practices applicable regulations quality assurance guidelines could lead temporary manufacturing shutdowns product shortages delays product manufacturing efficacy safety concerns increase trends adverse events marketplace andor manufacturing quality issues respect products could lead product recalls withdrawals declining sales adt business generally experienced higher rates customer attrition may reduce future revenue caused us change useful life accounts increasing depreciation amortization expense attrition rates customers global electronic security services business 151 159 132 trailing 12month basis september 30 2004 2003 2002 respectively attrition rates show upward trend adts recurring revenue results operations adversely affected tyco amortizes costs adts contracts related customer relationships purchased adt dealer program using doubledeclining balance method based tenyear life first eight years estimated life customer relationships converting straightline method amortization completely amortize asset pool end twelfth year internally generated residential commercial account pools amortized using straightline method ten fourteen years attrition rates rise account pools tyco may required accelerate amortization costs related pools could cause material adverse effect financial condition results operations cash flows reputation ability business may impaired reckless corrupt behavior employees agents subsidiaries tyco subsidiaries operate many parts world experienced governmental corruption degree including limited asia latin america eastern europe tycos policy mandates strict compliance us foreign corrupt practices act amended local laws prohibiting corrupt payments government officials nonetheless cannot provide assurance internal control policies procedures always protect us reckless criminal acts committed employees would violate us andor foreign laws governing payments government officials actions could result criminal civil penalties including substantial monetary fines us subsidiaries could damage reputation therefore ability business allegation brought attention period 1999 2003 certain improper payments made nonus subsidiary tyco 2004 revenue 40 million assistance outside counsel conducted internal investigation allegations whether certain payments correctly recorded books records subsidiary taken remedial steps reported results investigation department justice sec cooperating inquiry covenants debt instruments may adversely affect us bank credit agreements contain financial covenants limit ratio debt earnings interest taxes depreciation amortization minimum levels net worth covenants limit ability pledge assets make substantial payments connection capital shares synthetic lease facilities covenants including interest coverage leverage ratios outstanding indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions although believe none covenants presently restrictive operations ability meet financial covenants affected events beyond control cannot provide assurance meet tests breach covenants could result default credit agreements indentures upon occurrence event default credit facilities indentures lenders trustees could elect declare amounts outstanding thereunder immediately due payable terminate commitments extend credit lenders trustees accelerate repayment borrowings cannot provide assurance sufficient assets repay credit facilities indebtedness acceleration obligation material debt instruments permit holders material debt accelerate obligations see item 7 managements discussion analysis financial condition results operationsliquidity capital resources downgrades debt ratings would adversely affect us certain downgrades moodys sp would permit providers receivables facilities extent receivables facilities utilized cease purchases facilities would increase interest cost credit facility borrowings downgrades may also increase cost capital make difficult us obtain new financing risks relating jurisdiction incorporation legislation negative publicity regarding bermuda companies could increase tax burden affect operating results legislation relating government contracts continue assess potential impact various us federal state legislative proposals would deny government contracts us companies move corporate location abroad legislative proposals could cover 1997 acquisition tyco international ltd massachusetts corporation adt limited public company located bermuda since 1980s origins dating back united kingdom since early 1900s result adt changed name tyco international ltd became parent tyco group 2003 state california adopted legislation intended limit eligibility certain bermuda foreignchartered companies participate certain state contracts date tyco companies requested waivers granted still pending one request denied however reliable process waiver authority exercised provision waivers affect tycos business addition us federal government various states municipalities proposed may propose legislation would deny government contracts us companies move corporate location abroad unable predict level certainty likelihood final form proposed legislation might become law nature regulations may promulgated future legislative enactments impact enactments increased regulatory scrutiny may business tycos revenues related direct sales us federal government state california accounted less 20 01 respectively total net revenues 2004 unable predict however whether final form proposed legislation discussed would also affect tycos indirect sales us federal state governments willingness tycos nongovernmental customers business us result uncertainties unable assess potential impact us proposed legislation area provide assurance impact materially adverse tax legislation us congress past considered legislation affecting tax treatment us companies undertaken certain types expatriation transactions recently us congress enacted legislation however retroactively apply 1997 acquisition tyco international ltd adt limited expect various tax proposals introduced us congress future cannot provide assurance proposals would adverse effects tyco enacted adverse effects could include substantially reducing tax benefits corporate structure materially increasing tax burden otherwise adversely affecting business negative publicity continuing negative publicity regarding criticism us companies use relocation offshore jurisdictions including bermuda company negative publicity could harm reputation impair ability generate new business companies government agencies decline business us result negative public image bermuda companies possibility customers receiving negative media attention business bermuda company bermuda law differs laws effect united states may afford less protection holders securities organized laws bermuda may possible enforce court judgments obtained united states us bermuda based civil liability provisions us federal state securities laws addition doubt whether courts bermuda would recognize enforce judgments us courts obtained us directors officers based civil liabilities provisions us federal state securities laws hear actions us persons based laws advised united states bermuda currently treaty providing reciprocal recognition enforcement judgments civil commercial matters therefore final judgment payment money rendered us federal state court based civil liability whether based solely us federal state securities laws would automatically enforceable bermuda company tyco governed companies act 1981 bermuda differs material respects laws generally applicable united states corporations shareholders including among others differences relating interested director officer transactions shareholder lawsuits indemnification likewise duties directors officers bermuda company generally owed company shareholders bermuda companies generally personal right action directors officers company may exercise rights action behalf company limited circumstances bermuda law company may also agree indemnify directors officers personal liability involving fraud dishonesty incurred relation company thus holders tyco securities may difficulty protecting interests would holders securities corporation incorporated jurisdiction united states forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed securities exchange commission tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect sales earnings cash flows operating efficiencies product expansion backlog consummation benefits acquisitions divestitures matters well financings repurchases debt equity securities subject known unknown risks uncertainties contingencies many risks uncertainties contingencies beyond control may cause actual results performance achievements differ materially anticipated results performance achievements factors might affect forwardlooking statements include among things •overall economic business conditions •the demand tycos goods services •competitive factors industries tyco competes •changes tax requirements including tax rate changes new tax laws revised tax law interpretations •results consequences tycos internal investigation governmental investigations concerning companys governance management internal controls operations •the outcome litigation governmental proceedings result actions taken former senior corporate management •the ratings debt ability repay refinance outstanding indebtedness matures •our ability operate within limitations imposed financing arrangements maintain credit ratings •interest rate fluctuations changes borrowing costs •other capital market conditions including foreign currency rate fluctuations •fluctuations prices commodities including steel resin •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability achieve cost savings connection companys strategic restructuring six sigma initiatives •potential impairment goodwill •the impact fluctuations share price tyco common shares •changes us nonus government regulations general particular changes rules regulations regarding safety efficacy sales promotions insurance reimbursement pricing tycos disposable medical products specialty products regarding tycos ability operate set prices respect undersea cable communications systems •the possible effects tyco future legislation us may limit eliminate potential us tax benefits resulting tycos incorporation bermuda deny us government contracts tyco based upon incorporation bermuda •the potential distraction costs associated negative publicity relating actions former senior corporate management item 7a quantitative qualitative disclosures market risk subject market risk associated changes interest rates foreign currency exchange rates order manage volatility relating significant market risks enter forward foreign currency exchange contracts crosscurrency swaps foreign currency options interest rate swaps anticipate material changes primary market risk exposures 2005 utilize established risk management policies procedures executing derivative financial instrument transactions execute transactions hold derivative financial instruments trading speculative purposes derivative financial instruments related interest rate sensitivity debt obligations intercompany crossborder transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective counterparties derivative financial instruments limited financial institutions least aa2 longterm debt rating interest rate sensitivity table provides information financial instruments sensitive changes interest rates including debt obligations interest rate swaps debt obligations table presents cash flows principal repayment weightedaverage interest rates interest rate crosscurrency swaps table presents notional amounts current market price rate weighted average interest rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars unless noted millions 1weightedaverage variable interest rates based applicable rates september 30 2004 per terms contracts related financial instruments exchange rate sensitivity table provides information financial instruments sensitive foreign currency exchange rates instruments include debt obligations forward foreign currency exchange contracts debt obligations table presents cash flows principal repayment weightedaverage interest rates forward foreign currency exchange contracts table presents notional amounts weightedaverage contractual exchange rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars unless noted millions 1weightedaverage variable interest rates based applicable rates september 30 2004 per terms contracts related financial instruments addition forward foreign currency exchange contracts presented table company held forward contracts 14 different currency pairs individual notional amounts less 5 million aggregate notional amount 25 million less 1 million fair value contracts primarily related exposures euro item 8item 7a quantitative qualitative disclosures market risk subject market risk associated changes interest rates foreign currency exchange rates order manage volatility relating significant market risks enter forward foreign currency exchange contracts crosscurrency swaps foreign currency options interest rate swaps anticipate material changes primary market risk exposures 2006 utilize established risk management policies procedures executing derivative financial instrument transactions execute transactions hold derivative financial instruments trading speculative purposes derivative financial instruments related interest rate sensitivity debt obligations intercompany crossborder transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective counterparties derivative financial instruments limited financial institutions least aa2 longterm debt rating interest rate sensitivity table provides information financial instruments sensitive changes interest rates including debt obligations interest rate swaps debt obligations table presents cash flows principal repayment weightedaverage interest rates interest rate crosscurrency swaps table presents notional amounts current market price rate weighted average interest rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars unless noted millions 1weightedaverage variable interest rates based applicable rates september 30 2005 per terms contracts related financial instruments exchange rate sensitivity table provides information financial instruments sensitive foreign currency exchange rates instruments include debt obligations forward foreign currency exchange contracts debt obligations table presents cash flows principal repayment weightedaverage interest rates forward foreign currency exchange contracts table presents notional amounts weightedaverage contractual exchange rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars unless noted millions 1weightedaverage variable interest rates based applicable rates september 30 2005 per terms contracts related financial instruments addition forward foreign currency exchange contracts presented table company held forward contracts 14 different currency pairs individual notional amounts material item 8item 7a quantitative qualitative disclosures market risk subject market risk associated changes interest rates foreign currency exchange rates order manage volatility relating significant market risks enter forward foreign currency exchange contracts crosscurrency swaps foreign currency options interest rate swaps anticipate material changes primary market risk exposures 2007 assessing current future risk related movements interest rates terminated interest rate cross currency swaps several tranches aggregate notional value interest rate cross currency swaps terminated fourth quarter 2006 25 billion october 2006 terminated remaining contracts total notional amount 06 billion settlement swaps resulted net cash inflow 55 million since interest rate swaps designated hedging instruments outstanding debt related 32 million loss adjustment carrying value related debt amortized remaining life related debt instruments december 2006 due required changes legal entity structure facilitate proposed separation company determined longer consider certain intercompany foreign currency transactions longterm investments result related foreign currency transaction gains losses investments recorded income statement rather currency translation component shareholders equity forward contracts previously designated hedges net investments continue used manage exposure longer designated net investment hedges utilize established risk management policies procedures executing derivative financial instrument transactions execute transactions hold derivative financial instruments trading speculative purposes derivative financial instruments related interest rate sensitivity debt obligations intercompany crossborder transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective counterparties derivative financial instruments limited financial institutions least aa2 longterm debt rating interest rate sensitivity table provides information financial instruments sensitive changes interest rates including debt obligations interest rate swaps debt obligations table presents cash flows principal repayment weightedaverage interest rates interest rate crosscurrency swaps table presents notional amounts current market price rate weighted average interest rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars millions 1weightedaverage variable interest rates based applicable rates september 29 2006 per terms contracts related financial instruments exchange rate sensitivity table provides information financial instruments sensitive foreign currency exchange rates instruments include debt obligations forward foreign currency exchange contracts debt obligations table presents cash flows principal repayment weightedaverage interest rates forward foreign currency exchange contracts table presents notional amounts weightedaverage contractual exchange rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars millions 1weightedaverage variable interest rates based applicable rates september 29 2006 per terms contracts related financial instruments addition forward foreign currency exchange contracts presented table company held forward contracts 15 different currency pairs individual notional amounts material item 8item 7a quantitative qualitative disclosures market risk ordinary course conducting business exposed certain risks associated potential changes market conditions risks include fluctuations foreign currency exchange rates interest rates commodity prices accordingly established comprehensive risk management process monitor evaluate manage principal exposures assume seek manage risks use financial derivative instruments portfolio derivative financial instruments may time include forward foreign currency exchange contracts cross currency swaps foreign currency options interest rate swaps derivative financial instruments related interest rate sensitivity debt obligations intercompany cross border transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective execute transactions utilize derivative financial instruments trading speculative purposes reduce risk counterparty unable honor contractual obligations us enter contracts counterparties least aa2 longterm debt rating counterparties generally financial institutions significant concentration exposure one party fiscal year 2007 company elected change presentation market risk information tabular format disclosure based results sensitivity analysis management believes method presentation provides useful information assessing companys overall exposure market risks results sensitivity analysis represent estimate reasonably possible outcomes based hypothetical market conditions necessarily indicative actual results although material changes primary risk exposures risk management activities level exposure decreased across risk categories result spinoff healthcare electronics businesses foreign currency exposures economically hedge exposure fluctuations exchange rates use forward foreign exchange contracts options 2007 largest exposures foreign exchange rates existed primarily british pound euro brazilian real australian dollar canadian dollar us dollar market risk related forward foreign exchange contracts measured estimating potential impact 10 change value us dollar relative local currency exchange rates used perform analysis based market rates effect september 28 2007 10 appreciation us dollar relative local currency exchange rates would result 248 million net increase fair value contracts conversely 10 depreciation us dollar relative local currency exchange rates would result 303 million net decrease fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions previously hedged investment certain foreign operations december 2006 due required changes legal entity structure facilitate separation company determined longer consider certain intercompany foreign currency transactions longterm investments result related foreign currency transaction gains losses investments recorded income statement subsequent determination rather currency translation component shareholders equity forward contracts previously designated hedges net investments continued used manage exposure longer designated net investment hedges also connection separation debt tender company dedesignated 6125 euro denominated public notes due 2007 march 29 2007 55 euro denominated public notes due 2008 65 british pound denominated public notes due 2031 may 21 2007 previously considered hedges net investments certain foreign operations september 28 2007 company hedge net investment foreign operations outstanding borrowings denominated us dollars interest rate exposures longterm debt portfolio primarily consists fixedrate instruments historically company managed exposure interest rates entering interest rate crosscurrency swaps designated fair value hedges assessing potential risks related movements interest rates terminated interest rate crosscurrency swaps several tranches beginning fourth quarter 2006 first quarter 2007 terminated remaining contracts total notional amount 06 billion resulting aggregate terminated notional amount 31 billion settlement swaps resulted net cash inflow 63 million first quarter 2007 since interest rate swaps designated hedging instruments outstanding debt related 32 million loss adjustment carrying value related debt amortized remaining life related debt instruments connection debt tender offer 9 million unamortized loss interest rate swaps accelerated recorded loss retirement debt included expense net see note 13 september 28 2007 interest rate swaps outstanding commodity exposures exposed volatility prices raw materials used products may limited circumstances enter hedging contracts manage exposures monitored integral part risk management program september 28 2007 company hedge exposure attributable changes commodity prices may consider strategies future item 8item 7a quantitative qualitative disclosures market risk ordinary course conducting business exposed certain risks associated potential changes market conditions risks include fluctuations foreign currency exchange rates interest rates commodity prices accordingly established comprehensive risk management process monitor evaluate manage principal exposures believe subject seek manage risks use financial derivative instruments portfolio derivative financial instruments may time include forward foreign currency exchange contracts cross currency swaps foreign currency options interest rate swaps derivative financial instruments related interest rate sensitivity debt obligations intercompany cross border transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective execute transactions utilize derivative financial instruments trading speculative purposes reduce risk counterparty unable honor contractual obligations us enter contracts counterparties least aa2 longterm debt rating counterparties generally financial institutions significant concentration exposure one party fiscal year 2007 company elected change presentation market risk information tabular format disclosure based results sensitivity analysis management believes method presentation provides useful information assessing companys overall exposure market risks results sensitivity analysis represent estimate reasonably possible outcomes based hypothetical market conditions necessarily indicative actual results foreign currency exposures hedge exposure fluctuations exchange rates use forward foreign exchange contracts options 2008 largest exposures foreign exchange rates existed primarily british pound euro australian dollar canadian dollar us dollar market risk related forward foreign exchange contracts measured estimating potential impact 10 change value us dollar relative local currency exchange rates used perform analysis based market rates effect september 26 2008 10 appreciation us dollar relative local currency exchange rates would result 57 million net increase fair value contracts conversely 10 depreciation us dollar relative local currency exchange rates would result 69 million net decrease fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions previously hedged investment certain foreign operations december 2006 due required changes legal entity structure facilitate separation company determined would longer consider certain intercompany foreign currency transactions longterm investments result related foreign currency transaction gains losses investments recorded income statement subsequent determination rather currency translation component shareholders equity forward contracts previously designated hedges net investments continued used manage exposure longer designated net investment hedges also connection separation debt tender company redesignated 6125 euro denominated public notes due 2007 march 29 2007 55 euro denominated public notes due 2008 65 british pound denominated public notes due 2031 may 21 2007 previously considered hedges net investments certain foreign operations september 26 2008 september 28 2007 company hedge net investment foreign operations net investment hedges outstanding borrowings denominated us dollars 2008 designated certain intercompany loans permanent nature amount 21 billion september 26 2008 result company recorded 141 million cumulative translation adjustment accumulated comprehensive income september 26 2008 related loans interest rate exposures longterm debt portfolio primarily consists fixedrate instruments historically company managed exposure interest rates entering interest rate crosscurrency swaps designated fair value hedges assessing potential risks related movements interest rates terminated interest rate crosscurrency swaps several tranches beginning fourth quarter 2006 first quarter 2007 terminated remaining contracts total notional amount 06 billion resulting aggregate terminated notional amount 31 billion settlement swaps resulted net cash inflow 63 million first quarter 2007 since interest rate swaps designated hedging instruments outstanding debt related 32 million loss adjustment reported 2007 carrying value related debt amortized remaining life related debt instruments amount 3 million 18 million amortized 2008 2007 respectively connection debt tender offer 9 million unamortized loss interest rate swaps accelerated recorded 2007 loss retirement debt included expense net see note 13 consolidated financial statements september 28 2007 interest rate swaps outstanding 2008 company enter interest rate crosscurrency swaps may consider strategies future commodity exposures exposed volatility prices raw materials used products may limited circumstances enter hedging contracts manage exposures monitored integral part risk management program 2008 company hedge exposure attributable changes commodity prices may consider strategies future item 8item 7a quantitative qualitative disclosures market risk normal course conducting business exposed certain risks associated potential changes market conditions risks include fluctuations foreign currency exchange rates interest rates commodity prices accordingly established comprehensive risk management process monitor evaluate manage principal exposures believe subject seek manage risks use financial derivative instruments portfolio derivative financial instruments may time include forward foreign currency exchange contracts foreign currency options interest rate swaps forward commodity contracts derivative financial instruments related interest rate sensitivity debt obligations intercompany cross border transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective execute transactions utilize derivative financial instruments trading speculative purposes reduce risk counterparty unable honor contractual obligations us enter contracts counterparties least aa3 longterm debt rating counterparties generally financial institutions significant concentration exposure one party foreign currency exposures hedge exposure fluctuations foreign currency exchange rates use forward foreign currency exchange contracts 2009 largest exposures foreign exchange rates existed primarily swiss franc british pound euro australian dollar canadian dollar us dollar market risk related forward foreign currency exchange contracts excluding dividend hedge contract discussed measured estimating potential impact 10 change value us dollar relative local currency exchange rates used perform analysis based market rates effect september 25 2009 10 appreciation us dollar relative local currency exchange rates would result 6 million net increase fair value contracts conversely 10 depreciation us dollar relative local currency exchange rates would result 7 million net decrease fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions effective march 17 2009 tyco changed jurisdiction incorporation bermuda switzerland january 1 2011 tyco intends make dividend payments form reduction capital denominated swiss francs however company expects actually pay dividends us dollars based exchange rates effect shortly payment date fluctuations value us dollar compared swiss franc date dividend declared paid increase decrease us dollar amount required paid company manages potential variability cash flows associated dividend payments entering derivative financial instruments used economic hedges underlying risk 10 appreciation us dollar relative swiss franc would result 20 million net decrease fair value contracts conversely 10 depreciation us dollar relative swiss franc would result 24 million net increase fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions previously hedged investment certain foreign operations december 2006 due required changes legal entity structure facilitate separation company determined would longer consider certain intercompany foreign currency transactions longterm investments result related foreign currency transaction gains losses investments recorded consolidated statements operations subsequent determination rather currency translation component accumulated comprehensive loss income within shareholders equity forward contracts previously designated hedges net investments continued used manage exposure longer designated net investment hedges fiscal 2009 designated certain intercompany loans permanent nature september 25 2009 30 billion intercompany loans designated permanent nature year ended september 25 2009 recorded cumulative translation loss accumulated comprehensive loss income related loans material impact fiscal 2009 141 million fiscal 2008 interest rate exposures longterm debt portfolio primarily consists fixedrate instruments company manages interest rate risk use interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes 2009 company entered interest rate swap transactions objective managing exposure interest rate risk converting interest rates 14 billion fixedrate debt variable rates contracts company agreed financial institutions acting principal counterparties exchange specified intervals difference fixed floating interest amounts calculated agreedupon notional principal amount 100 basis point increase interest rates relative interest rates september 25 2009 would result 22 million net decrease fair value contracts conversely 100 basis point decrease interest rates relative interest rates september 25 2009 would result 22 million net increase fair value contracts commodity exposures exposed volatility prices raw materials used products may limited circumstances enter hedging contracts manage exposures monitored integral part risk management program 2009 company hedge exposure attributable changes commodity prices may consider strategies future item 8item 7a quantitative qualitative disclosures market risk normal course conducting business exposed certain risks associated potential changes market conditions risks include fluctuations foreign currency exchange rates interest rates commodity prices accordingly established comprehensive risk management process monitor evaluate manage principal exposures believe subject seek manage risks use financial derivative instruments portfolio derivative financial instruments may time include forward foreign currency exchange contracts foreign currency options interest rate swaps commodity swaps forward commodity contracts derivative financial instruments related interest rate sensitivity debt obligations intercompany cross border transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective execute transactions utilize derivative financial instruments trading speculative purposes reduce risk counterparty unable honor contractual obligations us enter contracts counterparties least aa3 longterm debt rating counterparties generally financial institutions significant concentration exposure one party foreign currency exposures hedge exposure fluctuations foreign currency exchange rates use forward foreign currency exchange contracts 2010 largest exposures foreign exchange rates existed primarily swiss franc british pound euro australian dollar canadian dollar us dollar market risk related forward foreign currency exchange contracts excluding dividend hedge contract discussed measured estimating potential impact 10 change value us dollar relative local currency exchange rates used perform analysis based market rates effect september 24 2010 10 appreciation us dollar relative local currency exchange rates would result immaterial net decrease fair value contracts conversely 10 depreciation us dollar relative local currency exchange rates would result immaterial net increase fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions effective march 17 2009 tyco changed jurisdiction incorporation bermuda switzerland last payment made february 2011 tyco intends make dividend payments form reduction capital denominated swiss francs however company expects actually pay dividends us dollars based exchange rates effect shortly payment date fluctuations value us dollar compared swiss franc date dividend declared paid increase decrease us dollar amount required paid company manages potential variability cash flows associated dividend payments entering derivative financial instruments used economic hedges underlying risk 10 appreciation us dollar relative swiss franc would result 21 million net decrease fair value contracts conversely 10 depreciation us dollar relative swiss franc would result 25 million net increase fair value contracts however gains losses derivative instruments economically offset amount dividend would required pay third quarter 2010 tyco international finance sa tifsa companys finance subsidiary entered foreign currency exchange forward contracts hedge euro denominated net investment aggregate notional amount hedges approximately 255 million september 24 2010 potential impact 10 appreciation us dollar relative euro would result 25 million net increase comprehensive income conversely 10 depreciation us dollar relative euro would result 30 million net decrease comprehensive income september 24 2010 september 25 2009 30 billion intercompany loans designated permanent nature fiscal years ended september 24 2010 september 25 2009 recorded 24 million nil respectively cumulative translation loss accumulated comprehensive loss related loans interest rate exposures longterm debt portfolio primarily consists fixedrate instruments company manages interest rate risk use interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes third quarter 2009 first quarter 2010 third quarter 2010 company entered interest rate swap transactions objective managing exposure interest rate risk converting interest rates 14 billion 500 million 501 million respectively fixedrate debt variable rates contracts company agreed financial institutions acting principal counterparties exchange specified intervals difference fixed floating interest amounts calculated agreedupon notional principal amount connection redemption 6375 public notes due 2011 third quarter 2010 company terminated corresponding interest rate swaps september 24 2010 september 25 2009 total gross notional amount companys interest rate swap contracts 15 billion 14 billion respectively 100 basis point increase interest rates relative interest rates september 24 2010 would result 37 million net decrease fair value contracts conversely 100 basis point decrease interest rates relative interest rates september 24 2010 would result 38 million net increase fair value contracts commodity exposures exposed volatility prices raw materials used products may limited circumstances enter hedging contracts manage exposures monitored integral part risk management program 2010 company entered commodity swaps copper designated hedging instruments accounting purposes swaps material impact companys financial position results operations cash flows additionally 100 basis point increase decrease price copper september 24 2010 would material impact companys financial position results operations cash flows item 8item 7a quantitative qualitative disclosures market risk normal course conducting business exposed certain risks associated potential changes market conditions risks include fluctuations foreign currency exchange rates interest rates commodity prices accordingly established comprehensive risk management process monitor evaluate manage principal exposures believe subject seek manage risks use financial derivative instruments portfolio derivative financial instruments may time include forward foreign currency exchange contracts foreign currency options interest rate swaps commodity swaps forward commodity contracts derivative financial instruments related interest rate sensitivity debt obligations intercompany cross border transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective execute transactions utilize derivative financial instruments trading speculative purposes reduce risk counterparty unable honor contractual obligations us enter contracts counterparties least aa3 longterm debt rating counterparties generally financial institutions significant concentration exposure one party foreign currency exposures hedge exposure fluctuations foreign currency exchange rates use forward foreign currency exchange contracts 2011 largest exposures foreign exchange rates existed primarily swiss franc british pound euro australian dollar canadian dollar us dollar market risk related forward foreign currency exchange contracts measured estimating potential impact 10 change value us dollar relative local currency exchange rates used perform analysis based market rates effect september 30 2011 10 appreciation us dollar relative local currency exchange rates would result 32 million net decrease fair value contracts conversely 10 depreciation us dollar relative local currency exchange rates would result 39 million net increase fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions third quarter 2010 tyco international finance sa tifsa companys finance subsidiary entered foreign currency exchange forward contracts hedge euro denominated net investment aggregate notional amount hedges approximately 224 million 255 million september 30 2011 september 24 2010 respectively potential impact 10 appreciation us dollar relative euro would result 19 million net increase comprehensive income conversely 10 depreciation us dollar relative euro would result 24 million net decrease comprehensive income september 30 2011 september 24 2010 29 billion 30 billion respectively intercompany loans designated permanent nature fiscal years ended september 30 2011 september 24 2010 september 25 2009 recorded 16 million cumulative transaction gain 24 million cumulative translation loss nil respectively accumulated comprehensive loss related loans interest rate exposures longterm debt portfolio primarily consists fixedrate instruments company manages interest rate risk use interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes interest rate swap transactions manage exposure interest rate risk converting interest rates fixedrate debt variable rates second quarter 2011 tifsa also entered interest rate swaps contracts hedge 155 million notional amount 4125 public notes due 2014 contracts tifsa agrees financial institutions acting principal counterparties exchange specified intervals difference fixed floating interest amounts calculated agreedupon notional principal amount connection maturity 675 public notes second quarter 2011 tifsa settled corresponding interest rate swaps september 30 2011 september 24 2010 total gross notional amount companys interest rate swap contracts 12 billion 15 billion respectively 100 basis point increase interest rates relative interest rates september 30 2011 would result 29 million net decrease fair value contracts conversely 100 basis point decrease interest rates relative interest rates september 30 2011 would result 30 million net increase fair value contracts commodity exposures exposed volatility prices raw materials used products may limited circumstances enter hedging contracts manage exposures monitored integral part risk management program 2011 2010 company entered commodity swaps copper designated hedging instruments accounting purposes swaps material impact companys financial position results operations cash flows additionally 100 basis point increase decrease price copper september 30 2011 would material impact companys financial position results operations cash flows item 8item 7a quantitative qualitative disclosures market risk normal course conducting business exposed certain risks associated potential changes market conditions risks include fluctuations foreign currency exchange rates interest rates commodity prices accordingly established comprehensive risk management process monitor evaluate manage principal exposures believe subject seek manage risks use financial derivative instruments portfolio derivative financial instruments may time include forward foreign currency exchange contracts foreign currency options interest rate swaps commodity swaps forward commodity contracts derivative financial instruments related interest rate sensitivity debt obligations intercompany cross border transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective execute transactions utilize derivative financial instruments trading speculative purposes reduce risk counterparty unable honor contractual obligations us enter contracts counterparties strong investment grade longterm credit ratings standard poors moodys counterparties generally financial institutions significant concentration exposure one party foreign currency exposures hedge exposure fluctuations foreign currency exchange rates related operating entities use forward foreign currency exchange contracts additionally corporate financing entities manage foreign currency exposure combination multicurrency notional pool forward contracts largest exposure foreign exchange rates exists primarily british pound euro australian dollar canadian dollar mexican peso us dollar market risk related forward foreign currency exchange contract measured estimating potential impact 10 change value us dollar relative local currency exchange rates used perform analysis based market rates effect september 28 2012 10 appreciation us dollar relative local currency exchange rates would result 7 million net decrease fair value contracts conversely 10 depreciation us dollar relative local currency exchange rates would result 9 million net increase fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions prior first quarter fiscal 2012 hedged net investments certain foreign operations use foreign currency exchange forward contracts objective minimize exposure changes value foreign currency denominated net investment quarter ended december 30 2011 terminated net investment hedge accordingly aggregate notional amount hedges nil approximately 224 million september 28 2012 september 30 2011 respectively september 28 2012 september 30 2011 20 billion 14 billion respectively intercompany loans designated permanent nature fiscal years ended september 28 2012 september 30 2011 september 24 2010 recorded 48 million cumulative transaction gain 2 million 34 million cumulative translation losses respectively accumulated comprehensive loss related loans interest rate exposures manage interest rate risk use interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes since third quarter 2009 tifsa entering interest rate swap transactions objective managing exposure interest rate risk converting interest rates fixedrate debt variable rates contracts tifsa agrees financial institutions acting principal counterparties exchange specified intervals difference fixed floating interest amounts calculated agreedupon notional principal amount connection debt tenders redemption quarter ended september 28 2012 tifsa settled outstanding interest rate swaps accordingly september 28 2012 september 30 2011 total gross notional amount interest rate swap contracts nil 12 billion respectively item 8item 7a quantitative qualitative disclosures market risk normal course conducting business exposed certain risks associated potential changes market conditions risks include fluctuations foreign currency exchange rates interest rates commodity prices accordingly established comprehensive risk management process monitor evaluate manage principal exposures believe subject seek manage risks use financial derivative instruments portfolio derivative financial instruments may time include forward foreign currency exchange contracts foreign currency options interest rate swaps commodity swaps forward commodity contracts derivative financial instruments related interest rate sensitivity debt obligations intercompany cross border transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective execute transactions utilize derivative financial instruments trading speculative purposes reduce risk counterparty unable honor contractual obligations us enter contracts counterparties strong investment grade longterm credit ratings standard poors moodys counterparties generally financial institutions significant concentration exposure one party foreign currency exposures hedge exposure fluctuations foreign currency exchange rates related operating entities use forward foreign currency exchange contracts additionally corporate financing entities manage foreign currency exposure combination multicurrency notional pool forward contracts largest exposure foreign exchange rates exists primarily british pound euro australian dollar canadian dollar us dollar market risk related forward foreign currency exchange contract measured estimating potential impact 10 change value us dollar relative local currency exchange rates used perform analysis based market rates effect september 26 2014 10 appreciation us dollar relative local currency exchange rates would result 3 million net increase fair value contracts conversely 10 depreciation us dollar relative local currency exchange rates would result 3 million net decrease fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions september 26 2014 september 27 2013 respectively 15 billion 14 billion intercompany loans designated permanent nature fiscal years ended september 26 2014 september 27 2013 september 28 2012 recorded cumulative translation loss 28 million gain 3 million gain 48 million respectively accumulated comprehensive loss related loans interest rate exposures manage interest rate risk typically using time interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes swap transactions typically convert interest rates fixedrate debt variable rates since september 28 2012 tifsa outstanding interest rate swaps accordingly september 26 2014 september 27 2013 total gross notional amount interest rate swap contracts nil periods item 8item 7a quantitative qualitative disclosures market risk see risk management included item 7 management’s discussion analysis financial condition results operations item 8item 7a quantitative qualitative disclosures market risk see risk management included item 7 management’s discussion analysis financial condition results operations item 8item 7a quantitative qualitative disclosures market risk see risk management included item 7 management’s discussion analysis financial condition results operations item 8item 7a quantitative qualitative disclosures market risk see risk management included item 7 management’s discussion analysis financial condition results operations item 8item 7a financial instrument disclosure see managements discussion analysis financial condition operating results appears pages 62 67 form 10k item 8item 7a quantitative qualitative disclosures market risk normal course conducting business exposed certain risks associated potential changes market conditions risks include fluctuations foreign currency exchange rates interest rates commodity prices accordingly established comprehensive risk management process monitor evaluate manage principal exposures believe subject seek manage risks use financial derivative instruments portfolio derivative financial instruments may time include forward foreign currency exchange contracts foreign currency options interest rate swaps commodity swaps forward commodity contracts derivative financial instruments related interest rate sensitivity debt obligations intercompany cross border transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective execute transactions utilize derivative financial instruments trading speculative purposes reduce risk counterparty unable honor contractual obligations us enter contracts counterparties strong investment grade longterm credit ratings standard poors moodys counterparties generally financial institutions significant concentration exposure one party foreign currency exposures hedge exposure fluctuations foreign currency exchange rates related operating entities use forward foreign currency exchange contracts additionally corporate financing entities manage foreign currency exposure combination multicurrency notional pool forward contracts largest exposure foreign exchange rates exists primarily british pound euro australian dollar canadian dollar mexican peso korean us dollar market risk related forward foreign currency exchange contract measured estimating potential impact 10 change value us dollar relative local currency exchange rates used perform analysis based market rates effect september 27 2013 10 appreciation us dollar relative local currency exchange rates would result 11 million net decrease fair value contracts conversely 10 depreciation us dollar relative local currency exchange rates would result 14 million net increase fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions prior first quarter fiscal 2012 hedged net investments certain foreign operations use foreign currency exchange forward contracts objective minimize exposure changes value foreign currency denominated net investment quarter ended december 30 2011 terminated net investment hedge accordingly aggregate notional amount hedges nil september 27 2013 september 28 2012 september 27 2013 september 28 2012 20 billion intercompany loans designated permanent nature fiscal years ended september 27 2013 september 28 2012 september 30 2011 recorded 3 million 48 million cumulative translation gain 2 million cumulative translation loss respectively accumulated comprehensive loss related loans interest rate exposures manage interest rate risk use interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes since third quarter 2009 tifsa entering interest rate swap transactions objective managing exposure interest rate risk converting interest rates fixedrate debt variable rates contracts tifsa agrees financial institutions acting principal counterparties exchange specified intervals difference fixed floating interest amounts calculated agreedupon notional principal amount connection debt tenders redemption quarter ended september 28 2012 tifsa settled outstanding interest rate swaps accordingly september 27 2013 september 28 2012 total gross notional amount interest rate swap contracts nil periods item 8item 7a quantitative qualitative disclosures market risk normal course conducting business exposed certain risks associated potential changes market conditions risks include fluctuations foreign currency exchange rates interest rates commodity prices accordingly established comprehensive risk management process monitor evaluate manage principal exposures believe subject seek manage risks use financial derivative instruments portfolio derivative financial instruments may time include forward foreign currency exchange contracts foreign currency options interest rate swaps commodity swaps forward commodity contracts derivative financial instruments related interest rate sensitivity debt obligations intercompany cross border transactions anticipated nonfunctional currency cash flows used goal mitigating significant portion exposures cost effective execute transactions utilize derivative financial instruments trading speculative purposes reduce risk counterparty unable honor contractual obligations us enter contracts counterparties strong investment grade longterm credit ratings standard poors moodys counterparties generally financial institutions significant concentration exposure one party foreign currency exposures hedge portion exposure fluctuations foreign currency exchange rates related operating entities use forward foreign currency exchange contracts additionally corporate financing entities manage foreign currency exposure combination multicurrency notional pool forward contracts september 25 2015 september 26 2014 total gross notional amount foreign exchange contracts 365 million 258 million respectively fair value derivative financial instruments impact changes fair value material consolidated balance sheets september 25 2015 september 26 2014 consolidated statements operations consolidated statements cash flows years ended september 25 2015 september 26 2014 largest exposure foreign exchange rates exists primarily british pound euro australian dollar canadian dollar us dollar market risk related forward foreign currency exchange contract measured estimating potential impact 10 change value us dollar relative local currency exchange rates used perform analysis based market rates effect september 25 2015 10 appreciation us dollar relative local currency exchange rates would result 3 million net increase fair value contracts conversely 10 depreciation us dollar relative local currency exchange rates would result 3 million net decrease fair value contracts however gains losses derivative instruments economically offset gains losses underlying transactions quarter ended march 27 2015 designated 2025 euro notes net investment hedge investments certain international subsidiaries use euro functional currency intercompany permanent loans hedge intended reduce eliminate impact financial results changes exchange rate euro us dollar see note 11 consolidated financial statements currency risk related net investment hedge measured estimating potential impact 10 change value us dollar relative euro rates used perform analysis based market exchange rates effect september 25 2015 10 appreciation us dollar relative euro would result 51 million net increase comprehensive income conversely 10 depreciation us dollar relative euro would result 62 million net decrease comprehensive income however increases decreases comprehensive income would offset decreases increases hedged net investments balance sheet due currency translation september 25 2015 september 26 2014 respectively 14 billion 15 billion intercompany loans designated permanent nature fiscal years ended september 25 2015 september 26 2014 september 27 2013 recorded cumulative translation loss 161 million loss 28 million gain 3 million respectively accumulated comprehensive loss related loans interest rate exposures manage interest rate risk typically using time interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes swap transactions typically convert interest rates fixedrate debt variable rates since september 28 2012 tifsa outstanding interest rate swaps accordingly september 25 2015 september 26 2014 total gross notional amount interest rate swap contracts nil periods item 8item 7a quantitative qualitative disclosures market risk see managements discussion analysis financial condition results operations appears pages 91 113 form 10k item 8item 7a quantitative qualitative disclosures market risk see risk management included item 7 management’s discussion analysis financial condition results operations item 8 item 8 financial statements supplementary data adt limiteds consolidated financial statements included pages consolidated financial statement schedules included pages information required item 302 regulation sk included note 35 notes consolidated financial statements managements discussion analysis financial condition results operations item 9item 8 financial statements supplementary data following consolidated financial statements schedules filed part annual report financial statements reports independent accountants consolidated balance sheets september 30 1997 december 31 1996 consolidated statements operations nine month fiscal year ended september 30 1997 two years period ended december 31 1996 consolidated statements shareholders equity nine month fiscal year ended september 30 1997 two years period ended december 31 1996 consolidated statements cash flows nine month fiscal year ended september 30 1997 two years period ended december 31 1996 notes consolidated financial statements financial statement schedule ii valuation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx see notes consolidated financial statements summarized quarterly financial data unaudited item 9item 8 financial statements supplementary data following consolidated financial statements schedule filed part annual report financial statements reports independent accountants consolidated balance sheetsseptember 30 1999 september 30 1998 consolidated statements operations fiscal years ended september 30 1999 1998 ninemonth fiscal period ended september 30 1997 consolidated statements shareholders equity fiscal years ended september 30 1999 1998 ninemonth fiscal period ended september 30 1997 consolidated statements cash flows fiscal years ended september 30 1999 1998 ninemonth fiscal period ended september 30 1997 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx see notes consolidated financial statements summarized quarterly financial data unaudited part iv item 14item 8 financial statements supplementary data following consolidated financial statements schedule filed part annual report financial statements reports independent accountants consolidated balance sheetsseptember 30 2000 september 30 1999 consolidated statements operations fiscal years ended september 30 2000 1999 1998 consolidated statements shareholders equity fiscal years ended september 30 2000 1999 1998 consolidated statements cash flows fiscal years ended september 30 2000 1999 1998 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx see notes consolidated financial statements summarized quarterly financial data unaudited item 9item 8 financial statements supplementary data following consolidated financial statements schedule filed part annual report financial statements managements responsibility financial statements report independent accountants consolidated statements operations fiscal years ended september 30 2002 2001 2000 consolidated balance sheets september 30 2002 2001 consolidated statements shareholders equity fiscal years ended september 30 2002 2001 2000 consolidated statements cash flows fiscal years ended september 30 2002 2001 2000 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx see notes consolidated financial statements summarized quarterly financial data unaudited item 9item 8 financial statements supplementary data following consolidated financial statements schedule filed part annual report financial statements managements responsibility financial statements report independent auditors consolidated statements operations years ended september 30 2003 2002 2001 consolidated balance sheets september 30 2003 2002 consolidated statements shareholders equity years ended september 30 2003 2002 2001 consolidated statements cash flows years ended september 30 2003 2002 2001 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx see note 31 consolidated financial statements summarized quarterly financial data unaudited item 9item 8 financial statements supplementary data following consolidated financial statements schedule filed part annual report financial statements managements responsibility financial statements report independent registered public accounting firms consolidated statements operations years ended september 30 2004 2003 2002 consolidated balance sheets september 30 2004 2003 consolidated statements shareholders equity years ended september 30 2004 2003 2002 consolidated statements cash flows years ended september 30 2004 2003 2002 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx information quarterly results operations set forth financial statements notes consolidated financial statements note 26summarized quarterly financial dataunaudited item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together reports thereon deloitte touche llp pricewaterhousecoopers llp presented following item 15 report financial statements managements responsibility financial statements reports independent registered public accounting firms consolidated statements income years ended september 30 2005 2004 2003 consolidated balance sheets september 30 2005 2004 consolidated statements shareholders equity years ended september 30 2005 2004 2003 consolidated statements cash flows years ended september 30 2005 2004 2003 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx information quarterly results operations set forth note 25 consolidated financial statements item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements managements responsibility financial statements reports independent registered public accounting firm consolidated statements income years ended september 29 2006 september 30 2005 2004 consolidated balance sheets september 29 2006 september 30 2005 consolidated statements shareholders equity years ended september 29 2006 september 30 2005 2004 consolidated statements cash flows years ended september 29 2006 september 30 2005 2004 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx information quarterly results operations set forth note 26 consolidated financial statements item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations years ended september 28 2007 september 29 2006 september 30 2005 consolidated balance sheets september 28 2007 september 29 2006 consolidated statements shareholders equity years ended september 28 2007 september 29 2006 september 30 2005 consolidated statements cash flows years ended september 28 2007 september 29 2006 september 30 2005 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx information quarterly results operations set forth note 24 consolidated financial statements item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations years ended september 26 2008 september 28 2007 september 29 2006 consolidated balance sheets september 26 2008 september 28 2007 consolidated statements shareholders equity years ended september 26 2008 september 28 2007 september 29 2006 consolidated statements cash flows years ended september 26 2008 september 28 2007 september 29 2006 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx information quarterly results operations set forth note 24 consolidated financial statements item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations years ended september 25 2009 september 26 2008 september 28 2007 consolidated balance sheets september 25 2009 september 26 2008 consolidated statements shareholders equity years ended september 25 2009 september 26 2008 september 28 2007 consolidated statements cash flows years ended september 25 2009 september 26 2008 september 28 2007 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx information quarterly results operations set forth note 24 consolidated financial statements item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations years ended september 24 2010 september 25 2009 september 26 2008 consolidated balance sheets september 24 2010 september 25 2009 consolidated statements shareholders equity years ended september 24 2010 september 25 2009 september 26 2008 consolidated statements cash flows years ended september 24 2010 september 25 2009 september 26 2008 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx information quarterly results operations set forth note 23 consolidated financial statements item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx information quarterly results operations set forth note 25 consolidated financial statements item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations years ended september 28 2012 september 30 2011 september 24 consolidated balance sheets years ended september 28 2012 september 30 2011 consolidated statements shareholders equity years ended september 28 2012 september 30 2011 september 24 2010 consolidated statements cash flows years ended september 28 2012 september 30 2011 september 24 notes consolidated financial statements supplementary financial information selected quarterly financial data financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements supplementary financial information selected quarterly financial data financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx item 9item 8 financial statements supplementary data index consolidated financial statements report independent registered public accounting firm board directors shareholders johnson controls international plc opinion consolidated financial statements listed accompanying index present fairly material respects financial position johnson controls international plc subsidiaries september 30 2016 2015 results operations cash flows three years period ended september 30 2016 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting september 30 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso companys management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 1 accompanying consolidated financial statements company changed manner classifies deferred taxes fiscal 2016 company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate described managements report internal control financial reporting management excluded operations tyco business assessment internal control financial reporting september 30 2016 given acquisition date tyco september 2 2016 also excluded tyco business audit internal control financial reporting tyco business whollyowned subsidiary whose total assets total revenues represent approximately 44 percent less 2 percent respectively related consolidated financial statement amounts year ended september 30 2016 johnson controls international plc consolidated statements income products systems consist automotive experience buildings power solutions products systems services buildings technical services certain items sum due rounding accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements comprehensive income loss accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements financial position accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements cash flows accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements shareholders’ equity attributable johnson controls ordinary shareholders accompanying notes integral part consolidated financial statements johnson controls international plc notes consolidated financial statements 1summary significant accounting policies nature operations september 2 2016 johnson controls inc jci inc tyco international plc “tyco” completed combination pursuant agreement plan merger “merger agreement” dated january 24 2016 amended amendment 1 dated july 1 2016 among jci inc tyco certain parties named therein including jagara merger sub llc indirect wholly owned subsidiary tyco “merger sub” pursuant terms merger agreement september 2 2016 merger sub merged jci inc jci inc surviving corporation merger wholly owned indirect subsidiary tyco “merger” following merger tyco changed name “johnson controls international plc” merger changed jurisdiction organization united states ireland domicile ireland became effective september 2 2016 merger accounted reverse acquisition using acquisition method accounting accordance accounting standards codification asc 805 business combinations jci inc accounting acquirer financial reporting purposes accordingly historical consolidated financial statements jci inc periods prior transaction considered historic financial statements company refer note 2 merger transaction notes consolidated financial statements information principles consolidation consolidated financial statements include consolidated accounts johnson controls international plc corporation organized laws ireland subsidiaries johnson controls international plc subsidiaries hereinafter collectively referred company johnson controls financial statements prepared united states dollars usd accordance generally accepted accounting principles united states us gaap significant intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal investments partiallyowned affiliates accounted equity method company’s interest exceeds 20 company controlling interest certain criteria provided financial accounting standards board fasb accounting standards codification asc 810 consolidation company may consolidate partiallyowned affiliate determine whether consolidate partiallyowned affiliate company first determines entity variable interest entity vie entity considered vie one following characteristics 1 entity thinly capitalized 2 residual equity holders control entity 3 equity holders shielded economic losses participate fully entity’s residual economics 4 entity established nonsubstantive voting entity meets one characteristics company determines primary beneficiary vie party power direct activities vie significantly impact vie’s economic performance potential absorb benefits losses could significant vie considered primary beneficiary consolidates vie entity considered vie company applies voting interest model determine whether company shall consolidate partiallyowned affiliate consolidated vies based upon criteria set forth asc 810 company determined primary beneficiary three vies reporting periods ended september 30 2016 2015 company absorbs significant economics entities power direct activities considered significant entities two vies manufacture products north america automotive industry company funds entities’ shortterm liquidity needs revolving credit facilities power direct activities considered significant entities key customer supply relationships fiscal 2012 preexisting vie accounted equity method reorganized three separate investments result counterparty exercising option put interest company acquired additional interests two reorganized group entities reorganized group entities considered vies owner party provided decision making rights equity risk company considered primary beneficiary one entities due company’s power pertaining decisions significant activities entity vie consolidated within company’s consolidated statements financial position impact consolidation entity company’s consolidated statements income years ended september 30 2016 2015 2014 material vie named coobligor third party debt agreement 170 million maturing fiscal 2020 could become subject paying allocated share third party debt event bankruptcy one coobligors related parties company equity investor consist remaining group entities involved reorganization part overall reorganization transaction company also provided financial support group entities form loans totaling 37 million subordinate third party debt agreement company significant customer certain coobligors resulting remote possibility loss additionally company subject floor guaranty expiring fiscal 2022 event owner party longer owns part group entities due sale transfer company guaranteed proceeds received sale transfer less 25 million company partnered group entities design manufacture battery components power solutions business carrying amounts classification assets none restricted liabilities included company’s consolidated statements financial position consolidated vies follows millions company significant variable interest consolidated vies presented reporting periods nonconsolidated vies mentioned previously within consolidated vies section fiscal 2012 preexisting vie reorganized three separate investments result counterparty exercising option put interest company reorganized group entities considered vies owner party provided decision making rights equity risk company considered primary beneficiary two entities company cannot make key operating decisions considered significant vies therefore entities accounted equity method accounting company’s interest exceeds 20 company controlling interest company’s maximum exposure loss includes partiallyowned affiliate investment balance 59 million 62 million september 30 2016 2015 respectively well subordinated loan company third party debt agreement floor guaranty mentioned previously within consolidated vies section current liabilities due vies material represent normal course business trade payables presented periods company significant variable interest nonconsolidated vies presented reporting periods use estimates preparation consolidated financial statements conformity us gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates fair value financial instruments fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements fair value financial instruments including derivative instruments hedging activities longterm debt assets liabilities held sale company classifies assets liabilities disposal groups sold held sale period following criteria met management authority approve action commits plan sell disposal group disposal group available immediate sale present condition subject terms usual customary sales disposal groups active program locate buyer actions required complete plan sell disposal group initiated sale disposal group probable transfer disposal group expected qualify recognition completed sale within one year except events circumstances beyond companys control extend period time required sell disposal group beyond one year disposal group actively marketed sale price reasonable relation current fair value actions required complete plan indicate unlikely significant changes plan made plan withdrawn company initially measures disposal group classified held sale lower carrying value fair value less costs sell loss resulting measurement recognized period held sale criteria met conversely gains recognized sale disposal group date sale company assesses fair value disposal group less costs sell reporting period remains classified held sale reports subsequent changes adjustment carrying value disposal group long new carrying value exceed carrying value disposal group time initially classified held sale upon determining disposal group meets criteria classified held sale company reports assets liabilities disposal group material line items assets held sale liabilities held sale consolidated statements financial position refer note 4 discontinued operations notes consolidated financial statements information cash equivalents company considers highly liquid investments original maturity three months less purchased cash equivalents cash escrow related adient debt september 30 2016 company held restricted cash 2034 million related restricted proceeds deposited escrow issuance 2000 million aggregate principal unsecured unsubordinated notes adient global holdings ltd agh wholly owned subsidiary company expected released upon completion adient spinoff september 30 2015 cash escrow purpose approximately 1500 million proceeds distributed company connection spinoff approximately 500 million proceeds used adients general corporate purposes restricted cash september 30 2016 company held restricted cash approximately 88 million 79 million recorded within current assets consolidated statements financial position 9 million recorded within noncurrent assets consolidated statements financial position amounts primarily related cash held escrow business divestitures cash restricted payment asbestos liabilities september 30 2015 company hold material amount restricted cash receivables consist amounts billed currently due customers unbilled costs accrued profits related revenues longterm contracts recognized accounting purposes yet billed customers company extends credit customers normal course business maintains allowance doubtful accounts resulting inability unwillingness customers make required payments allowance doubtful accounts based historical experience existing economic conditions specific customer collection issues company identified company enters supply chain financing programs sell certain accounts receivable without recourse thirdparty financial institutions sales accounts receivable reflected reduction accounts receivable consolidated statements financial position proceeds included cash flows operating activities consolidated statements cash flows inventories stated lower cost market using firstin firstout fifo method finished goods workinprocess inventories include material labor manufacturing overhead costs preproduction costs related longterm supply arrangements company’s policy engineering research development design development costs related products sold longterm supply arrangements requires costs expensed incurred capitalized reimbursement customer contractually assured income related recovery costs recorded within selling general administrative expense consolidated statements income september 30 2016 2015 company recorded within consolidated statements financial position approximately 316 million 299 million respectively engineering research development costs customer reimbursement contractually assured reimbursable costs recorded current assets reimbursement occur less one year noncurrent assets reimbursement occur beyond one year costs molds dies tools used make products sold longterm supply arrangements capitalized within property plant equipment company title assets noncancelable right use assets term supply arrangement capitalized items specifically designed supply arrangement amortized term arrangement otherwise amounts amortized estimated useful lives assets carrying values assets capitalized accordance foregoing policy periodically reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable september 30 2016 2015 approximately 62 million 60 million respectively costs molds dies tools capitalized within property plant equipment represented assets company title addition september 30 2016 2015 company recorded within consolidated statements financial position current assets approximately 203 million 149 million respectively costs molds dies tools customer reimbursement contractually assured property plant equipment property plant equipment recorded cost depreciation provided estimated useful lives respective assets using straightline method financial reporting purposes accelerated methods income tax purposes estimated useful lives generally range 3 40 years buildings improvements subscriber systems 15 years 3 15 years machinery equipment company capitalizes interest borrowings active construction period major capital projects capitalized interest added cost underlying assets amortized useful lives assets goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average historical published multiples earnings comparable entities similar operations economic characteristics certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fourth quarters fiscal years 2016 2015 2014 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets consist trademarks tradenames tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests impairment longlived assets company reviews longlived assets including property plant equipment intangible assets definite lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2016 2015 2014 percentageofcompletion contracts buildings business records certain longterm contracts percentageofcompletion poc method accounting method sales gross profit recognized work performed based relationship actual costs incurred total estimated costs completion company records costs earnings excess billings uncompleted contracts primarily within accounts receivable billings excess costs earnings uncompleted contracts primarily within current liabilities consolidated statements financial position costs earnings excess billings related contracts 841 million 453 million september 30 2016 2015 respectively billings excess costs earnings related contracts 431 million 340 million september 30 2016 2015 respectively revenue recognition buildings business recognizes revenue certain longterm contracts contractual period poc method accounting method accounting recognizes sales gross profit work performed based relationship actual costs incurred total estimated costs completion recognized revenues billed terms contract later date recorded primarily accounts receivable likewise contracts billings date exceeded recognized revenues recorded primarily current liabilities changes original estimates may required life contract estimates reviewed monthly sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated losses recorded identified claims customers recognized revenue upon settlement use poc method accounting involves considerable use estimates determining revenues costs profits assigning amounts accounting periods periodic reviews resulted adjustments significant company’s results operations company continually evaluates assumptions risks uncertainties inherent application poc method accounting buildings business enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized straightline basis respective contract term buildings business also sells certain heating ventilating air conditioning hvac refrigeration products services bundled arrangements multiple products andor services involved significant deliverables within arrangements include equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition buildings business sells security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered accordance asu 200913 revenue recognition topic 605 multipledeliverable revenue arrangements consensus fasb emerging issues task force company divides bundled arrangements separate deliverables revenue allocated deliverable based relative selling price method order estimate relative selling price market data transfer price studies utilized revenue recognized security monitoring equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship cases company recognizes revenue time title passes customer services performed subscriber system assets dealer intangibles related deferred revenue accounts tyco portion buildings business considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment company retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers place business outside north america residence installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded current noncurrent assets within consolidated statements financial position subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using straightline method lives 15 years considering customer attrition company uses straightline method 15year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program primarily outside north america acquired contracts related customer relationships recorded contractually determined purchase price first 6 months 12 months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition straightline basis period customer relationship estimated useful life dealer intangibles ranges 12 15 years research development costs expenditures research activities relating product development improvement charged income incurred included within selling general administrative expenses consolidated statements income expenditures years ended september 30 2016 2015 2014 618 million 733 million 792 million respectively portion costs associated activities reimbursed customers fiscal years ended september 30 2016 2015 2014 308 million 364 million 352 million respectively earnings per share company presents basic diluted earnings per share eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number common shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number common shares common equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock see note 13 earnings per share notes consolidated financial statements calculation earnings per share foreign currency translation substantially company’s international operations use respective local currency functional currency assets liabilities international entities translated periodend exchange rates income expenses translated using average exchange rates period monetary assets liabilities denominated nonfunctional currencies adjusted reflect periodend exchange rates aggregate transaction losses net impact foreign currency hedges included net income years ended september 30 2016 2015 2014 95 million 119 million 8 million respectively derivative financial instruments company written policies procedures place financial instruments direction corporate treasury restrict derivative transactions intended hedging purposes use financial instruments speculative purposes strictly prohibited company selectively uses financial instruments manage market risk changes foreign exchange rates commodity prices stockbased compensation liabilities interest rates fair values derivatives recorded consolidated statements financial position change derivative’s fair value recorded period current earnings accumulated comprehensive income aoci depending whether derivative designated part hedge transaction type hedge transaction see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements disclosure company’s derivative instruments hedging activities investments company invests debt equity securities classified available sale marked market end accounting period unrealized gains losses securities deferred compensation plan assets recognized accumulated comprehensive loss within consolidated statement shareholders equity unless unrealized loss deemed temporary case loss charged earnings deferred compensation plan assets marked market end accounting period unrealized gains losses recorded consolidated statements income pension postretirement benefits company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 23 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage certain insurable liabilities asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2069 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2069 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 23 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities income taxes deferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized refer note 18 income taxes notes consolidated financial statements retrospective changes fourth quarter fiscal 2016 company changed accounting policy accruing defense costs related asbestos claims discounted basis company’s historical accounting treatment asbestos claim defense costs accrue incurred new policy record accrual future asbestos related defense costs determined probable estimable incurred company believes new policy preferable better reflects economics settlement companys asbestos claims improves comparability among company’s peer group provides greater transparency ongoing operating results changes reported retrospective application new policy periods presented changes impact period presented consolidated statements income financial statement impact change periods presented increase noncurrent liabilities 68 million increase noncurrent assets 27 million decrease retained earnings 41 million september 2016 result tyco merger discussed within note 2 merger transaction notes consolidated financial statements outstanding share common stock par value 100 per share jci inc common stock shares held jci inc tyco certain subsidiaries converted right receive either cash consideration share consideration result par value company’s ordinary shares 001 change resulted decrease ordinary shares corresponding increase capital excess par value consolidated statements financial position reported retrospective application new par value periods presented new accounting pronouncements recently adopted accounting pronouncements november 2015 fasb issued asu 201517 income taxes topic 740 balance sheet classification deferred taxes asu 201517 requires deferred tax liabilities assets classified noncurrent consolidated statements financial position quarter ended december 31 2015 company early adopted asu 201517 applied change retrospectively periods presented historical information already revised throughout financial statements reflect adoption asu 201517 within companys recasted consolidated financial statements notes consolidated financial statement year ended september 30 2015 companys current report form 8k filed securities exchange commission sec march 3 2016 april 2014 fasb issued asu 201408 presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity asu 201408 limits discontinued operations reporting situations disposal represents strategic shift major effect entity’s operations financial results requires expanded disclosures discontinued operations asu 201408 effective company quarter ended december 31 2015 adoption guidance impact companys consolidated financial statements dispositions disposals quarter ended december 31 2015 recently issued accounting pronouncements october 2016 fasb issued asu 201617 consolidations topic 810 interests held related parties common control asu changes single decision maker vie holds indirect interest entity related parties common control determines whether primary beneficiary vie new guidance amends asu 201502 consolidation topic 810 amendments consolidation analysis issued february 2015 guidance applied coincidentally adoption asu 201502 effective company quarter ending december 31 2016 adoption guidance expected significant impact companys consolidated financial statements october 2016 fasb issued asu 201616 accounting income taxes intraentity asset transfers assets inventory asu requires tax effects intraentity sales assets inventory recognized period transaction occurs guidance effective company quarter ending december 31 2018 early adoption permitted first interim period fiscal year changes required applied means cumulativeeffect adjustment recorded retained earnings beginning fiscal year adoption company currently assessing impact adoption guidance consolidated financial statements august 2016 fasb issued asu 201615 statement cash flows topic 230 classification certain cash receipts cash payments asu 201615 provides clarification guidance eight specific cash flow presentation issues order reduce diversity practice asu 201615 effective company quarter ending december 31 2018 early adoption permitted guidance applied retrospectively periods presented unless deem impracticable case prospective application permitted company currently assessing impact adoption guidance consolidated financial statements june 2016 fasb issued asu 201613 financial instruments credit losses topic 326 measurement credit losses financial instruments asu 201613 changes impairment model financial assets measured amortized cost requiring presentation net amount expected collected measurement expected credit losses based upon historical experience current conditions reasonable supportable forecasts availableforsale debt securities unrealized losses recorded allowance credit losses asu 201613 effective company quarter ended december 31 2020 early adoption permitted quarter ended december 31 2019 adoption guidance expected significant impact companys consolidated financial statements march 2016 fasb issued asu 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting asu 201609 impacts certain aspects accounting sharebased payment transactions including income tax consequences classification awards either equity liabilities classification statements cash flows asu 201609 effective company quarter ending december 31 2017 early adoption permitted company currently assessing impact adoption guidance consolidated financial statements march 2016 fasb issued asu 201607 investments equity method joint ventures topic 323 simplifying transition equity method accounting asu 201607 eliminates requirement investment qualifies use equity method accounting result increase level ownership degree influence adjust investment results operations retained earnings retrospectively asu 201607 effective prospectively company increases level ownership interest degree influence result adoption equity method occur quarter ending december 31 2017 early adoption permitted impact guidance company dependent future increases level ownership interest degree influence result adoption equity method february 2016 fasb issued asu 201602 leases topic 842 asu 201602 requires recognition operating leases lease assets liabilities balance sheet disclosure key information leasing arrangements asu 201602 effective retrospectively company quarter ending december 31 2019 early adoption permitted company currently assessing impact adoption guidance consolidated financial statements january 2016 fasb issued asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities asu 201601 amends certain aspects recognition measurement presentation disclosure financial instruments asu 201601 effective company quarter ending december 31 2018 early adoption permitted certain exceptions changes required applied means cumulativeeffect adjustment balance sheet beginning fiscal year adoption company currently assessing impact adoption guidance consolidated financial statements july 2015 fasb issued asu 201511 simplifying measurement inventory asu 201511 requires inventory recorded using firstin firstout method measured lower cost net realizable value asu 201511 effective prospectively company quarter ending december 31 2017 early adoption permitted adoption guidance expected significant impact companys consolidated financial statements may 2015 fasb issued asu 201507 disclosures investments certain entities calculate net asset value per share equivalent asu 201507 removes requirement categorize within fair value hierarchy investments fair value measured using net asset value per share practical expedient investments disclosed separate fair value hierarchy asu 201507 effective retrospectively company quarter ending december 31 2016 early adoption permitted adoption guidance expected impact companys consolidated financial statements impact pension asset disclosures april 2015 fasb issued asu 201503 interest imputation interest subtopic 83530 simplifying presentation debt issuance costs asu 201503 requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability asu 201503 effective retrospectively company quarter ending december 31 2016 early adoption permitted adoption guidance expected significant impact companys consolidated financial statements february 2015 fasb issued asu 201502 consolidation topic 810 amendments consolidation analysis asu 201502 amends analysis performed determine whether reporting entity consolidate certain types legal entities asu 201502 amended asu 201617 consolidations topic 810 interests held related parties common control issued october 2016 asu 201502 effective retrospectively company quarter ending december 31 2016 early adoption permitted adoption guidance expected significant impact companys consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu 201409 clarifies principles recognizing revenue entity either enters contract customers transfer goods services enters contract transfer nonfinancial assets original standard effective retrospectively company quarter ending december 31 2017 however august 2015 fasb issued asu 201514 revenue contracts customers topic 606 deferral effective date defers effective date asu 201409 oneyear entities new standard become effective retrospectively company quarter ending december 31 2018 early adoption permitted original effective date additionally march 2016 fasb issued asu 201608 revenue contracts customers topic 606 principal versus agent considerations reporting revenue gross versus net april 2016 fasb issued asu 201610 revenue contracts customers topic 606 identifying performance obligations licensing may 2016 fasb issued asu 201612 revenue contracts customers topic 606 narrowscope improvements practical expedients provide additional clarification certain topics addressed asu 201409 asu 201608 asu 201610 asu 201612 follow implementation guidelines asu 201409 asu 201514 company currently assessing impact adoption guidance consolidated financial statements 2 merger transaction discussed note 1 summary significant accounting policies notes consolidated financial statements jci inc tyco completed merger september 2 2016 merger accounted reverse acquisition using acquisition method accounting accordance asc 805 business combinations based structure merger activities contemplated merger agreement relative outstanding share ownership composition companys board directors designation certain senior management positions company jci inc accounting acquirer financial reporting purposes immediately prior merger connection therewith tyco shareholders received 0955 ordinary shares tyco shares referred shares company “company ordinary shares” tyco ordinary share held virtue 0955forone share consolidation merger outstanding share common stock par value 100 per share jci inc “jci inc common stock” shares held jci inc tyco certain subsidiaries converted right receive either cash consideration share consideration described election holder subject proration procedures described merger agreement applicable withholding taxes election receive cash consideration undersubscribed result holders shares jci inc common stock elected receive share consideration holders shares jci inc common stock made election failed properly make election became entitled receive share jci inc common stock 57293 cash without interest 08357 company ordinary shares subject applicable withholding taxes holders shares jci inc common stock elected receive cash consideration became entitled receive share jci inc common stock 3488 cash without interest subject applicable withholding taxes merger jci inc shareholders received aggregate approximately 3864 billion cash immediately closing giving effect merger former jci inc shareholders owned approximately 56 issued outstanding company ordinary shares former tyco stockholders owned approximately 44 issued outstanding company ordinary shares tyco leading global provider security products services fire detection suppression products services life safety products acquisition tyco brings together bestinclass product technology service capabilities across controls fire security hvac power solutions energy storage serve various endmarkets including large institutions commercial buildings retail industrial small business residential combination tyco jci inc buildings platforms expected create immediate opportunities nearterm growth crossselling complementary branch channel networks expanded global reach established businesses new company also expected benefit combining innovation capabilities pipelines involving new products advanced solutions smart buildings cities valueadded services driven advanced data analytics connectivity buildings energy storage infrastructure integration fair value consideration transferred total fair value consideration transferred approximately 197 billion total consideration comprised equity value tyco shares outstanding september 2 2016 portion tycos share awards share options earned september 2 2016 224 million share awards share options earned 101 million september 2 2016 expensed remaining future vesting period including 10 million 23 million recognized selling general administrative expenses restructuring impairment costs respectively fiscal year ended september 30 2016 result changeincontrol provisions current former employees following table summarizes total fair value consideration transferred 1 amount equals jci inc closing share price market capitalization september 2 2016 4545 29012 million respectively adjusted tyco 3864 million cash contribution used purchase 1108 million shares jci inc common stock 3488 per share fair value assets acquired liabilities assumed company accounted merger tyco business combination using acquisition method accounting assets acquired liabilities assumed recorded respective fair values acquisition date company finalizes fair value assets acquired liabilities assumed additional purchase price adjustments may recorded measurement period fiscal 2017 fair value estimates based complex series judgments future events uncertainties rely heavily estimates assumptions judgments used determine estimated fair value assigned class assets acquired liabilities assumed well asset lives materially impact companys results operations finalization purchase accounting assessment may result change valuation assets acquired liabilities assumed may material impact companys results operations financial position preliminary fair values assets acquired liabilities assumed follows millions connection merger company recorded goodwill 164 billion attributable primarily expected synergies expanded market opportunities benefits company believes result combining operations tyco goodwill created merger expected deductible tax purposes subject potential significant changes purchase price allocation completed goodwill preliminarily allocated tyco segment based business reviewed companys chief operating decision maker fourth quarter fiscal 2016 shown note 7 goodwill intangible assets preliminary purchase price allocation identifiable intangible assets acquired follows actual pro forma impact companys consolidated financial statements fiscal year ended september 30 2016 include tycos results operations acquisition date september 2 2016 september 30 2016 net sales segment earnings interest taxes ebit net income loss continuing operations attributable tyco period included companys consolidated financial statements fiscal year ended september 30 2016 total 808 million 17 million 48 million respectively 17 million segment ebit includes 74 million losses nonrecurring purchasing accounting adjustments including amortization stepup fair value inventory acquired deferred revenue fair value adjustments 29 million acquisition costs 21 million incremental recurring intangible asset amortization relate tyco acquisition following unaudited pro forma information assumes acquisition occurred october 1 2014 included companys consolidated statements income fiscal years 2016 2015 order reflect occurrence acquisition october 1 2014 required unaudited pro forma results include adjustments reflect among things amortization inventory stepup incremental intangible asset amortization incurred based preliminary values identifiable intangible asset change timing defined benefit plans marktomarket gain loss recognition change timing transaction restructuring costs interest expense debt financing obtained fund cash consideration paid jci inc shareholders pro forma amounts necessarily indicative results would obtained acquisition occurred beginning period presented may occur future reflect future synergies integration costs savings additional information regarding fiscal 2016 pro forma information found form 8k filed company sec november 8 2016 item 701 “regulation fd disclosure” 3acquisitions divestitures fiscal year 2016 october 1 2015 company formed joint venture hitachi expand building efficiency product offerings company acquired 60 percent ownership interest new entity approximately 133 million 563 million purchase price less cash acquired 430 million purchase price net cash acquired paid september 30 2016 connection acquisition company recorded goodwill 253 million related purchase price allocations also fiscal 2016 company completed two additional acquisitions combined purchase price net cash acquired 6 million 3 million paid september 30 2016 acquisitions aggregate material companys consolidated financial statements connection acquisitions company recorded goodwill 6 million one acquisitions increased companys ownership noncontrolling controlling interest result company recorded noncash gain 4 million equity income building efficiency rest world segment adjust companys existing equity investment partiallyowned affiliate fair value fourth quarter fiscal 2016 company completed two divestitures combined sales price 39 million exclusive net cash divested 13 million none sales proceeds received september 30 2016 divestitures material companys consolidated financial statements connection divestitures company recorded gain 12 million within selling general administrative expenses consolidated statements income reduced goodwill 13 million 3 million building efficiency rest world segment building efficiency products north america segment respectively third quarter fiscal 2016 company completed divestiture sales price 16 million received september 30 2016 divestiture material companys consolidated financial statements connection divestiture company recorded gain 14 million within selling general administrative expenses consolidated statements income reduced goodwill 3 million building efficiency systems service north america segment fiscal 2016 company received 29 million net cash proceeds related prior year business divestitures fiscal year 2015 fiscal 2015 company completed three acquisitions combined purchase price net cash acquired 47 million 18 million paid september 30 2015 acquisitions aggregate material company’s consolidated financial statements connection acquisitions company recorded goodwill 9 million fourth quarter fiscal 2015 company completed sale gws business cbre group inc selling price net cash divested 14 billion received september 30 2015 connection sale company recorded 940 million gain 643 million net tax within income loss discontinued operations net tax consolidated statements income reduced goodwill assets held sale 220 million march 31 2015 company determined gws segment met criteria classified discontinued operation refer note 4 discontinued operations notes consolidated financial statements disclosure related companys discontinued operations fourth quarter fiscal 2015 company completed global automotive interiors joint venture yanfeng automotive trim systems connection divestiture interiors business company recorded 145 million gain 38 million net tax pretax gain recorded within selling general administrative expenses consolidated statements income reduced goodwill assets held sale 21 million also fiscal 2015 company completed four additional divestitures combined sales price 119 million 86 million received september 30 2015 divestitures material companys consolidated financial statements connection divestitures company recorded gain 38 million within selling general administrative expenses consolidated statements income reduced goodwill 14 million building efficiency products north america segment recorded gain 10 million within selling general administrative expenses consolidated statements income reduced goodwill 4 million automotive experience seating segment recorded gain 7 million within selling general administrative expenses consolidated statements income reduced goodwill 2 million building efficiency systems service north america segment first nine months fiscal 2015 company adjusted purchase price allocation fiscal 2014 acquisition air distribution technologies inc adti adjustment made result trueup purchase price amount 4 million paid september 30 2015 also connection acquisition company recorded additional goodwill 34 million fiscal 2015 related final purchase price allocations second quarter fiscal 2015 company completed sale interests two gws joint ventures brookfield asset management inc selling price net cash divested 141 million received september 30 2015 connection sale company recorded 200 million gain 127 million net tax within income loss discontinued operations net tax consolidated statements income reduced goodwill assets held sale 20 million fiscal year 2014 third quarter fiscal 2014 company completed purchase adti approximately 16 billion net cash acquired paid june 30 2014 adti one largest independent providers air distribution ventilation products north america third quarter fiscal 2014 company completed public offering 17 billion aggregate principal amount fixed rate senior notes finance purchase adti fiscal 2014 company recorded goodwill 837 million building efficiency products north america segment result adti acquisition company also recorded approximately 477 million intangible assets subject amortization approximately 475 million assigned customer relationships useful lives 18 20 years addition company recorded approximately 230 million trade names subject amortization also fiscal 2014 company completed four additional acquisitions combined purchase price net cash acquired 144 million paid september 30 2014 acquisitions aggregate material companys consolidated financial statements connection acquisitions company recorded goodwill 140 million three acquisitions increased companys ownership noncontrolling controlling interest result company recorded combined noncash gain 38 million equity income adjust companys existing equity investments partiallyowned affiliates fair value 38 million gain includes 19 million power solutions business 19 million building efficiency asia business third quarter fiscal 2014 company completed divestiture automotive experience interiors headliner sun visor product lines part divestiture company made cash payment 54 million buyer fund future operational improvement initiatives company recorded pretax loss divestiture including transaction costs 95 million within selling general administrative expenses consolidated statements income tax impact divestiture income tax expense 38 million due jurisdictional mix gains losses sale resulted nonbenefited losses certain countries taxable gains countries change goodwill result transaction third quarter fiscal 2014 company recorded 25 million charge within income loss discontinued operations net tax consolidated statements income related indemnification certain costs associated divested gws business 2004 second quarter fiscal 2014 company announced reached agreement sell remainder automotive experience electronics business visteon corporation subject regulatory approvals sale closed july 1 2014 cash proceeds sale 266 million received september 30 2014 march 31 2014 company determined automotive experience electronics segment met criteria classified discontinued operation refer note 4 discontinued operations notes consolidated financial statements disclosure related companys discontinued operations first quarter fiscal 2014 company completed one additional divestiture sales price 13 million received september 30 2014 divestiture material company’s consolidated financial statements connection divestiture company recorded gain net transaction costs 9 million automotive experience interiors segment within selling general administrative expenses consolidated statements income change goodwill result transaction fiscal 2014 company adjusted purchase price allocation certain fiscal 2013 acquisitions recorded additional goodwill 2 million 4 discontinued operations march 31 2015 company announced reached definitive agreement sell remainder gws business cbre group inc cbre subject regulatory approvals sale closed september 1 2015 agreement includes 10year strategic relationship company cbre company preferred provider hvac equipment building automation systems related services portfolio real estate corporate facilities managed globally cbre gws company also engages gws facility management services annual cash flows resulting activities legacy gws business currently significant expected become significant future march 31 2015 company determined gws segment met criteria classified discontinued operation company allocate general corporate overhead discontinued operations amounts related gws business classified discontinued operations fiscal year ended september 30 2016 following table summarizes results gws reclassified discontinued operations fiscal years ended september 30 2015 2014 millions fiscal year ended september 30 2015 income discontinued operations income taxes included 940 million gain divestiture remainder gws business 200 million gain divestiture companys interest two gws joint ventures current year transaction costs 87 million fiscal year ended september 30 2014 income discontinued operations income taxes included 25 million charge related indemnification certain costs associated divested gws business 2004 effective tax rate different us statutory rate fiscal 2015 primarily due 680 million tax expense repatriation cash tax reserves tax consequences sale gws joint ventures 73 million remaining business 297 million effective tax rate different us statutory rate fiscal 2014 primarily due tax charge 35 million related change companys assertion reinvestment foreign undistributed earnings well nonbenefited loss related indemnification certain costs associated divested business 2004 partially offset foreign tax rate differentials second quarter fiscal 2014 company announced reached definitive agreement sell remainder automotive experience electronics business visteon corporation subject regulatory approvals sale closed july 1 2014 march 31 2014 company determined automotive experience electronics segment met criteria classified discontinued operation required retrospective application financial information periods presented company allocate general corporate overhead discontinued operations amounts related automotive experience electronics business classified discontinued operations fiscal years ended september 30 2016 2015 following table summarizes results automotive experience electronics business classified discontinued operations fiscal years ended september 30 2014 millions year ended september 30 2014 discontinued operations income taxes included divestiturerelated losses 80 million comprised asset investment impairment charges 43 million transaction costs 27 million severance obligations 10 million year ended september 30 2014 companys effective tax rate discontinued operations different us federal statutory rate primarily due second quarter discrete noncash tax charge 180 million related repatriation foreign cash associated divestiture electronics business unbenefited foreign losses assets liabilities held sale september 30 2016 157 million assets 28 million liabilities related security business south africa buildings tyco segment classified held sale also 17 million certain corporate assets classified held sale following table summarizes carrying value tyco assets liabilities held sale september 30 2016 millions september 30 2015 55 million assets 42 million liabilities related certain product lines automotive experience interiors segment classified held sale september 30 2016 product lines longer met criteria classified held sale 5 inventories consisted following millions 6 property plant equipment property plant equipment consisted following millions interest costs capitalized fiscal years ended september 30 2016 2015 2014 19 million 25 million 28 million respectively accumulated depreciation related capital leases september 30 2016 2015 40 million 54 million respectively september 30 2016 company lessor properties included land 21 million gross building improvements 187 million accumulated depreciation 126 million september 30 2015 company lessor properties included land 13 million gross building improvements 177 million accumulated depreciation 131 million 7 goodwill intangible assets changes carrying amount goodwill company’s reportable segments fiscal years ended september 30 2016 2015 follows millions connection tyco merger company recorded goodwill 16363 million based preliminary purchase price allocation refer note 2 merger transaction notes consolidated financial statements additional information september 30 2014 accumulated goodwill impairment charges included 430 million 47 million related automotive experience interiors building efficiency rest world latin america reporting units respectively goodwill impairments resulting fiscal 2016 2015 annual impairment tests except recent acquisitions recorded fair value reporting unit determined risk failing step one goodwill impairment test october 1 2015 company assessed goodwill impairment building efficiency business due change reportable segments described note 19 segment information notes consolidated financial statements result company performed impairment testing goodwill new segments determined estimated fair value reporting unit substantially exceeded corresponding carrying amount including recorded goodwill impairment existed october 1 2015 reporting unit determined risk failing step one goodwill impairment test fiscal 2014 result operating results restructuring actions expected future profitability companys forecasted cash flow estimates used goodwill assessment negatively impacted september 30 2014 building efficiency rest world latin america reporting unit result company concluded carrying value building efficiency rest world latin america reporting unit exceeded fair value september 30 2014 company recorded goodwill impairment charge 47 million fourth quarter fiscal 2014 determined comparing carrying value reporting units goodwill implied fair value goodwill reporting unit building efficiency rest world latin america reporting unit remaining goodwill september 30 2016 2015 assumptions included impairment tests require judgment changes inputs could impact results calculations managements projections future cash flows primary assumptions used impairment tests weightedaverage cost capital longterm growth rates although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit impairment charges noncash expenses recorded within restructuring impairment costs consolidated statements income adversely affect companys debt position cash flow liquidity compliance financial covenants company’s intangible assets primarily business acquisitions valued based independent appraisals consisted millions refer note 2 merger transaction notes consolidated financial statements additional information intangibles recorded result tyco merger amortization intangible assets fiscal years ended september 30 2016 2015 2014 133 million 92 million 86 million respectively excluding impact future acquisitions company anticipates amortization fiscal 2017 2018 2019 2020 2021 approximately 465 million 440 million 424 million 414 million 405 million respectively excluding amortization expense automotive experience nonrecurring impact select tyco intangible assets company expects fiscal 2017 amortization expense 430 million indefinite lived intangible asset impairments resulting fiscal 2016 2015 2014 annual impairment tests 8 leases certain administrative production facilities equipment leased longterm agreements leases contain renewal options varying periods certain leases include options purchase leased property end lease term leases generally require company pay insurance taxes maintenance property leased capital assets included net property plant equipment primarily buildings improvements 44 million 46 million september 30 2016 2015 respectively facilities equipment leased arrangements accounted operating leases total rental expense fiscal years ended september 30 2016 2015 2014 402 million 413 million 459 million respectively future minimum capital operating lease payments related present value capital lease payments september 30 2016 follows millions 9 debt financing arrangements shortterm debt consisted following millions connection tyco merger jci inc replaced 25 billion committed fiveyear credit facility scheduled mature august 2018 20 billion committed fouryear credit facility scheduled mature august 2020 additionally tyco international holding sarl tsarl whollyowned subsidiary johnson controls entered 10 billion committed fouryear credit facility scheduled mature august 2020 facilities used support companys outstanding commercial paper draws either committed credit facilities fiscal years ended september 30 2016 2015 average outstanding commercial paper fiscal year ended september 30 2016 1418 million 440 million outstanding september 30 2016 average outstanding commercial paper fiscal year ended september 30 2015 1537 million none outstanding september 30 2015 february 2016 company entered ninemonth 100 million floating rate term loan scheduled mature november 2016 proceeds term loan used general corporate purposes february 2016 company terminated 37 million euro committed revolving credit facility scheduled mature september 2016 subsequently entered ninemonth 100 million euro floating rate term loan scheduled mature october 2016 proceeds term loan used general corporate purposes january 2016 company entered tenmonth 200 million floating rate term loan scheduled mature october 2016 proceeds term loan used general corporate purposes january 2016 company entered tenmonth 125 million floating rate term loan scheduled mature october 2016 proceeds term loan used general corporate purposes longterm debt consisted following millions due dates fiscal year september 30 2016 company’s foreigndenominated longterm debt fixed floating rates weightedaverage interest rate 13 september 30 2015 company’s foreigndenominated longterm debt fixed floating rates weightedaverage interest rate 11 installments longterm debt maturing subsequent fiscal years 2017 628 million 2018 379 million 2019 0 million 2020 4906 million 2021 1999 million 2022 thereafter 7322 million company’s longterm debt includes various financial covenants none expected restrict future operations total interest paid short longterm debt fiscal years ended september 30 2016 2015 2014 319 million 373 million 314 million respectively company uses financial instruments manage interest rate exposure see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements instruments affect weighted average interest rate company’s debt interest expense financing arrangements financing connection tyco merger simultaneously closing tyco merger september 2 2016 tsarl borrowed 4000 million term loan credit agreement dated march 10 2016 syndicate lenders providing three half year senior unsecured term loan facility finance cash consideration fees expenses costs incurred connection merger financing connection adient spinoff august 2016 adient global holdings ltd agh whollyowned subsidiary company issued one billion euro35 fixed rate 8year senior unsecured note scheduled mature august 2024 agh also issued 900 million 4875 10year senior unsecured note scheduled mature august 2026 proceeds notes deposited escrow expected released connection spinoff notes expected guaranteed company subsidiaries adient following spinoff approximately 1500 million proceeds distributed company connection spinoff approximately 500 million proceeds used adients general corporate purposes july 2016 agh entered 5year 1500 million term loan facility 5year 1500 million revolving credit facility scheduled mature july 2021 term loan fully drawn august 2016 september 30 2016 draws facility upon completion spinoff adient agh become whollyowned subsidiary adient date spinoff adient certain whollyowned subsidiaries guarantee debt guarantees company automatically released company used proceeds term loan early repay four tranches eurodenominated floating rate credit facilities totaling 390 million euro outstanding september 30 2015 three term loans 500 million 200 million 125 million entered fiscal 2016 plus accrued interest 90 million outstanding credit facility remainder proceeds used general corporate purposes financing arrangements september 30 2016 company committed bilateral us dollar denominated revolving credit facilities totaling 135 million scheduled expire fiscal 2017 draws revolving facilities fiscal 2016 january 2016 company retired 800 million principal amount plus accrued interest 55 fixed rate notes matured january 2016 september 2015 company retired maturity 500 million 150 million 100 million floating rate term loans plus accrued interest entered fiscal 2015 june 2015 company entered fiveyear 37 billion yen floating rate syndicated term loan scheduled mature june 2020 proceeds syndicated term loan used general corporate purposes may 2015 company made partial repayment 32 million euro principal amount plus accrued interest 70 million euro floating rate credit facility scheduled mature november 2017 remaining outstanding portion september 30 2015 repaid fiscal 2016 march 2015 company retired 125 million principal amount plus accrued interest 77fixed rate notes matured march 2015 january 2015 company entered oneyear 90 million committed revolving credit facility scheduled mature january 2016 company drew full credit facility quarter ended march 31 2015 proceeds revolving credit facility used general corporate purposes 90 million repaid september 2015 net financing charges companys net financing charges line item consolidated statements income years ended september 30 2016 2015 2014 contained following components millions 10 derivative instruments hedging activities company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities stockbased compensation liabilities interest rates company policy use derivatives restricted intended hedging purposes use derivative instrument speculative purposes strictly prohibited description type derivative utilized company manage risk included following paragraphs addition refer note 11 fair value measurements notes consolidated financial statements information related fair value measurements valuation methods utilized company derivative type cash flow hedges company global operations participates foreign exchange markets minimize risk loss fluctuations foreign currency exchange rates company selectively hedges anticipated transactions subject foreign exchange rate risk primarily using foreign currency exchange hedge contracts company hedges 70 90 nominal amount known foreign exchange transactional exposures cash flow hedges asc 815 derivatives hedging effective portion hedge gains losses due changes fair value initially recorded component aoci subsequently reclassified earnings hedged transactions occur affect earnings ineffective portion hedge reflected consolidated statements income contracts highly effective hedging variability future cash flows attributable changes currency exchange rates september 30 2016 2015 company selectively hedges anticipated transactions subject commodity price risk primarily using commodity hedge contracts minimize overall price risk associated company’s purchases lead copper tin aluminum cases commodity price risk cannot naturally offset hedged supply base fixed price contracts commodity risks systematically managed pursuant policy guidelines cash flow hedges effective portion hedge gains losses due changes fair value initially recorded component aoci subsequently reclassified earnings hedged transactions typically sales occur affect earnings ineffective portion hedge reflected consolidated statements income maturities commodity hedge contracts coincide expected purchase commodities contracts highly effective hedging variability future cash flows attributable changes commodity prices september 30 2016 2015 company following outstanding contracts hedge forecasted commodity purchases september 2005 company entered three forward treasury lock agreements reduce market risk associated changes interest rates associated company’s anticipated fixedrate note issuance finance acquisition york international corp cash flow hedge three forward treasury lock agreements combined notional amount 13 billion fixed portion future interest cost 5year 10year 30year notes fair value treasury lock agreement difference treasury lock reference rate fixed rate time note issuance amortized interest expense life respective note issuance january 2006 connection company’s debt refinancing three forward treasury lock agreements terminated fair value hedges company selectively uses interest rate swaps reduce market risk associated changes interest rates fixedrate bonds changes fair value swap hedged portion debt recorded consolidated statements income fourth quarter fiscal 2013 company entered four fixed floating interest rate swaps totaling 800 million hedge coupon 55 notes matured january 2016 third quarter fiscal 2014 company entered four fixed floating interest rate swaps totaling 400 million hedge coupon 26 notes maturing december 2016 three fixed floating interest rate swaps totaling 300 million hedge coupon 14 notes maturing november 2017 one fixed floating interest rate swap totaling 150 million hedge coupon 7125 notes maturing july 2017 eight twelve interest rate swaps outstanding september 30 2016 2015 respectively net investment hedges company enters crosscurrency interest rate swaps foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects crosscurrency interest rate swaps debt obligations reflected aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset gains losses recorded company’s net investments globally september 30 2016 company 37 billion yen foreign denominated debt designated net investment hedge companys net investment japan one billion euro 500 million euro bonds designated net investment hedges companys net investment europe company crosscurrency interest rate swaps outstanding september 30 2016 september 30 2015 company four crosscurrency interest rate swaps outstanding totaling 20 billion yen company foreign denominated debt outstanding designated net investment hedge september 30 2015 derivatives designated hedging instruments company selectively uses equity swaps reduce market risk associated certain stockbased compensation plans deferred compensation plans equity compensation liabilities increase company’s stock price increases decrease company’s stock price decreases contrast value swap agreement moves opposite direction liabilities allowing company fix portion liabilities stated amount september 30 2016 company equity swaps outstanding result tyco merger proposed spinoff september 30 2015 company hedged approximately 40 million shares common stock company also holds certain foreign currency forward contracts qualify hedge accounting treatment change fair value foreign currency exchange derivatives designated hedging instruments asc 815 recorded consolidated statements income fair value derivative instruments following table presents location fair values derivative instruments hedging activities included company’s consolidated statements financial position millions counterparty credit risk use derivative financial instruments exposes company counterparty credit risk company established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide strong investment grade longterm credit ratings reduce risk loss company generally enters international swaps derivatives association isda master netting agreements substantially counterparties companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes company anticipate nonperformance counterparties concentration risk financial institutions present significant credit risk company enters isda master netting agreements counterparties permit net settlement amounts owed derivative contracts master netting agreements generally provide net settlement outstanding contracts counterparty case event default termination event company elected offset fair value positions derivative contracts recorded consolidated statements financial position collateral generally required company counterparties master netting agreements september 30 2016 september 30 2015 cash collateral received pledged master netting agreements gross net amounts derivative assets liabilities follows millions derivatives impact statements income statements comprehensive income following table presents effective portion pretax gains losses recorded comprehensive income loss related cash flow hedges fiscal years ended september 30 2016 2015 2014 millions following tables presents location amount effective portion pretax gains losses cash flow hedges reclassified aoci company’s consolidated statements income fiscal years ended september 30 2016 2015 2014 millions following table presents location amount pretax gains losses fair value hedges recognized company’s consolidated statements income fiscal years ended september 30 2016 2015 2014 millions following table presents location amount pretax gains losses derivatives designated hedging instruments recognized company’s consolidated statements income fiscal years ended september 30 2016 2015 2014 millions effective portion pretax gains losses recorded foreign currency translation adjustment within comprehensive income loss related net investment hedges 82 million 16 million 24 million years ended september 30 2016 2015 2014 respectively years ended september 30 2016 2015 2014 gains losses reclassified cta income company’s outstanding net investment hedges gains losses recognized income ineffective portion cash flow hedges 11 fair value measurements asc 820 fair value measurement defines fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date asc 820 also establishes threelevel fair value hierarchy prioritizes information used developing assumptions pricing asset liability follows level 1 observable inputs quoted prices active markets level 2 inputs quoted prices active markets observable either directly indirectly level 3 unobservable inputs little market data requires reporting entity develop assumptions asc 820 requires use observable market data available making fair value measurements inputs used measure fair value fall within different levels hierarchy level within fair value measurement categorized based lowest level input significant fair value measurement recurring fair value measurements following tables present company’s fair value hierarchy assets liabilities measured fair value september 30 2016 2015 millions 1classified restricted investments payment asbestos liabilities see note 23 commitments contingencies notes consolidated financial statements details valuation methods foreign currency exchange derivatives foreign currency exchange derivatives valued market approach using publicized spot forward prices commodity derivatives commodity derivatives valued market approach using publicized prices available dealer quotes interest rate swaps related debt interest rate swaps related debt balances valued market approach using publicized swap curves equity swaps equity swaps valued market approach fair value swaps equal company’s stock price reporting period date crosscurrency interest rate swaps crosscurrency interest rate swaps valued using observable market data deferred compensation plan assets held deferred compensation plans used pay benefits certain companys nonqualified deferred compensation plans investments primarily consist mutual funds publicly traded stock exchanges valued using market approach based quoted market prices investments marketable common stock exchange traded funds investments marketable common stock exchange traded funds valued using market approach based quoted market prices available brokerdealer quotes identical comparable instruments unrealized loss recorded investments 1 million year ended september 30 2016 within aoci consolidated statements financial position unrealized gains losses recorded investments year ended september 30 2015 company hold exchange traded funds year ended september 30 2015 foreign currency denominated debt company entered foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects debt obligations reflected aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset gains losses recorded company’s net investments globally foreign denominated debt obligation remeasured current exchange rates market approach using publicized spot prices september 30 2016 company 37 billion yen foreign denominated debt designated net investment hedge companys net investment japan one billion euro 500 million euro bonds designated net investment hedges companys net investment europe company foreign denominated debt outstanding designated net investment hedge september 30 2015 fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values fair value longterm debt 157 billion 67 billion september 30 2016 2015 respectively determined primarily using market quotes classified level 1 inputs within asc 820 fair value hierarchy 12 stockbased compensation september 2 2016 shareholders company approved johnson controls international plc 2012 share incentive plan original effective date plan october 1 2012 plan amended restated november 17 2014 amended restated connection merger consummated september 2 2016 “amendment effective date” amendment restatement intended reflect assumption plan remaining share reserves johnson controls inc 2012 omnibus incentive plan johnson controls inc 2003 stock plan outside directors “legacy johnson controls plans” amendment effective date following amendment effective date awards may made legacy johnson controls plans types awards authorized plan comprise stock options stock appreciation rights performance shares performance units stockbased awards compensation committee companys board directors determine types awards granted individual participants terms conditions awards plan provides 76 million shares companys common stock reserved issuance 2012 plan 46 million shares remain available issuance september 30 2016 pursuant merger agreement outstanding stock options held tyco employees september 2 2016 “merger date” converted options acquire companys shares using 0955forone share consolidation ratio manner designed preserve intrinsic value awards addition pursuant merger agreement nonvested restricted stock held tyco employees merger date converted nonvested restricted stock company using 0955forone share consolidation ratio manner designed preserve intrinsic value awards outstanding performance share awards held tyco employees merger date converted nonvested restricted stock company target performance level adjusted reflect 0955forone consolidation ratio except conversion stock options nonvested restricted stock performance share awards discussed herein material terms awards remained unchanged modifications made awards upon merger date constituted modifications authoritative guidance accounting stock compensation guidance requires company revalue awards upon merger close allocate revised fair value purchase consideration continuing expense based ratio service performed merger date total service period awards revised fair value allocated postmerger services resulted incremental expense recognized remaining service period awards portion tyco awards earned merger date included purchase consideration 224 million total value tyco awards earned merger date 101 million expensed remaining future vesting period amount 10 million recorded selling general administrative expenses 23 million recorded restructuring impairment costs consolidated statement income fiscal year ended september 30 2016 result changeincontrol provisions current former employees refer note 2 “merger transaction” notes consolidated financial statements information regarding merger pursuant merger agreement outstanding stock options held jci inc employees merger date converted oneforone options acquire companys shares manner designed preserve intrinsic value awards addition pursuant merger agreement nonvested restricted stock held jci inc employees merger date converted oneforone nonvested restricted stock company manner designed preserve intrinsic value awards outstanding performance share awards held jci inc employees merger date converted nonvested restricted stock company based certain performance factors except conversion stock options nonvested restricted stock performance share awards discussed herein material terms awards remained unchanged incremental fair value resulted conversion references company’s stock throughout note 12 refer stock jci inc prior merger date stock company subsequent merger date company four sharebased compensation plans described fiscal year ended september 30 2016 compensation cost charged income excluding offsetting impact outstanding equity swaps plans approximately 176 million 137 million recorded selling general administrative expenses 39 million recorded restructuring impairment costs fiscal years ended september 30 2015 2014 compensation cost charged income excluding offsetting impact outstanding equity swaps plans approximately 85 million 81 million respectively recorded selling general administrative expenses total income tax benefit recognized consolidated statements income sharebased compensation arrangements approximately 62 million 34 million 32 million fiscal years ended september 30 2016 2015 2014 respectively company applies nonsubstantive vesting period approach whereby expense accelerated employees receive awards eligible retire prior award vesting stock options stock options granted exercise price equal market price company’s stock date grant stock option awards typically vest two three years grant date expire ten years grant date fair value option estimated date grant using blackscholes option valuation model uses assumptions noted following table expected volatilities based historical volatility company’s stock factors company uses historical data estimate option exercises employee terminations within valuation model expected term options represents period time options granted expected outstanding riskfree rate periods contractual life option based us treasury yield curve effect time grant summary stock option activity september 30 2016 changes year ended presented weightedaverage grantdate fair value options granted fiscal years ended september 30 2016 2015 2014 1314 1551 1470 respectively total intrinsic value options exercised fiscal years ended september 30 2016 2015 2014 approximately 39 million 227 million 135 million respectively conjunction exercise stock options granted company received cash payments fiscal years ended september 30 2016 2015 2014 approximately 70 million 275 million 186 million respectively company elected utilize alternative transition method calculating tax effects stockbased compensation alternative transition method includes computational guidance establish beginning balance additional paidin capital pool apic pool related tax effects employee stockbased compensation simplified method determine subsequent impact apic pool employee stockbased compensation awards vested outstanding upon adoption asc 718 compensation stock compensation tax benefit exercise stock options recorded capital excess par value 11 million 59 million 34 million fiscal years ended september 30 2016 2015 2014 respectively company settle stock options granted sharebased payment arrangements cash september 30 2016 company approximately 26 million total unrecognized compensation cost related nonvested stock options granted cost expected recognized weightedaverage period 12 years stock appreciation rights sars vest terms conditions stock option awards however settled cash difference market price date exercise price result sars recorded company’s consolidated statements financial position liability date exercise fair value sar award estimated using similar method described stock options fair value sar award recalculated end reporting period liability expense adjusted based new fair value assumptions used determine fair value sar awards september 30 2016 follows summary sar activity september 30 2016 changes year ended presented conjunction exercise sars granted company made payments 8 million 19 million 21 million fiscal years ended september 30 2016 2015 2014 respectively restricted nonvested stock plan provides award restricted stock restricted stock units certain employees awards typically share settled unless employee nonus employee elects defer settlement retirement point award would settled cash restricted awards typically vest three years grant date plan allows different vesting terms specific grants approval board directors summary status company’s nonvested restricted stock awards september 30 2016 changes fiscal year ended presented amendment effective date performance share awards converted nonvested restricted stock based certain performance factors september 30 2016 company approximately 182 million total unrecognized compensation cost related nonvested restricted stock arrangements granted cost expected recognized weightedaverage period 20 years performance share awards plan permits grant performancebased share unit psu awards number psus granted equal psu award value divided closing price companys common stock grant date psus generally contingent achievement predetermined performance goals threeyear performance period well award holders continuous employment vesting date psu earned settled share companys common stock following completion performance period unless award holder elected defer portion award retirement would settled cash summary status company’s nonvested psus september 30 2016 changes fiscal year ended presented amendment effective date psus converted nonvested restricted stock 13 earnings per share company presents basic diluted earnings per share eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number ordinary shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number ordinary shares ordinary equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock unvested performance share awards treasury stock method assumes company uses proceeds exercise stock option awards repurchase ordinary shares average market price period assumed proceeds treasury stock method include purchase price grantee pay future compensation cost future service company yet recognized windfall tax benefits would credited capital excess par value award generates tax deduction would shortfall resulting charge capital excess par value amount would reduction proceeds unvested restricted stock unvested performance share awards assumed proceeds treasury stock method would include unamortized compensation cost windfall tax benefits shortfalls following table reconciles numerators denominators used calculate basic diluted earnings per share millions twelve months ended september 30 2016 total number potential dilutive shares due stock options unvested restricted stock unvested performance share awards 52 million however items included computation diluted loss per share twelve months ended september 30 2016 since would decrease loss per share three months ended september 30 2016 2015 company declared dividend 029 026 respectively per common share twelve months ended september 30 2016 2015 company declared four quarterly dividends totaling 116 104 respectively per common share 14 equity noncontrolling interests share capital september 2016 result tyco merger discussed within note 2 merger transaction notes consolidated financial statements outstanding share common stock par value 100 per share jci inc common stock shares held jci inc tyco certain subsidiaries converted right receive either cash consideration share consideration shares outstanding merger date calculated follows millions except share consolidation ratio per share data dividends authority declare pay dividends vested board directors timing declaration payment future dividends holders companys ordinary shares determined companys board directors depend upon many factors including companys financial condition results operations capital requirements companys businesses industry practice relevant factors irish law dividends may paid share repurchases redemptions must generally funded “distributable reserves” creation distributable reserves accomplished way capital reduction irish high court approved december 18 2014 acquired conjunction tyco merger share repurchase program following tyco merger company adopted subject ongoing existence sufficient distributable reserves existing tyco international plc 1 billion share repurchase program september 2016 share repurchase program expiration date may amended terminated board directors time without prior notice shares repurchased closing merger september 30 2016 prior merger company repurchased approximately 501 million shares jci incs 365 billion share repurchase program fiscal year 2016 fiscal years 2015 2014 company repurchased approximately 14 billion 12 billion common stock respectively comprehensive income includes activity relating discontinued operations following schedules present changes consolidated equity attributable johnson controls noncontrolling interests millions net tax equity attributable johnson controls international plc increased 158 billion result tyco merger increase primarily due increase equity 197 billion resulting total fair value consideration transferred partially offset decrease 39 billion resulting cash contributed tyco used purchase shares johnson controls inc previously disclosed october 1 2015 company formed joint venture hitachi connection acquisition company recorded equity attributable noncontrolling interests 691 million also connection tyco merger company recorded equity attributable noncontrolling interests 34 million company consolidates certain subsidiaries noncontrolling interest party within control right require company redeem portion interest subsidiary redeemable noncontrolling interests reported estimated redemption value adjustment redemption value impacts retained earnings impact net income redeemable noncontrolling interests redeemable upon future events occurrence currently probable recorded carrying value following schedules present changes redeemable noncontrolling interests millions following schedules present changes aoci attributable johnson controls millions net tax fiscal 2015 19 million cumulative cta recognized part divestiturerelated gain recognized within discontinued operations result divestiture gws fiscal 2014 203 million cumulative cta recognized part divestiturerelated losses recognized within discontinued operations result divestiture automotive experience electronics business refer note 10 derivative instruments hedging activities notes consolidated financial statements disclosure line items consolidated statements income affected reclassifications aoci income related derivatives fiscal 2014 company sold certain marketable common stock approximately 25 million result company recorded 8 million realized gains within selling general administrative expenses automotive experience seating segment refer note 15 retirement plans notes consolidated financial statements disclosure components companys net periodic benefit costs associated defined benefit pension postretirement plans year ended september 30 2016 amounts reclassified aoci income pension postretirement plans primarily recorded selling general administrative expenses consolidated statements income year ended september 30 2015 amounts reclassified aoci income pension postretirement plans primarily recorded selling general administrative expenses income loss discontinued operations net tax consolidated statements income year ended september 30 2014 amounts reclassified aoci income pension postretirement plans primarily recorded cost sales income loss discontinued operations net tax consolidated statements income 15 retirement plans pension benefits company noncontributory defined benefit pension plans covering certain us nonus employees benefits provided primarily based years service average compensation monthly retirement benefit amount effective january 1 2006 certain company’s us pension plans amended prohibit new participants entering plans effective september 30 2009 active participants continued accrue benefits amended plans december 31 2014 funding us pension plans equals exceeds minimum requirements employee retirement income security act 1974 funding nonus plans observes local legal regulatory limits also company makes contributions uniontrusteed pension funds construction service personnel pension plans accumulated benefit obligations abo exceed plan assets projected benefit obligation pbo abo fair value plan assets plans 7124 million 6966 million 5234 million respectively september 30 2016 3636 million 3581 million 2939 million respectively september 30 2015 fiscal 2016 total employer contributions defined benefit pension plans 136 million 34 million voluntary contributions made company expects contribute approximately 326 million cash defined benefit pension plans fiscal 2017 including 247 million due changeincontrol provisions triggered tyco merger projected benefit payments plans september 30 2016 estimated follows millions postretirement benefits company provides certain health care life insurance benefits eligible retirees dependents primarily us canada brazil nonus employees covered government sponsored programs cost company significant eligibility coverage based meeting certain years service retirement age qualifications benefits may subject deductibles copayment provisions limitations company reserved right modify benefits effective january 31 1994 company modified certain salaried plans place limit company’s cost future annual retiree medical benefits 150 1993 cost health care cost trend assumption significant effect amounts reported fiscal 2016 total employer employee contributions postretirement plans 7 million company expects contribute approximately 4 million cash postretirement plans fiscal 2017 projected benefit payments plans september 30 2016 estimated follows millions december 2003 us congress enacted medicare prescription drug improvement modernization act 2003 act employers sponsoring postretirement care plans provide prescription drug benefits act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans providing benefit least actuarially equivalent medicare part d1 act medicare subsidy amount received directly plan sponsor related plan sponsor required use subsidy amount fund postretirement benefits may use subsidy valid business purpose projected subsidy receipts estimated approximately 2 million per year next ten years savings investment plans company sponsors various defined contribution savings plans allow employees contribute portion pretax andor aftertax income accordance plan specified guidelines specified conditions company contribute certain savings plans based employees’ eligible pay andor match percentage employee contributions certain limits matching contributions charged expense amounted 128 million 123 million 132 million fiscal years ended 2016 2015 2014 respectively multiemployer benefit plans company contributes multiemployer benefit plans based obligations arising collective bargaining agreements related certain hourly employees us plans provide retirement benefits participants based service contributing employers benefits paid assets held trust purpose trustees typically responsible determining level benefits provided participants well matters investment assets administration plans risks participating multiemployer benefit plans different singleemployer benefit plans following aspects • assets contributed multiemployer benefit plan one employer may used provide benefits employees participating employers • participating employer stops contributing multiemployer benefit plan unfunded obligations plan may borne remaining participating employers • company stops participating multiemployer benefit plans company may required pay plans amount based allocable share underfunded status plan referred withdrawal liability company participates approximately 284 multiemployer benefit plans primarily related buildings business us none individually significant company number employees covered company’s multiemployer benefit plans remained consistent past three years significant changes affect comparability fiscal 2016 2015 2014 contributions company recognizes expense contractuallyrequired contribution period company contributed 46 million 45 million 44 million multiemployer benefit plans fiscal 2016 2015 2014 respectively based recent information available company believes present value actuarial accrued liabilities certain multiemployer benefit plans may exceed value assets held trust pay benefits currently company aware significant multiemployer benefits plans probable reasonably possible company obligated make shortfall funds moreover company exit certain markets otherwise cease making contributions funds company could trigger withdrawal liability currently company aware significant multiemployer benefit plans probable reasonably possible company withdraw plan accrual shortfall withdrawal liability recorded probable liability exists reasonably estimated plan assets company’s investment policies employ approach whereby mix equities fixed income alternative investments used maximize longterm return plan assets prudent level risk investment portfolio primarily contains diversified blend equity fixed income investments equity investments diversified across us nonus stocks well growth value small large capitalizations fixed income investments include corporate government issues short mid longterm maturities focus investment grade purchased target duration close plan liability investment market risks measured monitored ongoing basis regular investment portfolio reviews annual liability measurements periodic assetliability studies majority real estate component portfolio invested diversified portfolio highquality operating properties cash yields greater targeted appreciation investments alternative asset classes including hedge funds commodities diversify expected investment returns relative equity fixed income investments result diversification strategies significant concentrations risk within portfolio investments company’s actual asset allocations line target allocations company rebalances asset allocations appropriate order stay within range allocation asset category expected return plan assets based company’s expectation longterm average rate return capital markets plans invest average market returns adjusted appropriate active asset management returns expected return reflects investment policy target asset mix considers historical returns earned asset category company’s plan assets september 30 2016 2015 asset category follows millions following description valuation methodologies used assets measured fair value cash fair value cash valued cost equity securities fair value equity securities determined direct quoted market prices underlying holdings direct quoted market prices regulated financial exchanges certain equity securities held within commingled funds valued unitized net asset value nav percentage net asset value determined custodian fund values based fair value underlying net assets owned fund fixed income securities fair value fixed income securities determined direct indirect quoted market prices indirect quoted market prices utilized value assets held separate accounts published investment managers report daily underlying holdings underlying holdings direct quoted market prices regulated financial exchanges commodities fair value commodities determined quoted market prices underlying holdings regulated financial exchanges hedge funds fair value hedge funds accounted custodian obtains valuations underlying managers based market quotes liquid assets alternative methods assets sufficient trading activity derive prices company custodian review methods used underlying managers value assets company believes appropriate methodology obtain fair value assets real estate fair value real estate investment trusts reits recorded level 1 securities traded open exchange fair value investments real estate deemed level 3 since investments readily determinable fair value requires fund managers independently arrive fair value calculating nav per share order calculate nav per share fund managers value real estate investments using one combination following methods independent third party appraisals discounted cash flow analysis net cash flows projected generated investment recent sales comparable investments assumptions used revalue properties updated every quarter due fact fund managers calculate nav per share company utilizes practical expedient measuring fair value level 3 realestate investments provided asc 820 fair value measurement applying practical expedient company required adjust nav provided fund manager order determine fair value investment nav per share calculated manner consistent measurement principles asc 946 financial services investment companies companys measurement date company believes appropriate methodology obtain fair value assets component real estate portfolio development investments carried cost completed valued third party appraiser methods described may produce fair value calculation may indicative net realizable value reflective future fair values furthermore company believes valuation methods appropriate consistent market participants use different methodologies assumptions determine fair value certain financial instruments could result different fair value measurement reporting date following sets forth summary changes fair value assets measured using significant unobservable inputs level 3 millions funded status table follows contains abo reconciliations changes pbo changes plan assets funded status millions 1 plan assets obligations determined based september 30 measurement date september 30 2016 2015 2 company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates september 30 2015 company changed method used estimate service interest components net periodic benefit cost pension postretirement benefits plans utilize yield curve approach change compared previous method results different service interest components net periodic benefit cost credit historically company estimated service interest cost components utilizing single weightedaverage discount rate derived yield curve used measure benefit obligation beginning period company elected utilize full yield curve approach estimation components applying specific spot rates along yield curve used determination benefit obligation relevant projected cash flows company made change provide precise measurement service interest costs improving correlation projected benefit cash flows corresponding spot yield curve rates change affect measurement total benefit obligations annual net periodic benefit cost credit change service interest costs completely offset net actuarial gain loss reported change service interest costs significant company accounted change accounting estimate accumulated comprehensive income amounts aoci consolidated statements financial position exclusive tax impacts yet recognized components net periodic benefit cost september 30 2016 follows millions pension benefits postretirement benefits accumulated comprehensive loss net transition asset net prior service cost total amounts aoci expected recognized components net periodic benefit cost next fiscal year shown millions pension benefits postretirement benefits amortization net transition obligation net prior service cost total net periodic benefit cost table follows contains components net periodic benefit cost millions 16 significant restructuring impairment costs better align resources growth strategies reduce cost structure global operations address softness certain underlying markets company commits restructuring plans necessary fiscal 2016 company committed significant restructuring plan 2016 plan recorded 620 million restructuring impairment costs consolidated statements income 229 million recorded second quarter 102 million recorded third quarter 289 million recorded fourth quarter fiscal 2016 total amount incurred date total amount expected incurred restructuring plan restructuring actions related cost reduction initiatives company’s automotive experience buildings power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments changeincontrol payments immaterial changes estimates prior year plans restructuring impairment costs recorded 284 million related automotive experience seating segment 115 million related corporate 85 million related buildings tyco segment 66 million related power solutions segment 26 million related building efficiency asia segment 17 million related automotive experience interiors segment 16 million related building efficiency rest world segment 9 million related building efficiency products north america segment 2 million related building efficiency systems service north america segment restructuring actions expected substantially complete fiscal 2018 included reserve 78 million committed restructuring actions taken tyco liabilities assumed part tyco acquisition following table summarizes changes company’s 2016 plan reserve included within current liabilities consolidated statements financial position millions fiscal 2015 company committed significant restructuring plan 2015 plan recorded 397 million restructuring impairment costs consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring actions related cost reduction initiatives company’s automotive experience building efficiency power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments restructuring impairment costs recorded 182 million related automotive experience seating segment 166 million related corporate 13 million related building efficiency rest world segment 11 million related power solutions segment 11 million related building efficiency asia segment 11 million related building efficiency products north america segment 3 million related building efficiency systems service north america segment restructuring actions expected substantially complete 2016 following table summarizes changes company’s 2015 plan reserve included within current liabilities consolidated statements financial position millions fiscal 2014 company committed significant restructuring plan 2014 plan recorded 324 million restructuring impairment costs consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring actions related primarily cost reduction initiatives company’s automotive experience building efficiency power solutions businesses included workforce reductions plant closures asset goodwill impairments restructuring impairment costs recorded 130 million related automotive experience interiors segment 119 million related building efficiency rest world segment 29 million related automotive experience seating segment 16 million related power solutions segment 12 million related building efficiency systems service north america segment 7 million related building efficiency products north america segment 7 million related corporate 4 million related building efficiency asia segment restructuring actions expected substantially complete 2016 additionally company recorded 53 million restructuring impairment costs within discontinued operations related automotive experience electronics business fiscal 2014 following table summarizes changes company’s 2014 plan reserve included within current liabilities consolidated statements financial position millions fiscal 2013 company committed significant restructuring plan 2013 plan recorded 903 million restructuring impairment costs consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring actions related cost reduction initiatives company’s automotive experience building efficiency power solutions businesses included workforce reductions plant closures asset goodwill impairments restructuring impairment costs recorded 560 million related automotive experience interiors segment 152 million related automotive experience seating segment 70 million related building efficiency rest world segment 36 million related power solutions segment 35 million related building efficiency systems service north america segment 28 million related building efficiency products north america segment 17 million related corporate 5 million related building efficiency asia segment restructuring actions expected substantially complete 2016 additionally company recorded 82 million restructuring costs within discontinued operations 54 million related gws business 28 million related automotive experience electronics business fiscal 2013 following table summarizes changes company’s 2013 plan reserve included within current liabilities consolidated statements financial position millions 31 million transfers liabilities held sale represent restructuring reserves included liabilities held sale consolidated statements financial position september 30 2013 excluded liabilities held sale september 30 2014 based transaction negotiations see note 4 discontinued operations notes consolidated financial statements information regarding companys assets liabilities held sale companys fiscal 2016 2015 2014 2013 restructuring plans included workforce reductions approximately 18900 employees 11200 automotive experience business 6700 buildings business 900 power solutions business 100 corporate restructuring charges associated employee severance termination benefits paid severance period granted employee lump sum basis accordance individual severance agreements september 30 2016 approximately 11800 employees separated company pursuant restructuring plans addition restructuring plans included thirty plant closures twentytwo automotive experience eight buildings september 30 2016 twelve thirty plants closed refer note 17 impairment longlived assets notes consolidated financial statements information regarding longlived asset impairment charges recorded part restructuring actions refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment charges recorded company management closely monitors overall cost structure continually analyzes businesses opportunities consolidate current operations improve operating efficiencies locate facilities low cost countries close proximity customers ongoing analysis includes review manufacturing engineering purchasing operations well overall global footprint businesses importance new vehicle sales major automotive manufacturers operations company affected general business conditions industry future adverse developments automotive industry could impact company’s liquidity position lead impairment charges andor require additional restructuring operations 17 impairment longlived assets company reviews longlived assets including property plant equipment intangible assets definite lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals second third fourth quarters fiscal 2016 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2016 result company reviewed longlived assets impairment recorded 190 million asset impairment charges within restructuring impairment costs consolidated statements income 29 million recorded second quarter 51 million recorded third quarter 110 million recorded fourth quarter total impairment charges 64 million related power solutions segment 55 million related corporate assets 55 million related automotive experience seating segment 8 million related building efficiency products north america segment 4 million related building efficiency asia segment 3 million related building efficiency rest world segment 1 million related automotive experience interiors segment refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fourth quarter fiscal 2015 company concluded triggering events requiring assessment impairment certain longlived assets conjunction announced restructuring actions intention spinoff automotive experience business result company reviewed longlived assets impairment recorded 183 million impairment charge within restructuring impairment costs consolidated statements income total impairment charge 139 million related corporate assets 27 million related automotive experience seating segment 16 million related building efficiency rest world segment 1 million related building efficiency systems service north america segment refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairment measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement third fourth quarters fiscal 2014 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2014 addition fourth quarter fiscal 2014 company concluded triggering event requiring assessment impairment longlived assets held building efficiency rest world latin america reporting unit due impairment goodwill quarter result company reviewed longlived assets impairment recorded 91 million impairment charge within restructuring impairment costs consolidated statements income 45 million recorded third quarter 46 million fourth quarter fiscal 2014 total impairment charge 45 million related automotive experience interiors segment 34 million related building efficiency rest world segment 7 million related automotive experience seating segment 5 million related corporate assets addition company recorded 43 million asset investment impairments within discontinued operations third quarter fiscal 2014 related divestiture automotive experience electronics business refer note 4 discontinued operations note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairment measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement september 30 2016 2015 2014 company concluded triggering events requiring assessment impairment longlived assets refer note 1 summary significant accounting policies notes consolidated financial statements discussion company’s goodwill impairment testing refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment charges recorded fourth quarter fiscal 2014 18 income taxes significant components company’s income tax provision continuing operations follows millions us federal statutory tax rate used comparison since company us domiciled company fiscal 2014 2015 11 months 2016 effective rate us statutory rate fiscal 2016 primarily due tax consequences surrounding planned spinoff automotive experience business related expenses jurisdictional mix restructuring impairment costs tax impacts merger integration related costs partially offset benefits continuing global tax planning initiatives foreign tax rate differentials effective rate us statutory rate fiscal 2015 primarily due benefits continuing global tax planning initiatives income certain nonus jurisdictions tax rate lower us statutory tax rate adjustments due tax audit resolutions partially offset tax consequences business divestitures significant restructuring impairment costs effective rate us statutory rate fiscal 2014 primarily due benefits continuing global tax planning initiatives income certain nonus jurisdictions tax rate lower us statutory tax rate partially offset tax consequences business divestitures significant restructuring impairment costs valuation allowance adjustments valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 24 billion valuation allowances also fourth quarter fiscal 2016 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined material changes needed valuation allowances therefore impact income tax expense due valuation allowance changes three month period year ended september 30 2016 fourth quarter fiscal 2015 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within spain germany united kingdom would realized likely certain deferred tax assets poland germany realized impact net valuation allowance provision offset benefit valuation allowance releases net impact income tax expense three month period ended september 30 2015 fourth quarter fiscal 2014 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely deferred tax assets within italy would realized therefore company recorded 34 million net valuation allowances income tax expense three month period ended september 30 2014 first quarter fiscal 2014 company determined likely deferred tax asset associated capital loss mexico would utilized therefore company recorded 21 million valuation allowance income tax expense uncertain tax positions company subject income taxes us numerous foreign jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities september 30 2016 company gross tax effected unrecognized tax benefits 1836 million 1734 million recognized would impact effective tax rate total net accrued interest september 30 2016 approximately 67 million net tax benefit september 30 2015 company gross tax effected unrecognized tax benefits 1159 million 1104 million recognized would impact effective tax rate total net accrued interest september 30 2015 approximately 41 million net tax benefit september 30 2014 company gross tax effected unrecognized tax benefits 1607 million 1457 million recognized would impact effective tax rate total net accrued interest september 30 2014 approximately 106 million net tax benefit reconciliation beginning ending amount unrecognized tax benefits follows millions fiscal 2015 company settled significant number tax examinations germany mexico us impacting fiscal years 1998 fiscal 2012 settlement unrecognized tax benefits included cash payments approximately 440 million loss various tax attributes reduction tax positions prior years substantially related foreign exchange rates fourth quarter fiscal 2015 income tax audit resolutions resulted net 99 million benefit income tax expense us fiscal years 2010 2014 currently exam internal revenue service irs 2008 2009 currently irs appeals additionally company currently exam following major foreign jurisdictions reasonably possible certain tax examinations tax appeals tax litigation conclude within next twelve months could 100 million impact tax expense tax matters fiscal 2016 2015 2014 company incurred significant charges restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information substantial portion charges cannot benefited tax purposes due companys current tax position jurisdictions underlying tax basis impaired assets resulting 126 million 52 million 75 million incremental tax expense fiscal 2016 2015 2014 respectively fourth quarter fiscal 2016 company completed merger tyco result transaction company incurred incremental tax expense 137 million preparation spinoff automotive experience business first quarter fiscal 2017 company incurred incremental tax expense 121 million fiscal 2016 company also completed substantial business reorganizations resulted total tax charges 1891 million fiscal 2016 included amount tax charge provided third quarter fiscal 2016 85 million changes entity tax status charge provided second quarter fiscal 2016 780 million income tax expense foreign undistributed earnings certain nonus subsidiaries result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities within noncurrent liabilities consolidated statements financial position liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid 290 million recorded september 30 2016 255 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation tax sharing agreements fourth quarter fiscal 2015 company completed global automotive interiors joint venture yanfeng automotive trim systems refer note 3 acquisitions divestitures notes consolidated financial statements additional information connection divestiture interiors business company recorded pretax gain divestiture 145 million 38 million net tax impact gain due jurisdictional mix gains losses divestiture resulted nonbenefited expenses certain countries taxable gains countries addition third fourth quarters fiscal 2015 company provided income tax expense repatriation cash tax reserves associated automotive experience interiors joint venture transaction resulted tax charge 75 million 223 million respectively fourth quarter fiscal 2014 company recorded discrete tax benefit 51 million due change entity status third quarter fiscal 2014 company disposed automotive experience interiors headliner sun visor product lines refer note 3 acquisitions divestitures notes consolidated financial statements additional information result company recorded pretax loss divestiture 95 million income tax expense 38 million income tax expense due jurisdictional mix gains losses sale resulted nonbenefited losses certain countries taxable gains countries impacts tax legislation change statutory tax rates fourth quarter fiscal 2016 october 13 2016 us treasury irs released final temporary section 385 regulations address whether certain instruments related parties treated debt equity company expect regulations material impact consolidated financial statements lookthrough rule subpart f us internal revenue code expired company september 30 2015 lookthrough rule provided exception us taxation certain income generated foreign subsidiaries rule extended december 2015 retroactive beginning company’s 2016 fiscal year retroactive extension signed legislation made permanent companys 2020 fiscal year second quarter fiscal 2015 tax legislation adopted japan reduced statutory income tax rate result law change company recorded income tax expense 17 million second quarter fiscal 2015 result changes mexican tax law first quarter fiscal 2014 company recorded benefit income tax expense 25 million fiscal years ended 2016 2015 2014 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements continuing operations components provision income taxes continuing operations follows millions consolidated us income continuing operations income taxes noncontrolling interests fiscal years ended september 30 2016 2015 2014 income 1155 million 1051 million 1370 million respectively consolidated foreign income continuing operations income taxes noncontrolling interests fiscal years ended september 30 2016 2015 2014 income 431 million 1100 million 546 million respectively income taxes paid fiscal years ended september 30 2016 2015 2014 1388 million 1163 million 782 million respectively september 30 2016 2015 company recorded within consolidated statements financial position current liabilities approximately 1538 million 337 million respectively accrued income tax liabilities company provided us nonus income taxes approximately 55 billion outside basis differences johnson controls inc consolidated subsidiaries company reduction outside basis differences via sale liquidation consolidated subsidiaries andor distributions could create taxable income company also provided us nonus income taxes additional outside basis differences relating tyco merger company currently finalizing purchase price allocation legal entity assets acquired liabilities assumed used calculate outside basis differences certain consolidated subsidiaries company purchase price allocation legal entity completed within measurement period fiscal 2017 company’s intent reduce outside basis differences would tax efficient practicable estimate amount unrecognized withholding taxes deferred tax liability outside basis differences fiscal 2016 company provide us income tax expense related restructuring repatriation cash certain nonus subsidiaries connection automotive experience planned spinoff company needs complete final steps automotive experience restructuring result company provided deferred taxes 24 million us income tax expense outside basis differences reverse upon completion restructuring refer capitalization within liquidity capital resources section item 7 discussion domestic foreign cash projections deferred taxes classified consolidated statements financial position follows millions temporary differences carryforwards gave rise deferred tax assets liabilities included millions september 30 2016 company available net operating loss carryforwards approximately 153 billion 46 billion expire various dates 2017 2036 remainder indefinite carryforward period company available us foreign tax credit carryforwards september 30 2016 80 million expire various dates 2020 2024 valuation allowance generally loss carryforwards realization uncertain unlikely losses realized given lack sustained profitability andor limited carryforward periods certain countries september 30 2016 deferred tax assets approximately 180 million relate certain operating loss carryforwards resulting exercise employee stock options restricted stock vestings tax benefit recognized accounted credit additional paidin capital rather reduction income tax provision amount presented within tax loss carryforwards line table 19 segment information asc 280 segment reporting establishes standards reporting information segments financial statements applying criteria set forth asc 280 company determined eight reportable segments financial reporting purposes company’s eight reportable segments presented context three primary businesses buildings automotive experience power solutions buildings building efficiency building efficiency designs produces markets installs hvac control systems monitor automate integrate critical building segment equipment conditions including hvac firesafety security commercial buildings various industrial applications • systems service north america provides products services nonresidential building industrial applications north american marketplace products services include hvac controls systems energy efficiency solutions technical services including inspection scheduled maintenance repair replacement mechanical control systems • products north america designs produces heating air conditioning solutions residential light commercial applications also markets products refrigeration systems replacement new construction markets north american marketplace products north america also includes hvac products installed navy marine customers globally • asia provides hvac controls refrigeration systems technical services asian marketplace asia also includes johnson controlshitachi air conditioning joint venture formed october 1 2015 • rest world provides hvac controls refrigeration systems technical services markets europe middle east latin america tyco designs sells installs services monitors integrated electronic security systems integrated fire detection suppression systems commercial industrial retail small business institutional governmental customers tyco business also designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide automotive experience automotive experience designs manufactures interior systems products passenger cars light trucks including vans pickup trucks sport utilitycrossover vehicles • seating produces automotive seat metal structures mechanisms foam trim fabric complete seat systems • interiors produces instrument panels floor consoles door panels power solutions power solutions services automotive original equipment manufacturers battery aftermarket providing advanced battery technology coupled systems engineering marketing service expertise management evaluates performance segments based primarily segment ebit represents income continuing operations income taxes noncontrolling interests excluding net financing charges significant restructuring impairment costs net marktomarket adjustments pension postretirement plans general corporate overhead expenses allocated reportable segments determining segment ebit financial information relating company’s reportable segments follows millions 1 building efficiency systems service north america segment ebit years ended september 30 2016 2015 2014 excludes 2 million 3 million 12 million respectively restructuring impairment costs 2 building efficiency products north america segment ebit years ended september 30 2016 2015 2014 excludes 9 million 11 million 7 million respectively restructuring impairment costs years ended september 30 2016 2015 2014 products north america segment ebit includes 10 million 9 million 7 million respectively equity income 3 building efficiency asia segment ebit years ended september 30 2016 2015 2014 excludes 26 million11 million 4 million respectively restructuring impairment costs years ended september 30 2016 2014 asia segment ebit includes 100 million 21 million respectively equity income 4 building efficiency rest world segment ebit years ended september 30 2016 2015 2014 excludes 16 million 13 million 119 million respectively restructuring impairment costs years ended september 30 2016 2015 2014 rest world segment ebit includes 15 million 14 million 7 million respectively equity income 5 tyco segment ebit year ended september 30 2016 excludes 85 million restructuring impairment costs year ended september 30 2016 tyco segment ebit includes 1 million equity income 6 automotive experience seating segment ebit years ended september 30 2016 2015 2014 excludes 284 million 182 million 29 million respectively restructuring impairment costs years ended september 30 2016 2015 2014 seating segment ebit includes 289 million 264 million 250 million respectively equity income 7 automotive experience interiors segment ebit years ended september 30 2016 2014 excludes 17 million 130 million respectively restructuring impairment costs years ended september 30 2016 2015 2014 interiors segment ebit includes 68 million 31 million 35 million respectively equity income 8 power solutions segment ebit years ended september 30 2016 2015 2014 excludes 66 million 11 million 16 million respectively restructuring impairment costs years ended september 30 2016 2015 2014 power solutions segment ebit includes 48 million 57 million 75 million respectively equity income 9 current year prior year amounts exclude assets held sale refer note 4 discontinued operations notes consolidated financial statements information regarding companys disposal groups classified held sale company significant sales automotive industry fiscal years 2016 2015 2014 customer exceeded 10 consolidated net sales geographic segments financial information relating company’s operations geographic area follows millions net sales attributed geographic locations based location assets producing sales longlived assets geographic location consist net property plant equipment 20 nonconsolidated partiallyowned affiliates investments net assets nonconsolidated partiallyowned affiliates stated investments partiallyowned affiliates line consolidated statements financial position september 30 2016 2015 equity net income nonconsolidated partiallyowned affiliates stated equity income line consolidated statements income years ended september 30 2016 2015 2014 following table presents summarized financial data company’s nonconsolidated partiallyowned affiliates amounts included table represent 100 results operations nonconsolidated partiallyowned affiliates accounted equity method summarized balance sheet data september 30 follows millions summarized income statement data years ended september 30 follows millions 21 guarantees certain companys subsidiaries business segment level guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities within noncurrent liabilities consolidated statements financial position liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid 290 million recorded september 30 2016 255 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation tax sharing agreements company offers warranties customers depending upon specific product terms customer purchase agreement typical warranty program requires company replace defective products within specified time period date sale company records estimate future warrantyrelated costs based actual historical return rates known factors based analysis return rates factors company’s warranty provisions adjusted necessary company monitors warranty activity adjusts reserve estimates probable future warranty costs different estimates company’s product warranty liability recorded consolidated statements financial position current liabilities warranty less one year noncurrent liabilities warranty extends longer one year changes carrying amount company’s total product warranty liability including extended warranties deferred revenue recorded fiscal years ended september 30 2016 2015 follows millions 22 tyco international finance sa tyco international finance sa tifsa 100 owned subsidiary company public debt securities outstanding fully unconditionally guaranteed johnson controls tyco fire security finance sca tifsca wholly owned subsidiary company parent company tifsa following tables present condensed consolidating financial information johnson controls tifsca tifsa subsidiaries condensed financial information company tifsca tifsa standalone basis presented using equity method accounting subsidiaries tifsa public debt securities assumed part tyco acquisition therefore consolidating financial information years ended september 30 2015 september 30 2014 presented related guarantee tifsa public debt securities additional information regarding tifsa tifsca fiscal year ended september 25 2015 period ended june 24 2016 found tycos annual report form 10k filed sec november 13 2015 recast part tycos current report form 8k filed sec march 11 2016 tycos quarterly report form 10q filed sec july 29 2016 respectively condensed consolidating statement operations year ended september 30 2016 millions condensed consolidating statement comprehensive income year ended september 30 2016 condensed consolidating statement financial position year ended september 30 2016 condensed consolidating statement cash flows year ended september 30 2016 23 commitments contingencies environmental matters company accrues potential environmental liabilities probable liability incurred amount liability reasonably estimable september 30 2016 reserves environmental liabilities totaled 55 million 15 million recorded within current liabilities 40 million recorded within noncurrent liabilities consolidated statements financial position reserves environmental liabilities totaled 23 million september 30 2015 potential liabilities accrued company take consideration possible recoveries future insurance proceeds however take account likely share parties bear remediation sites difficult estimate company’s ultimate level liability many remediation sites due large number parties may involved complexity determining relative liability among parties uncertainty nature scope investigations remediation conducted uncertainty application law risk assessment various choices costs associated diverse technologies may used corrective actions sites often quite lengthy periods eventual remediation may occur nevertheless company currently believe claims penalties costs connection known environmental matters material adverse effect company’s financial position results operations cash flows addition company identified asset retirement obligations environmental matters expected addressed retirement disposal removal abandonment existing owned facilities primarily power solutions buildings businesses september 30 2016 2015 company recorded conditional asset retirement obligations 74 million 59 million respectively asbestos matters company certain subsidiaries along numerous third parties named defendants personal injury lawsuits based alleged exposure asbestos containing materials cases typically involved product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos used asbestos containing components september 30 2016 companys estimated asbestos related net liability recorded discounted basis within companys consolidated statements financial position 148 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 548 million 35 million recorded current liabilities 513 million recorded noncurrent liabilities company also maintains separate cash investments receivables related insurance recoveries within consolidated statements financial position 400 million 41 million recorded current assets 359 million recorded noncurrent assets include 16 million cash 264 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2016 120 million company believes asbestos related liabilities insurance related receivables recorded september 30 2016 appropriate september 30 2015 companys estimated asbestos related net liability recorded discounted basis within companys consolidated statements financial position comprised liability pending future claims related defense costs 136 million primarily recorded noncurrent liabilities assets recorded related companys asbestos obligations september 30 2015 assets recorded fiscal 2016 result assets acquired part tyco merger companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2069 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2069 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted amounts recorded company asbestosrelated liabilities insurancerelated assets based companys strategies resolving asbestos claims currently available information number estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims identity defendants resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers many factors closely linked change one variable assumption impact one others single variable assumption predominately influences determination companys asbestosrelated liabilities insurancerelated assets furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries result actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results insurable liabilities company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience september 30 2016 2015 insurable liabilities totaled 473 million 194 million respectively 70 million 28 million recorded within current liabilities 36 million 25 million recorded within accrued compensation benefits 367 million 141 million recorded within noncurrent liabilities consolidated statements financial position respectively company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage certain insurable liabilities company involved various lawsuits claims proceedings incident operation businesses including pertaining product liability environmental safety health intellectual property employment commercial contractual matters various casualty matters although outcome litigation cannot predicted certainty lawsuits claims proceedings may disposed unfavorably us management’s opinion none material adverse effect company’s financial position results operations cash flows costs related matters material periods presented 24 related party transactions ordinary course business company enters transactions related parties equity affiliates transactions consist facility management services sale purchase goods arrangements net sales purchases related parties included consolidated statements income 13 billion 05 billion respectively fiscal 2016 13 billion 04 billion respectively fiscal 2015 12 billion 04 billion respectively fiscal 2014 following table sets forth amount accounts receivable due payable related parties consolidated statements financial position millions company also provided financial support certain vies see note 1 summary significant accounting policies notes consolidated financial statements additional information 25 subsequent event october 31 2016 company completed spinoff automotive experience business way transfer automotive experience business johnson controls adient plc issuance ordinary shares adient directly holders johnson controls ordinary shares pro rata basis prior open business october 31 2016 companys shareholders received one ordinary share adient plc every 10 ordinary shares johnson controls held close business october 19 2016 record date distribution company shareholders received cash lieu fractional shares adient following separation distribution adient plc independent public company trading new york stock exchange nyse symbol adnt company retain equity interest adient plc beginning first quarter fiscal 2017 adient’s historical financial results reflected company’s consolidated financial statements discontinued operation johnson controls inc subsidiaries schedule ii valuation qualifying accounts millions item 9item 8 financial statements supplementary data index consolidated financial statements report independent registered public accounting firm board directors shareholders johnson controls international plc opinion consolidated financial statements listed accompanying index present fairly material respects financial position johnson controls international plc subsidiaries september 30 2017 2016 results operations cash flows three years period ended september 30 2017 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting september 30 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso companys management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate johnson controls international plc consolidated statements income products systems consist building technologies solutions power solutions products systems services building technologies solutions technical services certain items sum due rounding accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements comprehensive income loss accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements financial position accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements cash flows accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements shareholders’ equity attributable johnson controls ordinary shareholders accompanying notes integral part consolidated financial statements johnson controls international plc notes consolidated financial statements 1summary significant accounting policies consolidated financial statements include consolidated accounts johnson controls international plc corporation organized laws ireland subsidiaries johnson controls international plc subsidiaries hereinafter collectively referred company johnson controls jci plc nature operations september 2 2016 johnson controls inc jci inc tyco international plc tyco completed combination pursuant agreement plan merger “merger agreement” dated january 24 2016 amended amendment 1 dated july 1 2016 among jci inc tyco certain parties named therein including jagara merger sub llc indirect wholly owned subsidiary tyco “merger sub” pursuant terms merger agreement september 2 2016 merger sub merged jci inc jci inc surviving corporation merger wholly owned indirect subsidiary tyco “merger” following merger tyco changed name “johnson controls international plc” merger changed jurisdiction organization united states ireland domicile ireland became effective september 2 2016 merger accounted reverse acquisition using acquisition method accounting accordance accounting standards codification asc 805 business combinations jci inc accounting acquirer financial reporting purposes accordingly historical consolidated financial statements jci inc periods prior transaction considered historic financial statements company refer note 2 merger transaction notes consolidated financial statements information october 31 2016 company completed spinoff automotive experience business way transfer automotive experience business johnson controls adient plc issuance ordinary shares adient directly holders johnson controls ordinary shares pro rata basis prior open business october 31 2016 companys shareholders received one ordinary share adient plc every ten ordinary shares johnson controls held close business october 19 2016 record date distribution company shareholders received cash lieu fractional shares adient following separation distribution adient plc independent public company trading new york stock exchange nyse symbol adnt company retain equity interest adient plc adient’s historical financial results reflected company’s consolidated financial statements discontinued operation refer note 4 discontinued operations notes consolidated financial statements information principles consolidation consolidated financial statements include consolidated accounts johnson controls international plc subsidiaries consolidated conformity accounting principles generally accepted united states america us gaap significant intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal investments partiallyowned affiliates accounted equity method company’s interest exceeds 20 company controlling interest certain criteria provided financial accounting standards board fasb asc 810 consolidation company may consolidate partiallyowned affiliate determine whether consolidate partiallyowned affiliate company first determines entity variable interest entity vie entity considered vie one following characteristics 1 entity thinly capitalized 2 residual equity holders control entity 3 equity holders shielded economic losses participate fully entity’s residual economics 4 entity established nonsubstantive voting entity meets one characteristics company determines primary beneficiary vie party power direct activities vie significantly impact vie’s economic performance potential absorb benefits losses could significant vie considered primary beneficiary consolidates vie entity considered vie company applies voting interest model determine whether company shall consolidate partiallyowned affiliate consolidated vies based upon criteria set forth asc 810 company determined primary beneficiary one vie reporting period ended september 30 2017 three vies reporting period ended september 30 2016 company absorbs significant economics entities power direct activities considered significant entities two vies manufacture products north america automotive industry company funded entities’ shortterm liquidity needs revolving credit facilities power direct activities considered significant entities key customer supply relationships vies divested result adient spinoff first quarter fiscal 2017 fiscal 2012 preexisting vie accounted equity method reorganized three separate investments result counterparty exercising option put interest company acquired additional interests two reorganized group entities reorganized group entities considered vies owner party provided decision making rights equity risk company considered primary beneficiary one entities due company’s power pertaining decisions significant activities entity vie consolidated within company’s consolidated statements financial position impact consolidation entity company’s consolidated statements income years ended september 30 2017 2016 2015 material vie named coobligor third party debt agreement 164 million maturing fiscal 2020 could become subject paying allocated share third party debt event bankruptcy one coobligors related parties company equity investor consist remaining group entities involved reorganization part overall reorganization transaction company also provided financial support group entities form loans totaling 37 million subordinate third party debt agreement company significant customer certain coobligors resulting remote possibility loss additionally company subject floor guaranty expiring fiscal 2022 event owner party longer owns part group entities due sale transfer company guaranteed proceeds received sale transfer less 25 million company partnered group entities design manufacture battery components power solutions business carrying amounts classification assets none restricted liabilities included company’s consolidated statements financial position consolidated vies follows millions company significant variable interest consolidated vies presented reporting periods nonconsolidated vies mentioned previously within consolidated vies section fiscal 2012 preexisting vie reorganized three separate investments result counterparty exercising option put interest company reorganized group entities considered vies owner party provided decision making rights equity risk company considered primary beneficiary two entities company cannot make key operating decisions considered significant vies therefore entities accounted equity method accounting company’s interest exceeds 20 company controlling interest company’s maximum exposure loss includes partiallyowned affiliate investment balance 65 million 59 million september 30 2017 2016 respectively well subordinated loan company third party debt agreement floor guaranty mentioned previously within consolidated vies section current liabilities due vies material represent normal course business trade payables presented periods company significant variable interest nonconsolidated vies presented reporting periods use estimates preparation consolidated financial statements conformity us gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates fair value financial instruments fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements fair value financial instruments including derivative instruments hedging activities longterm debt assets liabilities held sale company classifies assets liabilities disposal groups sold held sale period following criteria met management authority approve action commits plan sell disposal group disposal group available immediate sale present condition subject terms usual customary sales disposal groups active program locate buyer actions required complete plan sell disposal group initiated sale disposal group probable transfer disposal group expected qualify recognition completed sale within one year except events circumstances beyond companys control extend period time required sell disposal group beyond one year disposal group actively marketed sale price reasonable relation current fair value actions required complete plan indicate unlikely significant changes plan made plan withdrawn addition company classifies disposal groups disposed sale eg spinoff held sale period disposal occurs company initially measures disposal group classified held sale lower carrying value fair value less costs sell loss resulting measurement recognized period held sale criteria met conversely gains recognized sale disposal group date sale company assesses fair value disposal group less costs sell reporting period remains classified held sale reports subsequent changes adjustment carrying value disposal group long new carrying value exceed carrying value disposal group time initially classified held sale upon determining disposal group meets criteria classified held sale company reports assets liabilities disposal group material line items assets held sale liabilities held sale consolidated statements financial position refer note 4 discontinued operations notes consolidated financial statements information cash equivalents company considers highly liquid investments original maturity three months less purchased cash equivalents restricted cash september 30 2017 company held restricted cash approximately 31 million 22 million recorded within current assets consolidated statements financial position 9 million recorded within noncurrent assets consolidated statements financial position amounts primarily related cash restricted payment asbestos liabilities september 30 2016 company held restricted cash approximately 88 million 79 million recorded within current assets consolidated statements financial position 9 million recorded within noncurrent assets consolidated statements financial position amounts primarily related cash held escrow business divestitures cash restricted payment asbestos liabilities receivables consist amounts billed currently due customers unbilled costs accrued profits related revenues longterm contracts recognized accounting purposes yet billed customers company extends credit customers normal course business maintains allowance doubtful accounts resulting inability unwillingness customers make required payments allowance doubtful accounts based historical experience existing economic conditions specific customer collection issues company identified company enters supply chain financing programs sell certain accounts receivable without recourse thirdparty financial institutions sales accounts receivable reflected reduction accounts receivable consolidated statements financial position proceeds included cash flows operating activities consolidated statements cash flows inventories stated lower cost market using firstin firstout fifo method finished goods workinprocess inventories include material labor manufacturing overhead costs property plant equipment property plant equipment recorded cost depreciation provided estimated useful lives respective assets using straightline method financial reporting purposes accelerated methods income tax purposes estimated useful lives generally range 3 40 years buildings improvements subscriber systems 15 years 3 15 years machinery equipment company capitalizes interest borrowings active construction period major capital projects capitalized interest added cost underlying assets amortized useful lives assets goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average historical published multiples earnings comparable entities similar operations economic characteristics certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fourth quarters fiscal years 2017 2016 2015 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets primarily consist trademarks tradenames tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests impairment longlived assets company reviews longlived assets including property plant equipment intangible assets definite lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2017 2016 2015 revenue recognition building technologies solutions business records certain longterm contracts percentageofcompletion poc method accounting method sales gross profit recognized work performed based relationship actual costs incurred total estimated costs completion company records costs earnings excess billings uncompleted contracts primarily within accounts receivable billings excess costs earnings uncompleted contracts primarily within deferred revenue consolidated statements financial position costs earnings excess billings related contracts 908 million 841 million september 30 2017 2016 respectively billings excess costs earnings related contracts 451 million 431 million september 30 2017 2016 respectively changes original estimates may required life contract estimates reviewed monthly sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated losses recorded identified claims customers recognized revenue upon settlement use poc method accounting involves considerable use estimates determining revenues costs profits assigning amounts accounting periods periodic reviews resulted adjustments significant company’s results operations company continually evaluates assumptions risks uncertainties inherent application poc method accounting building technologies solutions business enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized straightline basis respective contract term building technologies solutions business also sells certain heating ventilating air conditioning hvac refrigeration products services bundled arrangements multiple products andor services involved significant deliverables within arrangements include equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition building technologies solutions business sells security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered accordance accounting standards update asu 200913 revenue recognition topic 605 multipledeliverable revenue arrangements consensus fasb emerging issues task force company divides bundled arrangements separate deliverables revenue allocated deliverable based relative selling price method order estimate relative selling price market data transfer price studies utilized revenue recognized security monitoring equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship cases company recognizes revenue time title passes customer services performed subscriber system assets dealer intangibles related deferred revenue accounts building technologies solutions business considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment company retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers place business outside north america residence installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded current noncurrent assets within consolidated statements financial position subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using straightline method lives 12 years considering customer attrition company uses straightline method 15year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program primarily outside north america acquired contracts related customer relationships recorded contractually determined purchase price first 6 months 12 months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition straightline basis period customer relationship estimated useful life dealer intangibles ranges 12 15 years research development costs expenditures research activities relating product development improvement charged income incurred included within selling general administrative expenses continuing operations consolidated statements income expenditures years ended september 30 2017 2016 2015 360 million 158 million 134 million respectively earnings per share company presents basic diluted earnings per share eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number common shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number common shares common equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock unvested performance share awards see note 13 earnings per share notes consolidated financial statements calculation earnings per share foreign currency translation substantially company’s international operations use respective local currency functional currency assets liabilities international entities translated periodend exchange rates income expenses translated using average exchange rates period monetary assets liabilities denominated nonfunctional currencies adjusted reflect periodend exchange rates aggregate transaction gains losses net impact foreign currency hedges included net income years ended september 30 2017 2016 2015 94 million 95 million 119 million respectively derivative financial instruments company written policies procedures place financial instruments direction corporate treasury restrict derivative transactions intended hedging purposes use financial instruments speculative purposes strictly prohibited company selectively uses financial instruments manage market risk changes foreign exchange rates commodity prices stockbased compensation liabilities interest rates fair values derivatives recorded consolidated statements financial position change derivative’s fair value recorded period current earnings accumulated comprehensive income aoci depending whether derivative designated part hedge transaction type hedge transaction see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements disclosure company’s derivative instruments hedging activities investments company invests debt equity securities classified available sale marked market end accounting period unrealized gains losses securities deferred compensation plan assets recognized aoci within consolidated statement shareholders equity unless unrealized loss deemed temporary case loss charged earnings deferred compensation plan assets marked market end accounting period unrealized gains losses recorded consolidated statements income pension postretirement benefits company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 23 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage certain insurable liabilities asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 23 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities income taxes deferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax basis particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized refer note 18 income taxes notes consolidated financial statements retrospective changes certain amounts september 30 2016 2015 revised conform current years presentation effective july 1 2017 company reorganized reportable segments within building technologies solutions business align new management reporting structure business activities prior reorganization building technologies solutions comprised five reportable segments financial reporting purposes systems service north america products north america asia rest world tyco result change building technologies solutions comprised four reportable segments financial reporting purposes building solutions north america building solutions emeala building solutions asia pacific global products refer note 7 “goodwill intangible assets” note 19 “segment information” notes consolidated financial statements information net sales cost sales split products systems versus services consolidated statements income also revised building technologies solutions reorganization new accounting pronouncements recently adopted accounting pronouncements october 2016 fasb issued asu 201617 consolidations topic 810 interests held related parties common control asu changes single decision maker variable interest entity vie holds indirect interest entity related parties common control determines whether primary beneficiary vie new guidance amends asu 201502 consolidation topic 810 amendments consolidation analysis issued february 2015 asu 201617 effective company quarter ending december 31 2016 adoption guidance impact companys consolidated financial statements march 2016 fasb issued asu 201607 investments equity method joint ventures topic 323 simplifying transition equity method accounting asu 201607 eliminates requirement investment qualifies use equity method accounting result increase level ownership degree influence adjust investment results operations retained earnings retrospectively quarter ended september 30 2017 company early adopted asu 201607 applied prospectively adoption guidance impact companys consolidated financial statements may 2015 fasb issued asu 201507 disclosures investments certain entities calculate net asset value per share equivalent asu 201507 removes requirement categorize within fair value hierarchy investments fair value measured using net asset value per share practical expedient investments disclosed separate fair value hierarchy asu 201507 effective retrospectively company quarter ending december 31 2016 adoption guidance impact companys consolidated financial statements impact pension asset disclosures refer note 15 retirement plans notes consolidated financial statements information february 2015 fasb issued asu 201502 consolidation topic 810 amendments consolidation analysis asu 201502 amends analysis performed determine whether reporting entity consolidate certain types legal entities asu 201502 effective retrospectively company quarter ending december 31 2016 adoption guidance impact companys consolidated financial statements recently issued accounting pronouncements august 2017 fasb issued asu 201712 derivatives hedging topic 815 targeted improvements accounting hedging activities asu closely aligns results hedge accounting risk management activities amendments designation measurement guidance better reflect companys hedging strategy effectiveness asu 201712 effective company quarter ending december 31 2019 early adoption permitted interim period company currently assessing impact adoption guidance consolidated financial statements may 2017 fasb issued asu 201709 compensation stock compensation topic 718 scope modification accounting asu provides guidance changes terms conditions sharebased payment award require reporting entity apply modification accounting asu 201709 effective prospectively company quarter ending december 31 2018 early adoption permitted impact guidance company dependent future sharebased payment award changes occur march 2017 fasb issued asu 201707 compensationretirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost asu requires service cost component net periodic benefit cost presented compensation costs components net periodic benefit cost required presented income statement separately service cost component outside subtotal income operations one presented asu also allows service cost component net periodic benefit cost eligible capitalization guidance effective company quarter ending december 31 2018 early adoption permitted beginning annual period financial statements interim annual issued made available issuance guidance effective retrospectively except capitalization service cost component applied prospectively adoption guidance expected significant impact companys consolidated financial statements january 2017 fasb issued asu 201704 intangiblesgoodwill topic 350 simplifying test goodwill impairment eliminates requirement calculate implied fair value goodwill measure goodwill impairment charge step 2 goodwill impairment test instead impairment charge equal amount reporting unit’s carrying amount exceeds fair value exceed amount goodwill allocated reporting unit guidance effective prospectively company quarter ending december 31 2020 early adoption permitted january 1 2017 impact guidance company depend outcomes future goodwill impairment tests november 2016 fasb issued asu 201618 statement cash flows topic 230 restricted cash consensus fasb emerging issues task force asu requires amounts generally described restricted cash restricted cash equivalents included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows guidance effective company quarter ending december 31 2018 early adoption permitted amendments update applied retrospectively periods presented impact guidance company depend levels restricted cash balances periods presented october 2016 fasb issued asu 201616 accounting income taxes intraentity asset transfers assets inventory asu requires tax effects intraentity sales assets inventory recognized period transaction occurs guidance effective company quarter ending december 31 2018 early adoption permitted first interim period fiscal year changes required applied means cumulativeeffect adjustment recorded retained earnings beginning fiscal year adoption company currently assessing impact adoption guidance consolidated financial statements august 2016 fasb issued asu 201615 statement cash flows topic 230 classification certain cash receipts cash payments asu 201615 provides clarification guidance eight specific cash flow presentation issues order reduce diversity practice asu 201615 effective company quarter ending december 31 2018 early adoption permitted guidance applied retrospectively periods presented unless deem impracticable case prospective application permitted company currently assessing impact adoption guidance consolidated financial statements june 2016 fasb issued asu 201613 financial instruments credit losses topic 326 measurement credit losses financial instruments asu 201613 changes impairment model financial assets measured amortized cost requiring presentation net amount expected collected measurement expected credit losses based upon historical experience current conditions reasonable supportable forecasts availableforsale debt securities unrealized losses recorded allowance credit losses asu 201613 effective company quarter ended december 31 2020 early adoption permitted quarter ended december 31 2019 adoption guidance expected significant impact companys consolidated financial statements march 2016 fasb issued asu 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting asu 201609 impacts certain aspects accounting sharebased payment transactions including income tax consequences classification awards either equity liabilities classification statements cash flows asu 201609 effective company quarter ending december 31 2017 early adoption permitted company currently assessing impact adoption guidance consolidated financial statements february 2016 fasb issued asu 201602 leases topic 842 asu 201602 requires recognition operating leases lease assets liabilities balance sheet disclosure key information leasing arrangements asu 201602 effective retrospectively company quarter ending december 31 2019 early adoption permitted company currently assessing impact adoption guidance consolidated financial statements company started assessment process evaluating population leases revised definition qualifies leased asset company lessee various agreements facilities equipment currently accounted operating leases new guidance require company record operating leases balance sheet rightofuse asset corresponding liability future payment obligations company expects new guidance material impact consolidated statements financial position addition rightofuse assets lease liabilities company expect material impact consolidated statements income january 2016 fasb issued asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities asu 201601 amends certain aspects recognition measurement presentation disclosure financial instruments including marketable securities asu 201601 effective company quarter ending december 31 2018 early adoption permitted certain exceptions changes required applied means cumulativeeffect adjustment balance sheet beginning fiscal year adoption impact guidance company depend magnitude unrealized gains losses companys marketable securities investments july 2015 fasb issued asu 201511 simplifying measurement inventory asu 201511 requires inventory recorded using firstin firstout method measured lower cost net realizable value asu 201511 effective prospectively company quarter ending december 31 2017 early adoption permitted adoption guidance expected significant impact companys consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu 201409 clarifies principles recognizing revenue entity either enters contract customers transfer goods services enters contract transfer nonfinancial assets original standard effective retrospectively company quarter ending december 31 2017 however august 2015 fasb issued asu 201514 revenue contracts customers topic 606 deferral effective date defers effective date asu 201409 oneyear entities new standard become effective retrospectively company quarter ending december 31 2018 early adoption permitted original effective date additionally march 2016 fasb issued asu 201608 revenue contracts customers topic 606 principal versus agent considerations reporting revenue gross versus net april 2016 fasb issued asu 201610 revenue contracts customers topic 606 identifying performance obligations licensing may 2016 fasb issued asu 201612 revenue contracts customers topic 606 narrowscope improvements practical expedients december 2016 fasb issued asu 201620 technical corrections improvements topic 606 revenue contracts customers provide additional clarification certain topics addressed asu 201409 asu 201608 asu 201610 asu 201612 asu 201620 follow implementation guidelines asu 201409 asu 201514 company elected adopt new revenue guidance october 1 2018 using modified retrospective approach preparation adoption new guidance company reviewed representative samples contracts forms agreements customers globally process evaluating impact new revenue standard based procedures date company position today quantify potential impact new revenue standard consolidated financial statements 2 merger transaction discussed note 1 summary significant accounting policies notes consolidated financial statements jci inc tyco completed merger september 2 2016 merger accounted reverse acquisition using acquisition method accounting accordance asc 805 business combinations based structure merger activities contemplated merger agreement relative outstanding share ownership composition companys board directors designation certain senior management positions company jci inc accounting acquirer financial reporting purposes immediately prior merger connection therewith tyco shareholders received 0955 ordinary shares tyco shares referred shares company “company ordinary shares” tyco ordinary share held virtue 0955forone share consolidation merger outstanding share common stock par value 100 per share jci inc “jci inc common stock” shares held jci inc tyco certain subsidiaries converted right receive either cash consideration share consideration described election holder subject proration procedures described merger agreement applicable withholding taxes election receive cash consideration undersubscribed result holders shares jci inc common stock elected receive share consideration holders shares jci inc common stock made election failed properly make election became entitled receive share jci inc common stock 57293 cash without interest 08357 company ordinary shares subject applicable withholding taxes holders shares jci inc common stock elected receive cash consideration became entitled receive share jci inc common stock 3488 cash without interest subject applicable withholding taxes merger jci inc shareholders received aggregate approximately 3864 billion cash immediately closing giving effect merger former jci inc shareholders owned approximately 56 issued outstanding company ordinary shares former tyco stockholders owned approximately 44 issued outstanding company ordinary shares tyco leading global provider security products services fire detection suppression products services life safety products acquisition tyco brings together bestinclass product technology service capabilities across controls fire security hvac power solutions energy storage serve various endmarkets including large institutions commercial buildings retail industrial small business residential combination tyco jci inc buildings platforms creates immediate opportunities nearterm growth crossselling complementary branch channel networks expanded global reach established businesses new company also benefits combining innovation capabilities pipelines involving new products advanced solutions smart buildings cities valueadded services driven advanced data analytics connectivity buildings energy storage infrastructure integration fair value consideration transferred total fair value consideration transferred approximately 197 billion total consideration comprised equity value tyco shares outstanding september 2 2016 portion tycos share awards share options earned september 2 2016 224 million share awards share options earned 101 million september 2 2016 expensed remaining future vesting period following table summarizes total fair value consideration transferred 1 amount equals jci inc closing share price market capitalization september 2 2016 4545 29012 million respectively adjusted tyco 3864 million cash contribution used purchase 1108 million shares jci inc common stock 3488 per share fair value assets acquired liabilities assumed company accounted merger tyco business combination using acquisition method accounting assets acquired liabilities assumed recorded respective fair values acquisition date fair value estimates based complex series judgments future events uncertainties rely heavily estimates assumptions judgments used determine estimated fair value assigned class assets acquired liabilities assumed well asset lives materially impact companys results operations fair values assets acquired liabilities assumed follows millions connection merger company recorded goodwill 161 billion attributable primarily expected synergies expanded market opportunities benefits company believes result combining operations tyco goodwill allocated reporting units within building technologies solutions business based expected benefits merger company recorded net reduction goodwill 258 million fiscal 2017 related purchase price allocations goodwill created merger deductible tax purposes purchase price allocation identifiable intangible assets acquired follows actual pro forma impact companys consolidated financial statements fiscal year ended september 30 2016 include tycos results operations acquisition date september 2 2016 september 30 2016 net sales net income loss continuing operations attributable tyco period included companys consolidated financial statements fiscal year ended september 30 2016 total 808 million 48 million respectively following unaudited pro forma information assumes acquisition occurred october 1 2014 included companys consolidated statements income fiscal years 2016 2015 order reflect occurrence acquisition october 1 2014 required unaudited pro forma results include adjustments reflect among things amortization inventory stepup incremental intangible asset amortization incurred based preliminary values identifiable intangible asset change timing defined benefit plans marktomarket gain loss recognition change timing transaction restructuring costs interest expense debt financing obtained fund cash consideration paid jci inc shareholders pro forma amounts necessarily indicative results would obtained acquisition occurred beginning period presented may occur future reflect future synergies integration costs savings additional information regarding fiscal 2016 pro forma information found form 8k filed company sec november 8 2016 item 701 “regulation fd disclosure” 3acquisitions divestitures fiscal year 2017 fiscal 2017 company completed three acquisitions combined purchase price net cash acquired 9 million 6 million paid september 30 2017 acquisitions aggregate material company’s consolidated financial statements connection acquisitions company recorded goodwill 2 million fourth quarter fiscal 2017 company completed two divestitures combined selling price net cash divested 44 million 40 million received september 30 2017 divestitures material companys consolidated financial statements connection divestitures company recorded gain 9 million within selling general administrative expenses consolidated statements income reduced goodwill 19 million 2 million global products segment building solutions asia pacific segment respectively second quarter fiscal 2017 company signed definitive agreement sell scott safety business 3m company approximately 20 billion transaction closed october 4 2017 net cash proceeds transaction approximately 19 billion used repay significant portion tyco international holding sarls tsarl 40 billion mergerrelated debt scott safety leader high performance respiratory protection gas flame detection thermal imaging critical products scott safety business included global products segment reported within assets liabilities held sale consolidated statements financial position september 30 2017 refer note 4 discontinued operations notes consolidated financial statements disclosure related companys net assets held sale second quarter fiscal 2017 company completed sale adt security business south africa within building solutions emeala segment selling price net cash divested 129 million received september 30 2017 connection sale company reduced goodwill assets held sale 92 million divestiture material companys consolidated financial statements first quarter fiscal 2017 company completed one additional divestiture sales price 4 million received september 30 2017 divestiture decreased companys ownership controlling noncontrolling interest result company deconsolidated cash 5 million divestiture material companys consolidated financial statements fiscal 2017 company received 52 million net cash proceeds related prior year business divestitures fiscal year 2016 october 1 2015 company formed joint venture hitachi expand building technologies solutions product offerings company acquired 60 ownership interest new entity approximately 208 million 638 million purchase price less cash acquired 430 million 133 million paid september 30 2016 75 million paid september 30 2017 connection acquisition company recorded goodwill 253 million related purchase price allocations also fiscal 2016 company completed two additional acquisitions combined purchase price net cash acquired 6 million 3 million paid september 30 2016 acquisitions aggregate material companys consolidated financial statements connection acquisitions company recorded goodwill 6 million one acquisitions increased companys ownership noncontrolling controlling interest result company recorded noncash gain 4 million equity income global products segment adjust companys existing equity investment partiallyowned affiliate fair value fourth quarter fiscal 2016 company completed two divestitures combined sales price 39 million net cash divested 13 million none sales proceeds received september 30 2016 divestitures material companys consolidated financial statements connection divestitures company recorded gain 12 million within selling general administrative expenses consolidated statements income reduced goodwill 16 million global products segment third quarter fiscal 2016 company completed divestiture sales price 16 million received september 30 2016 divestiture material companys consolidated financial statements connection divestiture company recorded gain 14 million within selling general administrative expenses consolidated statements income reduced goodwill 3 million building solutions north america segment fiscal 2016 company received 29 million net cash proceeds related prior year business divestitures fiscal year 2015 fiscal 2015 company completed three acquisitions combined purchase price net cash acquired 47 million 18 million paid september 30 2015 acquisitions aggregate material company’s consolidated financial statements connection acquisitions company recorded goodwill assets held sale 9 million fourth quarter fiscal 2015 company completed sale global workplace solutions gws business cbre group inc cbre selling price net cash divested 14 billion received september 30 2015 connection sale company recorded 940 million gain 643 million net tax within income loss discontinued operations net tax consolidated statements income reduced goodwill assets held sale 220 million march 31 2015 company determined gws segment met criteria classified discontinued operation refer note 4 discontinued operations notes consolidated financial statements disclosure related companys discontinued operations fourth quarter fiscal 2015 company completed global automotive interiors joint venture yanfeng automotive trim systems connection divestiture interiors business company recorded 145 million gain 38 million net tax within income loss discontinued operations net tax consolidated statements income reduced goodwill assets held sale 21 million also fiscal 2015 company completed four additional divestitures combined sales price 119 million 86 million received september 30 2015 divestitures material companys consolidated financial statements connection divestitures company recorded gain 38 million within selling general administrative expenses consolidated statements income reduced goodwill 14 million global products segment recorded gain 10 million within income loss discontinued operations net tax consolidated statements income reduced goodwill assets held sale 4 million recorded gain 7 million within selling general administrative expenses consolidated statements income reduced goodwill 2 million building solutions north america segment first nine months fiscal 2015 company adjusted purchase price allocation fiscal 2014 acquisition air distribution technologies inc adti adjustment made result trueup purchase price amount 4 million paid september 30 2015 also connection acquisition company recorded additional goodwill 34 million fiscal 2015 related final purchase price allocations second quarter fiscal 2015 company completed sale interests two gws joint ventures brookfield asset management inc selling price net cash divested 141 million received september 30 2015 connection sale company recorded 200 million gain 127 million net tax within income loss discontinued operations net tax consolidated statements income reduced goodwill assets held sale 20 million 4 discontinued operations adient discussed note 1 summary significant accounting policies notes consolidated financial statements october 31 2016 company completed spinoff automotive experience business way transfer automotive experience business johnson controls adient plc company retain equity interest adient plc first quarter fiscal 2017 company determined adient met criteria classified discontinued operation result adient’s historical financial results reflected company’s consolidated financial statements discontinued operation assets liabilities classified assets liabilities held sale company allocate general corporate overhead discontinued operations following table summarizes results adient reclassified discontinued operations fiscal years ended september 30 2017 2016 2015 millions adient spinoff occurred october 31 2016 one month adient results included year ended september 30 2017 fiscal year ended september 30 2017 income discontinued operations income taxes included separation costs 79 million fiscal year ended september 30 2016 income discontinued operations income taxes included separation costs 418 million significant restructuring impairment costs 332 million net markto market losses pension postretirement plans 110 million fiscal year ended september 30 2015 income discontinued operations income taxes included significant restructuring impairment costs 182 million net gain business divestiture 155 million transaction separation costs 52 million net markto market losses pension postretirement plans 6 million fiscal year ended september 30 2017 effective tax rate us federal statutory rate 35 primarily due tax impacts separation costs adient spinoff related tax expense partially offset nonus tax rate differentials preparation spinoff automotive experience business first quarter fiscal 2017 company incurred incremental tax expense 95 million fiscal 2016 company also completed substantial business reorganizations resulted total tax charges 1891 million fiscal 2016 included amount tax charge provided third quarter fiscal 2016 85 million changes entity tax status charge provided second quarter fiscal 2016 780 million income tax expense foreign undistributed earnings certain nonus subsidiaries fiscal 2016 company provide us income tax expense related restructuring repatriation cash certain nonus subsidiaries connection automotive experience planned spinoff september 30 2016 company needed complete final steps automotive experience restructuring result company provided deferred taxes 24 million us income tax expense outside basis differences reversed upon completion restructuring fourth quarter fiscal 2015 company completed global automotive interiors joint venture yanfeng automotive trim systems refer note 3 acquisitions divestitures notes consolidated financial statements additional information connection divestiture interiors business company recorded pretax gain divestiture 145 million 38 million net tax impact gain due jurisdictional mix gains losses divestiture resulted nonbenefited expenses certain countries taxable gains countries addition third fourth quarters fiscal 2015 company provided income tax expense repatriation cash tax reserves associated automotive experience interiors joint venture transaction resulted tax charge 75 million 223 million respectively gws march 31 2015 company announced reached definitive agreement sell remainder gws business cbre subject regulatory approvals sale closed september 1 2015 agreement includes 10year strategic relationship company cbre company preferred provider hvac equipment building automation systems related services portfolio real estate corporate facilities managed globally cbre gws company also engages gws facility management services annual cash flows resulting activities legacy gws business currently significant expected become significant future march 31 2015 company determined gws segment met criteria classified discontinued operation company allocate general corporate overhead discontinued operations amounts related gws business classified discontinued operations fiscal years ended september 30 2017 2016 following table summarizes results gws reclassified discontinued operations fiscal year ended september 30 2015 millions fiscal year ended september 30 2015 income discontinued operations income taxes included 940 million gain divestiture remainder gws business 200 million gain divestiture companys interest two gws joint ventures transaction costs 87 million effective tax rate different us statutory rate fiscal 2015 primarily due 680 million tax expense repatriation cash tax reserves tax consequences sale gws joint ventures 73 million remaining business 297 million assets liabilities held sale second quarter fiscal 2017 company signed definitive agreement sell scott safety business global products segment 3m company transaction closed october 4 2017 assets liabilities business presented held sale consolidated statements financial position september 30 2017 business meet criteria classified discontinued operation divestiture scott safety business major effect company’s operations financial results following table summarizes carrying value scott safety assets liabilities held sale september 30 2017 millions following table summarizes carrying value adient classified assets liabilities held sale september 30 2016 millions following table summarizes depreciation amortization capital expenditures significant operating investing noncash items related adient fiscal years ended september 30 2016 2015 millions second quarter fiscal 2017 company completed divestiture adt security business south africa within building solutions emeala segment assets liabilities business presented held sale consolidated statements financial position september 30 2016 business meet criteria classified discontinued operation following table summarizes carrying value adt security business south africa assets liabilities september 30 2016 millions september 30 2016 17 million certain corporate assets classified held sale assets sold second quarter fiscal 2017 5 inventories consisted following millions 6 property plant equipment property plant equipment consisted following millions interest costs capitalized fiscal years ended september 30 2017 2016 2015 27 million 19 million 25 million respectively accumulated depreciation related capital leases september 30 2017 2016 13 million 16 million respectively 7 goodwill intangible assets effective july 1 2017 company reorganized reportable segments within building technologies solutions business align new management reporting structure business activities historical information revised reflect new building technologies solutions reportable segments refer note 19 segment information notes consolidated financial statements information changes carrying amount goodwill company’s reportable segments fiscal years ended september 30 2017 2016 follows millions connection tyco merger company recorded goodwill 16105 million based final purchase price allocation refer note 2 merger transaction notes consolidated financial statements additional information fiscal 2017 global products business divestiture amount includes 1248 million goodwill transferred noncurrent assets held sale consolidated statements financial position sale scott safety business refer note 4 discontinued operations notes consolidated financial statements information regarding companys assets liabilities held sale september 30 2015 accumulated goodwill impairment charges included 47 million related building solutions emeala latin america reporting unit july 1 2017 company assessed goodwill impairment building technologies solutions business due change reportable segments described note 19 segment information notes consolidated financial statements company determined estimated fair value reporting unit exceeded corresponding carrying amount including recorded goodwill impairment existed july 1 2017 goodwill impairments resulting fiscal 2017 2016 annual impairment tests exception building solutions north america reporting unit goodwill result recent acquisition recorded fair value reporting unit determined risk failing step one goodwill impairment test company continuously monitors events circumstances could negatively impact key assumptions determining fair value including longterm revenue growth projections profitability discount rates recent market valuations transactions comparable companies volatility companys market capitalization general industry market macroeconomic conditions possible future changes circumstances variables associated judgments assumptions estimates used assessing fair value reporting unit would require company record noncash impairment charge assumptions included impairment tests require judgment changes inputs could impact results calculations managements projections future cash flows primary assumptions used impairment tests weightedaverage cost capital longterm growth rates although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit company’s intangible assets primarily business acquisitions valued based independent appraisals consisted millions refer note 2 merger transaction notes consolidated financial statements additional information intangibles recorded result tyco merger given recent acquisition september 30 2017 carrying amount indefinitelived intangible assets recorded result tyco merger approximate fair value amortization intangible assets included within continuing operations fiscal years ended september 30 2017 2016 2015 489 million 116 million 74 million respectively excluding impact future acquisitions company anticipates amortization fiscal 2018 2019 2020 2021 2022 approximately 375 million 375 million 372 million 369 million 360 million respectively indefinitelived intangible asset impairments resulting fiscal 2017 2016 2015 annual impairment tests 8 leases certain administrative production facilities equipment leased longterm agreements leases contain renewal options varying periods certain leases include options purchase leased property end lease term leases generally require company pay insurance taxes maintenance property leased capital assets included net property plant equipment primarily buildings improvements 17 million 23 million september 30 2017 2016 respectively facilities equipment leased arrangements accounted operating leases total rental expense continuing discontinued operations fiscal years ended september 30 2017 2016 2015 502 million 402 million 413 million respectively future minimum capital operating lease payments related present value capital lease payments september 30 2017 follows millions 9 debt financing arrangements shortterm debt consisted following millions connection tyco merger jci inc replaced 25 billion committed fiveyear credit facility scheduled mature august 2018 20 billion committed fouryear credit facility scheduled mature august 2020 additionally tsarl whollyowned subsidiary johnson controls entered 10 billion committed fouryear credit facility scheduled mature august 2020 facilities used support companys outstanding commercial paper draws either committed credit facilities fiscal years ended september 30 2017 2016 commercial paper outstanding september 30 2017 2016 954 million 440 million respectively september 2017 company entered 364day 150 million euro floating rate term loan scheduled expire september 2018 proceeds loan used general corporate purposes march 2017 company entered 364day 150 million committed revolving credit facility scheduled expire march 2018 september 30 2017 draws facility february 2017 company entered 364day 150 million committed revolving credit facility scheduled expire february 2018 september 30 2017 draws facility january 2017 company entered 364day 250 million committed revolving credit facility scheduled expire january 2018 september 30 2017 draws facility december 2016 company entered 364day 100 million euro floating rate term loan scheduled mature december 2017 proceeds term loan used general corporate purposes principal accrued interest fully repaid march 2017 december 2016 100 million committed revolving credit facility expired draws facility november 2016 35 million committed revolving credit facility expired draws facility october 2016 company repaid two tenmonth floating rate term loans totaling 325 million plus accrued interest scheduled expire october 2016 october 2016 company repaid ninemonth 100 million floating rate term loan plus accrued interest scheduled expire november 2016 october 2016 company repaid ninemonth 100 million euro floating rate term loan plus accrued interest scheduled expire october 2016 longterm debt consisted following millions due dates fiscal year september 30 2017 company’s foreigndenominated longterm debt fixed floating rates weightedaverage interest rate 12 september 30 2016 company’s foreigndenominated longterm debt fixed floating rates weightedaverage interest rate 13 installments longterm debt maturing subsequent fiscal years 2018 394 million 2019 27 million 2020 4201 million 2021 501 million 2022 804 million 2023 thereafter 6476 million company’s longterm debt includes various financial covenants none expected restrict future operations total interest paid short longterm debt fiscal years ended september 30 2017 2016 2015 448 million 319 million 373 million respectively company uses financial instruments manage interest rate exposure see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements instruments affect weighted average interest rate company’s debt interest expense financing arrangements debt exchange connection tyco merger december 28 2016 company completed offer exchange validly tendered accepted notes certain series “existing notes” issued jci inc tifsa applicable wholly owned subsidiary company new notes new notes issued company related solicitation consents amend indentures governing existing notes offers exchange related consent solicitation together “exchange offers” pursuant exchange offers company exchanged approximately 56 billion 60 billion aggregate principal amount dollar denominated notes approximately 423 million euro 500 million euro aggregate principal amount euro denominated notes validly tendered accepted existing notes canceled immediately following cancellation 3809 million aggregate principal amount existing notes including tifsa euro notes remained outstanding across seventeen series dollardenominated existing notes 774 million euro aggregate principal amount tifsa euro notes remained outstanding across one series connection settlement exchange offers new notes registered securities act 1933 terms described company’s prospectus dated december 19 2016 filed sec rule 424b3 act date issuance new notes occurred december 28 2016 new notes unsecured unsubordinated obligations company rank equally unsecured unsubordinated indebtedness company issued time financing connection tyco merger simultaneously closing tyco merger september 2 2016 tsarl borrowed 40 billion term loan credit agreement dated march 10 2016 syndicate lenders providing three half year senior unsecured term loan facility finance cash consideration fees expenses costs incurred connection merger fiscal 2017 company partially repaid 300 million 40 billion floating rate term loan scheduled expire march 2020 september 30 2017 outstanding term loan balance 37 billion october 2017 company completed previously announced sale scott safety business 3m net cash proceeds transaction 19 billion used repay significant portion 40 billion term loan financing connection adient spinoff august 2016 adient global holdings ltd agh whollyowned subsidiary company issued one billion euro 35 fixed rate 8year senior unsecured note scheduled mature august 2024 agh also issued 900 million 4875 10year senior unsecured note scheduled mature august 2026 proceeds notes deposited escrow released connection spinoff notes guaranteed company subsidiaries adient following spinoff approximately 15 billion proceeds distributed company connection spinoff approximately 500 million proceeds used adients general corporate purposes july 2016 agh entered 5year 15 billion term loan facility 5year 15 billion revolving credit facility scheduled mature july 2021 term loan fully drawn august 2016 september 30 2016 draws revolving credit facility upon completion spinoff adient agh became whollyowned subsidiary adient date spinoff adient certain whollyowned subsidiaries guaranteed debt guarantees company automatically released company used proceeds term loan early repay four tranches eurodenominated floating rate credit facilities totaling 390 million euro outstanding september 30 2016 three term loans 500 million 200 million 125 million entered fiscal 2016 plus accrued interest 90 million outstanding credit facility remainder proceeds used general corporate purposes financing arrangements september 2017 company entered fiveyear 35 billion yen syndicated floating rate term loan scheduled expire september 2022 proceeds loan used general corporate purposes july 2017 company retired 150 million principal amount plus accrued interest 7125 fixed rate notes expired july 2017 july 2017 company repurchased discount 4 million euro tifsa 1375 fixed rate notes plus accrued interest scheduled mature 2025 march 2017 company issued one billion euro principal amount 10 senior unsecured fixed rate notes due fiscal 2023 proceeds issuance used repay existing debt general corporate purposes march 2017 company retired 46 million principal amount plus accrued interest 2355 fixed rate notes expired march 2017 march february 2017 company repurchased discount 15 million euro tifsa 1375 fixed rate notes plus accrued interest scheduled expire 2025 february 2017 company issued 500 million aggregate principal amount 45 senior unsecured fixed rate notes due fiscal 2047 proceeds issuance used repay outstanding commercial paper borrowings general corporate purposes december 2016 company retired 400 million principal amount plus accrued interest 26 fixed rate notes expired december 2016 november 2016 company fully repaid 37 billion yen syndicated floating rate term loan plus accrued interest scheduled expire june 2020 net financing charges companys net financing charges line item consolidated statements income years ended september 30 2017 2016 2015 contained following components millions 10 derivative instruments hedging activities company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities stockbased compensation liabilities interest rates company policy use derivatives restricted intended hedging purposes use derivative instrument speculative purposes strictly prohibited description type derivative utilized company manage risk included following paragraphs addition refer note 11 fair value measurements notes consolidated financial statements information related fair value measurements valuation methods utilized company derivative type cash flow hedges company global operations participates foreign exchange markets minimize risk loss fluctuations foreign currency exchange rates company selectively hedges anticipated transactions subject foreign exchange rate risk primarily using foreign currency exchange hedge contracts company hedges 70 90 nominal amount known foreign exchange transactional exposures cash flow hedges asc 815 derivatives hedging effective portion hedge gains losses due changes fair value initially recorded component aoci subsequently reclassified earnings hedged transactions occur affect earnings ineffective portion hedge reflected consolidated statements income contracts highly effective hedging variability future cash flows attributable changes currency exchange rates september 30 2017 2016 company selectively hedges anticipated transactions subject commodity price risk primarily using commodity hedge contracts minimize overall price risk associated company’s purchases lead copper tin aluminum polypropylene cases commodity price risk cannot naturally offset hedged supply base fixed price contracts commodity risks systematically managed pursuant policy guidelines cash flow hedges effective portion hedge gains losses due changes fair value initially recorded component aoci subsequently reclassified earnings hedged transactions typically sales occur affect earnings ineffective portion hedge reflected consolidated statements income maturities commodity hedge contracts coincide expected purchase commodities contracts highly effective hedging variability future cash flows attributable changes commodity prices september 30 2017 2016 company following outstanding contracts hedge forecasted commodity purchases fair value hedges company selectively uses interest rate swaps reduce market risk associated changes interest rates fixedrate bonds fair value hedges interest rate swaps related debt balances valued market approach using publicized swap curves changes fair value swap hedged portion debt recorded consolidated statements income third quarter fiscal 2014 company entered four fixed floating interest rate swaps totaling 400 million hedge coupon 26 notes matured december 2016 three fixed floating interest rate swaps totaling 300 million hedge coupon 14 notes maturing november 2017 one fixed floating interest rate swap totaling 150 million hedge coupon 7125 notes maturing july 2017 december 31 2016 remaining four outstanding interest rate swaps terminated company interest rate swaps outstanding september 30 2017 eight interest rate swaps outstanding september 30 2016 net investment hedges company enters foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects debt obligations reflected aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset gains losses recorded company’s net investments globally september 30 2017 company one billion euro 423 million euro 58 million euro bonds designated net investment hedges companys net investment europe 35 billion yen foreign denominated debt designated net investment hedge companys net investment japan september 30 2016 company 37 billion yen foreign denominated debt designated net investment hedge companys net investment japan one billion euro 500 million euro bonds designated net investment hedges companys net investment europe derivatives designated hedging instruments company selectively uses equity swaps reduce market risk associated certain stockbased compensation plans deferred compensation plans equity compensation liabilities increase company’s stock price increases decrease company’s stock price decreases contrast value swap agreement moves opposite direction liabilities allowing company fix portion liabilities stated amount september 30 2017 company hedged approximately 14 million ordinary shares cost basis 58 million september 30 2016 company equity swaps outstanding company also holds certain foreign currency forward contracts qualify hedge accounting treatment change fair value foreign currency exchange derivatives designated hedging instruments asc 815 recorded consolidated statements income fair value derivative instruments following table presents location fair values derivative instruments hedging activities included company’s consolidated statements financial position millions counterparty credit risk use derivative financial instruments exposes company counterparty credit risk company established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide strong investment grade longterm credit ratings reduce risk loss company generally enters international swaps derivatives association isda master netting agreements substantially counterparties companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes company anticipate nonperformance counterparties concentration risk financial institutions present significant credit risk company enters isda master netting agreements counterparties permit net settlement amounts owed derivative contracts master netting agreements generally provide net settlement outstanding contracts counterparty case event default termination event company elected offset fair value positions derivative contracts recorded consolidated statements financial position collateral generally required company counterparties master netting agreements september 30 2017 2016 cash collateral received pledged master netting agreements gross net amounts derivative assets liabilities follows millions derivatives impact statements income statements comprehensive income following table presents effective portion pretax gains losses recorded comprehensive income loss related cash flow hedges fiscal years ended september 30 2017 2016 2015 millions following table presents location amount effective portion pretax gains losses cash flow hedges reclassified aoci company’s consolidated statements income fiscal years ended september 30 2017 2016 2015 millions following table presents location amount pretax gains losses fair value hedges recognized company’s consolidated statements income fiscal years ended september 30 2017 2016 2015 millions following table presents location amount pretax gains losses derivatives designated hedging instruments recognized company’s consolidated statements income fiscal years ended september 30 2017 2016 2015 millions effective portion pretax gains losses recorded foreign currency translation adjustment cta within comprehensive income loss related net investment hedges 138 million 82 million 16 million years ended september 30 2017 2016 2015 respectively years ended september 30 2017 2016 2015 gains losses reclassified cta income company’s outstanding net investment hedges gains losses recognized income ineffective portion cash flow hedges 11 fair value measurements asc 820 fair value measurement defines fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date asc 820 also establishes threelevel fair value hierarchy prioritizes information used developing assumptions pricing asset liability follows level 1 observable inputs quoted prices active markets identical assets liabilities level 2 quoted prices active markets similar assets liabilities quoted prices identical similar assets liabilities markets active inputs quoted prices active markets observable either directly indirectly level 3 unobservable inputs little market data requires reporting entity develop assumptions asc 820 requires use observable market data available making fair value measurements inputs used measure fair value fall within different levels hierarchy level within fair value measurement categorized based lowest level input significant fair value measurement recurring fair value measurements following tables present company’s fair value hierarchy assets liabilities measured fair value september 30 2017 2016 millions 1classified restricted investments payment asbestos liabilities see note 23 commitments contingencies notes consolidated financial statements details valuation methods foreign currency exchange derivatives foreign currency exchange derivatives valued market approach using publicized spot forward prices commodity derivatives commodity derivatives valued market approach using publicized prices available dealer quotes interest rate swaps related debt interest rate swaps related debt balances valued market approach using publicized swap curves equity swaps equity swaps valued market approach fair value swaps equal company’s stock price reporting period date deferred compensation plan assets held deferred compensation plans used pay benefits certain companys nonqualified deferred compensation plans investments primarily consist mutual funds publicly traded stock exchanges valued using market approach based quoted market prices investments marketable common stock exchange traded funds investments marketable common stock exchange traded funds valued using market approach based quoted market prices available brokerdealer quotes identical comparable instruments unrealized gain recorded investments 5 million year ended september 30 2017 within aoci consolidated statements financial position unrealized loss recorded investments 1 million year ended september 30 2016 within aoci consolidated statements financial position fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values fair value longterm debt 127 billion 157 billion september 30 2017 2016 respectively fair value public debt 86 billion 97 billion september 30 2017 september 30 2016 respectively determined primarily using market quotes classified level 1 inputs within asc 820 fair value hierarchy fair value longterm debt 41 billion 60 billion september 30 2017 september 30 2016 respectively determined based quoted market prices similar instruments classified level 2 inputs within asc 820 fair value hierarchy 12 stockbased compensation september 2 2016 shareholders company approved johnson controls international plc 2012 share incentive plan original effective date plan october 1 2012 plan amended restated november 17 2014 amended restated connection merger consummated september 2 2016 “amendment effective date” amendment restatement intended reflect assumption plan remaining share reserves johnson controls inc 2012 omnibus incentive plan johnson controls inc 2003 stock plan outside directors “legacy johnson controls plans” amendment effective date following amendment effective date awards may made legacy johnson controls plans types awards authorized plan comprise stock options stock appreciation rights performance shares performance units stockbased awards compensation committee companys board directors determine types awards granted individual participants terms conditions awards plan provides 76 million shares companys common stock reserved issuance 2012 plan 41 million shares remain available issuance september 30 2017 pursuant merger agreement outstanding stock options held tyco employees september 2 2016 “merger date” converted options acquire companys shares using 0955forone share consolidation ratio manner designed preserve intrinsic value awards addition pursuant merger agreement nonvested restricted stock held tyco employees merger date converted nonvested restricted stock company using 0955forone share consolidation ratio manner designed preserve intrinsic value awards outstanding performance share awards held tyco employees merger date converted nonvested restricted stock company target performance level adjusted reflect 0955forone consolidation ratio except conversion stock options nonvested restricted stock performance share awards discussed herein material terms awards remained unchanged modifications made awards upon merger date constituted modifications authoritative guidance accounting stock compensation guidance requires company revalue awards upon merger close allocate revised fair value purchase consideration continuing expense based ratio service performed merger date total service period awards revised fair value allocated postmerger services resulted incremental expense recognized remaining service period awards portion tyco awards earned merger date included purchase consideration 224 million total value tyco awards earned merger date 101 million expensed remaining future vesting period refer note 2 “merger transaction” notes consolidated financial statements information regarding merger pursuant merger agreement outstanding stock options held jci inc employees merger date converted oneforone options acquire companys shares manner designed preserve intrinsic value awards addition pursuant merger agreement nonvested restricted stock held jci inc employees merger date converted oneforone nonvested restricted stock company manner designed preserve intrinsic value awards outstanding performance share awards held jci inc employees merger date converted nonvested restricted stock company based certain performance factors except conversion stock options nonvested restricted stock performance share awards discussed herein material terms awards remained unchanged incremental fair value resulted conversion references company’s stock throughout note 12 refer stock jci inc prior merger date stock company subsequent merger date connection adient spinoff pursuant employee matters agreement company adient outstanding stock options sars held october 31 2016 “spin date” employees remaining company converted options sars company using 1085317forone share ratio based prespin postspin closing prices company’s ordinary shares exercise prices options sars converted using inverse ratio manner designed preserve intrinsic value awards addition pursuant employee matters agreement nonvested restricted stock held spin date employees remaining company converted nonvested restricted stock company using 1085317forone share ratio manner designed preserve intrinsic value awards performance share awards outstanding spin date employees remaining company receive stockbased compensation awards adient result spinoff except conversion awards related exercise prices discussed herein material terms awards remained unchanged incremental fair value resulted conversion awards therefore additional compensation expense recorded related award modification also connection spinoff transaction pursuant employee matters agreement employees adient entitled receive stockbased compensation awards company adient replacement previously outstanding awards company granted prior spin date awards include stock options sars nonvested restricted stock upon spin date existing awards held adient employees converted new awards company adient pro rata basis adjusted based formula designed preserve intrinsic value awards additional compensation expense resulting modification awards held adient employees recorded adient company four sharebased compensation plans described fiscal year ended september 30 2017 compensation cost charged income continuing operations excluding offsetting impact outstanding equity swaps plans approximately 134 million recorded selling general administrative expenses fiscal year ended september 30 2016 compensation cost charged income continuing operations excluding offsetting impact outstanding equity swaps plans approximately 160 million 121 million recorded selling general administrative expenses 39 million recorded restructuring impairment costs fiscal year ended september 30 2015 compensation cost charged income continuing operations excluding offsetting impact outstanding equity swaps plans approximately 69 million recorded selling general administrative expenses total income tax benefit recognized continuing operations consolidated statements income sharebased compensation arrangements approximately 53 million 56 million 28 million fiscal years ended september 30 2017 2016 2015 respectively company applies nonsubstantive vesting period approach whereby expense accelerated employees receive awards eligible retire prior award vesting stock options stock options granted exercise price equal market price company’s stock date grant stock option awards typically vest two three years grant date expire ten years grant date fair value option estimated date grant using blackscholes option valuation model uses assumptions noted following table expected life options represents period time options granted expected outstanding assessed separately executives nonexecutives riskfree interest rate periods contractual life option based us treasury yield curve effect time grant fiscal 2017 expected volatility based historical volatility certain peer companies recent period corresponding expected life grant date fiscal 2016 fiscal 2015 expected volatility based historical volatility companys stock factors expected dividend yield based expected annual dividend percentage market value company’s ordinary shares grant date company uses historical data estimate option exercises employee terminations within valuation model summary stock option activity september 30 2017 changes year ended presented weightedaverage grantdate fair value options granted fiscal years ended september 30 2017 2016 2015 781 1314 1551 respectively total intrinsic value options exercised fiscal years ended september 30 2017 2016 2015 approximately 81 million 39 million 227 million respectively conjunction exercise stock options granted company received cash payments fiscal years ended september 30 2017 2016 2015 approximately 157 million 70 million 275 million respectively company elected utilize alternative transition method calculating tax effects stockbased compensation alternative transition method includes computational guidance establish beginning balance additional paidin capital pool apic pool related tax effects employee stockbased compensation simplified method determine subsequent impact apic pool employee stockbased compensation awards vested outstanding upon adoption asc 718 compensation stock compensation tax benefit exercise stock options recorded capital excess par value 4 million 11 million 59 million fiscal years ended september 30 2017 2016 2015 respectively company settle stock options granted sharebased payment arrangements cash september 30 2017 company approximately 21 million total unrecognized compensation cost related nonvested stock options granted continuing operations cost expected recognized weightedaverage period 19 years stock appreciation rights sars vest terms conditions stock option awards however settled cash difference market price date exercise price result sars recorded company’s consolidated statements financial position liability date exercise fair value sar award estimated using similar method described stock options fair value sar award recalculated end reporting period liability expense adjusted based new fair value assumptions used determine fair value sar awards september 30 2017 follows summary sar activity september 30 2017 changes year ended presented conjunction exercise sars granted company made payments 4 million 8 million 19 million fiscal years ended september 30 2017 2016 2015 respectively restricted nonvested stock plan provides award restricted stock restricted stock units certain employees awards typically share settled unless employee nonus employee elects defer settlement retirement point award would settled cash restricted awards typically vest three years grant date plan allows different vesting terms specific grants approval board directors value restricted awards based closing market value company’s ordinary shares date grant summary status company’s nonvested restricted stock awards september 30 2017 changes fiscal year ended presented september 30 2017 company approximately 101 million total unrecognized compensation cost related nonvested restricted stock arrangements granted continuing operations cost expected recognized weightedaverage period 17 years performance share awards plan permits grant performancebased share unit psu awards psus generally contingent achievement predetermined performance goals threeyear performance period well award holders continuous employment vesting date psus also indexed achievement specified levels total shareholder return versus peer group performance period psu earned settled shares companys ordinary shares following completion performance period unless award holder elected defer portion award retirement would settled cash fair value psu estimated date grant using monte carlo simulation uses assumptions noted following table riskfree interest rate periods contractual life psu based us treasury yield curve effect time grant expected volatility based historical volatility certain peer companies recent threeyear period grant date summary status company’s nonvested psus september 30 2017 changes fiscal year ended presented 13 earnings per share company presents basic diluted eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number ordinary shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number ordinary shares ordinary equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock unvested performance share awards treasury stock method assumes company uses proceeds exercise stock option awards repurchase ordinary shares average market price period assumed proceeds treasury stock method include purchase price grantee pay future compensation cost future service company yet recognized windfall tax benefits would credited capital excess par value award generates tax deduction would shortfall resulting charge capital excess par value amount would reduction proceeds unvested restricted stock unvested performance share awards assumed proceeds treasury stock method would include unamortized compensation cost windfall tax benefits shortfalls following table reconciles numerators denominators used calculate basic diluted earnings per share millions three months ended september 30 2017 2016 company declared dividend 025 029 respectively per share twelve months ended september 30 2017 2016 company declared four quarterly dividends totaling 100 116 respectively per share 14 equity noncontrolling interests share capital september 2016 result tyco merger discussed within note 2 merger transaction notes consolidated financial statements outstanding share common stock par value 100 per share jci inc common stock shares held jci inc tyco certain subsidiaries converted right receive either cash consideration share consideration shares outstanding merger date calculated follows millions except share consolidation ratio per share data dividends authority declare pay dividends vested board directors timing declaration payment future dividends holders companys ordinary shares determined companys board directors depend upon many factors including companys financial condition results operations capital requirements companys businesses industry practice relevant factors irish law dividends may paid share repurchases redemptions must generally funded distributable reserves creation distributable reserves accomplished way capital reduction irish high court approved december 18 2014 acquired conjunction tyco merger share repurchase program following tyco merger company adopted subject ongoing existence sufficient distributable reserves existing tyco international plc 1 billion share repurchase program september 2016 share repurchase program expiration date may amended terminated board directors time without prior notice fiscal year 2017 company repurchased approximately 651 million shares september 30 2017 approximately 349 million remains available share repurchase program shares repurchased closing merger september 30 2016 prior merger fiscal year 2016 company repurchased approximately 501 million shares jci incs 365 billion share repurchase program fiscal year 2015 company repurchased approximately 14 billion common stock comprehensive income includes activity relating discontinued operations following schedules present changes consolidated equity attributable johnson controls noncontrolling interests millions net tax equity attributable johnson controls international plc increased 158 billion result tyco merger fiscal 2016 increase primarily due increase equity 197 billion resulting total fair value consideration transferred partially offset decrease 39 billion resulting cash contributed tyco used purchase shares johnson controls inc previously disclosed october 31 2016 company completed adient spinoff result spinoff company divested net assets approximately 40 billion previously disclosed october 1 2015 company formed joint venture hitachi connection acquisition company recorded equity attributable noncontrolling interests 679 million also connection tyco merger company recorded equity attributable noncontrolling interests 34 million company consolidates certain subsidiaries noncontrolling interest party within control right require company redeem portion interest subsidiary redeemable noncontrolling interests reported estimated redemption value adjustment redemption value impacts retained earnings impact net income redeemable noncontrolling interests redeemable upon future events occurrence currently probable recorded carrying value following schedules present changes redeemable noncontrolling interests millions following schedules present changes aoci attributable johnson controls millions net tax fiscal 2015 19 million cumulative cta recognized part divestiturerelated gain recognized within discontinued operations result divestiture gws refer note 10 derivative instruments hedging activities notes consolidated financial statements disclosure line items consolidated statements income affected reclassifications aoci income related derivatives refer note 15 retirement plans notes consolidated financial statements disclosure components companys net periodic benefit costs associated defined benefit pension postretirement plans year ended september 30 2016 amounts reclassified aoci income pension postretirement plans primarily recorded selling general administrative expenses consolidated statements income year ended september 30 2015 amounts reclassified aoci income pension postretirement plans primarily recorded selling general administrative expenses income loss discontinued operations net tax consolidated statements income 15 retirement plans pension benefits company noncontributory defined benefit pension plans covering certain us nonus employees benefits provided primarily based years service average compensation monthly retirement benefit amount certain company’s us pension plans amended prohibit new participants entering plans longer accrue benefits funding us pension plans equals exceeds minimum requirements employee retirement income security act 1974 funding nonus plans observes local legal regulatory limits also company makes contributions uniontrusteed pension funds construction service personnel pension plans accumulated benefit obligations abo exceed plan assets projected benefit obligation pbo abo fair value plan assets plans 5564 million 5465 million 4715 million respectively september 30 2017 7124 million 6966 million 5234 million respectively september 30 2016 fiscal 2017 total employer contributions defined benefit pension plans 342 million 49 million voluntary contributions made company expects contribute approximately 100 million cash defined benefit pension plans fiscal 2018 projected benefit payments plans september 30 2017 estimated follows millions postretirement benefits company provides certain health care life insurance benefits eligible retirees dependents primarily us canada brazil nonus employees covered government sponsored programs cost company significant eligibility coverage based meeting certain years service retirement age qualifications benefits may subject deductibles copayment provisions limitations company reserved right modify benefits effective january 31 1994 company modified certain us salaried plans place limit company’s cost future annual retiree medical benefits 150 1993 cost health care cost trend assumption significant effect amounts reported fiscal 2017 total employer contributions postretirement plans 5 million company expects contribute approximately 5 million cash postretirement plans fiscal 2018 projected benefit payments plans september 30 2017 estimated follows millions december 2003 us congress enacted medicare prescription drug improvement modernization act 2003 act employers sponsoring postretirement care plans provide prescription drug benefits act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans providing benefit least actuarially equivalent medicare part d1 act medicare subsidy amount received directly plan sponsor related plan sponsor required use subsidy amount fund postretirement benefits may use subsidy valid business purpose projected subsidy receipts estimated approximately 2 million per year next ten years savings investment plans company sponsors various defined contribution savings plans allow employees contribute portion pretax andor aftertax income accordance plan specified guidelines specified conditions company contribute certain savings plans based employees’ eligible pay andor match percentage employee contributions certain limits matching contributions charged expense continuing discontinued operations amounted 138 million 128 million 123 million fiscal years ended 2017 2016 2015 respectively multiemployer benefit plans company contributes multiemployer benefit plans based obligations arising collective bargaining agreements related certain hourly employees us plans provide retirement benefits participants based service contributing employers benefits paid assets held trust purpose trustees typically responsible determining level benefits provided participants well matters investment assets administration plans risks participating multiemployer benefit plans different singleemployer benefit plans following aspects • assets contributed multiemployer benefit plan one employer may used provide benefits employees participating employers • participating employer stops contributing multiemployer benefit plan unfunded obligations plan may borne remaining participating employers • company stops participating multiemployer benefit plans company may required pay plans amount based allocable share underfunded status plan referred withdrawal liability company participates approximately 289 multiemployer benefit plans primarily related building technologies solutions business us none individually significant company number employees covered company’s multiemployer benefit plans remained consistent past three years significant changes affect comparability fiscal 2017 2016 2015 contributions company recognizes expense contractuallyrequired contribution period company contributed 67 million 46 million 45 million multiemployer benefit plans fiscal 2017 2016 2015 respectively based recent information available company believes present value actuarial accrued liabilities certain multiemployer benefit plans may exceed value assets held trust pay benefits currently company aware significant multiemployer benefits plans probable reasonably possible company obligated make shortfall funds moreover company exit certain markets otherwise cease making contributions funds company could trigger withdrawal liability currently company aware multiemployer benefit plans probable reasonably possible company significant withdrawal liability accrual shortfall withdrawal liability recorded probable liability exists reasonably estimated plan assets company’s investment policies employ approach whereby mix equities fixed income alternative investments used maximize longterm return plan assets prudent level risk investment portfolio primarily contains diversified blend equity fixed income investments equity investments diversified across us nonus stocks well growth value small large capitalizations fixed income investments include corporate government issues short mid longterm maturities focus investment grade purchased target duration close plan liability investment market risks measured monitored ongoing basis regular investment portfolio reviews annual liability measurements periodic assetliability studies majority real estate component portfolio invested diversified portfolio highquality operating properties cash yields greater targeted appreciation investments alternative asset classes including hedge funds commodities diversify expected investment returns relative equity fixed income investments result diversification strategies significant concentrations risk within portfolio investments company’s actual asset allocations line target allocations company rebalances asset allocations appropriate order stay within range allocation asset category expected return plan assets based company’s expectation longterm average rate return capital markets plans invest average market returns adjusted appropriate active asset management returns expected return reflects investment policy target asset mix considers historical returns earned asset category company’s plan assets september 30 2017 2016 asset category follows millions fair value certain investments real estate readily determinable fair value requires fund managers independently arrive fair value calculating net asset value nav per share order calculate nav per share fund managers value real estate investments using one combination following methods independent third party appraisals discounted cash flow analysis net cash flows projected generated investment recent sales comparable investments assumptions used revalue properties updated every quarter due fact fund managers calculate nav per share company utilizes practical expedient measuring fair value realestate investments provided asc 820 fair value measurement applying practical expedient company required adjust nav provided fund manager order determine fair value investment nav per share calculated manner consistent measurement principles asc 946 financial services investment companies companys measurement date company believes appropriate methodology obtain fair value assets component real estate portfolio development investments carried cost completed valued third party appraiser accordance asu 201507 disclosures investments certain entities calculate net asset value per share equivalent investments fair value measured using net asset value per share practical expedient disclosed separate fair value hierarchy fair value amounts presented table intended permit reconciliation total plan assets amounts presented notes consolidated financial statements following description valuation methodologies used assets measured fair value certain assets held within commingled funds valued unitized nav percentage net asset value determined manager fund values based fair value underlying net assets owned fund cash equivalents fair value cash valued cost equity securities fair value equity securities determined direct quoted market prices underlying holdings direct quoted market prices regulated financial exchanges fixed income securities fair value fixed income securities determined direct indirect quoted market prices indirect quoted market prices utilized value assets held separate accounts published investment managers report daily underlying holdings underlying holdings direct quoted market prices regulated financial exchanges commodities fair value commodities determined quoted market prices underlying holdings regulated financial exchanges hedge funds fair value hedge funds accounted custodian obtains valuations underlying managers based market quotes liquid assets alternative methods assets sufficient trading activity derive prices company custodian review methods used underlying managers value assets company believes appropriate methodology obtain fair value assets real estate fair value real estate investment trusts reits recorded level 1 securities traded open exchange methods described may produce fair value calculation may indicative net realizable value reflective future fair values furthermore company believes valuation methods appropriate consistent market participants use different methodologies assumptions determine fair value certain financial instruments could result different fair value measurement reporting date level 3 assets september 30 2017 2016 level 3 asset activity fiscal 2017 2016 funded status table follows contains abo reconciliations changes pbo changes plan assets funded status millions 1 plan assets obligations determined based september 30 measurement date september 30 2017 2016 2 company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates company elected utilize full yield curve approach estimation service interest components net periodic benefit cost credit pension postretirement plans utilize yield curve approach full yield curve approach applies specific spot rates along yield curve used determination benefit obligation relevant projected cash flows accumulated comprehensive income amounts aoci consolidated statements financial position exclusive tax impacts yet recognized components net periodic benefit cost september 30 2017 2016 related pension postretirement benefits significant amounts aoci expected recognized components net periodic benefit cost credit next fiscal related pension postretirement benefits significant net periodic benefit cost table follows contains components net periodic benefit cost millions 16 significant restructuring impairment costs better align resources growth strategies reduce cost structure global operations certain underlying markets company commits restructuring plans necessary fiscal 2017 company committed significant restructuring plan 2017 plan recorded 367 million restructuring impairment costs consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring actions related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments restructuring impairment costs recorded 166 million related corporate 74 million related building solutions emeala segment 59 million related building solutions north america segment 32 million related global products segment 20 million related power solutions segment 16 million related building solutions asia pacific segment restructuring actions expected substantially complete fiscal 2018 following table summarizes changes company’s 2017 plan reserve included within current liabilities consolidated statements financial position millions fiscal 2016 company committed significant restructuring plan 2016 plan recorded 288 million restructuring impairment costs consolidated statements income restructuring actions related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments changeincontrol payments restructuring impairment costs recorded 161 million related corporate 66 million related power solutions segment 44 million related global products segment 17 million related building solutions emeala segment restructuring actions expected substantially complete fiscal 2018 included reserve 56 million committed restructuring actions taken tyco liabilities assumed part tyco acquisition additionally company recorded 332 million restructuring impairment costs within discontinued operations related adient fiscal 2016 following table summarizes changes company’s 2016 plan reserve included within current liabilities consolidated statements financial position millions companys fiscal 2017 2016 restructuring plans included workforce reductions approximately 6100 employees 4800 building technologies solutions business 1200 corporate 100 power solutions restructuring charges associated employee severance termination benefits paid severance period granted employee lump sum basis accordance individual severance agreements september 30 2017 approximately 1600 employees separated company pursuant restructuring plans addition restructuring plans included ten plant closures building technologies solutions business september 30 2017 four ten plants closed company management closely monitors overall cost structure continually analyzes businesses opportunities consolidate current operations improve operating efficiencies locate facilities close proximity customers ongoing analysis includes review manufacturing engineering purchasing operations well overall global footprint businesses 17 impairment longlived assets company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written fiscal 2017 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2017 result company reviewed longlived assets impairment recorded 77 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 30 million related building solutions north america segment 20 million related global products segment 19 million related corporate assets 7 million related power solutions segment 1 million related building solutions asia pacific segment refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement second third fourth quarters fiscal 2016 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2016 result company reviewed longlived assets impairment recorded 103 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 64 million related power solutions segment 24 million related corporate assets 8 million related global products segment 4 million related building solutions asia pacific segment 3 million related building solutions emeala segment addition company recorded 87 million asset impairments within discontinued operations related adient fiscal 2016 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fourth quarter fiscal 2015 company concluded triggering events requiring assessment impairment certain longlived assets conjunction announced restructuring actions intention spinoff automotive experience business result company reviewed longlived assets impairment recorded 156 million impairment charge within restructuring impairment costs consolidated statements income total impairment charge 139 million related corporate assets 16 million related building solutions emeala segment 1 million related building solutions north america segment addition company recorded 27 million asset impairments within discontinued operations related adient fiscal 2015 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairment measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement september 30 2017 2016 2015 company concluded triggering events requiring assessment impairment longlived assets refer note 1 summary significant accounting policies notes consolidated financial statements discussion company’s goodwill impairment testing 18 income taxes significant components company’s income tax provision continuing operations follows millions us federal statutory tax rate used comparison since company us domiciled company fiscal 2015 11 months 2016 due company’s current legal entity structure effective rate us statutory rate fiscal 2017 primarily due benefits continuing global tax planning initiatives nonus tax rate differentials tax audit closures tax benefit due changes entity tax status partially offset jurisdictional mix significant restructuring impairment costs tyco merger transaction integration costs establishment deferred tax liability outside basis difference companys investment certain subsidiaries related divestiture scott safety business effective rate us statutory rate fiscal 2016 primarily due benefits continuing global tax planning initiatives foreign tax rate differentials partially offset jurisdictional mix restructuring impairment costs tax impacts merger integration related costs effective rate us statutory rate fiscal 2015 primarily due benefits continuing global tax planning initiatives income certain nonus jurisdictions tax rate lower us statutory tax rate adjustments due tax audit resolutions valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2017 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily canada china mexico would able realized likely certain deferred tax assets germany would realized therefore company recorded 27 million net valuation allowances income tax expense three month period ended september 30 2017 result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 24 billion valuation allowances also fourth quarter fiscal 2016 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined material changes needed valuation allowances therefore impact income tax expense due valuation allowance changes three month period year ended september 30 2016 fourth quarter fiscal 2015 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within spain germany united kingdom would realized likely certain deferred tax assets poland germany realized impact net valuation allowance provision offset benefit valuation allowance releases net impact income tax expense three month period ended september 30 2015 uncertain tax positions company subject income taxes us numerous foreign jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities september 30 2017 company gross tax effected unrecognized tax benefits continuing operations 2173 million 2047 million recognized would impact effective tax rate total net accrued interest september 30 2017 approximately 99 million net tax benefit september 30 2016 company gross tax effected unrecognized tax benefits continuing operations 1706 million 1604 million recognized would impact effective tax rate total net accrued interest september 30 2016 approximately 84 million net tax benefit september 30 2015 company gross tax effected unrecognized tax benefits continuing operations 1052 million 997 million recognized would impact effective tax rate total net accrued interest september 30 2015 approximately 33 million net tax benefit reconciliation beginning ending amount unrecognized tax benefits follows millions fiscal 2017 company settled significant number tax examinations impacting fiscal years 2006 fiscal 2014 fourth quarter fiscal 2017 income tax audit resolutions resulted net 191 million benefit income tax expense fiscal 2015 company settled significant number tax examinations germany mexico us impacting fiscal years 1998 fiscal 2012 settlement unrecognized tax benefits included cash payments approximately 440 million loss various tax attributes reduction tax positions prior years substantially related foreign exchange rates fourth quarter fiscal 2015 income tax audit resolutions resulted net 99 million benefit income tax expense us fiscal years 2010 2014 currently exam internal revenue service irs certain legal entities additionally company currently exam following major nonus jurisdictions continuing operations reasonably possible certain tax examinations tax litigation conclude within next twelve months could 25 million impact tax expense tax matters fiscal 2017 company recorded 428 million transaction integration costs generated 69 million tax benefit fiscal 2017 company recorded discrete noncash tax charge 490 million related establishment deferred tax liability outside basis difference companys investment certain subsidiaries scott safety business reported net assets held sale given announced sale 3m company refer note 3 acquisitions divestitures note 4 discontinued operations notes consolidated financial statements additional information fourth quarter fiscal 2017 company recorded tax charge 53 million due change deferred tax liability related outside basis certain nonconsolidated subsidiaries first quarter fiscal 2017 company recorded discrete tax benefit 101 million due changes entity tax status fiscal 2017 2016 2015 company incurred significant charges restructuring impairment costs refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information substantial portion charges generate tax benefit due companys current tax position jurisdictions underlying tax basis impaired assets resulting 65 million 28 million incremental tax expense fiscal 2017 2016 respectively fourth quarter fiscal 2016 company completed merger tyco result transaction company incurred incremental tax expense 137 million preparation spinoff automotive experience business first quarter fiscal 2017 company incurred incremental tax expense continuing operations 26 million fiscal 2016 result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities generally recorded within noncurrent liabilities consolidated statements financial position liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid 290 million recorded september 30 2017 2016 255 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation tax sharing agreements addition company recorded 11 million tax indemnification liabilities september 30 2017 related divestitures impacts tax legislation change statutory tax rates october 13 2016 us treasury irs released final temporary section 385 regulations address whether certain instruments related parties treated debt equity company expect regulations material impact consolidated financial statements lookthrough rule subpart f us internal revenue code expired company september 30 2015 lookthrough rule provided exception us taxation certain income generated nonus subsidiaries rule extended december 2015 retroactive beginning company’s 2016 fiscal year retroactive extension signed legislation made permanent companys 2020 fiscal year second quarter fiscal 2015 tax legislation adopted japan reduced statutory income tax rate result law change company recorded income tax expense 17 million second quarter fiscal 2015 fiscal years ended 2017 2016 2015 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements continuing operations components provision income taxes continuing operations follows millions consolidated us income continuing operations income taxes noncontrolling interests fiscal years ended september 30 2017 2016 2015 income 868 million 943 million 418 million respectively consolidated foreign income continuing operations income taxes noncontrolling interests fiscal years ended september 30 2017 2016 2015 income 1690 million 119 million 513 million respectively income taxes paid fiscal years ended september 30 2017 2016 2015 1756 million 1388 million 1163 million respectively september 30 2017 2016 company recorded within consolidated statements financial position current liabilities approximately 625 million 1505 million respectively accrued income tax liabilities continuing operations company provided us nonus income taxes approximately 16 billion outside basis differences consolidated subsidiaries johnson controls international plc reduction outside basis differences via sale liquidation subsidiaries andor distributions could create taxable income companys intent reduce outside basis differences would tax efficient given numerous ways basis differences may reduced practicable estimate amount unrecognized withholding taxes deferred tax liability outside basis differences fiscal 2017 company provide us income tax expense related establishment deferred tax liability outside basis difference company’s investment certain subsidiaries scott safety business result planned divestiture deferred taxes classified consolidated statements financial position follows millions temporary differences carryforwards gave rise deferred tax assets liabilities included millions september 30 2017 company available net operating loss carryforwards approximately 166 billion 65 billion expire various dates 2018 2037 remainder indefinite carryforward period company available us foreign tax credit carryforwards september 30 2017 468 million expire various dates 2020 2024 carried back fiscal period 2016 valuation allowance generally loss carryforwards realization uncertain unlikely losses realized given lack sustained profitability andor limited carryforward periods certain countries september 30 2017 deferred tax assets approximately 180 million relate certain operating loss carryforwards resulting exercise employee stock options restricted stock vestings tax benefit recognized accounted credit additional paidin capital rather reduction income tax provision amount presented within tax loss carryforwards line table 19 segment information asc 280 segment reporting establishes standards reporting information segments financial statements applying criteria set forth asc 280 company determined five reportable segments financial reporting purposes company’s five reportable segments presented context two primary businesses building technologies solutions power solutions effective july 1 2017 company reorganized reportable segments within building technologies solutions business align new management reporting structure business activities prior reorganization building technologies solutions comprised five reportable segments financial reporting purposes systems service north america products north america asia rest world tyco result change building technologies solutions comprised four reportable segments financial reporting purposes building solutions north america building solutions emeala building solutions asia pacific global products historical information revised reflect new building technologies solutions reportable segments summary significant building technologies solutions reportable segment changes follows • “systems service north america” segment part new “building solutions north america” reportable segment • north america unitary products business air distribution technologies business refrigeration systems business well hvac products installed marine customers previously included “products north america” segment part new reportable segment “global products” systems products installation business us navy customers previously included “products north america” segment part new “building solutions north america” reportable segment • systems service business within former “asia” segment part new “building solutions asia pacific” reportable segment hvac products manufacturing business johnson controlshitachi joint venture previously part “asia” segment part new “global products” reportable segment • systems service businesses europe middle east latin america within former “rest world” segment part new “building solutions emeala” reportable segment hvac products manufacturing businesses previously part “rest world” segment part new “global products” reportable segment • company integrated legacy tyco business legacy building efficiency business segment reporting purposes tyco longer separate reportable segment tyco businesses included throughout new reportable segments building technologies solutions • building solutions north america designs sells installs services hvac controls systems integrated electronic security systems including monitoring integrated fire detection suppression systems commercial industrial retail small business institutional governmental customers north america building solutions north america also provides energy efficiency solutions technical services including inspection scheduled maintenance repair replacement mechanical control systems nonresidential building industrial applications north american marketplace • building solutions emeala designs sells installs services hvac controls refrigeration integrated electronic security integrated fire detection suppression systems provides technical services markets europe middle east africa latin america • building solutions asia pacific designs sells installs services hvac controls refrigeration integrated electronic security integrated fire detection suppression systems provides technical services asia pacific marketplace • global products designs produces heating air conditioning residential commercial applications markets products refrigeration systems replacement new construction market customers globally global products business also designs manufactures sells fire protection security products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide global products also includes johnson controlshitachi joint venture formed october 1 2015 well scott safety business sold october 4 2017 power solutions power solutions services automotive original equipment manufacturers battery aftermarket providing advanced battery technology coupled systems engineering marketing service expertise management evaluates performance business segments primarily segment earnings interest taxes amortization ebita represents income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges significant restructuring impairment costs net marktomarket adjustments related pension postretirement plans financial information relating company’s reportable segments follows millions 1 building solutions north america segment ebita years ended september 30 2017 2015 excludes 59 million 2 million respectively restructuring impairment costs 2 building solutions emeala segment ebita years ended september 30 2017 2016 2015 excludes 74 million 17 million 9 million respectively restructuring impairment costs years ended september 30 2017 2016 2015 emeala segment ebita includes 5 million 11 million 14 million respectively equity income 3 building solutions asia pacific segment ebita years ended september 30 2017 2015 excludes 16 million 7 million respectively restructuring impairment costs years ended september 30 2017 2016 asia pacific segment ebita includes 1 million 1 million respectively equity income 4 global products segment ebita years ended september 30 2017 2016 2015 excludes 32 million 44 million 20 million respectively restructuring impairment costs years ended september 30 2017 2016 2015 global products segment ebita includes 151 million 114 million 9 million respectively equity income 5 power solutions segment ebita years ended september 30 2017 2016 2015 excludes 20 million 66 million 11 million respectively restructuring impairment costs years ended september 30 2017 2016 2015 power solutions segment ebita includes 83 million 48 million 57 million respectively equity income 6 corporate expenses years ended september 30 2017 2016 2015 excludes 166 million 161 million 166 million respectively restructuring impairment costs 7 current year prior year amounts exclude assets held sale refer note 4 discontinued operations notes consolidated financial statements information regarding companys disposal groups classified held sale 8 building solutions emeala assets september 30 2017 2016 2015 include 107 million 103 million 90 million respectively investments partiallyowned affiliates 9 global products assets september 30 2017 2016 2015 include 637 million 520 million 64 million respectively investments partiallyowned affiliates 10 power solutions assets september 30 2017 2016 2015 include 447 million 367 million 343 million respectively investments partiallyowned affiliates fiscal years 2017 2016 2015 customer exceeded 10 consolidated net sales geographic segments financial information relating company’s operations geographic area follows millions net sales attributed geographic locations based location assets producing sales longlived assets geographic location consist net property plant equipment 20 nonconsolidated partiallyowned affiliates investments net assets nonconsolidated partiallyowned affiliates stated investments partiallyowned affiliates line consolidated statements financial position september 30 2017 2016 equity net income nonconsolidated partiallyowned affiliates stated equity income line consolidated statements income years ended september 30 2017 2016 2015 following table presents summarized financial data company’s nonconsolidated partiallyowned affiliates amounts included table represent 100 results continuing operations nonconsolidated partiallyowned affiliates accounted equity method summarized balance sheet data september 30 follows millions summarized income statement data years ended september 30 follows millions 21 guarantees certain companys subsidiaries business segment level guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows company offers warranties customers depending upon specific product terms customer purchase agreement typical warranty program requires company replace defective products within specified time period date sale company records estimate future warrantyrelated costs based actual historical return rates known factors based analysis return rates factors company’s warranty provisions adjusted necessary company monitors warranty activity adjusts reserve estimates probable future warranty costs different estimates company’s product warranty liability continuing operations recorded consolidated statements financial position current liabilities warranty less one year noncurrent liabilities warranty extends longer one year changes carrying amount company’s total product warranty liability continuing operations including extended warranties deferred revenue recorded fiscal years ended september 30 2017 2016 follows millions 1 year ended september 30 2017 includes 13 million product warranties transferred liabilities held sale consolidated statements financial position refer note 4 discontinued operations notes consolidated financial statements information regarding companys disposal groups classified held sale result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities generally recorded within noncurrent liabilities consolidated statements financial position liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid 290 million recorded september 30 2017 2016 255 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation tax sharing agreements addition company recorded 11 million tax indemnification liabilities september 30 2017 related divestitures 22 tyco international finance sa tifsa 100 owned subsidiary company public debt securities outstanding september 30 2016 fully unconditionally guaranteed johnson controls tyco fire security finance sca tifsca wholly owned subsidiary company parent company tifsa first quarter fiscal 2017 guarantees removed connection previously disclosed debt exchange following tables present condensed consolidating financial information johnson controls tifsca tifsa subsidiaries condensed financial information company tifsca tifsa standalone basis presented using equity method accounting subsidiaries company revised investments affiliates shareholders’ equity amounts tifsa tifsca year ended september 30 2016 within condensed consolidating statement financial position investments affiliates shareholders’ equity tifsa tifsca decreased 1485 million 263 million respectively offset consolidating adjustments column impact changes consolidating figures significant impact consolidated financials company tifsa public debt securities assumed part tyco acquisition therefore consolidating financial information year ended september 30 2015 presented related guarantee tifsa public debt securities additional information regarding tifsa tifsca fiscal year ended september 25 2015 period ended june 24 2016 found tycos annual report form 10k filed sec november 13 2015 recast part tycos current report form 8k filed sec march 11 2016 tycos quarterly report form 10q filed sec july 29 2016 respectively condensed consolidating statement operations year ended september 30 2017 millions condensed consolidating statement comprehensive income year ended september 30 2017 condensed consolidating statement operations year ended september 30 2016 millions condensed consolidating statement comprehensive income year ended september 30 2016 condensed consolidating statement financial position year ended september 30 2017 condensed consolidating statement financial position year ended september 30 2016 condensed consolidating statement cash flows year ended september 30 2017 condensed consolidating statement cash flows year ended september 30 2016 23 commitments contingencies environmental matters company accrues potential environmental liabilities probable liability incurred amount liability reasonably estimable september 30 2017 reserves environmental liabilities totaled 51 million 10 million recorded within current liabilities 41 million recorded within noncurrent liabilities consolidated statements financial position reserves environmental liabilities continuing operations totaled 51 million september 30 2016 potential liabilities accrued company take consideration possible recoveries future insurance proceeds however take account likely share parties bear remediation sites difficult estimate company’s ultimate level liability many remediation sites due large number parties may involved complexity determining relative liability among parties uncertainty nature scope investigations remediation conducted uncertainty application law risk assessment various choices costs associated diverse technologies may used corrective actions sites often quite lengthy periods eventual remediation may occur nevertheless company currently believe claims penalties costs connection known environmental matters material adverse effect company’s financial position results operations cash flows addition company identified asset retirement obligations environmental matters expected addressed retirement disposal removal abandonment existing owned facilities primarily power solutions building technologies solutions businesses september 30 2017 2016 company recorded conditional asset retirement obligations 61 million 74 million respectively asbestos matters company certain subsidiaries along numerous third parties named defendants personal injury lawsuits based alleged exposure asbestos containing materials cases typically involved product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos used asbestos containing components september 30 2017 companys estimated asbestos related net liability recorded discounted basis within companys consolidated statements financial position 181 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 573 million 48 million recorded current liabilities 525 million recorded noncurrent liabilities company also maintained separate cash investments receivables related insurance recoveries within consolidated statements financial position 392 million 53 million recorded current assets 339 million recorded noncurrent assets included 22 million cash 269 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2017 101 million september 30 2016 companys estimated asbestos related net liability recorded discounted basis within companys consolidated statements financial position 148 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 548 million 35 million recorded current liabilities 513 million recorded noncurrent liabilities company also maintained separate cash investments receivables related insurance recoveries within consolidated statements financial position 400 million 41 million recorded current assets 359 million recorded noncurrent assets included 16 million cash 264 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2016 120 million companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted amounts recorded company asbestosrelated liabilities insurancerelated assets based companys strategies resolving asbestos claims currently available information number estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims identity defendants resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers many factors closely linked change one variable assumption impact one others single variable assumption predominately influences determination companys asbestosrelated liabilities insurancerelated assets furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries result actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results insurable liabilities company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience september 30 2017 2016 insurable liabilities totaled 445 million 422 million respectively 122 million 60 million recorded within current liabilities 22 million 28 million recorded within accrued compensation benefits 301 million 334 million recorded within noncurrent liabilities consolidated statements financial position respectively company records receivables third party insurers recovery determined probable amount receivables recorded september 30 2017 46 million 31 million recorded within current assets 15 million recorded within noncurrent assets insurance receivables recorded september 30 2016 21 million primarily recorded within noncurrent assets company maintains captive insurance companies manage certain insurable liabilities arbitration award september 2017 company subject unfavorable arbitration award approximately 50 million relating contractual dispute subcontractor used company airport construction project doha qatar connection unfavorable arbitration award company recorded charge 50 million within selling general administrative expenses consolidated statements income fourth quarter fiscal 2017 airport project managed steering committee company subcontractor working jointly document claims increased costs steering committee subcontractor initiated arbitration proceeding company pursuant arbitration proceeding company subcontractor sought recover costs alleges incurred due project delays additional work related financing costs award remains outstanding accrue interest statutory rate 956 related action company initiated arbitration claim steering committee related costs incurred connection delays airport construction project including costs related award arbitrator expected issue decision company’s claims steering committee end fiscal 2018 aqueous filmforming foam litigation two subsidiaries chemguard inc chemguard tyco fire products lp tyco fire products named along defendant manufacturers number class action lawsuits relating use firefighting foam products us department defense dod others fire suppression purposes related training exercises plaintiffs generally allege firefighting foam products manufactured defendants contain break chemicals perfluorooctane sulfonate pfos perfluorooctanoic acid pfoa use products others various airbases airports resulted release chemicals environment ultimately communities’ drinking water supplies neighboring airports airbases plaintiffs generally seek compensatory damages including damages alleged personal injuries medical monitoring alleged diminution property values also seek punitive damages injunctive relief address remediation alleged contamination november 21 2017 company named 12 putative class actions federal courts three states set forth colorado • district colorado bell et al v 3m company et al filed september 18 2016 • district colorado bell et al v 3m company et al filed september 18 2016 • district colorado davis et al v 3m company et al filed september 22 2016 cases consolidated us district court district colorado hearing plaintiffs’ motion class certification scheduled april 2018 new york • eastern district new york green et al v 3m company et al filed march 27 2017 supreme court state new york suffolk county prior removal federal court • southern district new york adamo et al v port authority ny nj et al filed august 11 2017 supreme court state new york orange county prior removal federal court • southern district new york fogarty et al v port authority ny nj et al filed august 11 2017 supreme court state new york orange county prior removal federal court • southern district new york miller et al v port authority ny nj et al filed august 11 2017 supreme court state new york orange county prior removal federal court • supreme court state new york suffolk county singer et al v 3m company et al filed october 10 2017 responses complaints filed yet new york actions pennsylvania • eastern district pennsylvania bates et al v 3m company et al filed september 15 2016 • eastern district pennsylvania grande et al v 3m company et al filed october 13 2016 • eastern district pennsylvania yockey et al v 3m company et al filed october 24 2016 • eastern district pennsylvania fearnley et al v 3m company et al filed december 9 2016 cases consolidated us district court eastern district pennsylvania defendants moved dismiss complaint consolidated proceeding addition putative class actions chemguard tyco fire products also defendants action filed two plaintiffs us district court eastern district pennsylvania menkes et al v 3m company et al filed february 7 2017 menkes plaintiffs assert substantive claims allegations similar putative class allegations also include personal injury claim company also notice approximately 490 possible individual product liability claims filings made pennsylvania state court complaints filed matters pennsylvania’s procedural rules may result lawsuits chemguard tyco fire products also defendants two cases pending us district court district massachusetts town barnstable v 3m co et al filed nov 21 2016 county barnstable v 3m co et al filed january 9 2017 municipal plaintiffs generally allege use defendants’ firefighting foam products fire training academy municipal airport released pfos pfoa town’s water supply wells allegedly requiring remediation town county property defendants filed motion dismiss county barnstable currently pending court company vigorously defending cases believes meritorious defenses class certification claims asserted however numerous factual legal issues resolved connection claims extremely difficult predict outcome ultimate financial exposure represented matters assurance exposure material company also pursuing insurance coverage matters company involved various lawsuits claims proceedings incident operation businesses including pertaining product liability environmental safety health intellectual property employment commercial contractual matters various casualty matters although outcome litigation cannot predicted certainty lawsuits claims proceedings may disposed unfavorably us management’s opinion none material adverse effect company’s financial position results operations cash flows costs related matters material periods presented 24 related party transactions ordinary course business company enters transactions related parties equity affiliates transactions consist facility management services sale purchase goods arrangements net sales purchases related parties continuing operations included consolidated statements income 954 million 195 million respectively fiscal 2017 917 million 184 million respectively fiscal 2016 892 million 95 million respectively fiscal 2015 following table sets forth amount accounts receivable due payable related parties continuing operations consolidated statements financial position millions company also provided financial support certain vies see note 1 summary significant accounting policies notes consolidated financial statements additional information johnson controls international plc subsidiaries schedule ii valuation qualifying accounts millions item 9item 8 financial statements supplementary data index consolidated financial statements report independent registered public accounting firm board directors shareholders johnson controls international plc opinions financial statements internal control financial reporting audited accompanying consolidated statements financial position johnson controls international plc subsidiaries “company” september 30 2018 2017 related consolidated statements income comprehensive income loss shareholders’ equity attributable johnson controls ordinary shareholders cash flows three years period ended september 30 2018 including related notes financial statement schedule listed accompanying index collectively referred “consolidated financial statements” also audited companys internal control financial reporting september 30 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company september 30 2018 2017 results operations cash flows three years period ended september 30 2018 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting september 30 2018 based criteria established internal control integrated framework 2013 issued coso basis opinions companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate served company’s auditor since 1957 johnson controls international plc consolidated statements income products systems consist building technologies solutions power solutions products systems services building technologies solutions technical services certain items sum due rounding accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements comprehensive income loss accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements financial position accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements cash flows accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements shareholders’ equity attributable johnson controls ordinary shareholders accompanying notes integral part consolidated financial statements johnson controls international plc notes consolidated financial statements 1summary significant accounting policies consolidated financial statements include consolidated accounts johnson controls international plc corporation organized laws ireland subsidiaries johnson controls international plc subsidiaries hereinafter collectively referred company johnson controls jci plc nature operations johnson controls international plc headquartered cork ireland global diversified technology multi industrial leader serving wide range customers 150 countries company creates intelligent buildings efficient energy solutions integrated infrastructure next generation transportation systems work seamlessly together deliver promise smart cities communities company committed helping customers win creating greater value stakeholders strategic focus buildings energy growth platforms fourth quarter fiscal 2016 johnson controls inc jci inc tyco international plc tyco completed combination jci inc merging whollyowned indirect subsidiary tyco merger following merger tyco changed name “johnson controls international plc” jci inc whollyowned subsidiary johnson controls international plc merger accounted reverse acquisition using acquisition method accounting accordance accounting standards codification asc 805 business combinations jci inc accounting acquirer financial reporting purposes accordingly historical consolidated financial statements jci inc periods prior transaction considered historic financial statements company october 31 2016 company completed spinoff automotive experience business way transfer automotive experience business johnson controls adient plc issuance ordinary shares adient directly holders johnson controls ordinary shares pro rata basis prior open business october 31 2016 companys shareholders received one ordinary share adient plc every ten ordinary shares johnson controls held close business october 19 2016 record date distribution company shareholders received cash lieu fractional shares adient following separation distribution adient plc independent public company trading new york stock exchange nyse symbol adnt company retain equity interest adient plc adient’s historical financial results reflected company’s consolidated financial statements discontinued operation refer note 4 discontinued operations notes consolidated financial statements information building technologies solutions buildings business global market leader engineering developing manufacturing installing building products systems around world including heating ventilating airconditioning hvac equipment hvac controls energymanagement systems security systems fire detection systems fire suppression solutions buildings business serves customers providing technical services hvac security fireprotection space energymanagement consulting datadriven solutions via dataenabled business finally company strong presence north american residential air conditioning heating systems market global market leader industrial refrigeration products power solutions business leading global supplier leadacid automotive batteries virtually every type passenger car light truck utility vehicle company serves automotive original equipment manufacturers general vehicle battery aftermarket company also supplies advanced battery technologies power startstop hybrid electric vehicles principles consolidation consolidated financial statements include consolidated accounts johnson controls international plc subsidiaries consolidated conformity accounting principles generally accepted united states america us gaap significant intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal investments partiallyowned affiliates accounted equity method company’s interest exceeds 20 company controlling interest certain criteria provided financial accounting standards board fasb asc 810 consolidation company may consolidate partiallyowned affiliate determine whether consolidate partiallyowned affiliate company first determines entity variable interest entity vie entity considered vie one following characteristics 1 entity thinly capitalized 2 residual equity holders control entity 3 equity holders shielded economic losses participate fully entity’s residual economics 4 entity established nonsubstantive voting entity meets one characteristics company determines primary beneficiary vie party power direct activities vie significantly impact vie’s economic performance potential absorb benefits losses could significant vie considered primary beneficiary consolidates vie entity considered vie company applies voting interest model determine whether company shall consolidate partiallyowned affiliate consolidated vies based upon criteria set forth asc 810 company determined primary beneficiary vies reporting period ended september 30 2018 primary beneficiary one vie reporting period ended september 30 2017 company absorbed significant economics entity power direct activities considered significant entity fiscal 2012 preexisting vie accounted equity method reorganized three separate investments result counterparty exercising option put interest company acquired additional interests two reorganized group entities reorganized group entities considered vies owner party provided decision making rights equity risk company considered primary beneficiary one entities due company’s power pertaining decisions significant activities entity vie consolidated within company’s consolidated statements financial position september 30 2017 fiscal year ended september 30 2018 certain joint venture agreements amended result company longer make key operating decisions considered significant vie company longer considered primary beneficiary entity company deconsolidated entity fiscal year ended september 30 2018 impact entity company’s consolidated statements income years ended september 30 2018 2017 2016 material carrying amounts classification assets none restricted liabilities included company’s consolidated statements financial position consolidated vie follows millions company significant variable interest consolidated vies presented reporting periods nonconsolidated vies mentioned previously within consolidated vies section fiscal 2012 preexisting vie reorganized three separate investments result counterparty exercising option put interest company reorganized group entities considered vies owner party provided decision making rights equity risk vies named coobligors third party debt agreement amount 155 million maturing fiscal 2020 vie could become subject paying allocated share third party debt event bankruptcy one coobligors related parties company equity investor consist remaining group entities involved reorganization part overall reorganization transaction company also provided financial support group entities form loans totaling 38 million subordinate third party debt agreement company significant customer certain coobligors resulting remote possibility loss additionally company subject floor guaranty expiring fiscal 2022 event owner party longer owns part group entities due sale transfer company guaranteed proceeds received sale transfer less 25 million company partnered group entities design manufacture battery components power solutions business company considered primary beneficiary three entities september 30 2018 two entities september 30 2017 company cannot make key operating decisions considered significant vies therefore entities accounted equity method accounting company’s interest exceeds 20 company controlling interest company’s maximum exposure loss includes partiallyowned affiliate investment balance 43 million 65 million september 30 2018 2017 respectively well subordinated loan company third party debt agreement floor guaranty mentioned current liabilities due vies material represent normal course business trade payables presented periods company significant variable interest nonconsolidated vies presented reporting periods use estimates preparation consolidated financial statements conformity us gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates fair value financial instruments fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements fair value financial instruments including derivative instruments hedging activities longterm debt assets liabilities held sale company classifies assets liabilities disposal groups sold held sale period following criteria met management authority approve action commits plan sell disposal group disposal group available immediate sale present condition subject terms usual customary sales disposal groups active program locate buyer actions required complete plan sell disposal group initiated sale disposal group probable transfer disposal group expected qualify recognition completed sale within one year except events circumstances beyond companys control extend period time required sell disposal group beyond one year disposal group actively marketed sale price reasonable relation current fair value actions required complete plan indicate unlikely significant changes plan made plan withdrawn addition company classifies disposal groups disposed sale eg spinoff held sale period disposal occurs company initially measures disposal group classified held sale lower carrying value fair value less costs sell loss resulting measurement recognized period held sale criteria met conversely gains recognized sale disposal group date sale company assesses fair value disposal group less costs sell reporting period remains classified held sale reports subsequent changes adjustment carrying value disposal group long new carrying value exceed carrying value disposal group time initially classified held sale upon determining disposal group meets criteria classified held sale company reports assets liabilities disposal group material line items assets held sale liabilities held sale consolidated statements financial position refer note 4 discontinued operations notes consolidated financial statements information cash equivalents company considers highly liquid investments original maturity three months less purchased cash equivalents restricted cash september 30 2018 company held restricted cash approximately 15 million 6 million recorded within current assets consolidated statements financial position 9 million recorded within noncurrent assets consolidated statements financial position september 30 2017 company held restricted cash approximately 31 million 22 million recorded within current assets consolidated statements financial position 9 million recorded within noncurrent assets consolidated statements financial position receivables consist amounts billed currently due customers unbilled costs accrued profits related revenues longterm contracts recognized accounting purposes yet billed customers company extends credit customers normal course business maintains allowance doubtful accounts resulting inability unwillingness customers make required payments allowance doubtful accounts based historical experience existing economic conditions specific customer collection issues company identified company enters supply chain financing programs sell certain accounts receivable without recourse thirdparty financial institutions sales accounts receivable reflected reduction accounts receivable consolidated statements financial position proceeds included cash flows operating activities consolidated statements cash flows inventories stated lower cost market using firstin firstout fifo method finished goods workinprocess inventories include material labor manufacturing overhead costs property plant equipment property plant equipment recorded cost depreciation provided estimated useful lives respective assets using straightline method financial reporting purposes accelerated methods income tax purposes estimated useful lives generally range 3 40 years buildings improvements subscriber systems 15 years 3 15 years machinery equipment company capitalizes interest borrowings active construction period major capital projects capitalized interest added cost underlying assets amortized useful lives assets goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies companys average historical future financial results certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value fourth quarter fiscal 2018 company changed date annual goodwill impairment test september 30 july 31 change made closely align impairment testing date company’s longterm planning forecasting process change annual impairment testing date delay accelerate avoid impairment charge company determined change accounting principle preferable result adjustments company’s financial statements applied retrospectively refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fourth quarters fiscal years 2018 2017 2016 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets primarily consist trademarks tradenames tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests impairment longlived assets company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 35030 requires intangible assets acquired business combination used research development activities considered indefinite lived completion abandonment associated research development efforts period assets considered indefinite lived shall amortized shall tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value entity shall recognize impairment loss amount equal excess asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2018 2017 2016 revenue recognition building technologies solutions business recognizes revenue certain longterm contracts contractual period percentageofcompletion poc method accounting method accounting recognizes sales gross profit work performed based relationship actual costs incurred total estimated costs completion recognized revenues billed terms contract later date recorded primarily accounts receivable likewise contracts billings date exceeded recognized revenues recorded primarily deferred revenue costs earnings excess billings related contracts 1054 million 908 million september 30 2018 2017 respectively billings excess costs earnings related contracts 535 million 451 million september 30 2018 2017 respectively changes original estimates may required life contract estimates reviewed monthly sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated contract losses recorded identified claims customers recognized revenue upon settlement use poc method accounting involves considerable use estimates determining revenues costs profits assigning amounts accounting periods periodic reviews resulted adjustments significant company’s results operations company continually evaluates assumptions risks uncertainties inherent application poc method accounting building technologies solutions business enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized straightline basis respective contract term building technologies solutions business also sells certain hvac refrigeration products services bundled arrangements multiple products andor services involved significant deliverables within arrangements include equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition building technologies solutions business sells security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered accordance accounting standards update asu 200913 revenue recognition topic 605 multipledeliverable revenue arrangements consensus fasb emerging issues task force company divides bundled arrangements separate deliverables revenue allocated deliverable based relative selling price method order estimate relative selling price market data transfer price studies utilized revenue recognized security monitoring equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship cases company recognizes revenue time title passes customer services performed subscriber system assets dealer intangibles related deferred revenue accounts building technologies solutions business considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment company retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers place business outside north america residence installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded current noncurrent assets within consolidated statements financial position subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using straightline method lives 12 years considering customer attrition company uses straightline method 15year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program primarily outside north america acquired contracts related customer relationships recorded contractually determined purchase price first 6 months 12 months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition straightline basis period customer relationship estimated useful life dealer intangibles ranges 12 15 years research development costs expenditures research activities relating product development improvement charged income incurred included within selling general administrative expenses continuing operations consolidated statements income expenditures years ended september 30 2018 2017 2016 380 million 360 million 158 million respectively earnings per share company presents basic diluted earnings per share eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number common shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number common shares common equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock unvested performance share awards see note 13 earnings per share notes consolidated financial statements calculation earnings per share foreign currency translation substantially company’s international operations use respective local currency functional currency assets liabilities international entities translated periodend exchange rates income expenses translated using average exchange rates period monetary assets liabilities denominated nonfunctional currencies adjusted reflect periodend exchange rates aggregate transaction gains losses net impact foreign currency hedges included net income years ended september 30 2018 2017 2016 5 million 94 million 95 million respectively derivative financial instruments company written policies procedures place financial instruments direction corporate treasury restrict derivative transactions intended hedging purposes use financial instruments speculative purposes strictly prohibited company selectively uses financial instruments manage market risk changes foreign exchange rates commodity prices stockbased compensation liabilities interest rates fair values derivatives recorded consolidated statements financial position change derivative’s fair value recorded period current earnings accumulated comprehensive income aoci depending whether derivative designated part hedge transaction type hedge transaction see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements disclosure company’s derivative instruments hedging activities investments company invests debt equity securities classified available sale marked market end accounting period unrealized gains losses securities deferred compensation plan assets recognized aoci within consolidated statement shareholders equity unless unrealized loss deemed temporary case loss charged earnings deferred compensation plan assets marked market end accounting period unrealized gains losses recorded consolidated statements income pension postretirement benefits company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 22 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage insurable liabilities asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 22 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities income taxes deferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax basis particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided reduce carrying book value deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized refer note 18 income taxes notes consolidated financial statements retrospective changes certain amounts september 30 2017 2016 revised conform current years presentation march 2016 fasb issued accounting standards update asu 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting asu 201609 impacts certain aspects accounting sharebased payment transactions including income tax consequences classification awards either equity liabilities classification statements cash flows quarter ended december 31 2017 company adopted asu 201609 result company recognized deferred tax assets 179 million consolidated statements financial position related certain operating loss carryforwards resulting exercise employee stock options vested restricted stock modified retrospective basis cumulativeeffect adjustment retained earnings october 1 2017 additionally employee withholding taxes paid taxing authorities equitybased compensation transactions previously classified cash flows operating activities reclassified financing activities consolidated statements cash flows fiscal years ended september 30 2017 2016 comparative purposes remaining provisions asu 201609 material impact companys consolidated financial statements new accounting pronouncements recently adopted accounting pronouncements august 17 2018 us securities exchange commission sec issued final rule sec release 3310532 disclosure update simplification amends certain disclosure requirements become redundant duplicative overlapping outdated superseded amendments include removing requirement disclose historical pro forma ratio earnings fixed charges exhibit 12 replacing requirement disclose high low trading prices entitys ordinary shares requirement disclose ticker symbol shares additionally final rule extends interim periods annual disclosure requirement presenting changes caption stockholders equity amount dividends per share disclosures required provided current comparative yeartodate interim periods final rule effective filings november 5 2018 company adopted relevant disclosure requirements annual report form 10k year ended september 30 2018 march 2018 fasb issued asu 201805 income taxes topic 740 amendments sec paragraphs pursuant sec staff accounting bulletin 118 add various sec paragraphs pursuant issuance sec staff accounting bulletin 118 sab 118 asc 740 income taxes sab 118 issued sec december 2017 provide immediate guidance accounting implications us tax reform tax cuts jobs act period enactment sab 118 provides provisional one year measurement period entities finalize accounting certain income tax effects related tax cuts jobs act company applied guidance consolidated financial statements related disclosures beginning quarter ended december 31 2017 refer note 18 income taxes notes consolidated financial statements information august 2017 fasb issued asu 201712 derivatives hedging topic 815 targeted improvements accounting hedging activities asu closely aligns results hedge accounting risk management activities amendments designation measurement guidance better reflect companys hedging strategy effectiveness quarter ended december 31 2017 company early adopted asu 201712 adoption guidance material impact companys consolidated financial statements recently issued accounting pronouncements march 2017 fasb issued asu 201707 compensationretirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost asu requires service cost component net periodic benefit cost presented compensation costs components net periodic benefit cost required presented income statement separately service cost component outside subtotal income operations one presented asu also allows service cost component net periodic benefit cost eligible capitalization guidance effective company quarter ending december 31 2018 early adoption permitted beginning annual period financial statements interim annual issued made available issuance guidance effective retrospectively except capitalization service cost component applied prospectively adoption guidance expected significant impact companys consolidated financial statements company present subtotal income operations within consolidated statements income november 2016 fasb issued asu 201618 statement cash flows topic 230 restricted cash consensus fasb emerging issues task force asu requires amounts generally described restricted cash restricted cash equivalents included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows guidance effective company quarter ending december 31 2018 early adoption permitted amendments update applied retrospectively periods presented impact guidance company depend levels restricted cash balances periods presented september 30 2016 company approximately 20 billion restricted cash related restricted proceeds deposited escrow issuance 20 billion aggregate principal unsecured unsubordinated notes adient global holdings ltd released upon completion adient spinoff october 2016 upon adoption asu 201618 restricted proceeds presented fiscal 2016 consolidated statements cash flow financing activity inflow release restricted proceeds presented fiscal 2017 consolidated statements cash flow financing activity outflow impact adoption standard fiscal 2018 consolidated statements cash flow expected material restricted cash balance september 30 2018 15 million october 2016 fasb issued asu 201616 accounting income taxes intraentity asset transfers assets inventory asu requires tax effects intraentity sales assets inventory recognized period transaction occurs guidance effective company quarter ending december 31 2018 early adoption permitted first interim period fiscal year changes required applied means cumulativeeffect adjustment recorded retained earnings beginning fiscal year adoption company expects cumulative effect adoption asu 201616 result reduction retained earnings approximately 550 million august 2016 fasb issued asu 201615 statement cash flows topic 230 classification certain cash receipts cash payments asu 201615 provides clarification guidance eight specific cash flow presentation issues order reduce diversity practice asu 201615 effective company quarter ending december 31 2018 early adoption permitted guidance applied retrospectively periods presented unless deemed impracticable case prospective application permitted adoption guidance expected impact presentation equity swap funding settlement activities since activity change operating activity investing activity company expect significant impacts result adopting standard february 2016 fasb issued asu 201602 leases topic 842 asu 201602 requires recognition operating leases lease assets liabilities balance sheet disclosure key information leasing arrangements original standard effective retrospectively company quarter ending december 31 2019 early adoption permitted however july 2018 fasb issued asu 201811 leases topic 842 targeted improvements provides additional transition method permits changes applied means cumulativeeffect adjustment recorded retained earnings beginning fiscal year adoption company elected transition method adoption date october 1 2019 company started assessment process evaluating population leases revised definition qualifies leased asset company lessee various agreements facilities equipment currently accounted operating leases new guidance require company record operating leases balance sheet rightofuse asset corresponding liability future payment obligations additionally january 2018 fasb issued asu 201801 leases topic 842 land easement practical expedient transition topic 842 provides optional transition practical expedient existing expired land easements previously recorded leases company expects new guidance material impact consolidated statements financial position addition rightofuse assets lease liabilities company expect material impact consolidated statements income consolidated statements cash flows january 2016 fasb issued asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities asu 201601 amends certain aspects recognition measurement presentation disclosure financial instruments including marketable securities asu 201601 effective company quarter ending december 31 2018 early adoption permitted certain exceptions changes required applied means cumulativeeffect adjustment balance sheet beginning fiscal year adoption additionally february 2018 fasb issued asu 201803 technical corrections improvements financial instrumentsoverall subtopic 82510 recognition measurement financial assets financial liabilities provides additional clarification certain topics addressed asu 201601 asu 201801 effective company asu 201601 adopted impact guidance company depend magnitude unrealized gains losses companys marketable securities investments impact beginning retained earnings result adoption guidance expected material may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu 201409 clarifies principles recognizing revenue entity either enters contract customers transfer goods services enters contract transfer nonfinancial assets original standard effective retrospectively company quarter ending december 31 2017 however august 2015 fasb issued asu 201514 revenue contracts customers topic 606 deferral effective date defers effective date asu 201409 oneyear entities new standard become effective retrospectively company quarter ending december 31 2018 early adoption permitted original effective date additionally march 2016 fasb issued asu 201608 revenue contracts customers topic 606 principal versus agent considerations reporting revenue gross versus net april 2016 fasb issued asu 201610 revenue contracts customers topic 606 identifying performance obligations licensing may 2016 fasb issued asu 201612 revenue contracts customers topic 606 narrowscope improvements practical expedients december 2016 fasb issued asu 201620 technical corrections improvements topic 606 revenue contracts customers provide additional clarification certain topics addressed asu 201409 asu 201608 asu 201610 asu 201612 asu 201620 follow implementation guidelines asu 201409 asu 201514 company elected adopt new revenue guidance october 1 2018 using modified retrospective approach company completed evaluation new revenue recognition standard assessed impact consolidated financial statements based company’s evaluation current contracts significant revenue streams revenue recognition expected mostly consistent current new standard exception power solutions business within power solutions business certain customers return battery cores included transaction price noncash consideration new revenue standard change expected result increase annual power solutions revenue approximately 10 15 immaterial impact gross profit company expect new revenue standard material impact consolidated statements financial position consolidated statements cash flows upon adoption new revenue recognition guidance company expects record approximately 35 million beginning retained earnings relates primarily deferred revenue recorded certain battery core returns represent material right provided customers recently issued accounting pronouncements expected material impact companys consolidated financial statements 2 merger transaction discussed note 1 summary significant accounting policies notes consolidated financial statements jci inc tyco completed merger september 2 2016 merger accounted reverse acquisition using acquisition method accounting accordance asc 805 business combinations based structure merger activities contemplated merger agreement relative outstanding share ownership composition companys board directors designation certain senior management positions company jci inc accounting acquirer financial reporting purposes immediately prior merger connection therewith tyco shareholders received 0955 ordinary shares tyco shares referred shares company “company ordinary shares” tyco ordinary share held virtue 0955forone share consolidation merger outstanding share common stock par value 100 per share jci inc “jci inc common stock” shares held jci inc tyco certain subsidiaries converted right receive either cash consideration share consideration described election holder subject proration procedures described merger agreement applicable withholding taxes election receive cash consideration undersubscribed result holders shares jci inc common stock elected receive share consideration holders shares jci inc common stock made election failed properly make election became entitled receive share jci inc common stock 57293 cash without interest 08357 company ordinary shares subject applicable withholding taxes holders shares jci inc common stock elected receive cash consideration became entitled receive share jci inc common stock 3488 cash without interest subject applicable withholding taxes merger jci inc shareholders received aggregate approximately 3864 billion cash immediately closing giving effect merger former jci inc shareholders owned approximately 56 issued outstanding company ordinary shares former tyco stockholders owned approximately 44 issued outstanding company ordinary shares tyco leading global provider security products services well fire detection suppression products services acquisition tyco brings together bestinclass product technology service capabilities across controls fire security hvac power solutions serve various endmarkets including large institutions commercial buildings retail industrial small business residential combination tyco jci inc buildings platforms creates immediate opportunities nearterm growth crossselling complementary branch channel networks expanded global reach established businesses new company also benefits combining innovation capabilities pipelines involving new products advanced solutions smart buildings cities valueadded services driven advanced data analytics fair value consideration transferred total fair value consideration transferred approximately 197 billion total consideration comprised equity value tyco shares outstanding september 2 2016 portion tycos share awards share options earned september 2 2016 224 million share awards share options earned 101 million september 2 2016 expensed remaining future vesting period following table summarizes total fair value consideration transferred 1 amount equals jci inc closing share price market capitalization september 2 2016 4545 29012 million respectively adjusted tyco 3864 million cash contribution used purchase 1108 million shares jci inc common stock 3488 per share fair value assets acquired liabilities assumed company accounted merger tyco business combination using acquisition method accounting assets acquired liabilities assumed recorded respective fair values acquisition date fair value estimates based complex series judgments future events uncertainties rely heavily estimates assumptions judgments used determine estimated fair value assigned class assets acquired liabilities assumed well asset lives materially impact companys results operations fair values assets acquired liabilities assumed follows millions connection merger company recorded goodwill 161 billion attributable primarily expected synergies expanded market opportunities benefits company believes result combining operations tyco goodwill allocated reporting units within building technologies solutions business based expected benefits merger company recorded net reduction goodwill 258 million fiscal 2017 related purchase price allocations goodwill created merger deductible tax purposes purchase price allocation identifiable intangible assets acquired follows actual pro forma impact companys consolidated financial statements fiscal year ended september 30 2016 include tycos results operations acquisition date september 2 2016 september 30 2016 net sales net income loss continuing operations attributable tyco period included companys consolidated financial statements fiscal year ended september 30 2016 total 808 million 48 million respectively following unaudited pro forma information assumes acquisition occurred october 1 2014 included companys consolidated statement income fiscal year 2016 order reflect occurrence acquisition october 1 2014 required unaudited pro forma results include adjustments reflect among things amortization inventory stepup incremental intangible asset amortization incurred based preliminary values identifiable intangible asset change timing defined benefit plans marktomarket gain loss recognition change timing transaction restructuring costs interest expense debt financing obtained fund cash consideration paid jci inc shareholders pro forma amounts necessarily indicative results would obtained acquisition occurred beginning period presented may occur future reflect future synergies integration costs savings additional information regarding fiscal 2016 pro forma information found form 8k filed company sec november 8 2016 item 701 “regulation fd disclosure” 3acquisitions divestitures fiscal year 2018 fiscal 2018 company completed certain acquisitions combined purchase price net cash acquired 21 million paid september 30 2018 acquisitions aggregate material company’s consolidated financial statements connection acquisitions company recorded goodwill 14 million within global products segment 1 million within building solutions emeala segment first quarter fiscal 2018 company completed sale scott safety business 3m company selling price net cash divested 20 billion received september 30 2018 connection sale company recorded pretax gain 114 million within selling general administrative expenses consolidated statements income reduced goodwill assets held sale 12 billion gain net tax recorded 84 million net cash proceeds transaction approximately 19 billion used repay significant portion tyco international holding sarls tsarl 40 billion mergerrelated debt scott safety business included global products segment reported within assets liabilities held sale consolidated statements financial position september 30 2017 refer note 4 discontinued operations notes consolidated financial statements disclosure related companys net assets held sale also fiscal 2018 company completed certain divestitures primarily within global products business combined selling price 204 million received september 30 2018 connection divestitures company reduced goodwill 35 million divestitures material companys consolidated financial statements fiscal year 2017 fiscal 2017 company completed three acquisitions combined purchase price net cash acquired 9 million 6 million paid september 30 2017 acquisitions aggregate material company’s consolidated financial statements connection acquisitions company recorded goodwill 2 million second quarter fiscal 2017 company completed sale adt security business south africa within building solutions emeala segment selling price net cash divested 129 million received september 30 2017 connection sale company reduced goodwill assets held sale 92 million divestiture material companys consolidated financial statements fiscal 2017 company completed two divestitures combined selling price net cash divested 44 million 40 million received september 30 2017 divestitures material companys consolidated financial statements connection divestitures company reduced goodwill 19 million 2 million global products segment building solutions asia pacific segment respectively fiscal 2017 company completed one additional divestiture sales price 4 million received september 30 2017 divestiture decreased companys ownership controlling noncontrolling interest result company deconsolidated cash 5 million divestiture material companys consolidated financial statements fiscal 2017 company received 52 million net cash proceeds related prior year business divestitures paid 75 million related prior year business acquisitions fiscal year 2016 october 1 2015 company formed joint venture hitachi expand building technologies solutions product offerings company acquired 60 ownership interest new entity approximately 208 million 638 million purchase price less cash acquired 430 million 133 million paid september 30 2016 connection acquisition company recorded goodwill 253 million related purchase price allocations also fiscal 2016 company completed two additional acquisitions combined purchase price net cash acquired 6 million 3 million paid september 30 2016 acquisitions aggregate material companys consolidated financial statements connection acquisitions company recorded goodwill 6 million one acquisitions increased companys ownership noncontrolling controlling interest result company recorded noncash gain 4 million equity income global products segment adjust companys existing equity investment partiallyowned affiliate fair value fourth quarter fiscal 2016 company completed two divestitures combined sales price 39 million net cash divested 13 million none sales proceeds received september 30 2016 divestitures material companys consolidated financial statements connection divestitures company reduced goodwill 16 million global products segment third quarter fiscal 2016 company completed divestiture sales price 16 million received september 30 2016 divestiture material companys consolidated financial statements connection divestiture company reduced goodwill 3 million building solutions north america segment fiscal 2016 company received 29 million net cash proceeds related prior year business divestitures 4 discontinued operations discussed note 1 summary significant accounting policies notes consolidated financial statements october 31 2016 company completed spinoff automotive experience business way transfer automotive experience business johnson controls adient plc company retain equity interest adient plc first quarter fiscal 2017 company determined adient met criteria classified discontinued operation result adient’s historical financial results reflected company’s consolidated financial statements discontinued operation assets liabilities classified assets liabilities held sale company allocate general corporate overhead discontinued operations following table summarizes results adient reclassified discontinued operations fiscal years ended september 30 2017 2016 millions adient spinoff occurred october 31 2016 one month adient results included year ended september 30 2017 fiscal year ended september 30 2017 income discontinued operations income taxes included separation costs 79 million fiscal year ended september 30 2016 income discontinued operations income taxes included separation costs 418 million significant restructuring impairment costs 332 million net markto market losses pension postretirement plans 110 million fiscal year ended september 30 2017 effective tax rate irish statutory rate 125 primarily due tax impacts separation costs adient spinoff related tax expense partially offset nonus tax rate differentials preparation spinoff automotive experience business first quarter fiscal 2017 company incurred incremental tax expense 95 million fiscal 2016 company also completed substantial business reorganizations resulted total tax charges 1891 million fiscal 2016 included amount tax charge provided third quarter fiscal 2016 85 million changes entity tax status charge provided second quarter fiscal 2016 780 million income tax expense foreign undistributed earnings certain nonus subsidiaries fiscal 2016 company provide us income tax expense related restructuring repatriation cash certain nonus subsidiaries connection automotive experience planned spinoff september 30 2016 company needed complete final steps automotive experience restructuring result company provided deferred taxes 24 million us income tax expense outside basis differences reversed upon completion restructuring following table summarizes depreciation amortization capital expenditures significant operating investing noncash items related adient fiscal years ended september 30 2017 2016 millions assets liabilities held sale second quarter fiscal 2017 company signed definitive agreement sell scott safety business global products segment 3m company transaction closed october 4 2017 assets liabilities business presented held sale consolidated statements financial position september 30 2017 business meet criteria classified discontinued operation divestiture scott safety business major effect company’s operations financial results following table summarizes carrying value scott safety assets liabilities held sale september 30 2017 millions 5 inventories consisted following millions 6 property plant equipment property plant equipment consisted following millions interest costs capitalized fiscal years ended september 30 2018 2017 2016 29 million 27 million 19 million respectively accumulated depreciation related capital leases september 30 2018 2017 16 million 13 million respectively 7 goodwill intangible assets changes carrying amount goodwill company’s reportable segments fiscal years ended september 30 2018 2017 follows millions fiscal 2017 global products business divestiture amount includes 1248 million goodwill transferred noncurrent assets held sale consolidated statements financial position sale scott safety business refer note 4 discontinued operations notes consolidated financial statements information regarding companys assets liabilities held sale september 30 2016 accumulated goodwill impairment charges included 47 million related building solutions emeala latin america reporting unit goodwill impairments resulting fiscal 2018 2017 annual impairment tests reporting unit determined risk failing step one goodwill impairment test company continuously monitors events circumstances could negatively impact key assumptions determining fair value including longterm revenue growth projections profitability discount rates recent market valuations transactions comparable companies volatility companys market capitalization general industry market macroeconomic conditions possible future changes circumstances variables associated judgments assumptions estimates used assessing fair value reporting unit would require company record noncash impairment charge assumptions included impairment tests require judgment changes inputs could impact results calculations primary assumptions used impairment tests managements projections future cash flows although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit company’s intangible assets primarily business acquisitions valued based independent appraisals consisted millions refer note 2 merger transaction notes consolidated financial statements additional information intangibles recorded result tyco merger amortization intangible assets included within continuing operations fiscal years ended september 30 2018 2017 2016 384 million 489 million 116 million respectively excluding impact future acquisitions company anticipates amortization fiscal 2019 2020 2021 2022 2023 approximately 406 million 394 million 391 million 378 million 364 million respectively indefinitelived intangible asset impairments resulting fiscal 2018 2017 2016 annual impairment tests 8 leases certain administrative production facilities equipment leased longterm agreements leases contain renewal options varying periods certain leases include options purchase leased property end lease term leases generally require company pay insurance taxes maintenance property leased capital assets included net property plant equipment primarily buildings improvements 32 million 17 million september 30 2018 2017 respectively facilities equipment leased arrangements accounted operating leases total rental expense continuing discontinued operations fiscal years ended september 30 2018 2017 2016 467 million 502 million 402 million respectively future minimum capital operating lease payments related present value capital lease payments september 30 2018 follows millions 9 debt financing arrangements shortterm debt consisted following millions connection tyco merger jci inc replaced 25 billion committed fiveyear credit facility scheduled mature august 2018 20 billion committed fouryear credit facility scheduled mature august 2020 additionally tsarl whollyowned subsidiary johnson controls entered 10 billion committed fouryear credit facility scheduled mature august 2020 tsarl facility increased 125 billion march 2018 facilities used support companys outstanding commercial paper draws either committed credit facilities fiscal years ended september 30 2018 2017 commercial paper outstanding september 30 2018 2017 879 million 954 million respectively march 2018 company entered 364day 250 million committed revolving credit facility scheduled expire march 2019 september 30 2018 draws facility march 2018 364day 150 million committed revolving credit facility expired company entered new 150 million committed revolving credit facility scheduled expire february 2019 september 30 2018 draws facility february 2018 364day 150 million committed revolving credit facility expired company entered new 150 million committed revolving credit facility scheduled expire february 2019 september 30 2018 draws facility january 2018 364day 250 million committed revolving credit facility expired company entered new 200 million committed revolving credit facility scheduled expire january 2019 september 30 2018 draws facility december 2017 company repaid 364day 150 million euro floating rate term loan plus accrued interest scheduled mature september 2018 longterm debt consisted following millions due dates fiscal year installments longterm debt maturing subsequent fiscal years 2019 26 million 2020 1118 million 2021 1371 million 2022 772 million 2023 1201 million 2024 thereafter 5236 million company’s longterm debt includes various financial covenants none expected restrict future operations total interest paid short longterm debt fiscal years ended september 30 2018 2017 2016 415 million 448 million 319 million respectively company used financial instruments manage interest rate exposure fiscal 2016 first quarter 2017 see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements instruments affected weighted average interest rate company’s debt interest expense financing arrangements financing connection tyco merger subsequent activities simultaneously closing tyco merger september 2 2016 tsarl borrowed 40 billion term loan credit agreement dated march 10 2016 syndicate lenders providing three half year senior unsecured term loan facility finance cash consideration fees expenses costs incurred connection merger fiscal 2017 company partially repaid 300 million 40 billion floating rate term loan scheduled expire march 2020 october 2017 company completed previously announced sale scott safety business 3m net cash proceeds transaction approximately 19 billion used repay significant portion tsarl 40 billion merger related debt march 2018 company repaid 26 million principal amount plus accrued interest april 2018 company refinanced approximately 400 million tsarl merger related debt commercial paper july 2018 company refinanced approximately 250 million principal amount tsarl merger related debt 364day 250 million floating rate term loan scheduled mature july 2019 september 2018 company repaid approximately 450 million principal amount plus accrued interest refinanced approximately 250 million tsarl merger related debt 18month 215 million euro floating rate term loan scheduled mature march 2020 financing arrangements january 2018 company retired 67 million principal amount plus accrued interest 375 fixed rate notes expired january 2018 november 2017 company issued 750 million euro principal amount 00 senior unsecured fixed rate notes due december 2020 proceeds issuance used repay existing debt general corporate purposes november 2017 company retired 300 million principal amount plus accrued interest 14 fixed rate notes expired november 2017 net financing charges companys net financing charges line item consolidated statements income years ended september 30 2018 2017 2016 contained following components millions 10 derivative instruments hedging activities company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities stockbased compensation liabilities interest rates company policy use derivatives restricted intended hedging purposes use derivative instrument speculative purposes strictly prohibited description type derivative utilized company manage risk included following paragraphs addition refer note 11 fair value measurements notes consolidated financial statements information related fair value measurements valuation methods utilized company derivative type cash flow hedges company global operations participates foreign exchange markets minimize risk loss fluctuations foreign currency exchange rates company selectively hedges anticipated transactions subject foreign exchange rate risk primarily using foreign currency exchange hedge contracts company hedges 70 90 nominal amount known foreign exchange transactional exposures cash flow hedges asc 815 derivatives hedging hedge gains losses due changes fair value initially recorded component aoci subsequently reclassified earnings hedged transactions occur affect earnings contracts highly effective hedging variability future cash flows attributable changes currency exchange rates september 30 2018 2017 company selectively hedges anticipated transactions subject commodity price risk primarily using commodity hedge contracts minimize overall price risk associated company’s purchases lead copper tin aluminum polypropylene cases commodity price risk cannot naturally offset hedged supply base fixed price contracts commodity risks systematically managed pursuant policy guidelines cash flow hedges hedge gains losses due changes fair value initially recorded component aoci subsequently reclassified earnings hedged transactions typically sales occur affect earnings maturities commodity hedge contracts coincide expected purchase commodities contracts highly effective hedging variability future cash flows attributable changes commodity prices september 30 2018 2017 company following outstanding contracts hedge forecasted commodity purchases metric tons fair value hedges company selectively uses interest rate swaps reduce market risk associated changes interest rates fixedrate bonds fair value hedges interest rate swaps related debt balances valued market approach using publicized swap curves changes fair value swap hedged portion debt recorded consolidated statements income september 30 2016 company four fixed floating interest rate swaps totaling 400 million hedge coupon 26 notes matured december 2016 three fixed floating interest rate swaps totaling 300 million hedge coupon 14 notes maturing november 2017 one fixed floating interest rate swap totaling 150 million hedge coupon 7125 notes maturing july 2017 december 31 2016 remaining four outstanding interest rate swaps terminated company interest rate swaps outstanding september 30 2018 2017 net investment hedges company enters foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects debt obligations reflected aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset currency gains losses recorded company’s net investments globally september 30 2018 company one billion euro 750 million euro 423 million euro 58 million euro bonds 215 million euro term loan designated net investment hedges companys net investment europe 35 billion yen foreign denominated debt designated net investment hedge companys net investment japan september 30 2017 company one billion euro 423 million euro 58 million euro bonds designated net investment hedges companys net investment europe 35 billion yen foreign denominated debt designated net investment hedge companys net investment japan derivatives designated hedging instruments company selectively uses equity swaps reduce market risk associated certain stockbased compensation plans deferred compensation plans equity compensation liabilities increase company’s stock price increases decrease company’s stock price decreases contrast value swap agreement moves opposite direction liabilities allowing company fix portion liabilities stated amount september 30 2018 company hedged approximately 18 million ordinary shares cost basis 73 million september 30 2017 company hedged approximately 14 million ordinary shares cost basis 58 million company also holds certain foreign currency forward contracts qualify hedge accounting treatment change fair value foreign currency exchange derivatives designated hedging instruments asc 815 recorded consolidated statements income fair value derivative instruments following table presents location fair values derivative instruments hedging activities included company’s consolidated statements financial position millions counterparty credit risk use derivative financial instruments exposes company counterparty credit risk company established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide strong investment grade longterm credit ratings reduce risk loss company generally enters international swaps derivatives association isda master netting agreements substantially counterparties companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes company anticipate nonperformance counterparties concentration risk financial institutions present significant credit risk company enters isda master netting agreements counterparties permit net settlement amounts owed derivative contracts master netting agreements generally provide net settlement outstanding contracts counterparty case event default termination event company elected offset fair value positions derivative contracts recorded consolidated statements financial position collateral generally required company counterparties master netting agreements september 30 2018 2017 cash collateral received pledged master netting agreements gross net amounts derivative assets liabilities follows millions derivatives impact statements income statements comprehensive income following table presents pretax gains losses recorded comprehensive income loss related cash flow hedges fiscal years ended september 30 2018 2017 2016 millions following table presents location amount pretax gains losses cash flow hedges reclassified aoci company’s consolidated statements income fiscal years ended september 30 2018 2017 2016 millions following table presents location amount pretax gains losses fair value hedges recognized company’s consolidated statements income fiscal years ended september 30 2018 2017 2016 millions following table presents location amount pretax gains losses derivatives designated hedging instruments recognized company’s consolidated statements income fiscal years ended september 30 2018 2017 2016 millions pretax gains losses recorded foreign currency translation adjustment cta within comprehensive income loss related net investment hedges 45 million 138 million 82 million years ended september 30 2018 2017 2016 respectively years ended september 30 2018 2017 2016 gains losses reclassified cta income company’s outstanding net investment hedges 11 fair value measurements asc 820 fair value measurement defines fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date asc 820 also establishes threelevel fair value hierarchy prioritizes information used developing assumptions pricing asset liability follows level 1 observable inputs quoted prices active markets identical assets liabilities level 2 quoted prices active markets similar assets liabilities quoted prices identical similar assets liabilities markets active inputs quoted prices active markets observable either directly indirectly level 3 unobservable inputs little market data requires reporting entity develop assumptions asc 820 requires use observable market data available making fair value measurements inputs used measure fair value fall within different levels hierarchy level within fair value measurement categorized based lowest level input significant fair value measurement recurring fair value measurements following tables present company’s fair value hierarchy assets liabilities measured fair value september 30 2018 2017 millions 1classified restricted investments payment asbestos liabilities see note 22 commitments contingencies notes consolidated financial statements details valuation methods foreign currency exchange derivatives foreign currency exchange derivatives valued market approach using publicized spot forward prices commodity derivatives commodity derivatives valued market approach using publicized prices available dealer quotes equity swaps equity swaps valued market approach fair value swaps equal company’s stock price reporting period date deferred compensation plan assets held deferred compensation plans used pay benefits certain companys nonqualified deferred compensation plans investments primarily consist mutual funds publicly traded stock exchanges valued using market approach based quoted market prices investments marketable common stock exchange traded funds investments marketable common stock exchange traded funds valued using market approach based quoted market prices available brokerdealer quotes identical comparable instruments company recorded unrealized gains 23 million unrealized losses 15 million investments september 30 2018 within aoci consolidated statements financial position company recorded unrealized gains 10 million unrealized losses 6 million september 30 2017 within aoci consolidated statements financial position fiscal year ended september 30 2018 company sold certain marketable common stock approximately 3 million result company recorded 2 million realized gains within selling general administrative expenses fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values fair value longterm debt 96 billion 127 billion september 30 2018 2017 respectively fair value public debt 86 billion september 30 2018 2017 determined primarily using market quotes classified level 1 inputs within asc 820 fair value hierarchy fair value longterm debt 10 billion 41 billion september 30 2018 2017 respectively determined based quoted market prices similar instruments classified level 2 inputs within asc 820 fair value hierarchy 12 stockbased compensation september 2 2016 shareholders company approved johnson controls international plc 2012 share incentive plan original effective date plan october 1 2012 plan amended restated november 17 2014 amended restated connection merger consummated september 2 2016 “amendment effective date” amendment restatement intended reflect assumption plan remaining share reserves johnson controls inc 2012 omnibus incentive plan johnson controls inc 2003 stock plan outside directors “legacy johnson controls plans” amendment effective date following amendment effective date awards may made legacy johnson controls plans types awards authorized plan comprise stock options stock appreciation rights performance shares performance units stockbased awards compensation committee companys board directors determine types awards granted individual participants terms conditions awards plan provides 76 million shares companys common stock reserved issuance 2012 plan 45 million shares remain available issuance september 30 2018 pursuant merger agreement outstanding stock options held tyco employees september 2 2016 “merger date” converted options acquire companys shares using 0955forone share consolidation ratio manner designed preserve intrinsic value awards addition pursuant merger agreement nonvested restricted stock held tyco employees merger date converted nonvested restricted stock company using 0955forone share consolidation ratio manner designed preserve intrinsic value awards outstanding performance share awards held tyco employees merger date converted nonvested restricted stock company target performance level adjusted reflect 0955forone consolidation ratio except conversion stock options nonvested restricted stock performance share awards discussed herein material terms awards remained unchanged modifications made awards upon merger date constituted modifications authoritative guidance accounting stock compensation guidance requires company revalue awards upon merger close allocate revised fair value purchase consideration continuing expense based ratio service performed merger date total service period awards revised fair value allocated postmerger services resulted incremental expense recognized remaining service period awards portion tyco awards earned merger date included purchase consideration 224 million total value tyco awards earned merger date 101 million expensed remaining future vesting period refer note 2 “merger transaction” notes consolidated financial statements information regarding merger pursuant merger agreement outstanding stock options held jci inc employees merger date converted oneforone options acquire companys shares manner designed preserve intrinsic value awards addition pursuant merger agreement nonvested restricted stock held jci inc employees merger date converted oneforone nonvested restricted stock company manner designed preserve intrinsic value awards outstanding performance share awards held jci inc employees merger date converted nonvested restricted stock company based certain performance factors except conversion stock options nonvested restricted stock performance share awards discussed herein material terms awards remained unchanged incremental fair value resulted conversion references company’s stock throughout note 12 refer stock jci inc prior merger date stock company subsequent merger date connection adient spinoff pursuant employee matters agreement company adient outstanding stock options sars held october 31 2016 “spin date” employees remaining company converted options sars company using 1085317forone share ratio based prespin postspin closing prices company’s ordinary shares exercise prices options sars converted using inverse ratio manner designed preserve intrinsic value awards addition pursuant employee matters agreement nonvested restricted stock held spin date employees remaining company converted nonvested restricted stock company using 1085317forone share ratio manner designed preserve intrinsic value awards performance share awards outstanding spin date employees remaining company receive stockbased compensation awards adient result spinoff except conversion awards related exercise prices discussed herein material terms awards remained unchanged incremental fair value resulted conversion awards therefore additional compensation expense recorded related award modification also connection spinoff transaction pursuant employee matters agreement employees adient entitled receive stockbased compensation awards company adient replacement previously outstanding awards company granted prior spin date awards include stock options stock appreciation rights nonvested restricted stock upon spin date existing awards held adient employees converted new awards company adient pro rata basis adjusted based formula designed preserve intrinsic value awards additional compensation expense resulting modification awards held adient employees recorded adient company four sharebased compensation plans described fiscal years ended september 30 2018 2017 compensation cost charged income continuing operations excluding offsetting impact outstanding equity swaps plans approximately 98 million 134 million respectively recorded selling general administrative expenses fiscal year ended september 30 2016 compensation cost charged income continuing operations excluding offsetting impact outstanding equity swaps plans approximately 160 million 121 million recorded selling general administrative expenses 39 million recorded restructuring impairment costs company elected utilize alternative transition method calculating tax effects stockbased compensation total income tax benefit recognized continuing operations consolidated statements income sharebased compensation arrangements approximately 25 million 53 million 56 million fiscal years ended september 30 2018 2017 2016 respectively tax expense exercise vesting equity settled awards 3 million fiscal year ended september 30 2018 recorded part income tax provision upon adoption asu 201609 first quarter fiscal 2018 tax benefit exercise vesting equity settled awards 4 million 11 million fiscal years ended 2017 2016 respectively recorded capital excess par value company settle stock options granted sharebased payment arrangements cash stock options stock options granted exercise price equal market price company’s stock date grant stock option awards typically vest two three years grant date expire ten years grant date fair value option estimated date grant using blackscholes option valuation model uses assumptions noted following table expected life options represents period time options granted expected outstanding assessed separately executives nonexecutives riskfree interest rate periods contractual life option based us treasury yield curve effect time grant fiscal 2018 expected volatility based historical volatility companys stock adient spinoff blended historical volatility certain peer companies stock prior adient spinoff recent period corresponding expected life grant date fiscal 2017 expected volatility based historical volatility certain peer companies recent period corresponding expected life grant date fiscal 2016 expected volatility based historical volatility companys stock factors expected dividend yield based expected annual dividend percentage market value company’s ordinary shares grant date company uses historical data estimate option exercises employee terminations within valuation model summary stock option activity september 30 2018 changes year ended presented weightedaverage grantdate fair value options granted fiscal years ended september 30 2018 2017 2016 704 781 1314 respectively total intrinsic value options exercised fiscal years ended september 30 2018 2017 2016 approximately 38 million 81 million 39 million respectively conjunction exercise stock options granted company received cash payments fiscal years ended september 30 2018 2017 2016 approximately 66 million 157 million 70 million respectively september 30 2018 company approximately 13 million total unrecognized compensation cost related nonvested stock options granted continuing operations cost expected recognized weightedaverage period 16 years stock appreciation rights sars vest terms conditions stock option awards however settled cash difference market price date exercise price result sars recorded company’s consolidated statements financial position liability date exercise fair value sar award estimated using similar method described stock options fair value sar award recalculated end reporting period liability expense adjusted based new fair value assumptions used determine fair value sar awards september 30 2018 follows summary sar activity september 30 2018 changes year ended presented conjunction exercise sars granted company made payments 3 million 4 million 8 million fiscal years ended september 30 2018 2017 2016 respectively restricted nonvested stock units plan provides award restricted stock restricted stock units certain employees awards typically share settled unless employee nonus employee elects defer settlement retirement point award would settled cash restricted awards typically vest period three years grant date plan allows different vesting terms specific grants approval board directors fair value sharesettled restricted award based closing market value company’s ordinary shares date grant fair value cashsettled restricted award recalculated end reporting period based closing market value companys ordinary shares end reporting period liability expense adjusted based new fair value summary status company’s nonvested restricted stock awards september 30 2018 changes fiscal year ended presented september 30 2018 company approximately 80 million total unrecognized compensation cost related nonvested restricted stock arrangements granted continuing operations cost expected recognized weightedaverage period 18 years performance share awards plan permits grant performancebased share unit psu awards psus generally contingent achievement predetermined performance goals threeyear performance period well award holders continuous employment vesting date psus also indexed achievement specified levels total shareholder return versus peer group performance period psu earned settled shares companys ordinary shares following completion performance period unless award holder elected defer portion award retirement would settled cash fair value psu estimated date grant using monte carlo simulation uses assumptions noted following table riskfree interest rate periods contractual life psu based us treasury yield curve effect time grant fiscal 2018 expected volatility based historical volatility companys stock adient spinoff blended historical volatility certain peer companies stock prior adient spinoff recent threeyear period grant date fiscal 2017 expected volatility based historical volatility certain peer companies recent threeyear period grant date summary status company’s nonvested psus september 30 2018 changes fiscal year ended presented 13 earnings per share company presents basic diluted eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number ordinary shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number ordinary shares ordinary equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock unvested performance share awards treasury stock method assumes company uses proceeds exercise stock option awards repurchase ordinary shares average market price period assumed proceeds treasury stock method include purchase price grantee pay future compensation cost future service company yet recognized unvested restricted stock unvested performance share awards assumed proceeds treasury stock method would include unamortized compensation cost following table reconciles numerators denominators used calculate basic diluted earnings per share millions three months ended september 30 2018 2017 company declared dividend 026 025 respectively per share twelve months ended september 30 2018 2017 company declared four quarterly dividends totaling 104 100 respectively per share company pays dividends month subsequent end fiscal quarter 14 equity noncontrolling interests share capital september 2016 result tyco merger discussed within note 2 merger transaction notes consolidated financial statements outstanding share common stock par value 100 per share jci inc common stock shares held jci inc tyco certain subsidiaries converted right receive either cash share consideration shares outstanding merger date calculated follows millions except share consolidation ratio per share data dividends authority declare pay dividends vested board directors timing declaration payment future dividends holders companys ordinary shares determined companys board directors depend upon many factors including companys financial condition results operations capital requirements companys businesses industry practice relevant factors irish law dividends may paid share repurchases redemptions must generally funded distributable reserves creation distributable reserves accomplished way capital reduction irish high court approved december 18 2014 acquired conjunction tyco merger share repurchase program following tyco merger company adopted subject ongoing existence sufficient distributable reserves existing tyco international plc 1 billion share repurchase program september 2016 december 2017 companys board directors approved 1 billion increase share repurchase authorization share repurchase program expiration date may amended terminated board directors time without prior notice fiscal year 2018 company repurchased approximately 300 million shares september 30 2018 approximately 10 billion remains available share repurchase program november 2018 companys board directors approved 1 billion increase share repurchase authorization fiscal year 2017 company repurchased approximately 651 million shares repurchased closing merger september 30 2016 prior merger fiscal year 2016 company repurchased approximately 501 million shares jci incs 365 billion share repurchase program comprehensive income includes activity relating discontinued operations following schedules present changes consolidated equity attributable johnson controls noncontrolling interests millions net tax previously disclosed quarter ended december 31 2017 company adopted asu 201609 result company recognized deferred tax assets 179 million related certain operating loss carryforwards resulting exercise employee stock options restricted stock vestings modified retrospective basis cumulativeeffect adjustment retained earnings october 1 2017 october 31 2016 company completed adient spinoff result spinoff company divested net assets approximately 40 billion equity attributable johnson controls international plc increased 158 billion result tyco merger fiscal 2016 increase primarily due increase equity 197 billion resulting total fair value consideration transferred partially offset decrease 39 billion resulting cash contributed tyco used purchase shares johnson controls inc october 1 2015 company formed joint venture hitachi connection acquisition company recorded equity attributable noncontrolling interests 679 million also connection tyco merger company recorded equity attributable noncontrolling interests 34 million company consolidates certain subsidiaries noncontrolling interest party within control right require company redeem portion interest subsidiary redeemable noncontrolling interests reported estimated redemption value adjustment redemption value impacts retained earnings impact net income redeemable noncontrolling interests redeemable upon future events occurrence currently probable recorded carrying value september 30 2018 company subsidiaries noncontrolling interest party within control right require company redeem portion interests following schedules present changes redeemable noncontrolling interests millions following schedules present changes aoci attributable johnson controls millions net tax fiscal 2018 12 million cumulative cta recognized part divestiturerelated gain recognized part divestiture scott safety refer note 10 derivative instruments hedging activities notes consolidated financial statements disclosure line items consolidated statements income affected reclassifications aoci income related derivatives fiscal 2018 company sold certain marketable common stock approximately 3 million result company recorded 2 million realized gains within selling general administrative expenses refer note 15 retirement plans notes consolidated financial statements disclosure components companys net periodic benefit costs associated defined benefit pension postretirement plans year ended september 30 2016 amounts reclassified aoci income pension postretirement plans primarily recorded selling general administrative expenses consolidated statements income 15 retirement plans pension benefits company noncontributory defined benefit pension plans covering certain us nonus employees benefits provided primarily based years service average compensation monthly retirement benefit amount certain company’s us pension plans amended prohibit new participants entering plans longer accrue benefits funding us pension plans equals exceeds minimum requirements employee retirement income security act 1974 funding nonus plans observes local legal regulatory limits also company makes contributions uniontrusteed pension funds construction service personnel pension plans accumulated benefit obligations abo exceed plan assets projected benefit obligation pbo abo fair value plan assets plans 5166 million 5072 million 4525 million respectively september 30 2018 5564 million 5465 million 4715 million respectively september 30 2017 fiscal 2018 total employer contributions defined benefit pension plans 53 million 18 million voluntary contributions made company expects contribute approximately 85 million cash defined benefit pension plans fiscal 2019 projected benefit payments plans september 30 2018 estimated follows millions postretirement benefits company provides certain health care life insurance benefits eligible retirees dependents primarily us canada nonus employees covered government sponsored programs cost company significant eligibility coverage based meeting certain years service retirement age qualifications benefits may subject deductibles copayment provisions limitations company reserved right modify benefits effective january 31 1994 company modified certain us salaried plans place limit company’s cost future annual retiree medical benefits 150 1993 cost health care cost trend assumption significant effect amounts reported fiscal 2018 total employer contributions postretirement plans 4 million company expects contribute approximately 15 million cash postretirement plans fiscal 2019 projected benefit payments plans september 30 2018 estimated follows millions december 2003 us congress enacted medicare prescription drug improvement modernization act 2003 act employers sponsoring postretirement care plans provide prescription drug benefits act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans providing benefit least actuarially equivalent medicare part d1 act medicare subsidy amount received directly plan sponsor related plan sponsor required use subsidy amount fund postretirement benefits may use subsidy valid business purpose projected subsidy receipts estimated approximately 2 million per year next ten years defined contribution plans company sponsors various defined contribution savings plans allow employees contribute portion pretax andor aftertax income accordance plan specified guidelines specified conditions company contribute certain savings plans based predetermined percentages compensation earned employee andor match percentage employee contributions certain limits defined contribution plan contributions charged expense continuing discontinued operations amounted 205 million 190 million 179 million fiscal years ended 2018 2017 2016 respectively multiemployer benefit plans company contributes multiemployer benefit plans based obligations arising collective bargaining agreements related certain hourly employees us plans provide retirement benefits participants based service contributing employers benefits paid assets held trust purpose trustees typically responsible determining level benefits provided participants well matters investment assets administration plans risks participating multiemployer benefit plans different singleemployer benefit plans following aspects • assets contributed multiemployer benefit plan one employer may used provide benefits employees participating employers • participating employer stops contributing multiemployer benefit plan unfunded obligations plan may borne remaining participating employers • company stops participating multiemployer benefit plans company may required pay plans amount based allocable share underfunded status plan referred withdrawal liability company participates approximately 290 multiemployer benefit plans primarily related building technologies solutions business us none individually significant company number employees covered company’s multiemployer benefit plans remained consistent past three years significant changes affect comparability fiscal 2018 2017 2016 contributions company recognizes expense contractuallyrequired contribution period company contributed 68 million 67 million 46 million multiemployer benefit plans fiscal 2018 2017 2016 respectively based recent information available company believes present value actuarial accrued liabilities certain multiemployer benefit plans may exceed value assets held trust pay benefits currently company aware significant multiemployer benefits plans probable reasonably possible company obligated make shortfall funds moreover company exit certain markets otherwise cease making contributions funds company could trigger withdrawal liability currently company aware multiemployer benefit plans probable reasonably possible company significant withdrawal liability accrual shortfall withdrawal liability recorded probable liability exists reasonably estimated plan assets company’s investment policies employ approach whereby mix equities fixed income alternative investments used maximize longterm return plan assets prudent level risk investment portfolio primarily contains diversified blend equity fixed income investments equity investments diversified across us nonus stocks well growth value small large capitalizations fixed income investments include corporate government issues short mid longterm maturities focus investment grade purchased target duration close plan liability investment market risks measured monitored ongoing basis regular investment portfolio reviews annual liability measurements periodic assetliability studies majority real estate component portfolio invested diversified portfolio highquality operating properties cash yields greater targeted appreciation investments alternative asset classes including hedge funds commodities diversify expected investment returns relative equity fixed income investments result companys diversification strategies significant concentrations risk within portfolio investments company’s actual asset allocations line target allocations company rebalances asset allocations appropriate order stay within range allocation asset category expected return plan assets based company’s expectation longterm average rate return capital markets plans invest average market returns adjusted appropriate active asset management returns expected return reflects investment policy target asset mix considers historical returns earned asset category company’s plan assets september 30 2018 2017 asset category follows millions fair value certain investments real estate readily determinable fair value requires fund managers independently arrive fair value calculating net asset value nav per share order calculate nav per share fund managers value real estate investments using one combination following methods independent third party appraisals discounted cash flow analysis net cash flows projected generated investment recent sales comparable investments assumptions used revalue properties updated every quarter due fact fund managers calculate nav per share company utilizes practical expedient measuring fair value realestate investments provided asc 820 fair value measurement applying practical expedient company required adjust nav provided fund manager order determine fair value investment nav per share calculated manner consistent measurement principles asc 946 financial services investment companies companys measurement date company believes appropriate methodology obtain fair value assets component real estate portfolio development investments carried cost completed valued third party appraiser accordance asu 201507 disclosures investments certain entities calculate net asset value per share equivalent investments fair value measured using net asset value per share practical expedient disclosed separate fair value hierarchy fair value amounts presented table intended permit reconciliation total plan assets amounts presented notes consolidated financial statements following description valuation methodologies used assets measured fair value certain assets held within commingled funds valued unitized nav percentage net asset value determined manager fund values based fair value underlying net assets owned fund cash equivalents fair value cash valued cost equity securities fair value equity securities determined direct quoted market prices underlying holdings direct quoted market prices regulated financial exchanges fixed income securities fair value fixed income securities determined direct indirect quoted market prices indirect quoted market prices utilized value assets held separate accounts published investment managers report daily underlying holdings underlying holdings direct quoted market prices regulated financial exchanges commodities fair value commodities determined quoted market prices underlying holdings regulated financial exchanges hedge funds fair value hedge funds accounted custodian obtains valuations underlying managers based market quotes liquid assets alternative methods assets sufficient trading activity derive prices company custodian review methods used underlying managers value assets company believes appropriate methodology obtain fair value assets real estate fair value real estate determined quoted market prices underlying real estate investment trusts reits securities traded open exchange methods described may produce fair value calculation may indicative net realizable value reflective future fair values furthermore company believes valuation methods appropriate consistent market participants use different methodologies assumptions determine fair value certain financial instruments could result different fair value measurement reporting date level 3 assets september 30 2018 2017 level 3 asset activity fiscal 2018 2017 funded status table follows contains abo reconciliations changes pbo changes plan assets funded status millions 1 plan assets obligations determined based september 30 measurement date september 30 2018 2017 2 company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates company elected utilize full yield curve approach estimation service interest components net periodic benefit cost credit pension postretirement plans utilize yield curve approach full yield curve approach applies specific spot rates along yield curve used determination benefit obligation relevant projected cash flows accumulated comprehensive income amounts aoci consolidated statements financial position exclusive tax impacts yet recognized components net periodic benefit cost september 30 2018 2017 related pension postretirement benefits significant amounts aoci expected recognized components net periodic benefit cost credit next fiscal related pension postretirement benefits significant net periodic benefit cost table follows contains components net periodic benefit cost millions 16 significant restructuring impairment costs better align resources growth strategies reduce cost structure global operations certain underlying markets company commits restructuring plans necessary fiscal 2018 company committed significant restructuring plan 2018 plan recorded 263 million restructuring impairment costs consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring actions related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments restructuring impairment costs recorded 113 million related global products segment 56 million related building solutions emeala segment 50 million related corporate 20 million related building solutions north america segment 16 million related building solutions asia pacific segment 8 million related power solutions segment restructuring actions expected substantially complete 2020 following table summarizes changes company’s 2018 plan reserve included within current liabilities consolidated statements financial position millions fiscal 2017 company committed significant restructuring plan 2017 plan recorded 367 million restructuring impairment costs consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring actions related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments restructuring impairment costs recorded 166 million related corporate 74 million related building solutions emeala segment 59 million related building solutions north america segment 32 million related global products segment 20 million related power solutions segment 16 million related building solutions asia pacific segment restructuring actions expected substantially complete fiscal 2019 following table summarizes changes company’s 2017 plan reserve included within current liabilities consolidated statements financial position millions fiscal 2016 company committed significant restructuring plan 2016 plan recorded 288 million restructuring impairment costs consolidated statements income restructuring actions related cost reduction initiatives company’s building technologies solutions power solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments changeincontrol payments restructuring impairment costs recorded 161 million related corporate 66 million related power solutions segment 44 million related global products segment 17 million related building solutions emeala segment restructuring actions expected substantially complete fiscal 2019 included reserve 56 million committed restructuring actions taken tyco liabilities assumed part tyco acquisition additionally company recorded 332 million restructuring impairment costs within discontinued operations related adient fiscal 2016 following table summarizes changes company’s 2016 plan reserve included within current liabilities consolidated statements financial position millions companys fiscal 2018 2017 2016 restructuring plans included workforce reductions approximately 11500 employees 9100 building technologies solutions business 2200 corporate 200 power solutions restructuring charges associated employee severance termination benefits paid severance period granted employee lump sum basis accordance individual severance agreements september 30 2018 approximately 4900 employees separated company pursuant restructuring plans addition restructuring plans included twelve plant closures building technologies solutions business september 30 2018 seven twelve plants closed company management closely monitors overall cost structure continually analyzes businesses opportunities consolidate current operations improve operating efficiencies locate facilities close proximity customers ongoing analysis includes review manufacturing engineering purchasing operations well overall global footprint businesses 17 impairment longlived assets company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 35030 requires intangible assets acquired business combination used research development activities considered indefinite lived completion abandonment associated research development efforts period assets considered indefinite lived shall amortized shall tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value entity shall recognize impairment loss amount equal excess asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written fiscal 2018 company concluded triggering event requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2018 result company reviewed longlived assets impairment recorded 42 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 31 million related global products segment 6 million related power solutions segment 5 million related corporate assets refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured market approach utilizing appraisal determine fair values impaired assets method consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2017 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2017 result company reviewed longlived assets impairment recorded 77 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 30 million related building solutions north america segment 20 million related global products segment 19 million related corporate assets 7 million related power solutions segment 1 million related building solutions asia pacific segment refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2016 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2016 result company reviewed longlived assets impairment recorded 103 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 64 million related power solutions segment 24 million related corporate assets 8 million related global products segment 4 million related building solutions asia pacific segment 3 million related building solutions emeala segment addition company recorded 87 million asset impairments within discontinued operations related adient fiscal 2016 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement september 30 2018 2017 2016 company concluded triggering events requiring assessment impairment longlived assets refer note 1 summary significant accounting policies note 7 goodwill intangible assets notes consolidated financial statements discussion company’s goodwill impairment testing 18 income taxes fiscal 2018 2017 significant components company’s income tax provision continuing operations follows millions statutory tax rate ireland used comparison since company domiciled ireland effective rate statutory rate 125 fiscal 2018 primarily due discrete net impacts us tax reform final income tax effects completed divestiture scott safety business legal entity restructuring associated power solutions business valuation allowance adjustments tax rate differentials partially offset benefits continuing global tax planning initiatives tax audit closures tax benefits due changes entity tax status effective rate statutory rate 125 fiscal 2017 primarily due establishment deferred tax liability outside basis difference companys investment certain subsidiaries related divestiture scott safety business income tax effects pension marktomarket gains tax rate differentials partially offset jurisdictional mix significant restructuring impairment costs tyco merger transaction integration costs purchase accounting adjustments tax audit closures tax benefit due changes entity tax status benefits continuing global tax planning initiatives fiscal 2016 significant components company’s income tax provision continuing operations follows millions us federal statutory tax rate used comparison since company us domiciled company 11 months fiscal 2016 effective rate us statutory rate fiscal 2016 primarily due benefits continuing global tax planning initiatives foreign tax rate differentials partially offset jurisdictional mix restructuring impairment costs tax impacts merger integration related costs valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2018 company performed analysis related realizability worldwide deferred tax assets result considering feasible tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within germany would realized therefore company recorded 56 million valuation allowances income tax expense three month period ended september 30 2018 fourth quarter fiscal 2017 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily canada china mexico would able realized likely certain deferred tax assets germany would realized therefore company recorded 27 million net valuation allowances income tax expense three month period ended september 30 2017 result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 24 billion valuation allowances also fourth quarter fiscal 2016 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined material changes needed valuation allowances therefore impact income tax expense due valuation allowance changes three month period year ended september 30 2016 uncertain tax positions company subject income taxes us numerous foreign jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities september 30 2018 company gross tax effected unrecognized tax benefits continuing operations 2379 million 2246 million recognized would impact effective tax rate total net accrued interest september 30 2018 approximately 119 million net tax benefit september 30 2017 company gross tax effected unrecognized tax benefits continuing operations 2173 million 2047 million recognized would impact effective tax rate total net accrued interest september 30 2017 approximately 99 million net tax benefit september 30 2016 company gross tax effected unrecognized tax benefits continuing operations 1706 million 1604 million recognized would impact effective tax rate total net accrued interest september 30 2016 approximately 84 million net tax benefit reconciliation beginning ending amount unrecognized tax benefits follows millions fiscal 2018 company settled tax examinations impacting fiscal years 2010 fiscal 2012 resulted 25 million net benefit income tax expense fiscal 2017 company settled significant number tax examinations impacting fiscal years 2006 fiscal 2014 fourth quarter fiscal 2017 income tax audit resolutions resulted net 191 million benefit income tax expense us fiscal years 2015 2016 currently exam internal revenue service irs certain legal entities additionally company currently exam following major nonus jurisdictions continuing operations reasonably possible certain tax examinations andor tax litigation conclude within next twelve months could material impact tax expense tax matters fourth quarter fiscal 2018 company recorded tax benefit 139 million due changes entity tax status fourth quarter fiscal 2018 company recorded tax charge 129 million due legal entity restructuring associated power solutions business first quarter fiscal 2018 company completed sale scott safety business 3m company connection sale company recorded pretax gain 114 million income tax expense 30 million addition fiscal 2017 company recorded discrete noncash tax charge 490 million related establishment deferred tax liability outside basis difference companys investment certain subsidiaries scott safety business refer note 3 acquisitions divestitures note 4 discontinued operations notes consolidated financial statements additional information fiscal 2018 2017 company recorded transaction integration costs 234 million 428 million respectively costs generated tax benefits 27 million 69 million respectively reflects company’s current tax position jurisdictions fiscal 2018 2017 2016 company incurred significant charges restructuring impairment costs 263 million 367 million 288 million respectively refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information costs generated tax benefits 38 million 63 million 76 million respectively reflects company’s current tax position jurisdictions fiscal 2018 2017 2016 company recorded pension marktomarket gains losses 10 million 420 million 393 million respectively gains generated tax expense benefit 3 million 126 million 119 million respectively reflects company’s current tax position jurisdictions fourth quarter fiscal 2017 company recorded tax charge 53 million due change deferred tax liability related outside basis certain nonconsolidated subsidiaries first quarter fiscal 2017 company recorded discrete tax benefit 101 million due changes entity tax status fourth quarter fiscal 2016 company completed merger tyco result transaction company incurred incremental tax expense 137 million preparation spinoff automotive experience business first quarter fiscal 2017 company incurred incremental tax expense continuing operations 26 million fiscal 2016 result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities generally recorded within noncurrent liabilities consolidated statements financial position liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid september 30 2018 2017 company recorded liabilities 255 million 290 million respectively 255 million recorded september 30 2018 235 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation tax sharing agreements impacts tax legislation change statutory tax rates december 22 2017 “tax cuts jobs act” hr 1 enacted significantly revises us corporate income tax among things lowering corporate income tax rates imposing onetime transition tax deemed repatriated earnings nonus subsidiaries implementing territorial tax system various base erosion minimum tax provisions connection company’s analysis impact us tax law changes provisional subject change company recorded net tax charge 108 million fiscal 2018 provisional net tax charge arises benefit 108 million due remeasurement us deferred tax assets liabilities offset company’s tax charge relating onetime transition tax deemed repatriated earnings inclusive relevant taxes 216 million company’s estimated benefit remeasurement us deferred tax assets liabilities increased 101 million december 31 2017 108 million september 30 2018 due calculation refinement company’s estimated impact company remeasured certain deferred tax assets liabilities based rates expected reverse future company’s tax charge transition tax decreased 305 million december 31 2017 216 million september 30 2018 due analysis company’s post1986 nonus earnings profits “ep” previously deferred us federal taxation refinement estimated impact tax law changes based effective dates certain aspects us tax law changes various applicable impacts enacted legislation could finalized september 30 2018 company made reasonable estimates impact transition tax final impact us tax law changes may differ estimated impacts due future treasury regulations tax law technical corrections notices rulings refined computations items company finalize provisional amounts within time period prescribed staff accounting bulletin 118 fiscal years ended 2018 2017 2016 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements continuing operations components provision income taxes continuing operations follows millions consolidated us income continuing operations income taxes noncontrolling interests fiscal years ended september 30 2018 2017 2016 income 773 million 868 million 943 million respectively consolidated nonus income continuing operations income taxes noncontrolling interests fiscal years ended september 30 2018 2017 2016 income 2128 million 1690 million 119 million respectively income taxes paid fiscal years ended september 30 2018 2017 2016 517 million 1756 million 1388 million respectively september 30 2018 2017 company recorded within consolidated statements financial position current liabilities approximately 336 million 625 million respectively accrued income tax liabilities company provided us nonus income taxes approximately 195 billion outside basis differences consolidated subsidiaries johnson controls international plc company indefinitely reinvested basis differences reduction outside basis differences via sale liquidation subsidiaries andor distributions could create taxable income companys intent reduce outside basis differences would tax efficient given numerous ways basis differences may reduced practicable estimate amount unrecognized withholding taxes deferred tax liability outside basis differences fiscal 2018 due us tax reform company provided income tax related change company’s assertion outside basis difference certain nonus subsidiaries owned directly indirectly us subsidiaries us tax reform us enacted tax system provides exemption dividends received us corporations 10 owned nonus corporations however certain nonus us state withholding taxes may still apply closing outside basis difference via distribution transactions deferred taxes classified consolidated statements financial position follows millions temporary differences carryforwards gave rise deferred tax assets liabilities included millions september 30 2018 company available net operating loss carryforwards approximately 243 billion 135 billion expire various dates 2019 2038 remainder indefinite carryforward period company available us foreign tax credit carryforwards september 30 2018 624 million may carried back fiscal period 2016 otherwise expire various dates 2020 2024 valuation allowance generally loss carryforwards realization uncertain unlikely losses realized given lack sustained profitability andor limited carryforward periods certain countries first quarter 2018 company adopted asu 201609 result company recognized deferred tax assets 179 million consolidated statements financial position related certain operating loss carryforwards resulting exercise employee stock options restricted stock vestings modified retrospective basis cumulativeeffect adjustment retained earnings october 1 2017 19 segment information asc 280 segment reporting establishes standards reporting information segments financial statements applying criteria set forth asc 280 company determined five reportable segments financial reporting purposes company’s five reportable segments presented context two primary businesses building technologies solutions power solutions building technologies solutions • building solutions north america designs sells installs services hvac controls systems integrated electronic security systems including monitoring integrated fire detection suppression systems commercial industrial retail small business institutional governmental customers north america building solutions north america also provides energy efficiency solutions technical services including inspection scheduled maintenance repair replacement mechanical control systems nonresidential building industrial applications north american marketplace • building solutions emeala designs sells installs services hvac controls refrigeration integrated electronic security integrated fire detection suppression systems provides technical services markets europe middle east africa latin america • building solutions asia pacific designs sells installs services hvac controls refrigeration integrated electronic security integrated fire detection suppression systems provides technical services asia pacific marketplace • global products designs produces heating air conditioning residential commercial applications markets products refrigeration systems replacement new construction market customers globally global products business also designs manufactures sells fire protection security products including intrusion security antitheft devices access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide global products also includes johnson controlshitachi joint venture formed october 1 2015 included scott safety business prior sale october 4 2017 power solutions power solutions services automotive original equipment manufacturers battery aftermarket providing advanced battery technology coupled systems engineering marketing service expertise management evaluates performance business segments primarily segment earnings interest taxes amortization ebita represents income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges significant restructuring impairment costs net marktomarket adjustments related pension postretirement plans financial information relating company’s reportable segments follows millions 1 building solutions north america segment ebita year ended september 30 2018 2017 excludes 20 million 59 million respectively restructuring impairment costs 2 building solutions emeala segment ebita years ended september 30 2018 2017 2016 excludes 56 million 74 million 17 million respectively restructuring impairment costs years ended september 30 2018 2017 2016 emeala segment ebita includes 1 million 5 million 11 million respectively equity income 3 building solutions asia pacific segment ebita year ended september 30 2018 2017 excludes 16 million 16 million respectively restructuring impairment costs years ended september 30 2018 2017 2016 asia pacific segment ebita includes 1 million 1 million 1 million respectively equity income 4 global products segment ebita years ended september 30 2018 2017 2016 excludes 113 million 32 million 44 million respectively restructuring impairment costs years ended september 30 2018 2017 2016 global products segment ebita includes 175 million 151 million 114 million respectively equity income 5 power solutions segment ebita years ended september 30 2018 2017 2016 excludes 8 million 20 million 66 million respectively restructuring impairment costs years ended september 30 2018 2017 2016 power solutions segment ebita includes 58 million 83 million 48 million respectively equity income 6 corporate expenses years ended september 30 2018 2017 2016 excludes 50 million 166 million 161 million respectively restructuring impairment costs 7 prior year amounts exclude assets held sale refer note 4 discontinued operations notes consolidated financial statements information regarding companys disposal groups classified held sale 8 buildings solutions north america assets september 2018 2017 2016 include 8 million 8 million 7 million respectively investments partiallyowned affiliates 9 building solutions emeala assets september 30 2018 2017 2016 include 99 million 107 million 103 million respectively investments partiallyowned affiliates 10 building solutions asia pacific assets september 30 2018 include 1 million investments partiallyowned affiliates 11 global products assets september 30 2018 2017 2016 include 740 million 629 million 513 million respectively investments partiallyowned affiliates 12 power solutions assets september 30 2018 2017 2016 include 453 million 447 million 367 million respectively investments partiallyowned affiliates fiscal years 2018 2017 2016 customer exceeded 10 consolidated net sales geographic segments financial information relating company’s operations geographic area follows millions net sales attributed geographic locations based location assets producing sales longlived assets geographic location consist net property plant equipment 20 nonconsolidated partiallyowned affiliates investments net assets nonconsolidated partiallyowned affiliates stated investments partiallyowned affiliates line consolidated statements financial position september 30 2018 2017 equity net income nonconsolidated partiallyowned affiliates stated equity income line consolidated statements income years ended september 30 2018 2017 2016 following table presents summarized financial data company’s nonconsolidated partiallyowned affiliates amounts included table represent 100 results continuing operations nonconsolidated partiallyowned affiliates accounted equity method summarized balance sheet data september 30 follows millions summarized income statement data years ended september 30 follows millions 21 guarantees certain companys subsidiaries business segment level guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows company offers warranties customers depending upon specific product terms customer purchase agreement typical warranty program requires company replace defective products within specified time period date sale company records estimate future warrantyrelated costs based actual historical return rates known factors based analysis return rates factors company’s warranty provisions adjusted necessary company monitors warranty activity adjusts reserve estimates probable future warranty costs different estimates company’s product warranty liability continuing operations recorded consolidated statements financial position deferred revenue current liabilities warranty less one year noncurrent liabilities warranty extends longer one year changes carrying amount company’s total product warranty liability including extended warranties deferred revenue recorded fiscal years ended september 30 2018 2017 follows millions 1 year ended september 30 2017 includes 13 million product warranties transferred liabilities held sale consolidated statements financial position refer note 4 discontinued operations notes consolidated financial statements information regarding companys disposal groups classified held sale result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities generally recorded within noncurrent liabilities consolidated statements financial position liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid september 30 2018 2017 company recorded liabilities 255 million 290 million respectively 255 million recorded september 30 2018 235 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation tax sharing agreements 22 commitments contingencies environmental matters company accrues potential environmental liabilities probable liability incurred amount liability reasonably estimable september 30 2018 reserves environmental liabilities totaled 42 million 11 million recorded within current liabilities 31 million recorded within noncurrent liabilities consolidated statements financial position reserves environmental liabilities continuing operations totaled 51 million september 30 2017 10 million recorded within current liabilities 41 million recorded within noncurrent liabilities consolidated statements financial position potential liabilities accrued company take consideration possible recoveries future insurance proceeds however take account likely share parties bear remediation sites difficult estimate company’s ultimate level liability many remediation sites due large number parties may involved complexity determining relative liability among parties uncertainty nature scope investigations remediation conducted uncertainty application law risk assessment various choices costs associated diverse technologies may used corrective actions sites often quite lengthy periods eventual remediation may occur nevertheless company currently believe claims penalties costs connection known environmental matters material adverse effect company’s financial position results operations cash flows addition company identified asset retirement obligations environmental matters expected addressed retirement disposal removal abandonment existing owned facilities september 30 2018 2017 company recorded conditional asset retirement obligations 45 million 61 million respectively asbestos matters company certain subsidiaries along numerous third parties named defendants personal injury lawsuits based alleged exposure asbestos containing materials cases typically involved product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos used asbestos containing components september 30 2018 companys estimated asbestos related net liability recorded discounted basis within companys consolidated statements financial position 173 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 550 million 55 million recorded current liabilities 495 million recorded noncurrent liabilities company also maintained separate cash investments receivables related insurance recoveries within consolidated statements financial position 377 million 33 million recorded current assets 344 million recorded noncurrent assets included 6 million cash 281 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2018 90 million september 30 2017 companys estimated asbestos related net liability recorded discounted basis within companys consolidated statements financial position 181 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 573 million 48 million recorded current liabilities 525 million recorded noncurrent liabilities company also maintained separate cash investments receivables related insurance recoveries within consolidated statements financial position 392 million 53 million recorded current assets 339 million recorded noncurrent assets included 22 million cash 269 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2017 101 million companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 least annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted amounts recorded company asbestosrelated liabilities insurancerelated assets based companys strategies resolving asbestos claims currently available information number estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims identity defendants resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers many factors closely linked change one variable assumption impact one others single variable assumption predominately influences determination companys asbestosrelated liabilities insurancerelated assets furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries result actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results insurable liabilities company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience september 30 2018 2017 insurable liabilities totaled 417 million 445 million respectively 95 million 122 million recorded within current liabilities 22 million 22 million recorded within accrued compensation benefits 300 million 301 million recorded within noncurrent liabilities consolidated statements financial position respectively company records receivables third party insurers recovery determined probable amount receivables recorded september 30 2018 26 million 6 million recorded within current assets 20 million recorded within noncurrent assets amount receivables recorded september 30 2017 46 million 31 million recorded within current assets 15 million recorded within noncurrent assets company maintains captive insurance companies manage insurable liabilities arbitration award september 2017 company subject unfavorable arbitration award approximately 50 million relating contractual dispute subcontractor used company airport construction project doha qatar connection unfavorable arbitration award company recorded charge 50 million within selling general administrative expenses consolidated statements income fourth quarter fiscal 2017 airport project managed steering committee company subcontractor working jointly document claims increased costs steering committee subcontractor initiated arbitration proceeding company pursuant arbitration proceeding company subcontractor sought recover costs alleges incurred due project delays additional work related financing costs company filed annulment proceedings respect arbitration award local court qatar october 2018 annulment proceeding dismissed court award remains outstanding portion balance accrue interest statutory rate 956 related action company initiated arbitration claim steering committee related costs incurred connection delays airport construction project including costs related award arbitrator expected issue decision company’s claims steering committee end first quarter fiscal 2019 aqueous filmforming foam afff litigation two subsidiaries chemguard inc chemguard tyco fire products lp tyco fire products named along defendant manufacturers number class action lawsuits relating use firefighting foam products us department defense dod others fire suppression purposes related training exercises plaintiffs generally allege firefighting foam products manufactured defendants contain break chemicals perfluorooctane sulfonate pfos perfluorooctanoic acid pfoa andor per poly fluorinated pfas compounds use products others various airbases airports sites resulted release chemicals environment ultimately communities’ drinking water supplies neighboring airports airbases sites pfoa pfos pfas compounds studied united states environmental protection agency epa environmental health agencies researchers epa issued regulatory limits however studies continue epa issued health advisory level pfoa pfos drinking water pfoa pfos types synthetic chemical compounds present firefighting foam however also present many existing consumer products according epa pfoa pfos used make carpets clothing fabrics furniture paper packaging food materials eg cookware resistant water grease stains plaintiffs generally seek compensatory damages including damages alleged personal injuries medical monitoring alleged diminution property values also seek punitive damages injunctive relief address remediation alleged contamination company named 19 putative class actions federal state courts six states set forth colorado • district colorado bell et al v 3m company et al filed september 18 2016 • district colorado bell et al v 3m company et al filed september 18 2016 • district colorado davis et al v 3m company et al filed september 22 2016 cases consolidated us district court district colorado hearing plaintiffs’ motion class certification expected 2018 trial date schedule april 2019 delaware • district delaware anderson v 3m company et al filed may 18 2018 united states district court district delaware • district delaware grubb v 3m company et al filed october 30 2018 united states district court district delaware massachusetts • district massachusetts civitarese et al v 3m company et al filed april 18 2018 united states district court massachusetts washington • eastern district washington ackerman et al v 3m company et al filed april 5 2018 united states district court eastern district washington new york • eastern district new york green et al v 3m company et al filed march 27 2017 supreme court state new york suffolk county prior removal federal court • southern district new york adamo et al v port authority ny nj et al filed august 11 2017 supreme court state new york orange county prior removal federal court • southern district new york fogarty et al v port authority ny nj et al filed august 11 2017 supreme court state new york orange county prior removal federal court • southern district new york miller et al v port authority ny nj et al filed august 11 2017 supreme court state new york orange county prior removal federal court • eastern district new york singer et al v 3m company et al filed october 10 2017 supreme court state new york suffolk county prior removal federal court • eastern district new york shipman et al v 3m company et al filed march 21 2018 supreme court state new york suffolk county prior removal federal court • eastern district new york py et al v 3m company et al filed april 26 2018 supreme court state new york suffolk county prior removal federal court • supreme court state new york dutchess county dutchess v 3m company et al filed october 12 2018 pennsylvania • eastern district pennsylvania bates et al v 3m company et al filed september 15 2016 • eastern district pennsylvania grande et al v 3m company et al filed october 13 2016 • eastern district pennsylvania yockey et al v 3m company et al filed october 24 2016 • eastern district pennsylvania fearnley et al v 3m company et al filed december 9 2016 cases consolidated us district court eastern district pennsylvania defendants motion dismiss complaint consolidated proceeding denied without prejudice cases currently stayed pending appeal action company party september 2018 company filed petition multidistrict litigation united states judicial panel multidistrict litigation seeking consolidate existing future federal cases one jurisdiction hearing petition set november 29 2018 june 2018 state new york filed lawsuit new york state court state new york v 3m co 90402918 ny sup ct albany county number manufacturers including affiliates company respect alleged pfos pfoa contamination purportedly resulting firefighting foams used locations across new york including stewart air national guard base newburgh gabreski air national guard base southampton plattsburgh air force base plattsburgh griffiss air force base rome unspecified “other” sites throughout state lawsuit seeks recover costs natural resource damages associated contamination sites addition approximately 55 individual “mass” actions pending federal court colorado 41 cases new york 4 cases pennsylvania 10 cases chemguard tyco fire products defendants plaintiffs generally seek compensatory damages including damages alleged personal injuries medical monitoring alleged diminution property values cases involve approximately 7000 plaintiffs colorado approximately 126 plaintiffs new york 14 plaintiffs pennsylvania company also notice approximately 629 possible individual product liability claims 3 possible municipal claims filings made pennsylvania state court complaints filed matters pennsylvania’s procedural rules may result lawsuits chemguard tyco fire products also defendants three municipal cases pending us district court district massachusetts town barnstable v 3m co et al filed nov 21 2016 county barnstable v 3m co et al filed january 9 2017 city westfield v 3m co et al filed february 24 2018 well two municipal cases pending eastern district new york suffolk county water auth v 3m co filed november 30 2017 hampton bays water dist v 3m co filed feb 21 2018 one municipal case pending southern district new york city newburgh v united states et al filed august 6 2018 one municipal case pending southern district ohio city dayton v 3m company et al filed october 3 2018 one municipal case styled class action discussed supreme court state new york dutchess county dutchess county v 3m company et al filed october 12 2018 one municipal case pending southern district florida city stuart v 3m company et al filed october 18 2018 one municipal case filed superior court state arizona county pima city tuscon town marana v 3m company et al filed november 8 2018 one municipal case filed us district court district new jersey new jerseyamerican water company inc v 3m company et al filed november 8 2018 one municipal case pending northern district florida emerald coast utilities auth v 3m co filed june 22 2018 municipal plaintiffs generally allege use defendants’ firefighting foam products fire training academies municipal airports air national guard bases navy bases released pfos pfoa public water supply wells allegedly requiring remediation public property defendants filed motions dismiss county barnstable city westfield suffolk county water authority hampton bays water authority may 2018 company also notified widefield water sanitation district colorado springs colorado may assert claims regarding remediation costs connection pfos pfoa contamination allegedly resulting use products peterson air force base addition three water districts pennsylvania horsham water sewer authority warminster municipal authority warrington township filed praecipes summons chemguard tyco fire products afff manufacturers relating alleged pfos pfoa contamination praecipes active suits effect tolling statute limitations afff matters tyco fire products coordination wisconsin department natural resources wdnr wisconsin department health services dhs conducting environmental assessment fire technology center ftc located marinette wisconsin surrounding areas city marinette town peshtigo wisconsin connection assessment pfos pfoa detected ftc groundwater surface water outside boundaries ftc tyco fire products continues investigate extent potential migration compounds working closely wdnr dhs develop interim measures remove compounds certain areas detected company vigorously defending cases believes meritorious defenses class certification claims asserted however numerous factual legal issues resolved connection claims extremely difficult predict outcome ultimate financial exposure represented matters assurance exposure material company also pursuing insurance coverage matters company involved various lawsuits claims proceedings incident operation businesses including pertaining product liability environmental safety health intellectual property employment commercial contractual matters various casualty matters although outcome litigation cannot predicted certainty lawsuits claims proceedings may disposed unfavorably us management’s opinion none material adverse effect company’s financial position results operations cash flows costs related matters material periods presented 23 related party transactions ordinary course business company enters transactions related parties equity affiliates transactions consist facility management services sale purchase goods arrangements net sales purchases related parties included consolidated statements income 958 million 203 million respectively fiscal 2018 1004 million 195 million respectively fiscal 2017 928 million 184 million respectively fiscal 2016 following table sets forth amount accounts receivable due payable related parties consolidated statements financial position millions company also provided financial support certain vies see note 1 summary significant accounting policies notes consolidated financial statements additional information 24 subsequent event november 13 2018 company entered stock asset purchase agreement “purchase agreement” bcp acquisitions llc “purchaser” purchaser newlyformed entity controlled investment funds managed brookfield capital partners llc pursuant purchase agreement terms subject conditions therein company agreed sell purchaser agreed acquire company’s power solutions business purchase price 132 billion net cash proceeds expected 114 billion tax transactionrelated expenses transaction expected close june 30 2019 subject customary closing conditions required regulatory approvals operating results power solutions business reported discontinued operation beginning first quarter fiscal 2019 johnson controls international plc subsidiaries schedule ii valuation qualifying accounts millions item 9item 8 financial statements supplementary data index consolidated financial statements report independent registered public accounting firm board directors shareholders johnson controls international plc opinions financial statements internal control financial reporting audited accompanying consolidated statements financial position johnson controls international plc subsidiaries “company” september 30 2020 2019 related consolidated statements income comprehensive income loss shareholders’ equity attributable johnson controls ordinary shareholders cash flows three years period ended september 30 2020 including related notes financial statement schedule listed accompanying index collectively referred “consolidated financial statements” also audited companys internal control financial reporting september 30 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company september 30 2020 2019 results operations cash flows three years period ended september 30 2020 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting september 30 2020 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 1 consolidated financial statements company changed manner accounts leases october 1 2019 basis opinions companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matters communicated matters arising current period audit consolidated financial statements communicated required communicated audit committee relate accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate goodwill impairment assessment described note 7 consolidated financial statements company’s consolidated goodwill balance 17932 million september 30 2020 management reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired management considered ongoing deterioration general economic market conditions due covid19 pandemic impact company’s reporting units’ performance due declines cash flow projections north america retail reporting unit third quarter fiscal 2020 result covid19 pandemic management concluded triggering event occurred requiring assessment impairment north america retail reporting unit result management recorded noncash impairment charge 424 million third quarter fiscal 2020 management reviewed goodwill reporting units fiscal 2020 annual impairment test fourth quarter additional impairments recorded management performs impairment reviews reporting units using fair value method based management’s judgments assumptions estimated fair value compared carrying amount reporting unit including recorded goodwill estimating fair value reporting units management uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies multiples company’s average historical future financial results reporting unit certain instances management uses discounted cash flow analyses support fair value estimates whereby management’s internal projections future cash flows primary assumptions weightedaverage cost capital longterm growth rates principal considerations determination performing procedures relating goodwill impairment assessment critical audit matter significant judgment management developing fair value reporting unit turn led high degree auditor judgment subjectivity effort performing procedures evaluating management’s significant assumptions relating multiples earnings comparable entities similar operations economic characteristics using multiples earnings approach ii revenue growth rates included internal projections future cash flows discount rates used weightedaverage cost capital longterm growth rates using discounted cash flow analyses addition audit effort involved use professionals specialized skill knowledge addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating management’s goodwill impairment assessment including controls fair value company’s reporting units procedures also included among others testing management’s process developing fair value estimates ii evaluating appropriateness multiples earnings model discounted cash flow model applicable iii testing completeness accuracy relevance underlying data used models iv evaluating significant assumptions used management related multiples earnings comparable entities similar operations economic characteristics revenue growth rates discount rates longterm growth rates instances management used multiples earnings approach evaluating management’s assumption related identification appropriate comparable entities similar operations economic characteristics used determine multiples earnings reporting unit involved evaluating whether assumption used management reasonable considering current past financial performance reporting units ii external market industry macroeconomic data iii whether assumption consistent evidence obtained areas audit instances management used discounted cash flow analyses evaluating management’s assumptions related revenue growth rates discount rates longterm growth rates involved evaluating whether assumptions used management reasonable considering current past financial performance reporting units ii external market industry macroeconomic data iii whether assumptions consistent evidence obtained areas audit professionals specialized skill knowledge used assist evaluation management’s fair value models management’s significant assumptions related multiples earnings comparable entities similar operations economic characteristics discount rates used weightedaverage cost capital longterm growth rates uncertain tax positions described note 18 consolidated financial statements company recorded uncertain tax position liabilities totaling 2528 million primarily noncurrent liability september 30 2020 company subject income taxes us numerous foreign jurisdictions judgment required management determining company’s worldwide provision income taxes recording related income tax assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain disclosed management liability best estimate probable loss certain tax positions recorded management company’s income tax filings regularly audit tax authorities amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year principal considerations determination performing procedures relating uncertain tax positions critical audit matter significant judgment management identifying recording estimated probable loss uncertain tax position turn led high degree auditor judgment subjectivity effort performing procedures evaluate timely identification accurate measurement uncertain tax positions ii evaluation audit evidence available support tax liabilities uncertain tax positions complex resulted significant auditor judgment nature evidence often highly subjective iii audit effort involved use professionals specialized skill knowledge addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating management’s assessment uncertain tax positions including controls identification estimate probable loss uncertain tax positions procedures also included among others sample uncertain tax positions jurisdiction testing information used calculation estimate probable loss testing calculation estimate probable loss ii testing completeness management’s assessment identification uncertain tax positions iii evaluating status results income tax audits relevant tax authorities applicable professionals specialized skill knowledge used assist evaluation completeness measurement company’s uncertain tax positions including evaluating reasonableness management’s assessment whether tax positions morelikelythannot sustained amount potential benefit realized application relevant tax laws served company’s auditor since 1957 johnson controls international plc consolidated statements income accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements comprehensive income loss accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements financial position accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements cash flows accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements shareholders’ equity attributable johnson controls ordinary shareholders accompanying notes integral part consolidated financial statements johnson controls international plc notes consolidated financial statements 1summary significant accounting policies consolidated financial statements include consolidated accounts johnson controls international plc corporation organized laws ireland subsidiaries johnson controls international plc subsidiaries hereinafter collectively referred company johnson controls jci plc nature operations johnson controls international plc headquartered cork ireland global diversified technology multiindustrial leader serving wide range customers 150 countries company’s products solutions enable smart energy efficient sustainable buildings work seamlessly together advance safety comfort intelligence spaces power customers’ mission company committed helping customers win creating greater value stakeholders strategic focus buildings 2019 company sold power solutions business bcp acquisitions llc purchaser entity controlled investment funds managed brookfield capital partners llc completing company’s transformation pureplay building technologies solutions provider transaction closed april 30 2019 net cash proceeds 116 billion tax transactionrelated expenses refer note 3 discontinued operations notes consolidated financial statements information company global leader engineering manufacturing commissioning building products systems including residential commercial heating ventilating airconditioning hvac equipment industrial refrigeration systems controls security systems fire detection systems fire suppression solutions company serves customers providing technical services including maintenance repair retrofit replacement equipment hvac security fireprotection space energymanagement consulting datadriven “smart building” services solutions powered digital platforms capabilities principles consolidation consolidated financial statements include consolidated accounts johnson controls international plc subsidiaries consolidated conformity accounting principles generally accepted united states america us gaap significant intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal investments partiallyowned affiliates accounted equity method company’s interest exceeds 20 company controlling interest company consolidates variable interest entities vie company power direct significant activities entity obligation absorb losses receive benefits entity may significant company significant variable interest consolidated nonconsolidated vies continuing operations presented reporting periods use estimates preparation consolidated financial statements conformity us gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates fair value financial instruments fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements fair value financial instruments including derivative instruments hedging activities longterm debt assets liabilities held sale company classifies assets liabilities disposal groups sold held sale period following criteria met management authority approve action commits plan sell disposal group disposal group available immediate sale present condition subject terms usual customary sales disposal groups active program locate buyer actions required complete plan sell disposal group initiated sale disposal group probable transfer disposal group expected qualify recognition completed sale within one year except events circumstances beyond companys control extend period time required sell disposal group beyond one year disposal group actively marketed sale price reasonable relation current fair value actions required complete plan indicate unlikely significant changes plan made plan withdrawn addition company classifies disposal groups disposed sale eg spinoff held sale period disposal occurs company initially measures disposal group classified held sale lower carrying value fair value less costs sell loss resulting measurement recognized period held sale criteria met conversely gains recognized sale disposal group date sale company assesses fair value disposal group less costs sell reporting period remains classified held sale reports subsequent changes adjustment carrying value disposal group long new carrying value exceed carrying value disposal group time initially classified held sale upon determining disposal group meets criteria classified held sale company reports assets liabilities disposal group material line items assets held sale liabilities held sale consolidated statements financial position refer note 3 discontinued operations notes consolidated financial statements information cash equivalents company considers highly liquid investments original maturity three months less purchased cash equivalents restricted cash september 30 2020 september 30 2019 company held restricted cash approximately 9 million 16 million respectively recorded within current assets consolidated statements financial position amounts related cash restricted payment asbestos liabilities receivables consist amounts billed currently due customers unbilled costs accrued profits related revenues longterm contracts recognized accounting purposes yet billed customers company extends credit customers normal course business maintains allowance doubtful accounts resulting inability unwillingness customers make required payments allowance doubtful accounts based historical experience existing economic conditions specific customer collection issues company identified company enters supply chain financing programs sell certain accounts receivable without recourse thirdparty financial institutions sales accounts receivable reflected reduction accounts receivable consolidated statements financial position proceeds included cash flows operating activities consolidated statements cash flows inventories stated lower cost market using firstin firstout fifo method finished goods workinprocess inventories include material labor manufacturing overhead costs property plant equipment property plant equipment recorded cost depreciation provided estimated useful lives respective assets using straightline method financial reporting purposes accelerated methods income tax purposes estimated useful lives generally range 3 40 years buildings improvements subscriber systems 15 years 3 15 years machinery equipment company capitalizes interest borrowings active construction period major capital projects capitalized interest added cost underlying assets amortized useful lives assets goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies multiples companys average historical future financial results reporting unit certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fiscal years 2020 2019 2018 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets primarily consist trademarks trade names tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests leases lessee arrangements company leases certain administrative production facilities fleet vehicles information technology equipment arrangements accounted operating leases company determines whether arrangement contains lease contract inception based whether arrangement involves use physically distinct identified asset whether company right obtain substantially economic benefits use asset throughout period well right direct use asset rightofuse assets represent company’s right use underlying asset lease term lease liabilities represent obligation make lease payments arising lease rightofuse assets corresponding lease liabilities recognized commencement date based present value lease payments leases terms longer twelve months majority companys leases provide implicit interest rate determine present value lease payments company uses incremental borrowing rate based information available lease commencement date uses implicit rate readily determinable company determines incremental borrowing rate based comparable market yield curve consistent companys credit rating term lease relative economic environment company elected combine lease nonlease components leases lessor arrangements companys monitoring services maintenance agreements within security business include subscriber system assets company retains ownership contain lease nonlease components company elected practical expedient combine lease nonlease components arrangements timing pattern transfer lease nonlease components lease component would classified operating lease accounted separately company concluded arrangements nonlease components predominant characteristic result combined component accounted revenue guidance impairment longlived assets company reviews longlived assets including rightofuse assets operating leases tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed company groups assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluates asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals intangible assets acquired business combination used research development activities considered indefinitelived completion abandonment associated research development efforts period assets considered indefinite lived amortized tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value company recognizes impairment loss amount equal excess unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset written refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2020 2019 2018 revenue recognition company recognizes revenue certain longterm contracts design manufacture install building products systems well unscheduled repair replacement services time basis progress towards completion measured using costtocost input method based relationship actual costs incurred total estimated costs completion costtocost input method used best depicts transfer control customer occurs company incurs costs changes original estimates may required life contract estimates reviewed monthly contract modifications result additional goods services distinct transferred modification accounted prospectively company entered new contract goods services modification distinct original contract sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated losses recorded identified company adjust promised amount consideration effects significant financing component contract inception company expects receive payment within twelve months transfer goods services company enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized time straightline basis respective contract term company also sells certain hvac refrigeration products services bundled arrangements multiple performance obligations equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition company sells security monitoring systems may multiple performance obligations including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized time costtocost input method revenue monitoring maintenance services recognized time services rendered transaction price allocated performance obligation based relative selling price method order estimate relative selling price market data transfer price studies utilized standalone selling price directly observable company estimates standalone selling price using adjusted market assessment approach expected cost plus margin approach transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized time straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life contract cases company recognizes revenue point time control goods services transfers customer company considers contractual consideration payable customer assesses variable consideration may affect total transaction price including discounts rebates refunds credits similar sources variable consideration determining transaction price contract company includes variable consideration estimated transaction price probable significant reversal revenue recognized would occur uncertainty associated variable consideration subsequently resolved estimates based amount consideration company expects entitled shipping handling costs billed customers included sales related costs included cost sales control transfers customer company presents amounts collected customers sales taxes net related amounts remitted subscriber system assets dealer intangibles related deferred revenue accounts company considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment company retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touch pad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers place business outside north america residence installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded current noncurrent assets within consolidated statements financial position subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using straightline method lives 12 years considering customer attrition company uses straightline method 15year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program primarily outside north america acquired contracts related customer relationships recorded contractually determined purchase price first 6 months 12 months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition straightline basis period customer relationship estimated useful life dealer intangibles ranges 12 15 years research development costs expenditures research activities relating product development improvement charged income incurred included within selling general administrative expenses continuing operations consolidated statements income expenditures years ended september 30 2020 2019 2018 274 million 319 million 310 million respectively earnings per share company presents basic diluted earnings per share eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number common shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number common shares common equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock unvested performance share awards see note 13 earnings per share notes consolidated financial statements calculation earnings per share foreign currency translation substantially company’s international operations use respective local currency functional currency assets liabilities international entities translated periodend exchange rates income expenses translated using average exchange rates period monetary assets liabilities denominated nonfunctional currencies adjusted reflect periodend exchange rates aggregate transaction gains losses net impact foreign currency hedges included income continuing operations years ended september 30 2020 2019 2018 32 million 10 million 1 million respectively derivative financial instruments company written policies procedures place financial instruments direction corporate treasury restrict derivative transactions intended hedging purposes use financial instruments speculative purposes strictly prohibited company selectively uses financial instruments manage market risk changes foreign exchange rates commodity prices stockbased compensation liabilities interest rates fair values derivatives recorded consolidated statements financial position change derivative’s fair value recorded period current earnings accumulated comprehensive income aoci depending whether derivative designated part hedge transaction type hedge transaction see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements disclosure company’s derivative instruments hedging activities investments company invests debt equity securities marked market end accounting period fiscal 2020 2019 unrealized gains losses securities recognized companys consolidated statements income periods prior fiscal 2019 unrealized gains losses securities deferred compensation plan assets recognized aoci within consolidated statement shareholders equity unless unrealized loss deemed temporary case loss charged earnings deferred compensation plan assets marked market end accounting period unrealized gains losses recorded consolidated statements income pension postretirement benefits company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 22 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage insurable liabilities asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestosrelated defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 22 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities income taxes deferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax basis particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided reduce carrying book value deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized refer note 18 income taxes notes consolidated financial statements retrospective changes certain amounts september 30 2019 2018 revised conform current years presentation new accounting pronouncements recently adopted accounting pronouncements february 2016 fasb issued asu 201602 leases topic 842 asu 201602 requires recognition operating leases lease assets liabilities balance sheet disclosure key information leasing arrangements company adopted topic 842 related amendments using modifiedretrospective approach october 1 2019 applied new guidance leases cumulativeeffect adjustment beginning retained earnings comparative periods recast continue reported previous lease accounting guidance company elected apply package transitional practical expedients company reassess prior conclusions lease identification lease classification initial direct costs existing leases date adoption new guidance resulted recognition rightofuse asset related lease liabilities 11 billion immaterial impact retained earnings refer note 8 “leases” additional lease disclosures may 2020 sec issued final rule release 3310786 amends financial statement requirements acquisitions dispositions businesses related pro forma financial information required sec regulation sx rule 305 among things final rule modifies significance test required sec regulation sx rule 102w changing income test use lower measure significance based income continuing operations taxes revenue accordance rules 309 408g revised income test apply evaluation equity method investments significance final rule effective january 1 2021 however voluntary early adoption permitted long amendments adopted entirety company early adopted provisions final rule fourth quarter fiscal 2020 result revised income test none company’s nonconsolidated partiallyowned affiliates either individually aggregate considered significant subsidiaries require disclosure company’s footnotes fiscal 2020 recently issued accounting pronouncements expected material impact companys consolidated financial statements 2acquisitions divestitures fiscal year 2020 fiscal 2020 company completed certain acquisitions combined purchase price net cash acquired 82 million 77 million paid september 30 2020 connection acquisitions company recorded goodwill 35 million within building solutions emeala segment 21 million within global products segment acquisitions material companys consolidated financial statements additionally fourth quarter fiscal 2020 company acquired additional ownership interest one consolidated subsidiaries within global products segment purchase price 132 million paid september 30 2020 connection transaction company recorded compensation charge 39 million related cash settlement equity awards fourth quarter fiscal 2020 company completed certain divestitures within global products building solutions asia pacific segments combined selling price net cash divested 152 million 135 million received september 30 2020 connection divestitures company reduced goodwill 11 million within building solutions asia pacific segment divestitures material companys consolidated financial statements fiscal year 2019 april 30 2019 company completed sale power solutions business bcp acquisitions llc purchase price 132 billion net cash proceeds tax transactionrelated expenses 116 billion connection sale company recorded gain net transaction costs 52 billion 40 billion tax subject postclosing working capital net debt adjustments within income discontinued operations net tax consolidated statements income refer note 3 discontinued operations notes consolidated financial statements disclosure related companys discontinued operations fiscal 2019 company completed certain divestitures within global products building solutions emeala segments combined selling price 18 million 16 million received september 30 2019 connection sale company reduced goodwill 1 million within building solutions emeala segment divestitures material companys consolidated financial statements fiscal 2019 company completed certain acquisitions combined purchase price 32 million 25 million paid september 30 2019 connection acquisitions company recorded goodwill 11 million within global products segment 8 million within building solutions asia pacific segment 6 million within building solutions emeala segment acquisitions material companys consolidated financial statements fiscal year 2018 fiscal 2018 company completed certain acquisitions combined purchase price net cash acquired 21 million paid september 30 2018 connection acquisitions company recorded goodwill 14 million within global products segment 1 million within building solutions emeala segment acquisitions material company’s consolidated financial statements first quarter fiscal 2018 company completed sale scott safety business 3m company selling price net cash divested 20 billion received september 30 2018 connection sale company recorded pretax gain 114 million within selling general administrative expenses consolidated statements income reduced goodwill assets held sale 12 billion gain net tax recorded 84 million also fiscal 2018 company completed certain divestitures primarily within global products segment combined selling price 204 million received september 30 2018 connection divestitures company reduced goodwill 35 million divestitures material companys consolidated financial statements 3 discontinued operations power solutions first quarter fiscal 2019 company determined power solutions business met criteria classified discontinued operation result historical financial results reflected companys consolidated financial statements discontinued operation assets liabilities classified assets liabilities held sale company allocate general corporate overhead discontinued operations following table summarizes results power solutions classified discontinued operations fiscal years ended september 30 2019 2018 millions power solutions sale occurred april 30 2019 seven months results included fiscal year ended september 30 2019 fiscal year ended september 30 2019 income discontinued operations income taxes included gain sale power solutions business net transaction costs 52 billion favorable impact 117 million ceasing depreciation amortization expense business held sale fiscal year ended september 30 2019 effective tax rate irish statutory rate 125 primarily due tax impacts divestiture power solutions business tax rate differentials fiscal year ended september 30 2018 effective tax rate irish statutory rate 125 primarily due legal entity restructuring associated power solutions business tax rate differentials assets liabilities held sale third quarter fiscal 2020 company determined certain assets building solutions asia pacific segment met criteria classified held sale estimated fair value less costs sell assets 147 million september 30 2020 third quarter 2019 company determined business within global products segment met criteria classified held sale business sold fourth quarter fiscal 2020 assets liabilities business presented held sale consolidated statements financial position september 30 2019 assets liabilities held sale recorded lower carrying value fair value less costs sell company recorded impairment charges within restructuring impairment costs consolidated statements income 15 million first quarter fiscal 2020 235 million third quarter fiscal 2019 write carrying value assets held sale fair value less costs sell refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment charges business meet criteria classified discontinued operation divestiture major effect company’s operations financial results 4revenue recognition disaggregated revenue following table presents companys revenues disaggregated segment products systems versus services revenue years ended september 30 2020 2019 millions following table presents disaggregation global products segment revenues product type years ended september 30 2020 2019 millions contract balances contract assets relate company’s right consideration performance obligations satisfied billed consist unbilled receivables costs excess billings contract liabilities relate customer payments received advance satisfaction performance obligations contract liabilities consist deferred revenue contract balances classified assets liabilities contractbycontract basis end reporting period following table presents location amount contract balances companys consolidated statements financial position millions year ended september 30 2020 company recognized revenue approximately 13 billion included beginning period contract liability balance year ended september 30 2019 company recognized revenue approximately 12 billion included beginning period contract liability balance performance obligations performance obligation distinct good service bundle goods services promised contract’s transaction price allocated distinct performance obligation recognized revenue performance obligation satisfied contracts customers require significant complex integration contain goods services highly interdependent interrelated goods services significantly modify customize promises contracts therefore distinct entire contract accounted single performance obligation contracts multiple performance obligations contract’s transaction price allocated performance obligation based estimated relative standalone selling price distinct good service contract product sales product sold customer typically represents distinct performance obligation performance obligations satisfied point time timing satisfying performance obligation typically indicated terms contract september 30 2020 aggregate amount transaction price allocated remaining performance obligations approximately 144 billion approximately 60 expected recognized revenue next two years remaining performance obligations expected recognized revenue beyond two years primarily relate large multipurpose contracts construct hospitals schools governmental buildings include services performed buildings lifetime initial contract terms 25 35 years future contract modifications could affect timing amount remaining performance obligations company excludes value remaining performance obligations contracts original expected duration one year less costs obtain fulfill contract company recognizes incremental costs incurred obtain fulfill contract customer asset costs recoverable costs consist primarily sales commissions bidproposal costs obtain fulfill contract capitalized amortized revenue period contract performance september 30 2020 company recorded costs obtain fulfill contract 223 million 119 million recorded within current assets 104 million recorded within noncurrent assets consolidated statements financial position september 30 2019 company recorded costs obtain fulfill contract 212 million 110 million recorded within current assets 102 million recorded within noncurrent assets consolidated statements financial position year ended september 30 2020 company recognized amortization expense 162 million related costs obtain fulfill contract impairment losses recognized year ended september 30 2020 year ended september 30 2019 company recognized amortization expense 157 million related costs obtain fulfill contract impairment losses recognized year ended september 30 2019 5 inventories consisted following millions 6 property plant equipment property plant equipment consisted following millions interest costs capitalized fiscal years ended september 30 2020 2019 2018 1 million 6 million 17 million respectively 7 goodwill intangible assets changes carrying amount goodwill company’s reportable segments fiscal years ended september 30 2020 2019 follows millions fiscal 2019 global products business divestiture amount includes 22 million goodwill transferred noncurrent assets held sale consolidated statements financial position related fiscal 2020 disposal business within global products segment september 30 2018 accumulated goodwill impairment charges included 47 million related building solutions emeala latin america reporting unit company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company considered ongoing deterioration general economic market conditions due covid19 pandemic impact company’s reporting units’ performance due declines cash flow projections north america retail reporting unit third quarter fiscal 2020 result covid19 pandemic company concluded triggering event occurred requiring assessment impairment north america retail reporting unit result company recorded noncash impairment charge 424 million within restructuring impairment costs consolidated statements income third quarter fiscal 2020 determined comparing carrying amount reporting unit fair value accordance asu 201704 intangible goodwill topic 350 simplifying test goodwill impairment company early adopted north america retail reporting unit remaining goodwill balance 230 million september 30 2020 company used discounted cash flow model estimate fair value reporting unit managements internal projections future cash flows primary assumptions used model weightedaverage cost capital longterm growth rates classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying business significant judgment determining expected future cash flows attributable north america retail reporting unit goodwill impairments resulting fiscal 2020 2019 annual impairment tests exception north america retail reporting unit recent goodwill impairment recorded fair value reporting unit determined risk failing goodwill impairment test estimated fair value north america retail reporting unit exceeded carrying value 6 company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies multiples companys average historical future financial results reporting unit certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value assumptions included impairment tests require judgment changes inputs could impact results calculations primary assumptions used impairment tests managements projections future cash flows although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit company continuously monitors events circumstances could negatively impact key assumptions determining fair value including longterm revenue growth projections profitability discount rates recent market valuations transactions comparable companies volatility companys market capitalization general industry market macroeconomic conditions possible future changes circumstances including prolonged andor severe covid19 pandemic future changes variables associated judgments assumptions estimates used assessing fair value reporting unit would require company record additional noncash impairment charges company’s intangible assets primarily business acquisitions valued based independent appraisals consisted millions company reviews indefinitelived intangible assets impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired indefinitelived intangible assets primarily consist trademarks tradenames tested impairment using relieffromroyalty method second third quarters fiscal 2020 company determined triggering event reporting period end requiring assessment impairment certain indefinitelived intangible assets due declines revenue directly attributable covid19 pandemic result company recorded impairment charge 62 million related primarily companys retail business indefinitelived intangible assets within restructuring impairment costs consolidated statements income second quarter fiscal 2020 impairment required recorded third quarter fiscal 2020 result completed impairment assessment indefinitelived intangible asset impairments resulting fiscal 2020 2019 annual impairment tests estimated fair values indefinitelived intangibles substantially exceeded carrying values exception indefinitelived trademarks related companys security asia pacific subscriber businesses estimated fair value security asia pacific indefinitelived trademarks exceeded carrying value 4 2 respectively carrying amount security asia pacific indefinitelived trademarks september 30 2020 299 million 37 million respectively company continuously monitors events circumstances could negatively impact key assumptions determining fair value including longterm revenue growth projections discount rates general industry market macroeconomic conditions possible future changes circumstances including prolonged andor severe covid19 pandemic future changes variables associated judgments assumptions estimates used assessing fair value indefinitelived intangible assets would require company record additional noncash impairment charge amortization intangible assets included within continuing operations fiscal years ended september 30 2020 2019 2018 386 million 377 million 376 million respectively excluding impact future acquisitions company anticipates amortization fiscal 2021 2022 2023 2024 2025 approximately 404 million 403 million 402 million 383 million 365 million respectively 8 leases contain options renew terminate lease rightofuse assets lease liabilities reflect options company reasonably certain exercise lease expense recognized straightline basis lease term company certain real estate leases contain variable lease payments based changes consumer price index cpi additionally company’s leases generally require pay fuel maintenance repair insurance taxes payments included rightofuse asset lease liability expensed incurred following table presents company’s lease costs fiscal year ended september 30 2020 millions total rental expense continuing operations fiscal years ended september 30 2019 2018 452 million 408 million respectively following table presents supplemental consolidated statement financial position information september 30 2020 millions following table presents supplemental cash flow information related operating leases fiscal year ended september 30 2020 millions following table presents maturities operating lease liabilities september 30 2020 millions previously disclosed companys annual report form 10k year ended september 30 2019 accounted previous lease accounting guidance future minimum operating lease payments longterm noncancellable operating leases september 30 2019 follows millions 9 debt financing arrangements shortterm debt consisted following millions company commercial paper outstanding september 30 2020 2019 december 2019 company entered syndicated 25 billion committed revolving credit facility scheduled expire december 2024 syndicated 500 million committed revolving credit facility scheduled expire december 2020 additionally company terminated syndicated 5year 2 billion committed revolving credit facility four 364day revolving credit facilities total committed capacity 750 million september 30 2020 draws revolving credit facilities longterm debt consisted following millions due dates fiscal year installments longterm debt maturing subsequent fiscal years 2021 262 million 2022 432 million 2023 1073 million 2024 484 million 2025 567 million 2026 thereafter 5004 million company’s longterm debt includes various financial covenants none expected restrict future operations total interest paid short longterm debt continuing operations fiscal years ended september 30 2020 2019 2018 247 million 369 million 401 million respectively financing arrangements september 2020 company wholly owned subsidiary tfsca issued €500 million aggregate principal amount 0375 senior notes due 2027 €500 million aggregate principal amount 1000 senior notes due 2032 portion proceeds used repay €750 million notes due december 2020 shortterm debt issued april 2020 including 675 million european financing arrangements due september 2020 275 million bank term loans due april 2021 remainder proceeds used general corporate purposes july 2020 company repaid 300 million bank term loan issued april 2020 september 2020 company wholly owned subsidiary tfsca issued 625 million green bonds interest rate 1750 due 2030 net proceeds used support projects focus sustainability support companys 2025 sustainability goals march 2020 company retired 500 million principal amount plus accrued interest 50 fixed rate notes expired march 2020 net financing charges companys net financing charges line item consolidated statements income years ended september 30 2020 2019 2018 contained following components millions 10 derivative instruments hedging activities company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities stockbased compensation liabilities interest rates company policy use derivatives restricted intended hedging purposes use derivative instrument speculative purposes strictly prohibited description type derivative utilized company manage risk included following paragraphs addition refer note 11 fair value measurements notes consolidated financial statements information related fair value measurements valuation methods utilized company derivative type cash flow hedges company global operations participates foreign exchange markets minimize risk loss fluctuations foreign currency exchange rates company selectively hedges anticipated transactions subject foreign exchange rate risk primarily using foreign currency exchange hedge contracts company hedges 70 90 notional amount known foreign exchange transactional exposures company selectively hedges anticipated transactions subject commodity price risk primarily using commodity hedge contracts minimize overall price risk associated company’s purchases copper aluminum cases commodity price risk cannot naturally offset hedged supply base fixed price contracts commodity risks systematically managed pursuant policy guidelines maturities commodity hedge contracts coincide expected purchase commodities cash flow hedges asc 815 derivatives hedging hedge gains losses due changes fair value initially recorded component aoci subsequently reclassified earnings hedged transactions occur affect earnings contracts highly effective hedging variability future cash flows attributable changes currency exchange rates fiscal years ended september 30 2020 2019 company following outstanding contracts hedge forecasted commodity purchases metric tons net investment hedges company enters foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects debt obligations reflected aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset currency gains losses recorded company’s net investments globally september 30 2020 company 888 million euro 500 million euro 500 million euro 423 million euro 54 million euro bonds designated net investment hedges companys net investment europe 25 billion yen foreign denominated debt designated net investment hedge companys net investment japan september 30 2019 company 888 million euro 750 million euro 423 million euro 54 million euro bonds designated net investment hedges companys net investment europe 25 billion yen foreign denominated debt designated net investment hedge companys net investment japan derivatives designated hedging instruments company selectively uses equity swaps reduce market risk associated certain stockbased compensation plans deferred compensation plans equity compensation liabilities increase company’s stock price increases decrease company’s stock price decreases contrast value swap agreement moves opposite direction liabilities allowing company fix portion liabilities stated amount september 30 2020 2019 company hedged approximately 14 million ordinary shares cost basis 60 million company also holds certain foreign currency forward contracts hedge accounting treatment elected change fair value foreign currency exchange derivatives designated hedging instruments asc 815 recorded consolidated statements income fair value derivative instruments following table presents location fair values derivative instruments hedging activities included company’s consolidated statements financial position millions counterparty credit risk use derivative financial instruments exposes company counterparty credit risk company established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide strong investment grade longterm credit ratings reduce risk loss company generally enters international swaps derivatives association isda master netting agreements substantially counterparties company enters isda master netting agreements counterparties permit net settlement amounts owed derivative contracts master netting agreements generally provide net settlement outstanding contracts counterparty case event default termination event company elected offset fair value positions derivative contracts recorded consolidated statements financial position companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes company anticipate nonperformance counterparties concentration risk financial institutions present significant credit risk company gross net amounts derivative assets liabilities follows millions derivatives impact statements income statements comprehensive income following table presents pretax gains losses recorded comprehensive income loss related cash flow hedges fiscal years ended september 30 2020 2019 2018 millions following table presents location amount pretax gains losses cash flow hedges reclassified aoci company’s consolidated statements income fiscal years ended september 30 2020 2019 2018 millions following table presents location amount pretax gains losses derivatives designated hedging instruments recognized company’s consolidated statements income fiscal years ended september 30 2020 2019 2018 millions pretax gains losses recorded foreign currency translation adjustment cta within comprehensive income loss related net investment hedges 172 million 145 million 45 million years ended september 30 2020 2019 2018 respectively years ended september 30 2020 2019 2018 gains losses reclassified cta income company’s outstanding net investment hedges 11 fair value measurements asc 820 fair value measurement defines fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date asc 820 also establishes threelevel fair value hierarchy prioritizes information used developing assumptions pricing asset liability follows level 1 observable inputs quoted prices active markets identical assets liabilities level 2 quoted prices active markets similar assets liabilities quoted prices identical similar assets liabilities markets active inputs quoted prices active markets observable either directly indirectly level 3 unobservable inputs little market data requires reporting entity develop assumptions asc 820 requires use observable market data available making fair value measurements inputs used measure fair value fall within different levels hierarchy level within fair value measurement categorized based lowest level input significant fair value measurement recurring fair value measurements following tables present company’s fair value hierarchy assets liabilities measured fair value september 30 2020 2019 millions 1classified restricted investments payment asbestos liabilities see note 22 commitments contingencies notes consolidated financial statements details valuation methods foreign currency exchange derivatives foreign currency exchange derivatives valued market approach using publicized spot forward prices commodity derivatives commodity derivatives valued market approach using publicized prices available dealer quotes equity swaps equity swaps valued market approach fair value swaps equal company’s stock price reporting period date deferred compensation plan assets held deferred compensation plans used pay benefits certain companys nonqualified deferred compensation plans investments primarily consist mutual funds publicly traded stock exchanges valued using market approach based quoted market prices unrealized gains losses deferred compensation plan assets recognized consolidated statements income offset unrealized gains losses related deferred compensation plan liability investments exchange traded funds investments exchange traded funds valued using market approach based quoted market prices available brokerdealer quotes identical comparable instruments refer note 22 commitments contingencies notes consolidated financial statements information following table presents portion unrealized gains losses recognized consolidated statements income years ended september 30 2020 2019 relate equity securities still held september 30 2020 2019 millions gains losses investments exchange traded funds related restricted investments fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values september 30 2020 fair value longterm debt 86 billion including public debt 84 billion longterm debt 02 billion september 30 2019 fair value longterm debt 76 billion including public debt 74 billion longterm debt 02 billion fair value public debt determined primarily using market quotes classified level 1 inputs within asc 820 fair value hierarchy fair value longterm debt determined using quoted market prices similar instruments classified level 2 inputs within asc 820 fair value hierarchy 12 stockbased compensation johnson controls international plc 2012 share incentive plan amended september 2016 authorizes stock options stock appreciation rights restricted nonvested stockunits performance shares performance units stockbased awards compensation committee companys board directors determines types awards granted individual participants terms conditions awards september 30 2020 76 million shares companys common stock reserved 27 million shares available issuance plan company four sharebased compensation plans described fiscal years ended september 30 2020 2019 2018 compensation cost charged income continuing operations excluding offsetting impact outstanding equity swaps plans approximately 66 million 103 million 89 million respectively recorded selling general administrative expenses total income tax benefit recognized continuing operations consolidated statements income sharebased compensation arrangements approximately 16 million 26 million 22 million fiscal years ended september 30 2020 2019 2018 respectively tax impact exercise vesting equity settled awards less 1 million tax benefit 6 million tax expense 3 million tax expense fiscal years ended september 30 2020 2019 2018 respectively company settle stock options granted sharebased payment arrangements cash stock options stock options granted exercise price equal market price company’s stock date grant stock option awards typically vest two three years grant date expire ten years grant date fair value option estimated date grant using blackscholes option valuation model uses assumptions noted following table expected life options represents period time options granted expected outstanding assessed separately executives nonexecutives riskfree interest rate periods contractual life option based us treasury yield curve effect time grant expected volatility based historical volatility companys stock since october 2016 blended historical volatility certain peer companies stock prior october 2016 recent period corresponding expected life grant date expected dividend yield based expected annual dividend percentage market value company’s ordinary shares grant date company uses historical data estimate option exercises employee terminations within valuation model summary stock option activity september 30 2020 changes year ended presented weightedaverage grantdate fair value options granted fiscal years ended september 30 2020 2019 2018 729 556 704 respectively total intrinsic value options exercised fiscal years ended september 30 2020 2019 2018 approximately 30 million 73 million 38 million respectively conjunction exercise stock options company received cash payments fiscal years ended september 30 2020 2019 2018 approximately 75 million 171 million 66 million respectively september 30 2020 company approximately 9 million total unrecognized compensation cost related nonvested stock options granted continuing operations expected recognized weightedaverage period 18 years stock appreciation rights sars vest terms conditions stock option awards however settled cash difference market price date exercise price result sars recorded company’s consolidated statements financial position liability date exercise fair value sar award estimated using similar method described stock options fair value sar award recalculated end reporting period liability expense adjusted based new fair value assumptions used determine fair value sar awards september 30 2020 follows summary sar activity september 30 2020 changes year ended presented conjunction exercise sars granted company made payments 2 million 3 million 3 million fiscal years ended september 30 2020 2019 2018 respectively restricted nonvested stock units restricted stock restricted stock units typically share settled unless employee nonus employee elects defer settlement retirement point award would settled cash restricted awards typically vest period three years grant date plan allows different vesting terms specific grants approval board directors fair value sharesettled restricted award based closing market value company’s ordinary shares date grant fair value cashsettled restricted award recalculated end reporting period based closing market value companys ordinary shares end reporting period liability expense adjusted based new fair value summary nonvested restricted stock awards september 30 2020 changes fiscal year ended presented september 30 2020 company approximately 81 million total unrecognized compensation cost related nonvested restricted stock arrangements granted continuing operations expected recognized weightedaverage period 21 years performance share awards performancebased share unit psu awards generally contingent achievement predetermined performance goals performance period three years well award holders continuous employment vesting date psus also indexed achievement specified levels total shareholder return versus peer group performance period psu earned settled shares companys ordinary shares following completion performance period unless award holder elected defer portion award retirement would settled cash fair value psu estimated date grant using monte carlo simulation uses assumptions noted following table riskfree interest rate periods contractual life psu based us treasury yield curve effect time grant fiscal 2020 expected volatility based historical volatility companys stock recent threeyear period grant date fiscal 2019 2018 expected volatility based historical volatility companys stock since october 2016 blended historical volatility certain peer companies stock prior october 2016 recent threeyear period grant date summary status company’s nonvested psus september 30 2020 changes fiscal year ended presented september 30 2020 company approximately 25 million total unrecognized compensation cost related nonvested performancebased share unit awards granted continuing operations expected recognized weightedaverage period 18 years 13 earnings per share company presents basic diluted eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number ordinary shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number ordinary shares ordinary equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock unvested performance share awards treasury stock method assumes company uses proceeds exercise stock option awards repurchase ordinary shares average market price period assumed proceeds treasury stock method include purchase price grantee pay future compensation cost future service company yet recognized unvested restricted stock unvested performance share awards assumed proceeds treasury stock method include unamortized compensation cost following table reconciles numerators denominators used calculate basic diluted earnings per share millions 14 equity noncontrolling interests dividends authority declare pay dividends vested board directors timing declaration payment future dividends holders companys ordinary shares determined companys board directors depends upon many factors including companys financial condition results operations capital requirements companys businesses industry practice relevant factors irish law dividends may paid share repurchases redemptions must generally funded distributable reserves creation distributable reserves accomplished way capital reduction irish high court approved december 18 2014 acquired conjunction merger share repurchase program march 2019 companys board directors approved 85 billion increase existing share repurchase authorization subject completion previously announced sale companys power solutions business closed april 30 2019 share repurchase program expiration date may amended terminated board directors time without prior notice september 30 2020 approximately 24 billion remains available share repurchase program fiscal year 2020 company repurchased retired approximately 2204 million ordinary shares fiscal year 2019 company repurchased approximately 5983 million ordinary shares 4035 million ordinary shares purchased publicly announced modified dutch auction tender offer immediately retired 1948 million ordinary shares purchased open market retired fourth quarter fiscal 2019 fiscal year 2018 company repurchased approximately 300 million ordinary shares comprehensive income includes activity relating discontinued operations following schedules present changes consolidated equity attributable johnson controls noncontrolling interests millions net tax company adopted asc 606 revenue contracts customers effective october 1 2018 result company recorded 45 million beginning retained earnings relates primarily deferred revenue recorded power solutions business certain battery core returns represent material right provided customers company adopted asu 201616 accounting income taxes intraentity asset transfers assets inventory effective october 1 2018 result company recognized deferred taxes 546 million related tax effects intraentity sales assets inventory modified retrospective basis cumulativeeffect adjustment retained earnings october 1 2018 company adopted asu 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting effective october 1 2017 result company recognized deferred tax assets 179 million related certain operating loss carryforwards resulting exercise employee stock options restricted stock vesting modified retrospective basis cumulativeeffect adjustment retained earnings october 1 2017 company consolidates certain subsidiaries noncontrolling interest party within control right require company redeem portion interest subsidiary redeemable noncontrolling interests reported estimated redemption value adjustment redemption value impacts retained earnings impact net income redeemable noncontrolling interests redeemable upon future events occurrence currently probable recorded carrying value september 30 2020 2019 company subsidiaries noncontrolling interest party within control right require company redeem portion interests following schedules present changes redeemable noncontrolling interests millions following schedules present changes aoci attributable johnson controls millions net tax 1 fiscal 2018 12 million cumulative cta recognized part divestiturerelated gain recognized part divestiture scott safety 2 refer note 10 derivative instruments hedging activities notes consolidated financial statements disclosure line items consolidated statements income affected reclassifications aoci income related derivatives 3 company adopted asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities effective october 1 2018 result reclassified 8 million unrealized gains marketable securities retained earnings 4 fiscal 2018 company sold certain marketable common stock approximately 3 million result company recorded 2 million realized gains within selling general administrative expenses 15 retirement plans pension benefits company noncontributory defined benefit pension plans covering certain us nonus employees benefits provided primarily based years service average compensation monthly retirement benefit amount certain company’s us pension plans amended prohibit new participants entering plans longer accrue benefits funding us pension plans equals exceeds minimum requirements employee retirement income security act 1974 funding nonus plans observes local legal regulatory limits also company makes contributions uniontrusteed pension funds construction service personnel pension plans accumulated benefit obligations abo exceed plan assets continuing discontinued operations projected benefit obligation pbo abo fair value plan assets plans 5598 million 5539 million 4528 million respectively september 30 2020 5450 million 5388 million 4484 million respectively september 30 2019 fiscal 2020 total employer contributions defined benefit pension plans 58 million none voluntary contributions made company expects contribute approximately 46 million cash defined benefit pension plans fiscal 2021 projected benefit payments plans september 30 2020 estimated follows millions postretirement benefits company provides certain health care life insurance benefits eligible retirees dependents primarily us canada nonus employees covered government sponsored programs cost company significant eligibility coverage based meeting certain years service retirement age qualifications benefits may subject deductibles copayment provisions limitations company reserved right modify benefits health care cost trend assumption significant effect amounts reported fiscal 2020 total employer contributions postretirement plans 3 million company expects contribute approximately 3 million cash postretirement plans fiscal 2021 continuing operations projected benefit payments plans september 30 2020 estimated follows millions medicare prescription drug improvement modernization act 2003 act includes prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans providing benefit least actuarially equivalent medicare part d1 act medicare subsidy amount received directly plan sponsor related plan sponsor required use subsidy amount fund postretirement benefits may use subsidy valid business purpose projected subsidy receipts estimated less 1 million per year next ten years defined contribution plans company sponsors various defined contribution savings plans allow employees contribute portion pretax andor aftertax income accordance plan specified guidelines specified conditions company contribute certain savings plans based predetermined percentages compensation earned employee andor match percentage employee contributions certain limits company temporarily suspended contributions fiscal 2020 response covid19 pandemic defined contribution plan contributions charged expense continuing discontinued operations amounted 104 million 198 million 205 million fiscal years ended 2020 2019 2018 respectively multiemployer benefit plans company contributes multiemployer benefit plans based obligations arising collective bargaining agreements related certain hourly employees us plans provide retirement benefits participants based service contributing employers benefits paid assets held trust purpose trustees typically responsible determining level benefits provided participants well matters investment assets administration plans risks participating multiemployer benefit plans different singleemployer benefit plans following aspects •assets contributed multiemployer benefit plan one employer may used provide benefits employees participating employers •if participating employer stops contributing multiemployer benefit plan unfunded obligations plan may borne remaining participating employers •if company stops participating multiemployer benefit plans company may required pay plans amount based allocable share underfunded status plan referred withdrawal liability company participates approximately 280 multiemployer benefit plans none individually significant company number employees covered company’s multiemployer benefit plans remained consistent past three years significant changes affect comparability fiscal 2020 2019 2018 contributions company recognizes expense contractuallyrequired contribution period company contributed 66 million 69 million 68 million multiemployer benefit plans fiscal 2020 2019 2018 respectively based recent information available company believes present value actuarial accrued liabilities certain multiemployer benefit plans may exceed value assets held trust pay benefits currently company aware significant multiemployer benefits plans probable reasonably possible company obligated make shortfall funds moreover company exit certain markets otherwise cease making contributions funds company could trigger withdrawal liability currently company aware multiemployer benefit plans probable reasonably possible company significant withdrawal liability accrual shortfall withdrawal liability recorded probable liability exists reasonably estimated plan assets company’s investment policies employ approach whereby mix equities fixed income alternative investments used maximize longterm return plan assets prudent level risk investment portfolio primarily contains diversified blend equity fixed income investments equity investments diversified across us nonus stocks well growth value small large capitalizations fixed income investments include corporate government issues short mid longterm maturities focus investment grade purchased target duration close plan liability investment market risks measured monitored ongoing basis regular investment portfolio reviews annual liability measurements periodic assetliability studies majority real estate component portfolio invested diversified portfolio highquality operating properties cash yields greater targeted appreciation investments alternative asset classes including hedge funds commodities diversify expected investment returns relative equity fixed income investments result companys diversification strategies significant concentrations risk within portfolio investments company’s actual asset allocations line target allocations company rebalances asset allocations appropriate order stay within range allocation asset category expected return plan assets based company’s expectation longterm average rate return capital markets plans invest average market returns adjusted appropriate active asset management returns expected return reflects investment policy target asset mix considers historical returns earned asset category company’s plan assets september 30 2020 2019 asset category follows millions fair value certain investments real estate readily determinable fair value requires fund managers independently arrive fair value calculating net asset value nav per share order calculate nav per share fund managers value real estate investments using one combination following methods independent third party appraisals discounted cash flow analysis net cash flows projected generated investment recent sales comparable investments assumptions used revalue properties updated every quarter due fact fund managers calculate nav per share company utilizes practical expedient measuring fair value realestate investments provided asc 820 fair value measurement applying practical expedient company required adjust nav provided fund manager order determine fair value investment nav per share calculated manner consistent measurement principles asc 946 financial services investment companies companys measurement date company believes appropriate methodology obtain fair value assets component real estate portfolio development investments carried cost completed valued third party appraiser accordance asu 201507 disclosures investments certain entities calculate net asset value per share equivalent investments fair value measured using net asset value per share practical expedient disclosed separate fair value hierarchy fair value amounts presented table intended permit reconciliation total plan assets amounts presented notes consolidated financial statements following description valuation methodologies used assets measured fair value certain assets held within commingled funds valued unitized nav percentage net asset value determined manager fund values based fair value underlying net assets owned fund cash equivalents fair value cash valued cost equity securities fair value equity securities determined direct quoted market prices underlying holdings direct quoted market prices regulated financial exchanges fixed income securities fair value fixed income securities determined direct indirect quoted market prices indirect quoted market prices utilized value assets held separate accounts published investment managers report daily underlying holdings underlying holdings direct quoted market prices regulated financial exchanges commodities fair value commodities determined quoted market prices underlying holdings regulated financial exchanges hedge funds fair value hedge funds accounted custodian obtains valuations underlying managers based market quotes liquid assets alternative methods assets sufficient trading activity derive prices company custodian review methods used underlying managers value assets company believes appropriate methodology obtain fair value assets real estate fair value real estate determined quoted market prices underlying real estate investment trusts reits securities traded open exchange methods described may produce fair value calculation may indicative net realizable value reflective future fair values furthermore company believes valuation methods appropriate consistent market participants use different methodologies assumptions determine fair value certain financial instruments could result different fair value measurement reporting date level 3 assets september 30 2020 2019 level 3 asset activity fiscal 2020 2019 funded status table follows contains abo reconciliations changes pbo changes plan assets funded status millions 1 plan assets obligations determined based september 30 measurement date september 30 2020 2019 2 company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates company elected utilize full yield curve approach estimation service interest components net periodic benefit cost credit pension postretirement plans utilize yield curve approach full yield curve approach applies specific spot rates along yield curve used determination benefit obligation relevant projected cash flows accumulated comprehensive income amounts aoci consolidated statements financial position exclusive tax impacts yet recognized components net periodic benefit cost credit september 30 2020 2019 related pension postretirement benefits 5 million 6 million respectively amounts aoci expected recognized components net periodic benefit cost credit next fiscal year related pension postretirement benefits significant net periodic benefit cost table follows contains components net periodic benefit costs primarily recorded selling general administrative expenses consolidated statements income millions 16 significant restructuring impairment costs better align resources growth strategies reduce cost structure global operations certain underlying markets company committed various restructuring plans building technologies solutions business corporate operations restructuring plans generally result charges workforce reductions plant closures asset impairments reported restructuring impairment costs company’s consolidated statements income company expects restructuring actions reduce cost sales sga due reduced employeerelated costs depreciation amortization expense fiscal 2020 company committed significant restructuring plan 2020 plan recorded 297 million restructuring impairment costs consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring impairment costs recorded 136 million related global products segment 64 million related building solutions north america segment 49 million related building solutions asia pacific segment 43 million related building solutions emeala segment 5 million related corporate restructuring actions expected substantially complete fiscal 2021 following table summarizes changes company’s 2020 plan reserve included within current liabilities consolidated statements financial position millions also included restructuring impairment costs consolidated statements income fiscal 2020 goodwill impairment related north america retail reporting unit 424 million indefinitelived intangible asset impairments 62 million refer note 7 goodwill intangible assets notes consolidated financial statements information regarding impairments fiscal 2018 company committed significant restructuring plan 2018 plan recorded 255 million restructuring impairment costs continuing operations consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring impairment costs recorded 113 million related global products segment 56 million related building solutions emeala segment 50 million related corporate 20 million related building solutions north america segment 16 million related building solutions asia pacific segment restructuring actions substantially complete 2020 additionally company recorded 8 million restructuring impairment costs related power solutions fiscal 2018 reported within discontinued operations following table summarizes changes company’s 2018 plan reserve included within current liabilities consolidated statements financial position millions 1 represents liability facility closings recorded offset rightofuse asset upon adoption asc 842 fiscal 2017 company committed significant restructuring plan 2017 plan recorded 347 million restructuring impairment costs continuing operations consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring impairment costs recorded 166 million related corporate 74 million related building solutions emeala segment 59 million related building solutions north america segment 32 million related global products segment 16 million related building solutions asia pacific segment restructuring actions substantially complete fiscal 2020 additionally company recorded 20 million restructuring impairment costs related power solutions fiscal 2017 reported within discontinued operations following table summarizes changes company’s 2017 plan reserve included within current liabilities consolidated statements financial position millions 1 represents liability facility closings recorded offset rightofuse asset upon adoption asc 842 companys fiscal 2020 2018 2017 restructuring plans included workforce reductions approximately 16400 employees restructuring charges associated employee severance termination benefits paid severance period granted employee lump sum basis accordance individual severance agreements september 30 2020 approximately 12700 employees separated company pursuant restructuring plans addition restructuring plans included nine plant closures september 30 2020 eight nine plants closed company management closely monitors overall cost structure continually analyzes businesses opportunities consolidate current operations improve operating efficiencies locate facilities close proximity customers ongoing analysis includes review manufacturing engineering purchasing operations well overall global footprint businesses 17 impairment longlived assets fiscal 2020 company concluded triggering events requiring assessment impairment certain longlived assets caused economic impacts covid19 pandemic north america retail asset group company performed quantitative impairment analysis determined impairment longlived assets september 30 2020 fiscal 2020 company concluded triggering event requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2020 result company reviewed longlived assets impairment recorded 81 million asset impairment charges within restructuring impairment costs consolidated statements income impairment charges 42 million related global products segment 24 million related building solutions asia pacific segment 15 million related building solutions north america segment impairments primarily measured market approach utilizing appraisal determine fair values impaired assets method consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2019 2020 company concluded triggering event requiring assessment impairment certain longlived assets conjunction plans dispose business within global products segment met criteria classified held sale assets liabilities held sale required recorded lower carrying value fair value less costs sell accordingly company recorded impairment charges 250 million including 15 million fiscal 2020 235 million fiscal 2019 within restructuring impairment costs consolidated statements income write carrying value assets held sale fair value less costs sell inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2018 company concluded triggering event requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2018 result company reviewed longlived assets impairment recorded 36 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 31 million related global products segment 5 million related corporate assets addition company recorded 6 million asset impairments within discontinued operations related power solutions segment fiscal 2018 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured market approach utilizing appraisal determine fair values impaired assets method consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement september 30 2020 2019 2018 company concluded triggering events requiring assessment impairment longlived assets refer note 1 summary significant accounting policies note 7 goodwill intangible assets notes consolidated financial statements discussion company’s goodwill impairment testing 18 income taxes significant components company’s income tax provision continuing operations follows millions statutory tax rate ireland 125 used comparison since company domiciled ireland fiscal 2020 effective tax rate continuing operations 12 lower statutory tax rate primarily due tax audit reserve adjustments income tax effects marktomarket adjustments valuation allowance adjustments benefits continuing global tax planning initiatives partially offset discrete tax charge related remeasurement deferred tax assets liabilities result swiss tax reform tax impact impairment charge tax rate differentials fiscal 2019 effective rate continuing operations statutory rate primarily due tax audit reserve adjustments income tax effects marktomarket adjustments tax indemnification reserve release tax benefits asset held sale impairment charge continuing global tax planning initiatives partially offset valuation allowance adjustments result tax law changes discrete tax charge related newly enacted regulations related us tax reform tax rate differentials fiscal 2018 effective rate continuing operations statutory rate primarily due discrete net impacts us tax reform final income tax effects completed divestiture scott safety business valuation allowance adjustments partially offset tax audit closures tax benefits due changes entity tax status benefits continuing global tax planning initiatives tax rate differentials valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2020 company performed analysis related realizability worldwide deferred tax assets result considering feasible tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within us would realized likely certain deferred tax assets canada would realized valuation allowance adjustments resulted 26 million net benefit income tax expense three month period ended september 30 2020 fourth quarter fiscal 2019 company performed analysis related realizability worldwide deferred tax assets result considering feasible tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within us belgium japan united kingdom would realized likely certain deferred tax assets us france realized valuation allowance adjustments resulted immaterial net impact income tax expense threemonth period ended september 30 2019 first quarter fiscal 2019 result changes us tax law company recorded discrete tax charge 76 million related valuation allowances certain us deferred tax assets fourth quarter fiscal 2018 company performed analysis related realizability worldwide deferred tax assets result considering feasible tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within germany would realized therefore company recorded 56 million valuation allowances income tax expense threemonth period ended september 30 2018 uncertain tax positions company subject income taxes us numerous foreign jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities september 30 2020 company gross tax effected unrecognized tax benefits continuing operations 2528 million 2132 million recognized would impact effective tax rate total net accrued interest september 30 2020 approximately 205 million net tax benefit september 30 2019 company gross tax effected unrecognized tax benefits continuing operations 2451 million 2121 million recognized would impact effective tax rate total net accrued interest september 30 2019 approximately 181 million net tax benefit september 30 2018 company gross tax effected unrecognized tax benefits continuing operations 2358 million 2225 million recognized would impact effective tax rate total net accrued interest september 30 2018 approximately 119 million net tax benefit reconciliation beginning ending amount unrecognized tax benefits follows millions fiscal 2020 tax audit resolutions resulted 44 million net benefit income tax expense fiscal 2019 company settled tax examinations impacting fiscal years 2015 2016 adjusted various tax audit reserves resulted 586 million net benefit income tax expense fourth quarter third quarter fiscal 2019 company recorded discrete charge related newly enacted regulations related us tax reform discrete charge related nonus tax examinations impacted company’s reserves uncertain tax positions resulting 226 million net charge income tax expense fiscal 2018 company settled tax examinations impacting fiscal years 2010 fiscal 2012 resulted 25 million net benefit income tax expense us fiscal years 2017 2018 currently exam internal revenue service “irs” certain legal entities additionally company currently exam following major nonus jurisdictions continuing operations reasonably possible certain tax examinations andor tax litigation conclude within next twelve months could impact tax expense tax matters fiscal 2020 company incurred charges restructuring impairment costs continuing operations 783 million refer note 7 goodwill intangible assets note 16 significant restructuring impairment costs note 17 impairment longlived assets notes consolidated financial statements additional information costs generated tax benefits 48 million reflects company’s current tax position jurisdictions fiscal 2020 2019 2018 company recorded transaction integration costs continuing operations 135 million 317 million 226 million respectively costs generated tax benefits 18 million 35 million 27 million respectively reflects company’s current tax position jurisdictions fiscal 2020 2019 2018 company recorded marktomarket gains losses 274 million 618 million 24 million respectively gains losses generated tax expense benefit 65 million 130 million 1 million respectively reflects company’s current tax position jurisdictions fiscal 2019 company recorded 235 million impairment charge related assets held sale refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment charge impairment charge generated 53 million tax benefit also fiscal 2019 company released 226 million tax indemnification reserve recorded within selling general administrative expenses consolidated statements income reserve release generated income tax expense fiscal 2018 company incurred charges restructuring impairment costs continuing operations 255 million refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information costs generated tax benefits 36 million reflects company’s current tax position jurisdictions fourth quarter fiscal 2018 company recorded tax benefit 139 million due changes entity tax status first quarter fiscal 2018 company completed sale scott safety business 3m company connection sale company recorded pretax gain 114 million income tax expense 30 million refer note 2 acquisitions divestitures notes consolidated financial statements additional information impacts tax legislation change statutory tax rates march 27 2020 response covid19 pandemic “coronavirus aid relief economic security act” “cares” signed law president united states cares act includes among things us corporate income tax provisions related net operating loss carryback periods alternative minimum tax credits modifications interest deduction limitations technical corrections tax depreciation methods qualified improvement property majority nonus countries also introduced various covid19 related corporate income tax relief provisions company expect either us nonus corporate income tax provisions material effect financial statements first quarter fiscal 2020 company recorded noncash discrete tax charge 30 million due remeasurement deferred tax assets liabilities related switzerland canton schaffhausen september 28 2018 swiss parliament approved federal act tax reform ahv financing “traf” subsequently approved swiss electorate may 19 2019 fourth quarter fiscal 2019 swiss federal council enacted traf became effective company january 1 2020 impacts federal enactment material impact company’s financial statements traf also provides parameters enable swiss cantons adjust tax rates establish new regulations companies september 30 2019 canton schaffhausen concluded public referendum however enactment occur first quarter fiscal 2020 december 22 2017 “tax cuts jobs act” hr 1 enacted significantly revised us corporate income tax among things lowering corporate income tax rates imposing onetime transition tax deemed repatriated earnings nonus subsidiaries implementing territorial tax system various base erosion minimum tax provisions connection company’s analysis impact us tax law changes company recorded provisional net tax charge 108 million fiscal 2018 consistent guidance prescribed staff accounting bulletin 118 provisional net tax charge arises benefit 108 million due remeasurement us deferred tax assets liabilities offset company’s tax charge relating onetime transition tax deemed repatriated earnings inclusive relevant taxes 216 million company’s estimated benefit remeasurement us deferred tax assets liabilities increased 101 million december 31 2017 108 million september 30 2018 due calculation refinement company’s estimated impact company remeasured certain deferred tax assets liabilities based rates expected reverse future generally 21 blended fiscal 2018 rate 245 company’s tax charge transition tax decreased 305 million december 31 2017 216 million september 30 2018 due analysis company’s post1986 nonus earnings profits “ep” previously deferred us federal taxation refinement estimated impact tax law changes fiscal 2019 company completed analysis enactmentdate income tax effects us tax law change adjustment provisional amounts recorded september 30 2018 fiscal years ended 2020 2019 2018 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements continuing operations components provision benefit income taxes continuing operations follows millions consolidated us income loss continuing operations income taxes noncontrolling interests fiscal years ended september 30 2020 2019 2018 385 million 259 million 261 million respectively consolidated nonus income continuing operations income taxes noncontrolling interests fiscal years ended september 30 2020 2019 2018 1288 million 1315 million 1285 million respectively continuing operations income taxes paid refunded fiscal years ended september 30 2020 2019 2018 386 million 377 million 81 million respectively september 30 2020 2019 company recorded within continuing operations consolidated statements financial position current assets approximately 252 million 1069 million respectively income tax assets september 30 2020 2019 company recorded within continuing operations consolidated statements financial position current liabilities approximately 243 million 159 million respectively accrued income tax liabilities company provided us nonus income taxes approximately 220 billion outside basis differences consolidated subsidiaries johnson controls international plc company indefinitely reinvested basis differences reduction outside basis differences via sale liquidation subsidiaries andor distributions could create taxable income companys intent reduce outside basis differences would tax efficient given numerous ways basis differences may reduced practicable estimate amount unrecognized withholding taxes deferred tax liability outside basis differences deferred taxes classified consolidated statements financial position follows millions temporary differences carryforwards gave rise deferred tax assets liabilities included millions september 30 2020 company available net operating loss carryforwards approximately 250 billion 151 billion expire various dates 2021 2040 remainder indefinite carryforward period company available us foreign tax credit carryforwards september 30 2020 35 million expire 2030 valuation allowance generally loss credit carryforwards realization uncertain unlikely losses andor credits realized given lack sustained profitability andor limited carryforward periods certain countries 19 segment information asc 280 segment reporting establishes standards reporting information segments financial statements applying criteria set forth asc 280 company determined four reportable segments financial reporting purposes building solutions north america building solutions north america designs sells installs services hvac controls refrigeration integrated electronic security integrated fire detection suppression systems commercial industrial retail small business institutional governmental customers north america building solutions north america also provides energy efficiency solutions technical services including inspection scheduled maintenance repair replacement mechanical control systems well datadriven “smart building” solutions nonresidential building industrial applications north american marketplace building solutions emeala building solutions emeala designs sells installs services hvac controls refrigeration integrated electronic security integrated fire detection suppression systems provides technical services including datadriven “smart building” solutions markets europe middle east africa latin america building solutions asia pacific building solutions asia pacific designs sells installs services hvac controls refrigeration integrated electronic security integrated fire detection suppression systems provides technical services including datadriven “smart building” solutions asia pacific marketplace global products global products designs produces heating air conditioning residential commercial applications markets products refrigeration systems replacement new construction market customers globally global products business also designs manufactures sells fire protection security products including intrusion security antitheft devices access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide global products also includes johnson controlshitachi joint venture october 1 2018 company adopted asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities new standard requires marktomarket marketable securities investments previously recorded within accumulated comprehensive income statement financial position recorded statement income prospective basis beginning adoption date restricted investments relate underlying operating performance business company’s definition segment earnings excludes marktomarket adjustments fiscal 2020 2019 management evaluates performance business segments primarily segment earnings interest taxes amortization ebita represents income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges restructuring impairment costs net marktomarket adjustments related pension postretirement plans restricted asbestos investments financial information relating company’s reportable segments follows millions 1building solutions north america segment ebita years ended september 30 2020 2018 excludes 520 million 20 million respectively restructuring impairment costs year ended september 30 2020 building solutions north america includes 1 million equity losses 2building solutions emeala segment ebita years ended september 30 2020 2018 excludes 59 million 56 million respectively restructuring impairment costs years ended september 30 2020 2019 2018 building solutions emeala segment ebita includes 6 million 12 million 1 million respectively equity income 3building solutions asia pacific segment ebita years ended september 30 2020 2018 excludes 56 million 16 million respectively restructuring impairment costs years ended september 30 2020 2019 2018 building solutions asia pacific segment ebita includes less 1 million 1 million 1 million respectively equity income 4global products segment ebita years ended september 30 2020 2019 2018 excludes 143 million 235 million 113 million respectively restructuring impairment costs years ended september 30 2020 2019 2018 global products segment ebita includes 166 million 179 million 175 million respectively equity income 5corporate expenses years ended september 30 2020 2018 excludes 5 million 50 million respectively restructuring impairment costs 6buildings solutions north america assets september 30 2020 2019 2018 include 7 million 8 million 8 million respectively investments partiallyowned affiliates 7building solutions emeala assets september 30 2020 2019 2018 include 108 million 109 million 99 million respectively investments partiallyowned affiliates 8building solutions asia pacific assets september 30 2020 2019 2018 include 2 million 6 million 1 million respectively investments partiallyowned affiliates 9global products assets september 30 2020 2019 2018 include 797 million 730 million 740 million respectively investments partiallyowned affiliates fiscal years 2020 2019 2018 customer exceeded 10 consolidated net sales geographic segments financial information relating company’s operations geographic area follows millions net sales attributed geographic locations based location assets producing sales longlived assets geographic location consist net property plant equipment 20 nonconsolidated partiallyowned affiliates investments net assets nonconsolidated partiallyowned affiliates stated investments partiallyowned affiliates line consolidated statements financial position september 30 2020 2019 equity net income nonconsolidated partiallyowned affiliates stated equity income line consolidated statements income years ended september 30 2020 2019 2018 following table presents aggregated summarized financial data company’s nonconsolidated partiallyowned affiliates considered significant subsidiaries fiscal 2019 2018 fiscal 2020 due adoption sec final rule release 3310786 amounts included table represent 100 results continuing operations nonconsolidated partiallyowned affiliates accounted equity method summarized balance sheet data september 30 2019 follows millions summarized income statement data years ended september 30 2019 2018 follows millions 21 guarantees certain companys subsidiaries business segment level guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows company offers warranties customers depending upon specific product terms customer purchase agreement typical warranty program requires company replace defective products within specified time period date sale company records estimate future warrantyrelated costs based actual historical return rates known factors based analysis return rates factors company’s warranty provisions adjusted necessary company monitors warranty activity adjusts reserve estimates probable future warranty costs different estimates company’s product warranty liability continuing operations recorded consolidated statements financial position current liabilities warranty less one year noncurrent liabilities warranty extends longer one year changes carrying amount company’s total product warranty liability continuing operations fiscal years ended september 30 2020 2019 follows millions extended warranty deferred revenue recorded included table rather included within contract balances table note 4 revenue recognition notes consolidated financial statements periods presented 22 commitments contingencies environmental matters company accrues potential environmental liabilities probable liability incurred amount liability reasonably estimable september 30 2020 reserves environmental liabilities continuing operations totaled 130 million 61 million recorded within current liabilities 69 million recorded within noncurrent liabilities consolidated statements financial position reserves environmental liabilities continuing operations totaled 159 million september 30 2019 52 million recorded within current liabilities 107 million recorded within noncurrent liabilities consolidated statements financial position tyco fire products lp “tyco fire products” coordination wisconsin department natural resources wdnr conducting environmental assessment fire technology center ftc located marinette wisconsin surrounding areas city marinette town peshtigo wisconsin connection assessment perfluorooctane sulfonate pfos perfluorooctanoic acid pfoa andor per poly fluorinated substances pfas detected ftc groundwater surface water outside boundaries ftc tyco fire products continues investigate extent potential migration compounds working wdnr address issues insofar related migration third quarter 2019 company increased environmental reserves included 140 million related remediation efforts undertaken address contamination relating firefighting foams containing pfas compounds near ftc well continued remediation arsenic contaminants tyco fire products stanton street manufacturing facility also located marinette wisconsin “stanton street facility” company able estimate possible loss range loss excess established accruals time substantial portion increased reserves relates remediation resulting use firefighting foams containing pfas ftc use firefighting foams ftc primarily training testing purposes order ensure products sold company’s affiliates chemguard inc chemguard tyco fire products effective suppressing high intensity fires may occur military installations airports elsewhere reserve recorded quarter ended june 30 2019 following comprehensive review independent environmental consultants related presence pfas near ftc well remediation discussions wdnr june 21 2019 wdnr announced received wisconsin department health services “wdhs” recommendation groundwater quality standards among compounds pfoa pfos wdhs recommended groundwater enforcement standard pfoa pfos 20 parts per trillion august 22 2019 governor wisconsin issued executive order among things directed wdnr create pfas coordinating council work wisconsin agencies including wdhs establish final groundwater quality standards based wdhs’s prior recommendation july 2019 company received letter wdnr directing expansion evaluation pfas marinette region include 1 biosolids sludge produced city marinette waste water treatment plant spread certain fields area 2 menominee peshtigo rivers tyco fire products voluntarily responded wdnr’s letter request additional necessary information october 16 2019 wdnr issued “notice noncompliance” tyco fire products johnson controls inc regarding wdnr’s july 3 2019 letter stated “if fail take actions required wis stat § 29211 address contamination dnr move forward wis stat § 29231 implement si workplan evaluate environmental enforcement actions cost recovery wis stat § 292318” wdnr issued letter regarding issue november 4 2019 february 2020 wdnr sent letter tyco fire products johnson controls inc directing expansion evaluation pfas marinette region include investigation activities south west previously defined ftc study area tyco fire products johnson controls inc believe complied applicable environmental laws regulations company cannot predict regulatory enforcement actions might result wdnr’s actions consequences actions tyco fire products engaged remediation activities stanton street facility since 1990 corporate predecessor ansul incorporated “ansul” manufactured arsenicbased agricultural herbicides stanton street facility resulted significant arsenic contamination soil groundwater site parts adjoining menominee river 2009 ansul entered administrative consent order consent order us environmental protection agency address presence arsenic site agreement tyco fire products’ principal obligations contain arsenic contamination site pump treat onsite groundwater dredge treat properly dispose contaminated sediments adjoining river areas monitor contamination levels ongoing basis activities completed consent order since 2009 include installation subsurface barrier wall around facility contain contaminated groundwater installation groundwater extraction treatment system dredging offsite disposal treated river sediment increase reserve related stanton street facility recorded following review consent order resulted identification several structural upgrades needed preserve effectiveness prior remediation efforts addition ongoing remediation activities company also working wdnr investigate presence pfas near stanton street facility part evaluation pfas marinette region potential environmental liabilities accrued company take consideration possible recoveries future insurance proceeds however take account likely share parties bear remediation sites difficult estimate company’s ultimate level liability many remediation sites due large number parties may involved complexity determining relative liability among parties uncertainty nature scope investigations remediation conducted uncertainty application law risk assessment various choices costs associated diverse technologies may used corrective actions sites often quite lengthy periods eventual remediation may occur possible technological regulatory enforcement developments results additional environmental studies factors could change companys expectations respect future charges cash outlays changes could material companys future results operations financial condition cash flows nevertheless company currently believe claims penalties costs addition amounts accrued material adverse effect company’s financial position results operations cash flows addition company identified asset retirement obligations environmental matters expected addressed retirement disposal removal abandonment existing owned facilities september 30 2020 2019 company recorded conditional asset retirement obligations continuing operations 29 million 30 million respectively asbestos matters company certain subsidiaries along numerous third parties named defendants personal injury lawsuits based alleged exposure asbestos containing materials cases typically involved product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos used asbestos containing components september 30 2020 companys estimated asbestosrelated net liability recorded discounted basis within companys consolidated statements financial position 115 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 483 million 49 million recorded current liabilities 434 million recorded noncurrent liabilities company also maintained separate cash investments receivables related insurance recoveries within consolidated statements financial position 368 million 39 million recorded current assets 329 million recorded noncurrent assets included 9 million cash 291 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2020 68 million september 30 2019 companys estimated asbestosrelated net liability recorded discounted basis within companys consolidated statements financial position 141 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 507 million 50 million recorded current liabilities 457 million recorded noncurrent liabilities company also maintained separate cash investments receivables related insurance recoveries within consolidated statements financial position 366 million 46 million recorded current assets 320 million recorded noncurrent assets included 16 million cash 273 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2019 77 million companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 least annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted amounts recorded company asbestosrelated liabilities insurancerelated assets based companys strategies resolving asbestos claims currently available information number estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims identity defendants resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers many factors closely linked change one variable assumption impact one others single variable assumption predominately influences determination companys asbestosrelated liabilities insurancerelated assets furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries result actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results insurable liabilities company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience september 30 2020 2019 insurable liabilities totaled 363 million 379 million respectively 83 million 99 million recorded within current liabilities 22 million 22 million recorded within accrued compensation benefits 258 million 258 million recorded within noncurrent liabilities consolidated statements financial position respectively company records receivables third party insurers recovery determined probable amount receivables recorded september 30 2020 21 million 5 million recorded within current assets 16 million recorded within noncurrent assets respectively amount receivables recorded september 30 2019 23 million 5 million recorded within current assets 18 million recorded within noncurrent assets respectively company maintains captive insurance companies manage insurable liabilities aqueous filmforming foam afff litigation two companys subsidiaries chemguard tyco fire products named along defendant manufacturers cases certain subsidiaries company affiliated chemguard tyco fire products number class action lawsuits relating use firefighting foam products us department defense dod others fire suppression purposes related training exercises plaintiffs generally allege firefighting foam products manufactured defendants contain break chemicals pfos pfoa andor pfas compounds use products others various airbases airports sites resulted release chemicals environment ultimately communities’ drinking water supplies neighboring airports airbases sites pfoa pfos pfas compounds studied united states environmental protection agency epa environmental health agencies researchers epa issued binding regulatory limits stated would propose regulatory standards pfos pfoa drinking water end 2019 accordance pfas action plan released february 2019 issued interim recommendations addressing pfoa pfos groundwater december 2019 studies continue epa issued health advisory level pfoa pfos drinking water pfoa pfos types synthetic chemical compounds present firefighting foam however also present many existing consumer products according epa pfoa pfos used make carpets clothing fabrics furniture paper packaging food materials eg cookware resistant water grease stains plaintiffs generally seek compensatory damages including damages alleged personal injuries medical monitoring diminution property values investigation remediation costs natural resources damages also seek punitive damages injunctive relief address remediation alleged contamination september 2018 tyco fire products chemguard filed petition multidistrict litigation united states judicial panel multidistrict litigation “jpml” seeking consolidate existing future federal cases one jurisdiction december 7 2018 jpml issued order transferring various afff cases multidistrict litigation “mdl” united states district court district south carolina additional cases identified transfer directly filed mdl afff putative class actions chemguard tyco fire products named 30 putative class actions federal courts originating colorado delaware florida massachusetts new york pennsylvania washington new hampshire south carolina district columbia guam west virginia michigan south dakota one cases transferred mdl anticipated remaining case removed federal court transferred following service complaint afff individual mass actions approximately 746 individual “mass” actions pending filed state federal court california 5 cases colorado 41 cases new york 4 cases pennsylvania 15 cases new mexico 2 cases missouri 1 case arizona 1 case south carolina 677 cases direct filed various us jurisdictions chemguard tyco fire products defendants plaintiffs generally seek compensatory damages including damages alleged personal injuries medical monitoring alleged diminution property values cases involve five plaintiffs california approximately 7000 plaintiffs colorado approximately 126 plaintiffs new york 15 plaintiffs pennsylvania two plaintiffs new mexico one plaintiff missouri two plaintiffs arizona 500 plaintiffs various states directfiled complaints south carolina six matters transferred directlyfiled mdl anticipated remaining cases transferred mdl many additional filed actions directly filed south carolina plaintiffs among 660 plaintiffs company previously disclosed made filings pennsylvania state court company anticipates remainder possible individual product liability claims filed pennsylvania state court either soon filed mdl claims state court dismissed accordingly dismissed pennsylvania without corresponding filing south carolina afff municipal cases chemguard tyco fire products also defendants 58 cases federal state courts involving municipal water provider plaintiffs alaska arizona california colorado florida massachusetts new jersey new york maryland ohio pennsylvania washington district columbia several municipalities water providers various states directfiled complaints south carolina three cases transferred directly filed mdl anticipated remaining cases transferred mdl municipal plaintiffs generally allege use defendants’ firefighting foam products fire training academies municipal airports air national guard bases navy air force bases released pfos pfoa public water supply wells allegedly requiring remediation public property since beginning fiscal year 2021 two municipal actions filed company may 2018 company also notified widefield water sanitation district colorado springs colorado may assert claims regarding remediation costs connection pfos pfoa contamination allegedly resulting use products peterson air force base may 2020 company also notified lakewood water district pierce county washington may assert claims regarding remediation connection pfoa pfos pfas contamination allegedly resulting use products joint base lewismcchord state us territory attorneys general litigation related afff june 2018 state new york filed lawsuit new york state court state new york v 3m company et al 90402918 ny sup ct albany county number manufacturers including affiliates company respect alleged pfos pfoa contamination purportedly resulting firefighting foams used locations across new york including stewart air national guard base newburgh gabreski air national guard base southampton plattsburgh air force base plattsburgh griffiss air force base rome unspecified “other” sites throughout state lawsuit seeks recover costs natural resource damages associated contamination sites suit removed united states district court northern district new york transferred mdl february 2019 state new york filed second lawsuit new york state court state new york v 3m company et al ny sup ct albany county number manufacturers including affiliates company respect alleged pfos pfoa contamination purportedly resulting firefighting foams used additional locations across new york suit removed united states district court northern district new york transferred mdl july 2019 state new york filed third lawsuit new york state court state new york v 3m company et al ny sup ct albany county number manufacturers including affiliates company respect alleged pfos pfoa contamination purportedly resulting firefighting foams used additional locations across new york suit removed united states district court northern district new york transferred mdl november 2019 state new york filed fourth lawsuit new york state court state new york v 3m company et al ny sup ct albany county number manufacturers including affiliates company respect alleged pfos pfoa contamination purportedly resulting firefighting foams used additional locations across new york suit removed federal court transferred mdl january 2019 state ohio filed lawsuit ohio state court state ohio v 3m company et al g4801ci021804752000 court common pleas lucas county ohio number manufacturers including affiliates company respect pfos pfoa contamination allegedly resulting use firefighting foams various specified unspecified locations across ohio lawsuit seeks recover costs natural resource damages associated contamination lawsuit removed united states district court northern district ohio transferred mdl addition may june 2019 three states filed lawsuits respective state courts number manufacturers including affiliates company respect pfos pfoa contamination allegedly resulting use firefighting foams various specified unspecified locations across jurisdictions state new hampshire v 3m company et al state vermont v 3m company et al state new jersey v 3m company et al three suits removed federal court transferred mdl september 2019 government guam filed lawsuit superior court guam number manufacturers including affiliates company respect pfos pfoa contamination allegedly resulting use firefighting foams various locations within jurisdiction complaint removed federal court transferred mdl november 2019 government commonwealth northern mariana islands filed lawsuit superior court northern mariana islands number manufacturers including affiliates company respect pfos pfoa contamination allegedly resulting use firefighting foams various locations within jurisdiction complaint removed federal court transferred mdl august 2020 attorney general state michigan filed two substantially similar lawsuitsone federal court one state courtagainst number manufacturers including affiliates company respect pfos pfoa contamination allegedly resulting use firefighting foams various locations within state federal action transferred mdl state court action removed federal court tagged transfer mdl afff matters related tyco fire products fire technology center marinette wisconsin tyco fire products chemguard defendants one lawsuit marinette county wisconsin alleging damages due historical use afff products tyco’s fire technology center marinette wisconsin putative class action joan richard campbell behalf similarly situated v tyco fire products lp chemguard inc et al marinette county circuit court filed dec 17 2018 alleges pfas including pfoapfos contaminated groundwater migrated tyco’s property residential drinking water wells causing personal injuries property damage plaintiffs tyco chemguard removed case united states district court eastern district wisconsin transferred mdl second lawsuit duane janell goldsmith individually behalf hg kg v tyco fire products lp chemguard inc et al marinette county circuit court filed dec 17 2018 also filed family alleging personal injuries due contaminated groundwater case dismissed without prejudice afff related matters march 2020 kalispel tribe indians federally recognized tribe two tribal corporations filed lawsuit united states district court eastern district washington number manufacturers including affiliates company united states respect pfas contamination allegedly resulting use disposal afff united states air force around fairchild air force base eastern washington case transferred mdl pfas related matters april 2020 weirton area water board west virginia filed lawsuit circuit court brooke county west virginia number pfas chemical manufacturers including chemguard respect pfas contamination case removed united states district court northern district west virginia company vigorously defending matters believes meritorious defenses class certification claims asserted including statutes limitations government contractor defense various medical scientific defenses factual legal defenses government contractor defense form immunity available government contractors produced products united states government pursuant government’s specifications tyco chemguard insurance place many years company pursuing coverage matters however numerous factual legal issues resolved connection claims extremely difficult predict outcome ultimate financial exposure represented matters assurance exposure material bosch litigation march 15 2019 german subsidiary company received complaint robert bosch gmbh “bosch” filed german court complaint related automotive starter batteries joint venture company bosch 8020 parties joint venture time complaint filed jci’s ownership interest joint venture transferred entities controlled purchaser upon consummation sale company’s power solutions business complaint alleged certain internal company reorganization transactions compliance arrangements relating joint venture august 8 2019 bosch entered agreement purchaser pursuant purchaser would purchase bosch’s interest joint venture simultaneously agreement company bosch executed agreement dismiss proceedings parties upon completion purchaser’s acquisition bosch’s interest first quarter fiscal 2020 following completion purchaser’s acquisition bosch’s interest joint venture company bosch made filings german court terminating litigation pursuant company’s obligations purchaser connection divestiture company’s power solutions business company reimbursed purchaser portion costs connection acquisition bosch’s interests joint venture reflected cash outflow discontinued operations matters company involved various lawsuits claims proceedings incident operation businesses including pertaining product liability environmental safety health intellectual property employment commercial contractual matters various casualty matters although outcome litigation cannot predicted certainty lawsuits claims proceedings may disposed unfavorably us management’s opinion none material adverse effect company’s financial position results operations cash flows costs related matters material periods presented 23 related party transactions ordinary course business company enters transactions related parties equity affiliates transactions consist facility management services sale purchase goods arrangements following table presents net sales purchases related parties years ended september 30 2020 2019 2018 millions following table presents receivables payables related parties consolidated statements financial position millions johnson controls international plc subsidiaries schedule ii valuation qualifying accounts millions item 9item 8 financial statements supplementary data following consolidated financial statements schedules filed part annual report financial statements reports independent accountants consolidated balance sheets september 30 1998 september 30 1997 consolidated statements operations fiscal year ended september 30 1998 nine month fiscal period ended september 30 1997 year ended december 31 1996 consolidated statements shareholders equity fiscal year ended september 30 1998 nine month fiscal period ended september 30 1997 year ended december 31 1996 consolidated statements cash flows fiscal year ended september 30 1998 nine month fiscal period ended september 30 1997 year ended december 31 1996 notes consolidated financial statements financial statement schedule ii valuation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx see notes consolidated financial statements summarized quarterly financial data unaudited item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements supplementary financial information selected quarterly financial data financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx item 9item 8 financial statements supplementary data following consolidated financial statements schedule specified item together report thereon deloitte touche llp presented following item 15 report financial statements supplementary financial information selected quarterly financial data unaudited financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx item 9item 8 financial statements supplementary data following consolidated financial statements schedule filed part annual report financial statements report independent accountants consolidated balance sheetsseptember 30 2001 2000 consolidated statements operations fiscal years ended september 30 2001 2000 1999 consolidated statements shareholders equity fiscal years ended september 30 2001 2000 1999 consolidated statements cash flows fiscal years ended september 30 2001 2000 1999 notes consolidated financial statements financial statement schedule iivaluation qualifying accounts financial statements schedules omitted since information required submitted included consolidated financial statements related notes either applicable required rules regulation sx see notes consolidated financial statements summarized quarterly financial data unaudited item 9item 8 financial statements supplementary data index consolidated financial statements report independent registered public accounting firm board directors shareholders johnson controls international plc opinions financial statements internal control financial reporting audited accompanying consolidated statements financial position johnson controls international plc subsidiaries “company” september 30 2019 2018 related consolidated statements income comprehensive income loss shareholders’ equity attributable johnson controls ordinary shareholders cash flows three years period ended september 30 2019 including related notes financial statement schedule listed accompanying index collectively referred “consolidated financial statements” also audited companys internal control financial reporting september 30 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company september 30 2019 2018 results operations cash flows three years period ended september 30 2019 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting september 30 2019 based criteria established internal control integrated framework 2013 issued coso basis opinions companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matters communicated matters arising current period audit consolidated financial statements communicated required communicated audit committee relate accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate goodwill impairment assessment described notes 1 7 consolidated financial statements company’s consolidated goodwill balance 18178 million september 30 2019 management reviews goodwill impairment july 31 fiscal year frequently events changes circumstances indicate asset might impaired estimated fair value reporting unit using fair value method based management’s judgments assumptions compared carrying amount reporting unit including recorded goodwill fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value reporting unit management uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applied company’s average historical future financial results principal considerations determination performing procedures relating goodwill impairment assessment critical audit matter significant judgment management developing fair value reporting unit turn led high degree auditor judgment subjectivity effort performing procedures evaluate management’s significant assumptions including multiples earnings comparable entities similar operations economic characteristics addition audit effort involved use professionals specialized skill knowledge assist performing procedures evaluating audit evidence obtained addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating management’s goodwill impairment assessment including controls fair value company’s reporting units procedures also included among others testing management’s process developing fair value estimates ii evaluating appropriateness multiples earnings model iii testing completeness accuracy relevance underlying data used model evaluating significant assumptions used management including multiples earnings comparable entities similar operations economic characteristics evaluating management’s assumptions related multiples earnings involved evaluating whether assumptions used management reasonable considering consistency external market industry data ii whether assumptions consistent evidence obtained areas audit professionals specialized skill knowledge used assist evaluation company’s multiples earnings model certain significant assumptions including multiples earnings comparable entities similar operations economic characteristics uncertain tax positions described note 18 consolidated financial statements company recorded uncertain tax position liabilities totaling 2451 million primarily noncurrent liability september 30 2019 company subject income taxes us numerous foreign jurisdictions judgment required management determining company’s worldwide provision income taxes recording related income tax assets liabilities described management company recorded liability best estimate probable loss certain tax positions company’s income tax filings regularly audit tax authorities amounts ultimately paid upon resolution issues raised taxing authorities may differ materially amounts accrued year principal considerations determination performing procedures relating uncertain tax positions critical audit matter significant judgment management identifying recording estimated probable loss uncertain tax position turn led high degree auditor judgment subjectivity effort performing procedures evaluate timely identification accurate measurement uncertain tax positions also evaluation audit evidence available support tax liabilities uncertain tax positions complex required significant auditor judgment nature evidence often highly subjective addition audit effort involved use professionals specialized skill knowledge assist performing procedures evaluating audit evidence obtained addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating management’s assessment uncertain tax positions including controls identification estimate probable loss uncertain tax position procedures also included among others testing information used calculation estimate probable loss uncertain tax positions ii testing calculation liability uncertain tax positions jurisdiction iii testing completeness management’s assessment identification uncertain tax positions iv evaluating status results income tax audits relevant tax authorities applicable professionals specialized skill knowledge used assist evaluation completeness measurement company’s uncertain tax positions including evaluating reasonableness management’s assessment whether tax positions morelikelythannot sustained amount potential benefit realized application relevant tax laws estimated interest penalties served company’s auditor since 1957 johnson controls international plc consolidated statements income certain items sum due rounding accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements comprehensive income loss accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements financial position accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements cash flows accompanying notes integral part consolidated financial statements johnson controls international plc consolidated statements shareholders’ equity attributable johnson controls ordinary shareholders accompanying notes integral part consolidated financial statements johnson controls international plc notes consolidated financial statements 1summary significant accounting policies consolidated financial statements include consolidated accounts johnson controls international plc corporation organized laws ireland subsidiaries johnson controls international plc subsidiaries hereinafter collectively referred company johnson controls jci plc nature operations johnson controls international plc headquartered cork ireland global diversified technology multi industrial leader serving wide range customers 150 countries company creates intelligent buildings efficient energy solutions integrated infrastructure work seamlessly together deliver promise smart cities communities company committed helping customers win creating greater value stakeholders strategic focus buildings fourth quarter fiscal 2016 johnson controls inc jci inc tyco international plc tyco completed combination jci inc merging wholly owned indirect subsidiary tyco merger following merger tyco changed name “johnson controls international plc” jci inc whollyowned subsidiary johnson controls international plc merger accounted reverse acquisition using acquisition method accounting accordance accounting standards codification asc 805 business combinations jci inc accounting acquirer financial reporting purposes accordingly historical consolidated financial statements jci inc periods prior transaction considered historic financial statements company november 13 2018 company entered stock asset purchase agreement “purchase agreement” bcp acquisitions llc “purchaser” purchaser newlyformed entity controlled investment funds managed brookfield capital partners llc pursuant purchase agreement terms subject conditions therein company agreed sell purchaser agreed acquire company’s power solutions business purchase price 132 billion transaction closed april 30 2019 net cash proceeds 116 billion tax transactionrelated expenses first quarter fiscal 2019 company determined power solutions business met criteria classified discontinued operation result power solutions historical financial results reflected companys consolidated financial statements discontinued operation assets liabilities retrospectively reclassified assets liabilities held sale refer note 3 discontinued operations notes consolidated financial statements information company global market leader engineering developing manufacturing installing building products systems around world including heating ventilating airconditioning hvac equipment hvac controls energymanagement systems security systems fire detection systems fire suppression solutions company serves customers providing technical services hvac security fireprotection space energymanagement consulting datadriven solutions via dataenabled business finally company strong presence north american residential air conditioning heating systems market global market leader industrial refrigeration products principles consolidation consolidated financial statements include consolidated accounts johnson controls international plc subsidiaries consolidated conformity accounting principles generally accepted united states america us gaap significant intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal investments partiallyowned affiliates accounted equity method company’s interest exceeds 20 company controlling interest company consolidates variable interest entities vie company power direct significant activities entity obligation absorb losses receive benefits entity may significant company significant variable interest consolidated nonconsolidated vies continuing operations presented reporting periods use estimates preparation consolidated financial statements conformity us gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates fair value financial instruments fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements fair value financial instruments including derivative instruments hedging activities longterm debt assets liabilities held sale company classifies assets liabilities disposal groups sold held sale period following criteria met management authority approve action commits plan sell disposal group disposal group available immediate sale present condition subject terms usual customary sales disposal groups active program locate buyer actions required complete plan sell disposal group initiated sale disposal group probable transfer disposal group expected qualify recognition completed sale within one year except events circumstances beyond companys control extend period time required sell disposal group beyond one year disposal group actively marketed sale price reasonable relation current fair value actions required complete plan indicate unlikely significant changes plan made plan withdrawn addition company classifies disposal groups disposed sale eg spinoff held sale period disposal occurs company initially measures disposal group classified held sale lower carrying value fair value less costs sell loss resulting measurement recognized period held sale criteria met conversely gains recognized sale disposal group date sale company assesses fair value disposal group less costs sell reporting period remains classified held sale reports subsequent changes adjustment carrying value disposal group long new carrying value exceed carrying value disposal group time initially classified held sale upon determining disposal group meets criteria classified held sale company reports assets liabilities disposal group material line items assets held sale liabilities held sale consolidated statements financial position refer note 3 discontinued operations notes consolidated financial statements information cash equivalents company considers highly liquid investments original maturity three months less purchased cash equivalents restricted cash september 30 2019 company held restricted cash approximately 16 million recorded within current assets consolidated statements financial position amounts related cash restricted payment asbestos liabilities september 30 2018 company held restricted cash approximately 15 million 6 million recorded within current assets consolidated statements financial position 9 million recorded within noncurrent assets consolidated statements financial position receivables consist amounts billed currently due customers unbilled costs accrued profits related revenues longterm contracts recognized accounting purposes yet billed customers company extends credit customers normal course business maintains allowance doubtful accounts resulting inability unwillingness customers make required payments allowance doubtful accounts based historical experience existing economic conditions specific customer collection issues company identified company enters supply chain financing programs sell certain accounts receivable without recourse thirdparty financial institutions sales accounts receivable reflected reduction accounts receivable consolidated statements financial position proceeds included cash flows operating activities consolidated statements cash flows inventories stated lower cost market using firstin firstout fifo method finished goods workinprocess inventories include material labor manufacturing overhead costs property plant equipment property plant equipment recorded cost depreciation provided estimated useful lives respective assets using straightline method financial reporting purposes accelerated methods income tax purposes estimated useful lives generally range 3 40 years buildings improvements subscriber systems 15 years 3 15 years machinery equipment company capitalizes interest borrowings active construction period major capital projects capitalized interest added cost underlying assets amortized useful lives assets goodwill indefinitelived intangible assets goodwill reflects cost acquisition excess fair values assigned identifiable net assets acquired company reviews goodwill impairment fourth fiscal quarter frequently events changes circumstances indicate asset might impaired company performs impairment reviews reporting units determined company’s reportable segments one level reportable segments certain instances using fair value method based management’s judgments assumptions third party valuations fair value reporting unit refers price would received sell unit whole orderly transaction market participants measurement date estimating fair value company uses multiples earnings based average published multiples earnings comparable entities similar operations economic characteristics applies companys average historical future financial results certain instances company uses discounted cash flow analyses estimated sales price support fair value estimates inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement estimated fair value compared carrying amount reporting unit including recorded goodwill company subject financial statement risk extent carrying amount exceeds estimated fair value refer note 7 goodwill intangible assets notes consolidated financial statements information regarding goodwill impairment testing performed fiscal years 2019 2018 2017 indefinitelived intangible assets also subject least annual impairment testing indefinitelived intangible assets primarily consist trademarks tradenames tested impairment using relieffromroyalty method considerable amount management judgment assumptions required performing impairment tests impairment longlived assets company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 35030 requires intangible assets acquired business combination used research development activities considered indefinite lived completion abandonment associated research development efforts period assets considered indefinite lived shall amortized shall tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value entity shall recognize impairment loss amount equal excess asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment testing performed fiscal years 2019 2018 2017 revenue recognition company recognizes revenue certain longterm contracts design manufacture install building products systems well unscheduled repair replacement services time basis progress towards completion measured using costtocost input method based relationship actual costs incurred total estimated costs completion costtocost input method used best depicts transfer control customer occurs company incurs costs changes original estimates may required life contract estimates reviewed monthly contract modifications result additional goods services distinct transferred modification accounted prospectively company entered new contract goods services modification distinct original contract sales gross profit adjusted using cumulative catchup method revisions estimated total contract costs contract values estimated losses recorded identified company adjust promised amount consideration effects significant financing component contract inception company expects receive payment within twelve months transfer goods services company enters extended warranties longterm service maintenance agreements certain customers arrangements revenue recognized time straightline basis respective contract term company also sells certain hvac refrigeration products services bundled arrangements multiple performance obligations equipment commissioning service labor extended warranties approximately four twelve months separate timing first deliverable last piece equipment delivered may extended warranty arrangements duration one five years commencing upon end standard warranty period addition company sells security monitoring systems may multiple performance obligations including equipment installation monitoring services maintenance agreements revenues associated sale equipment related installations recognized time costtocost input method revenue monitoring maintenance services recognized time services rendered transaction price allocated performance obligation based relative selling price method order estimate relative selling price market data transfer price studies utilized standalone selling price directly observable company estimates standalone selling price using adjusted market assessment approach expected cost plus margin approach transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized time straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life contract cases company recognizes revenue point time control goods services transfers customer company considers contractual consideration payable customer assesses variable consideration may affect total transaction price including discounts rebates refunds credits similar sources variable consideration determining transaction price contract company includes variable consideration estimated transaction price probable significant reversal revenue recognized would occur uncertainty associated variable consideration subsequently resolved estimates based amount consideration company expects entitled shipping handling costs billed customers included sales related costs included cost sales control transfers customer company presents amounts collected customers sales taxes net related amounts remitted subscriber system assets dealer intangibles related deferred revenue accounts company considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment company retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers place business outside north america residence installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded current noncurrent assets within consolidated statements financial position subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using straightline method lives 12 years considering customer attrition company uses straightline method 15year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program primarily outside north america acquired contracts related customer relationships recorded contractually determined purchase price first 6 months 12 months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition straightline basis period customer relationship estimated useful life dealer intangibles ranges 12 15 years research development costs expenditures research activities relating product development improvement charged income incurred included within selling general administrative expenses continuing operations consolidated statements income expenditures years ended september 30 2019 2018 2017 319 million 310 million 307 million respectively earnings per share company presents basic diluted earnings per share eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number common shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number common shares common equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock unvested performance share awards see note 13 earnings per share notes consolidated financial statements calculation earnings per share foreign currency translation substantially company’s international operations use respective local currency functional currency assets liabilities international entities translated periodend exchange rates income expenses translated using average exchange rates period monetary assets liabilities denominated nonfunctional currencies adjusted reflect periodend exchange rates aggregate transaction gains losses net impact foreign currency hedges included income continuing operations years ended september 30 2019 2018 2017 10 million 1 million 60 million respectively derivative financial instruments company written policies procedures place financial instruments direction corporate treasury restrict derivative transactions intended hedging purposes use financial instruments speculative purposes strictly prohibited company selectively uses financial instruments manage market risk changes foreign exchange rates commodity prices stockbased compensation liabilities interest rates fair values derivatives recorded consolidated statements financial position change derivative’s fair value recorded period current earnings accumulated comprehensive income aoci depending whether derivative designated part hedge transaction type hedge transaction see note 10 derivative instruments hedging activities note 11 fair value measurements notes consolidated financial statements disclosure company’s derivative instruments hedging activities investments company invests debt equity securities marked market end accounting period fiscal 2019 unrealized gains losses securities recognized companys consolidated statements income periods prior fiscal 2019 unrealized gains losses securities deferred compensation plan assets recognized aoci within consolidated statement shareholders equity unless unrealized loss deemed temporary case loss charged earnings deferred compensation plan assets marked market end accounting period unrealized gains losses recorded consolidated statements income pension postretirement benefits company utilizes marktomarket approach recognizing pension postretirement benefit expenses including measuring market related value plan assets fair value recognizing actuarial gains losses fourth quarter fiscal year date remeasurement event refer note 15 retirement plans notes consolidated financial statements disclosure companys pension postretirement benefit plans loss contingencies accruals recorded various contingencies including legal proceedings environmental matters selfinsurance claims arise normal course business accruals based judgment probability losses applicable consideration opinions internal andor external legal counsel actuarially determined estimates additionally company records receivables third party insurers recovery determined probable company subject laws regulations relating protecting environment company provides expenses associated environmental remediation obligations amounts probable reasonably estimated refer note 22 commitments contingencies notes consolidated financial statements company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage insurable liabilities asbestosrelated contingencies insurance receivables company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims discounted present value determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers refer note 22 commitments contingencies notes consolidated financial statements discussion managements judgments applied recognition measurement asbestosrelated assets liabilities income taxes deferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax basis particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided reduce carrying book value deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized refer note 18 income taxes notes consolidated financial statements retrospective changes first quarter fiscal 2019 company determined power solutions business met criteria classified discontinued operation required retrospective application financial information periods presented refer note 3 discontinued operations notes consolidated financial statements information regarding companys discontinued operations november 2016 financial accounting standards board fasb issued accounting standards update asu 201618 statement cash flows topic 230 restricted cash consensus fasb emerging issues task force asu requires amounts generally described restricted cash restricted cash equivalents included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows asu 201618 effective retrospectively quarter ended december 31 2018 september 30 2016 company approximately 20 billion restricted cash related restricted proceeds deposited escrow issuance 20 billion aggregate principal unsecured unsubordinated notes adient global holdings ltd released upon completion adient spinoff october 2016 upon adoption asu 201618 release restricted proceeds presented fiscal 2017 consolidated statements cash flow financing activity outflow discontinued operations remaining impact guidance significant impact companys consolidated financial statements periods presented restricted cash balance fiscal years ended september 30 2019 2018 16 million 15 million respectively august 2016 fasb issued asu 201615 statement cash flows topic 230 classification certain cash receipts cash payments asu 201615 provides clarification guidance eight specific cash flow presentation issues order reduce diversity practice asu 201615 effective retrospectively company quarter ending december 31 2018 adoption guidance impact presentation equity swap funding settlement activities since activity changed operating activity investing activity new accounting pronouncements recently adopted accounting pronouncements march 2018 fasb issued asu 201805 income taxes topic 740 amendments sec paragraphs pursuant sec staff accounting bulletin 118 add various sec paragraphs pursuant issuance sec staff accounting bulletin 118 sab 118 asc 740 income taxes sab 118 issued sec december 2017 provide immediate guidance accounting implications us tax reform tax cuts jobs act period enactment sab 118 provides provisional one year measurement period entities finalize accounting certain income tax effects related tax cuts jobs act company applied guidance consolidated financial statements related disclosures beginning first quarter fiscal 2018 first quarter fiscal 2019 company completed analysis enactmentdate income tax effects us tax law change refer note 18 income taxes notes consolidated financial statements information march 2017 fasb issued asu 201707 compensationretirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost asu requires service cost component net periodic benefit cost presented compensation costs components net periodic benefit cost required presented income statement separately service cost component outside subtotal income operations one presented asu also allows service cost component net periodic benefit cost eligible capitalization asu 201707 effective quarter ended december 31 2018 guidance effective retrospectively except capitalization service cost component applied prospectively adoption guidance significant impact companys consolidated financial statements company present subtotal income operations within consolidated statements income october 2016 fasb issued asu 201616 accounting income taxes intraentity asset transfers assets inventory asu requires tax effects intraentity sales assets inventory recognized period transaction occurs guidance effective company quarter ended december 31 2018 changes applied means cumulativeeffect adjustment resulted reduction retained earnings noncurrent assets 546 million january 2016 fasb issued asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities asu 201601 amends certain aspects recognition measurement presentation disclosure financial instruments including marketable securities additionally february 2018 fasb issued asu 201803 technical corrections improvements financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities provides additional clarification certain topics addressed asu 201601 asu 201601 asu 201803 effective company quarter ending december 31 2018 changes applied means cumulativeeffect adjustment resulted increase retained earnings 8 million new standard requires marktomarket marketable securities investments previously recorded within accumulated comprehensive income statement financial position recorded statement income prospective basis beginning adoption date restricted investments relate underlying operating performance business company’s definition segment earnings excludes marktomarket adjustments beginning first quarter fiscal 2019 refer note 19 segment information notes consolidated financial statements information may 2014 fasb issued asu 201409 revenue contracts customers topic 606 asu 201409 related amendments collectively “new revenue standard” clarify principles recognizing revenue entity either enters contract customers transfer goods services enters contract transfer nonfinancial assets company adopted new revenue standard october 1 2018 using modified retrospective approach new revenue standard revenue recognition mostly consistent previous guidance exception power solutions business reported discontinued operation beginning first quarter fiscal 2019 within power solutions business certain customers return battery cores included transaction price noncash consideration new revenue standard material impact company’s consolidated statements financial position consolidated statements income consolidated statements cash flows october 1 2018 company applied new revenue standard contracts completed date recognized cumulativeeffect adjustment reduction retained earnings 45 million relates primarily deferred revenue recorded certain battery core returns represent material right provided customers prior period comparative information revised continues reported previous guidance impact adoption new revenue standard companys consolidated statement income fiscal year ended september 30 2019 continuing operations increase net sales approximately 3 million impact income taxes less 1 million impact adoption new revenue standard companys consolidated statement income fiscal year ended september 30 2019 discontinued operations increase net sales 667 million impact income discontinued operations net tax approximately 26 million impact adoption new revenue standard companys consolidated statement financial position september 30 2019 follows millions recently issued accounting pronouncements february 2016 fasb issued asu 201602 leases topic 842 asu 201602 requires recognition operating leases lease assets liabilities balance sheet disclosure key information leasing arrangements original standard effective retrospectively company quarter ending december 31 2019 early adoption permitted however july 2018 fasb issued asu 201811 leases topic 842 targeted improvements provides additional transition method permits changes applied means cumulativeeffect adjustment recorded retained earnings beginning fiscal year adoption company elected transition method adoption date october 1 2019 fasb amended topic 842 issuing asu 201801 leases topic 842 land easement practical expedient transition topic 842 provides optional transition practical expedient existing expired land easements previously recorded leases asu 201810 codification improvements topic 842 leases asu 201820 leases topic 842 narrowscope improvements lessors asu 201901 leases topic 842 codification improvements company populated leases new lease accounting software designing implementing new processes controls accounting leases new guidance company lessee various agreements facilities equipment currently accounted operating leases new guidance require company record operating leases balance sheet rightofuse rou asset corresponding lease liability future payment obligations company elected apply package transitional practical expedients company reassess prior conclusions lease identification lease classification initial direct costs existing leases date adoption company expects rou asset operating lease liability less 3 total assets however company expect new guidance material impact consolidated statements income consolidated statements cash flows recently issued accounting pronouncements expected material impact companys consolidated financial statements 2acquisitions divestitures fiscal year 2019 april 30 2019 company completed sale power solutions business bcp acquisitions llc purchase price 132 billion net cash proceeds tax transactionrelated expenses 116 billion connection sale company recorded gain net transaction costs 52 billion 40 billion tax subject postclosing working capital net debt adjustments within income discontinued operations net tax consolidated statements income first quarter fiscal 2019 company determined power solutions business met criteria classified discontinued operation result power solutions historical financial results reflected companys consolidated financial statements discontinued operation refer note 3 discontinued operations notes consolidated financial statements disclosure related companys discontinued operations fiscal 2019 company completed certain divestitures within global products building solutions emeala businesses combined selling price 18 million 16 million received september 30 2019 connection sale company reduced goodwill 1 million within building solutions emeala segment divestitures material companys consolidated financial statements fiscal 2019 company completed certain acquisitions combined purchase price 32 million 25 million paid september 30 2019 acquisitions material companys consolidated financial statements connection acquisitions company recorded goodwill 11 million within global products segment 8 million within building solutions asia pacific segment 6 million within building solutions emeala segment fiscal year 2018 fiscal 2018 company completed certain acquisitions combined purchase price net cash acquired 21 million paid september 30 2018 acquisitions aggregate material company’s consolidated financial statements connection acquisitions company recorded goodwill 14 million within global products segment 1 million within building solutions emeala segment first quarter fiscal 2018 company completed sale scott safety business 3m company selling price net cash divested 20 billion received september 30 2018 connection sale company recorded pretax gain 114 million within selling general administrative expenses consolidated statements income reduced goodwill assets held sale 12 billion gain net tax recorded 84 million net cash proceeds transaction approximately 19 billion used repay significant portion tyco international holding sarls tsarl 40 billion mergerrelated debt also fiscal 2018 company completed certain divestitures primarily within global products business combined selling price 204 million received september 30 2018 connection divestitures company reduced goodwill 35 million divestitures material companys consolidated financial statements fiscal year 2017 fiscal 2017 company completed three acquisitions combined purchase price net cash acquired 9 million 6 million paid september 30 2017 acquisitions aggregate material company’s consolidated financial statements connection acquisitions company recorded goodwill 2 million second quarter fiscal 2017 company completed sale adt security business south africa within building solutions emeala segment selling price net cash divested 129 million received september 30 2017 connection sale company reduced goodwill assets held sale 92 million divestiture material companys consolidated financial statements fiscal 2017 company completed two divestitures combined selling price net cash divested 44 million 40 million received september 30 2017 divestitures material companys consolidated financial statements connection divestitures company reduced goodwill 19 million 2 million global products segment building solutions asia pacific segment respectively fiscal 2017 company completed one additional divestiture sales price 4 million received september 30 2017 divestiture decreased companys ownership controlling noncontrolling interest result company deconsolidated cash 5 million divestiture material companys consolidated financial statements fiscal 2017 company received 52 million net cash proceeds related prior year business divestitures paid 75 million related prior year business acquisitions 3 discontinued operations power solutions november 13 2018 company entered stock asset purchase agreement “purchase agreement” bcp acquisitions llc “purchaser” purchaser newlyformed entity controlled investment funds managed brookfield capital partners llc pursuant purchase agreement terms subject conditions therein company agreed sell purchaser agreed acquire company’s power solutions business purchase price 132 billion transaction closed april 30 2019 net cash proceeds 116 billion tax transactionrelated expenses first quarter fiscal 2019 company determined power solutions business met criteria classified discontinued operation result power solutions historical financial results reflected companys consolidated financial statements discontinued operation assets liabilities retrospectively reclassified assets liabilities held sale company allocate general corporate overhead discontinued operations following table summarizes results power solutions reclassified discontinued operations fiscal years ended september 30 2019 2018 2017 millions power solutions sale occurred april 30 2019 seven months results included fiscal year ended september 30 2019 fiscal year ended september 30 2019 income discontinued operations income taxes included gain sale power solutions business net transaction costs 52 billion favorable impact 117 million ceasing depreciation amortization expense business held sale fiscal year ended september 30 2019 effective tax rate irish statutory rate 125 primarily due tax impacts divestiture power solutions business tax rate differentials fiscal year ended september 30 2018 effective tax rate irish statutory rate 125 primarily due legal entity restructuring associated power solutions business tax rate differentials fiscal year ended september 30 2017 effective tax rate irish statutory rate 125 primarily due tax expense due changes entity tax status establishment deferred tax liability outside basis difference certain nonconsolidated subsidiaries tax rate differentials adient plc october 31 2016 company completed spinoff automotive experience business way transfer automotive experience business johnson controls adient plc company retain equity interest adient plc first quarter fiscal 2017 company determined adient met criteria classified discontinued operation result adient’s historical financial results reflected company’s consolidated financial statements discontinued operation company allocate general corporate overhead discontinued operations following table summarizes results adient reclassified discontinued operations fiscal year ended september 30 2017 millions adient spinoff occurred october 31 2016 one month adient results included year ended september 30 2017 fiscal year ended september 30 2017 income discontinued operations income taxes included separation costs 79 million fiscal year ended september 30 2017 effective tax rate irish statutory rate 125 primarily due tax impacts separation costs adient spinoff related tax expense partially offset nonus tax rate differentials assets liabilities held sale following table summarizes carrying value power solutions assets liabilities held sale september 30 2018 millions third quarter fiscal 2019 company determined business within global products segment met criteria classified held sale assets liabilities business presented held sale consolidated statements financial position september 30 2019 assets liabilities held sale required recorded lower carrying value fair value less costs sell accordingly company recorded impairment charge 235 million within restructuring impairment costs consolidated statements income third quarter fiscal 2019 write carrying value assets held sale fair value less costs sell refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment charge divestiture business held sale could result gain loss sale extent ultimate selling price differs current carrying value net assets recorded business meet criteria classified discontinued operation divestiture business major effect companys operations financial results 4revenue recognition disaggregated revenue following table presents companys revenues disaggregated segment products systems versus services revenue year ended september 30 2019 millions following table presents disaggregation global products segment revenues product type year ended september 30 2019 millions contract balances contract assets relate company’s right consideration performance obligations satisfied billed consist unbilled receivables costs excess billings contract liabilities relate customer payments received advance satisfaction performance obligations contract liabilities consist deferred revenue contract balances classified assets liabilities contractbycontract basis end reporting period following table presents location amount contract balances companys consolidated statements financial position millions year ended september 30 2019 company recognized revenue approximately 12 billion included beginning period contract liability balance performance obligations performance obligation distinct good service bundle goods services promised contract’s transaction price allocated distinct performance obligation recognized revenue performance obligation satisfied contracts customers require significant complex integration contain goods services highly interdependent interrelated goods services significantly modify customize promises contracts therefore distinct entire contract accounted single performance obligation contracts multiple performance obligations contract’s transaction price allocated performance obligation based estimated relative standalone selling price distinct good service contract product sales product sold customer typically represents distinct performance obligation performance obligations satisfied point time timing satisfying performance obligation typically indicated terms contract september 30 2019 aggregate amount transaction price allocated remaining performance obligations approximately 144 billion approximately 60 expected recognized revenue next two years remaining performance obligations expected recognized revenue beyond two years primarily relate large multipurpose contracts construct hospitals schools governmental buildings include services performed buildings lifetime initial contract terms 25 35 years future contract modifications could affect timing amount remaining performance obligations company excludes value remaining performance obligations contracts original expected duration one year less costs obtain fulfill contract company recognizes incremental costs incurred obtain fulfill contract customer asset costs recoverable costs consist primarily sales commissions bidproposal costs obtain fulfill contract capitalized amortized revenue period contract performance september 30 2019 company recorded costs obtain fulfill contract 212 million 110 million recorded within current assets 102 million recorded within noncurrent assets consolidated statements financial position year ended september 30 2019 company recognized amortization expense 157 million related costs obtain fulfill contract impairment losses recognized year ended september 30 2019 5 inventories consisted following millions 6 property plant equipment property plant equipment consisted following millions interest costs capitalized fiscal years ended september 30 2019 2018 2017 6 million 17 million 14 million respectively 7 goodwill intangible assets changes carrying amount goodwill company’s reportable segments fiscal years ended september 30 2019 2018 follows millions fiscal 2019 global products business divestiture amount includes 22 million goodwill transferred noncurrent assets held sale consolidated statements financial position related plans dispose business within global products segment september 30 2017 accumulated goodwill impairment charges included 47 million related building solutions emeala latin america reporting unit goodwill impairments resulting fiscal 2019 2018 annual impairment tests reporting unit determined risk failing step one goodwill impairment test company continuously monitors events circumstances could negatively impact key assumptions determining fair value including longterm revenue growth projections profitability discount rates recent market valuations transactions comparable companies volatility companys market capitalization general industry market macroeconomic conditions possible future changes circumstances variables associated judgments assumptions estimates used assessing fair value reporting unit would require company record noncash impairment charge assumptions included impairment tests require judgment changes inputs could impact results calculations primary assumptions used impairment tests managements projections future cash flows although companys cash flow forecasts based assumptions considered reasonable management consistent plans estimates management using operate underlying businesses significant judgments determining expected future cash flows attributable reporting unit company’s intangible assets primarily business acquisitions valued based independent appraisals consisted millions amortization intangible assets included within continuing operations fiscal years ended september 30 2019 2018 2017 377 million 376 million 481 million respectively excluding impact future acquisitions company anticipates amortization fiscal 2020 2021 2022 2023 2024 approximately 390 million 389 million 387 million 374 million 361 million respectively indefinitelived intangible asset impairments resulting fiscal 2019 2018 2017 annual impairment tests 8 leases certain administrative production facilities equipment leased arrangements accounted operating leases contain renewal options varying periods leases generally require company pay insurance taxes maintenance property total rental expense continuing operations fiscal years ended september 30 2019 2018 2017 452 million 408 million 432 million respectively future minimum operating lease payments september 30 2019 follows millions 9 debt financing arrangements shortterm debt consisted following millions company commercial paper outstanding september 30 2019 879 million september 30 2018 june 2019 tsarl subsidiary company terminated 125 billion committed revolving credit facility scheduled expire august 2020 connection termination company repaid outstanding obligations respect principal interest fees credit facility relation termination credit facility tsarl completed obligations term loan credit agreement dated march 10 2016 term facility repaying outstanding obligations term facility included 364 million term loan scheduled mature march 2020 debt held tsarl also repaid including 364day 250 million floating rate term loan scheduled mature march 2020 18month 215 million euro floating rate euro term loan scheduled mature july 2019 amounts remain outstanding 40 billion tsarl mergerrelated debt september 30 2019 march 2019 364day 250 million committed revolving credit facility expired company entered new 250 million committed revolving credit facility scheduled expire march 2020 september 30 2019 draws facility february 2019 364day 150 million committed revolving credit facility expired company entered new 150 million committed revolving credit facility scheduled expire february 2020 september 30 2019 draws facility february 2019 364day 150 million committed revolving credit facility expired company entered new 150 million committed revolving credit facility scheduled expire february 2020 september 30 2019 draws facility january 2019 company entered 750 million term loan due earlier january 2020 five business days closing sale power solutions business proceeds term loan used general corporate purposes following sale power solutions business loan repaid may 2019 january 2019 364day 200 million committed revolving credit facility expired company entered new 350 million committed revolving credit facility scheduled expire january 2020 following sale power solutions business facility reduced 200 million september 30 2019 draws facility longterm debt consisted following millions due dates fiscal year installments longterm debt maturing subsequent fiscal years 2020 501 million 2021 1075 million 2022 425 million 2023 1001 million 2024 485 million 2025 thereafter 3753 million company’s longterm debt includes various financial covenants none expected restrict future operations total interest paid short longterm debt continuing operations fiscal years ended september 30 2019 2018 2017 369 million 401 million 432 million respectively financing arrangements june 2019 company repurchased par 25 million 525 fixed rate notes plus accrued interest scheduled mature 2041 may 2019 company completed debt tender offer purchase 15 billion aggregate principal amount certain outstanding notes 16 billion total consideration company recognized loss extinguishment debt 60 million recorded within net financing charges consolidated statements income may 2019 company repaid 10 billion yen 35 billion yen fiveyear syndicated floating rate term loan plus accrued interest scheduled mature september 2022 april 2019 company repurchased discount 47 million euro 1375 fixed rate euro notes plus accrued interest scheduled mature 2025 february 2019 company repurchased discount 12 million 39 fixed rate notes plus accrued interest scheduled mature 2026 net financing charges companys net financing charges line item consolidated statements income years ended september 30 2019 2018 2017 contained following components millions 10 derivative instruments hedging activities company selectively uses derivative instruments reduce market risk associated changes foreign currency commodities stockbased compensation liabilities interest rates company policy use derivatives restricted intended hedging purposes use derivative instrument speculative purposes strictly prohibited description type derivative utilized company manage risk included following paragraphs addition refer note 11 fair value measurements notes consolidated financial statements information related fair value measurements valuation methods utilized company derivative type cash flow hedges company global operations participates foreign exchange markets minimize risk loss fluctuations foreign currency exchange rates company selectively hedges anticipated transactions subject foreign exchange rate risk primarily using foreign currency exchange hedge contracts company hedges 70 90 nominal amount known foreign exchange transactional exposures cash flow hedges asc 815 derivatives hedging hedge gains losses due changes fair value initially recorded component aoci subsequently reclassified earnings hedged transactions occur affect earnings contracts highly effective hedging variability future cash flows attributable changes currency exchange rates september 30 2019 2018 company selectively hedges anticipated transactions subject commodity price risk primarily using commodity hedge contracts minimize overall price risk associated company’s purchases copper aluminum cases commodity price risk cannot naturally offset hedged supply base fixed price contracts prior divestiture power solutions company also used commodity hedge contracts minimize risk associated purchases lead polypropylene tin commodity risks systematically managed pursuant policy guidelines cash flow hedges hedge gains losses due changes fair value initially recorded component aoci subsequently reclassified earnings hedged transactions occur affect earnings maturities commodity hedge contracts coincide expected purchase commodities contracts highly effective hedging variability future cash flows attributable changes commodity prices september 30 2019 2018 company following outstanding contracts hedge forecasted commodity purchases continuing discontinued operations metric tons net investment hedges company enters foreign currency denominated debt obligations selectively hedge portions net investment nonus subsidiaries currency effects debt obligations reflected aoci account within shareholders’ equity attributable johnson controls ordinary shareholders offset currency gains losses recorded company’s net investments globally september 30 2019 company 888 million euro 750 million euro 423 million euro 54 million euro bonds designated net investment hedges companys net investment europe 25 billion yen foreign denominated debt designated net investment hedge companys net investment japan september 30 2018 company one billion euro 750 million euro 423 million euro 58 million euro bonds 215 million euro term loan designated net investment hedges companys net investment europe 35 billion yen foreign denominated debt designated net investment hedge companys net investment japan derivatives designated hedging instruments company selectively uses equity swaps reduce market risk associated certain stockbased compensation plans deferred compensation plans equity compensation liabilities increase company’s stock price increases decrease company’s stock price decreases contrast value swap agreement moves opposite direction liabilities allowing company fix portion liabilities stated amount september 30 2019 company hedged approximately 14 million ordinary shares cost basis 60 million september 30 2018 company hedged approximately 18 million ordinary shares cost basis 73 million company also holds certain foreign currency forward contracts qualify hedge accounting treatment change fair value foreign currency exchange derivatives designated hedging instruments asc 815 recorded consolidated statements income fair value derivative instruments following table presents location fair values derivative instruments hedging activities included company’s consolidated statements financial position millions counterparty credit risk use derivative financial instruments exposes company counterparty credit risk company established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide strong investment grade longterm credit ratings reduce risk loss company generally enters international swaps derivatives association isda master netting agreements substantially counterparties companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes company anticipate nonperformance counterparties concentration risk financial institutions present significant credit risk company enters isda master netting agreements counterparties permit net settlement amounts owed derivative contracts master netting agreements generally provide net settlement outstanding contracts counterparty case event default termination event company elected offset fair value positions derivative contracts recorded consolidated statements financial position collateral generally required company counterparties master netting agreements september 30 2019 2018 cash collateral received pledged master netting agreements gross net amounts derivative assets liabilities follows millions derivatives impact statements income statements comprehensive income following table presents pretax gains losses recorded comprehensive income loss related cash flow hedges fiscal years ended september 30 2019 2018 2017 millions following table presents location amount pretax gains losses cash flow hedges reclassified aoci company’s consolidated statements income fiscal years ended september 30 2019 2018 2017 millions following table presents location amount pretax gains losses derivatives designated hedging instruments recognized company’s consolidated statements income fiscal years ended september 30 2019 2018 2017 millions pretax gains losses recorded foreign currency translation adjustment cta within comprehensive income loss related net investment hedges 145 million 45 million 138 million years ended september 30 2019 2018 2017 respectively years ended september 30 2019 2018 2017 gains losses reclassified cta income company’s outstanding net investment hedges 11 fair value measurements asc 820 fair value measurement defines fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date asc 820 also establishes threelevel fair value hierarchy prioritizes information used developing assumptions pricing asset liability follows level 1 observable inputs quoted prices active markets identical assets liabilities level 2 quoted prices active markets similar assets liabilities quoted prices identical similar assets liabilities markets active inputs quoted prices active markets observable either directly indirectly level 3 unobservable inputs little market data requires reporting entity develop assumptions asc 820 requires use observable market data available making fair value measurements inputs used measure fair value fall within different levels hierarchy level within fair value measurement categorized based lowest level input significant fair value measurement recurring fair value measurements following tables present company’s fair value hierarchy assets liabilities measured fair value september 30 2019 2018 millions 1classified restricted investments payment asbestos liabilities see note 22 commitments contingencies notes consolidated financial statements details valuation methods foreign currency exchange derivatives foreign currency exchange derivatives valued market approach using publicized spot forward prices commodity derivatives commodity derivatives valued market approach using publicized prices available dealer quotes equity swaps equity swaps valued market approach fair value swaps equal company’s stock price reporting period date deferred compensation plan assets held deferred compensation plans used pay benefits certain companys nonqualified deferred compensation plans investments primarily consist mutual funds publicly traded stock exchanges valued using market approach based quoted market prices exchange traded funds exchange traded funds valued using market approach based quoted market prices available brokerdealer quotes identical comparable instruments fiscal year ended september 30 2019 company recognized unrealized gains 12 million consolidated statements income investments still held september 30 2019 related restricted investments refer note 22 commitments contingencies notes consolidated financial statements information fair values cash equivalents accounts receivable shortterm debt accounts payable approximate carrying values fair value longterm debt 76 billion 96 billion september 30 2019 2018 respectively fair value public debt 74 billion 86 billion september 30 2019 2018 respectively determined primarily using market quotes classified level 1 inputs within asc 820 fair value hierarchy fair value longterm debt 02 billion 10 billion september 30 2019 2018 respectively determined based quoted market prices similar instruments classified level 2 inputs within asc 820 fair value hierarchy 12 stockbased compensation september 2 2016 shareholders company approved amendments johnson controls international plc 2012 share incentive plan types awards authorized plan comprise stock options stock appreciation rights performance shares performance units stockbased awards compensation committee companys board directors determines types awards granted individual participants terms conditions awards plan provides 76 million shares companys common stock reserved issuance 2012 plan 34 million shares remain available issuance september 30 2019 company four sharebased compensation plans described fiscal years ended september 30 2019 2018 2017 compensation cost charged income continuing operations excluding offsetting impact outstanding equity swaps plans approximately 103 million 89 million 122 million respectively recorded selling general administrative expenses company elected utilize alternative transition method calculating tax effects stockbased compensation total income tax benefit recognized continuing operations consolidated statements income sharebased compensation arrangements approximately 26 million 22 million 48 million fiscal years ended september 30 2019 2018 2017 respectively tax expense exercise vesting equity settled awards 6 million 3 million fiscal years ended september 30 2019 2018 respectively recorded part income tax provision upon adoption asu 201609 first quarter fiscal 2018 tax benefit exercise vesting equity settled awards 4 million fiscal year ended september 30 2017 recorded capital excess par value company settle stock options granted sharebased payment arrangements cash stock options stock options granted exercise price equal market price company’s stock date grant stock option awards typically vest two three years grant date expire ten years grant date fair value option estimated date grant using blackscholes option valuation model uses assumptions noted following table expected life options represents period time options granted expected outstanding assessed separately executives nonexecutives riskfree interest rate periods contractual life option based us treasury yield curve effect time grant fiscal 2019 2018 expected volatility based historical volatility companys stock since october 2016 blended historical volatility certain peer companies stock prior october 2016 recent period corresponding expected life grant date fiscal 2017 expected volatility based historical volatility certain peer companies recent period corresponding expected life grant date expected dividend yield based expected annual dividend percentage market value company’s ordinary shares grant date company uses historical data estimate option exercises employee terminations within valuation model summary stock option activity september 30 2019 changes year ended presented weightedaverage grantdate fair value options granted fiscal years ended september 30 2019 2018 2017 556 704 781 respectively total intrinsic value options exercised fiscal years ended september 30 2019 2018 2017 approximately 73 million 38 million 81 million respectively conjunction exercise stock options granted company received cash payments fiscal years ended september 30 2019 2018 2017 approximately 171 million 66 million 157 million respectively september 30 2019 company approximately 8 million total unrecognized compensation cost related nonvested stock options granted continuing operations cost expected recognized weightedaverage period 18 years stock appreciation rights sars vest terms conditions stock option awards however settled cash difference market price date exercise price result sars recorded company’s consolidated statements financial position liability date exercise fair value sar award estimated using similar method described stock options fair value sar award recalculated end reporting period liability expense adjusted based new fair value assumptions used determine fair value sar awards september 30 2019 follows summary sar activity september 30 2019 changes year ended presented conjunction exercise sars granted company made payments 3 million 3 million 4 million fiscal years ended september 30 2019 2018 2017 respectively restricted nonvested stock units plan provides award restricted stock restricted stock units certain employees awards typically share settled unless employee nonus employee elects defer settlement retirement point award would settled cash restricted awards typically vest period three years grant date plan allows different vesting terms specific grants approval board directors fair value sharesettled restricted award based closing market value company’s ordinary shares date grant fair value cashsettled restricted award recalculated end reporting period based closing market value companys ordinary shares end reporting period liability expense adjusted based new fair value summary status company’s nonvested restricted stock awards september 30 2019 changes fiscal year ended presented september 30 2019 company approximately 72 million total unrecognized compensation cost related nonvested restricted stock arrangements granted continuing operations cost expected recognized weightedaverage period 21 years performance share awards plan permits grant performancebased share unit psu awards psus generally contingent achievement predetermined performance goals performance period three years well award holders continuous employment vesting date psus also indexed achievement specified levels total shareholder return versus peer group performance period psu earned settled shares companys ordinary shares following completion performance period unless award holder elected defer portion award retirement would settled cash fair value psu estimated date grant use monte carlo simulation uses assumptions noted following table riskfree interest rate periods contractual life psu based us treasury yield curve effect time grant fiscal 2019 2018 2017 expected volatility based historical volatility companys stock since october 2016 blended historical volatility certain peer companies stock prior october 2016 recent threeyear period grant date summary status company’s nonvested psus september 30 2019 changes fiscal year ended presented september 30 2019 company approximately 31 million total unrecognized compensation cost related nonvested performancebased share unit awards granted continuing operations cost expected recognized weightedaverage period 18 years 13 earnings per share company presents basic diluted eps amounts basic eps calculated dividing net income attributable johnson controls weighted average number ordinary shares outstanding reporting period diluted eps calculated dividing net income attributable johnson controls weighted average number ordinary shares ordinary equivalent shares outstanding reporting period calculated using treasury stock method stock options unvested restricted stock unvested performance share awards treasury stock method assumes company uses proceeds exercise stock option awards repurchase ordinary shares average market price period assumed proceeds treasury stock method include purchase price grantee pay future compensation cost future service company yet recognized unvested restricted stock unvested performance share awards assumed proceeds treasury stock method would include unamortized compensation cost following table reconciles numerators denominators used calculate basic diluted earnings per share millions 14 equity noncontrolling interests dividends authority declare pay dividends vested board directors timing declaration payment future dividends holders companys ordinary shares determined companys board directors depends upon many factors including companys financial condition results operations capital requirements companys businesses industry practice relevant factors irish law dividends may paid share repurchases redemptions must generally funded distributable reserves creation distributable reserves accomplished way capital reduction irish high court approved december 18 2014 acquired conjunction merger share repurchase program november 2018 companys board directors approved 1 billion increase existing share repurchase authorization march 2019 companys board directors approved additional 85 billion increase existing share repurchase authorization subject completion previously announced sale companys power solutions business closed april 30 2019 share repurchase program expiration date may amended terminated board directors time without prior notice may 1 2019 company announced modified dutch auction tender offer 40 billion ordinary shares price range 3600 4000 per share tender offer expired may 31 2019 tender offer company accepted payment 102 million shares purchase price 3925 per share total approximately 4035 million including fees commissions shares purchased tender offer immediately retired ordinary shares reduced number shares retired 001 par value per share excess purchase price par value recorded retained earnings consolidated statements financial position addition equity tender offer described fiscal year 2019 company repurchased retired approximately 1948 million ordinary shares september 30 2019 approximately 46 billion remains available share repurchase program fiscal years 2018 2017 company repurchased approximately 300 million 651 million ordinary shares respectively comprehensive income includes activity relating discontinued operations following schedules present changes consolidated equity attributable johnson controls noncontrolling interests millions net tax previously disclosed quarter ended december 31 2018 company adopted asc 606 revenue contracts customers result company recorded 45 million beginning retained earnings relates primarily deferred revenue recorded power solutions business certain battery core returns represent material right provided customers previously disclosed quarter ended december 31 2018 company adopted asu 201616 accounting income taxes intraentity asset transfers assets inventory result company recognized deferred taxes 546 million related tax effects intraentity sales assets inventory modified retrospective basis cumulativeeffect adjustment retained earnings october 1 2018 previously disclosed quarter ended december 31 2017 company adopted asu 201609 result company recognized deferred tax assets 179 million related certain operating loss carryforwards resulting exercise employee stock options restricted stock vestings modified retrospective basis cumulativeeffect adjustment retained earnings october 1 2017 october 31 2016 company completed adient spinoff result spinoff company divested net assets approximately 40 billion company consolidates certain subsidiaries noncontrolling interest party within control right require company redeem portion interest subsidiary redeemable noncontrolling interests reported estimated redemption value adjustment redemption value impacts retained earnings impact net income redeemable noncontrolling interests redeemable upon future events occurrence currently probable recorded carrying value september 30 2019 2018 company subsidiaries noncontrolling interest party within control right require company redeem portion interests following schedules present changes redeemable noncontrolling interests millions following schedules present changes aoci attributable johnson controls millions net tax fiscal 2018 12 million cumulative cta recognized part divestiturerelated gain recognized part divestiture scott safety refer note 10 derivative instruments hedging activities notes consolidated financial statements disclosure line items consolidated statements income affected reclassifications aoci income related derivatives previously disclosed quarter ended december 31 2018 company adopted asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities result company reclassified 8 million unrealized gains marketable securities retained earnings october 1 2018 fiscal 2018 company sold certain marketable common stock approximately 3 million result company recorded 2 million realized gains within selling general administrative expenses 15 retirement plans pension benefits company noncontributory defined benefit pension plans covering certain us nonus employees benefits provided primarily based years service average compensation monthly retirement benefit amount certain company’s us pension plans amended prohibit new participants entering plans longer accrue benefits funding us pension plans equals exceeds minimum requirements employee retirement income security act 1974 funding nonus plans observes local legal regulatory limits also company makes contributions uniontrusteed pension funds construction service personnel pension plans accumulated benefit obligations abo exceed plan assets continuing discontinued operations projected benefit obligation pbo abo fair value plan assets plans 5450 million 5388 million 4484 million respectively september 30 2019 5166 million 5072 million 4525 million respectively september 30 2018 fiscal 2019 total employer contributions continuing operations defined benefit pension plans 50 million none voluntary contributions made company expects contribute approximately 50 million cash defined benefit pension plans fiscal 2020 projected benefit payments plans september 30 2019 estimated follows millions postretirement benefits company provides certain health care life insurance benefits eligible retirees dependents primarily us canada nonus employees covered government sponsored programs cost company significant eligibility coverage based meeting certain years service retirement age qualifications benefits may subject deductibles copayment provisions limitations company reserved right modify benefits effective january 31 1994 company modified certain us salaried plans place limit company’s cost future annual retiree medical benefits 150 1993 cost health care cost trend assumption significant effect amounts reported fiscal 2019 total employer contributions continuing operations postretirement plans 3 million company expects contribute approximately 4 million cash postretirement plans fiscal 2020 continuing operations projected benefit payments plans september 30 2019 estimated follows millions december 2003 us congress enacted medicare prescription drug improvement modernization act 2003 act employers sponsoring postretirement care plans provide prescription drug benefits act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans providing benefit least actuarially equivalent medicare part d1 act medicare subsidy amount received directly plan sponsor related plan sponsor required use subsidy amount fund postretirement benefits may use subsidy valid business purpose projected subsidy receipts estimated less 1 million per year next ten years defined contribution plans company sponsors various defined contribution savings plans allow employees contribute portion pretax andor aftertax income accordance plan specified guidelines specified conditions company contribute certain savings plans based predetermined percentages compensation earned employee andor match percentage employee contributions certain limits defined contribution plan contributions charged expense continuing discontinued operations amounted 198 million 205 million 190 million fiscal years ended 2019 2018 2017 respectively multiemployer benefit plans company contributes multiemployer benefit plans based obligations arising collective bargaining agreements related certain hourly employees us plans provide retirement benefits participants based service contributing employers benefits paid assets held trust purpose trustees typically responsible determining level benefits provided participants well matters investment assets administration plans risks participating multiemployer benefit plans different singleemployer benefit plans following aspects • assets contributed multiemployer benefit plan one employer may used provide benefits employees participating employers • participating employer stops contributing multiemployer benefit plan unfunded obligations plan may borne remaining participating employers • company stops participating multiemployer benefit plans company may required pay plans amount based allocable share underfunded status plan referred withdrawal liability company participates approximately 285 multiemployer benefit plans none individually significant company number employees covered company’s multiemployer benefit plans remained consistent past three years significant changes affect comparability fiscal 2019 2018 2017 contributions company recognizes expense contractuallyrequired contribution period company contributed 69 million 68 million 67 million multiemployer benefit plans fiscal 2019 2018 2017 respectively based recent information available company believes present value actuarial accrued liabilities certain multiemployer benefit plans may exceed value assets held trust pay benefits currently company aware significant multiemployer benefits plans probable reasonably possible company obligated make shortfall funds moreover company exit certain markets otherwise cease making contributions funds company could trigger withdrawal liability currently company aware multiemployer benefit plans probable reasonably possible company significant withdrawal liability accrual shortfall withdrawal liability recorded probable liability exists reasonably estimated plan assets company’s investment policies employ approach whereby mix equities fixed income alternative investments used maximize longterm return plan assets prudent level risk investment portfolio primarily contains diversified blend equity fixed income investments equity investments diversified across us nonus stocks well growth value small large capitalizations fixed income investments include corporate government issues short mid longterm maturities focus investment grade purchased target duration close plan liability investment market risks measured monitored ongoing basis regular investment portfolio reviews annual liability measurements periodic assetliability studies majority real estate component portfolio invested diversified portfolio highquality operating properties cash yields greater targeted appreciation investments alternative asset classes including hedge funds commodities diversify expected investment returns relative equity fixed income investments result companys diversification strategies significant concentrations risk within portfolio investments company’s actual asset allocations line target allocations company rebalances asset allocations appropriate order stay within range allocation asset category expected return plan assets based company’s expectation longterm average rate return capital markets plans invest average market returns adjusted appropriate active asset management returns expected return reflects investment policy target asset mix considers historical returns earned asset category company’s plan assets september 30 2019 2018 asset category follows millions fair value certain investments real estate readily determinable fair value requires fund managers independently arrive fair value calculating net asset value nav per share order calculate nav per share fund managers value real estate investments using one combination following methods independent third party appraisals discounted cash flow analysis net cash flows projected generated investment recent sales comparable investments assumptions used revalue properties updated every quarter due fact fund managers calculate nav per share company utilizes practical expedient measuring fair value realestate investments provided asc 820 fair value measurement applying practical expedient company required adjust nav provided fund manager order determine fair value investment nav per share calculated manner consistent measurement principles asc 946 financial services investment companies companys measurement date company believes appropriate methodology obtain fair value assets component real estate portfolio development investments carried cost completed valued third party appraiser accordance asu 201507 disclosures investments certain entities calculate net asset value per share equivalent investments fair value measured using net asset value per share practical expedient disclosed separate fair value hierarchy fair value amounts presented table intended permit reconciliation total plan assets amounts presented notes consolidated financial statements following description valuation methodologies used assets measured fair value certain assets held within commingled funds valued unitized nav percentage net asset value determined manager fund values based fair value underlying net assets owned fund cash equivalents fair value cash valued cost equity securities fair value equity securities determined direct quoted market prices underlying holdings direct quoted market prices regulated financial exchanges fixed income securities fair value fixed income securities determined direct indirect quoted market prices indirect quoted market prices utilized value assets held separate accounts published investment managers report daily underlying holdings underlying holdings direct quoted market prices regulated financial exchanges commodities fair value commodities determined quoted market prices underlying holdings regulated financial exchanges hedge funds fair value hedge funds accounted custodian obtains valuations underlying managers based market quotes liquid assets alternative methods assets sufficient trading activity derive prices company custodian review methods used underlying managers value assets company believes appropriate methodology obtain fair value assets real estate fair value real estate determined quoted market prices underlying real estate investment trusts reits securities traded open exchange methods described may produce fair value calculation may indicative net realizable value reflective future fair values furthermore company believes valuation methods appropriate consistent market participants use different methodologies assumptions determine fair value certain financial instruments could result different fair value measurement reporting date level 3 assets september 30 2019 2018 level 3 asset activity fiscal 2019 2018 funded status table follows contains abo reconciliations changes pbo changes plan assets funded status millions 1 plan assets obligations determined based september 30 measurement date september 30 2019 2018 2 company considers expected benefit payments planbyplan basis setting assumed discount rates result company uses different discount rates plan depending plan jurisdiction demographics participants expected timing benefit payments us pension postretirement plans company uses discount rate provided independent third party calculated based appropriate mix high quality bonds nonus pension postretirement plans company consistently uses relevant country specific benchmark indices determining various discount rates company elected utilize full yield curve approach estimation service interest components net periodic benefit cost credit pension postretirement plans utilize yield curve approach full yield curve approach applies specific spot rates along yield curve used determination benefit obligation relevant projected cash flows accumulated comprehensive income amounts aoci consolidated statements financial position exclusive tax impacts yet recognized components net periodic benefit cost september 30 2019 2018 related pension postretirement benefits 6 million less 1 million respectively amounts aoci expected recognized components net periodic benefit cost credit next fiscal year related pension postretirement benefits significant net periodic benefit cost table follows contains components net periodic benefit costs primarily recorded selling general administrative expenses consolidated statements income millions 16 significant restructuring impairment costs better align resources growth strategies reduce cost structure global operations certain underlying markets company commits restructuring plans necessary fiscal 2018 company committed significant restructuring plan 2018 plan recorded 255 million restructuring impairment costs continuing operations consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring actions related cost reduction initiatives company’s building technologies solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments restructuring impairment costs recorded 113 million related global products segment 56 million related building solutions emeala segment 50 million related corporate 20 million related building solutions north america segment 16 million related building solutions asia pacific segment restructuring actions expected substantially complete 2020 additionally company recorded 8 million restructuring impairment costs related power solutions fiscal 2018 reported within discontinued operations following table summarizes changes company’s 2018 plan reserve included within current liabilities consolidated statements financial position millions fiscal 2017 company committed significant restructuring plan 2017 plan recorded 347 million restructuring impairment costs continuing operations consolidated statements income total amount incurred date total amount expected incurred restructuring plan restructuring actions related cost reduction initiatives company’s building technologies solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments restructuring impairment costs recorded 166 million related corporate 74 million related building solutions emeala segment 59 million related building solutions north america segment 32 million related global products segment 16 million related building solutions asia pacific segment restructuring actions expected substantially complete fiscal 2020 additionally company recorded 20 million restructuring impairment costs related power solutions fiscal 2017 reported within discontinued operations following table summarizes changes company’s 2017 plan reserve included within current liabilities consolidated statements financial position millions fiscal 2016 company committed significant restructuring plan 2016 plan recorded 222 million restructuring impairment costs continuing operations consolidated statements income restructuring actions related cost reduction initiatives company’s building technologies solutions businesses corporate costs consist primarily workforce reductions plant closures asset impairments changeincontrol payments restructuring impairment costs recorded 161 million related corporate 44 million related global products segment 17 million related building solutions emeala segment restructuring actions substantially complete final payments expected made fiscal 2020 included reserve 56 million committed restructuring actions taken tyco liabilities assumed part tyco acquisition additionally company recorded 398 million restructuring impairment costs within discontinued operations related adient power solutions fiscal 2016 reported within discontinued operations following table summarizes changes company’s 2016 plan reserve included within current liabilities consolidated statements financial position millions companys fiscal 2018 2017 2016 restructuring plans included workforce reductions approximately 11300 employees 9100 building technologies solutions business 2200 corporate restructuring charges associated employee severance termination benefits paid severance period granted employee lump sum basis accordance individual severance agreements september 30 2019 approximately 6200 employees separated company pursuant restructuring plans addition restructuring plans included twelve plant closures building technologies solutions business september 30 2019 eleven twelve plants closed company management closely monitors overall cost structure continually analyzes businesses opportunities consolidate current operations improve operating efficiencies locate facilities close proximity customers ongoing analysis includes review manufacturing engineering purchasing operations well overall global footprint businesses 17 impairment longlived assets company reviews longlived assets including tangible assets intangible assets definitive lives impairment whenever events changes circumstances indicate asset’s carrying amount may recoverable company conducts longlived asset impairment analyses accordance asc 3601015 impairment disposal longlived assets asc 35030 general intangibles goodwill asc 98520 costs software sold leased marketed asc 3601015 requires company group assets liabilities lowest level identifiable cash flows largely independent cash flows assets liabilities evaluate asset group sum undiscounted future cash flows undiscounted cash flows indicate carrying amount asset group recoverable impairment charge measured amount carrying amount asset group exceeds fair value based discounted cash flow analysis appraisals asc 35030 requires intangible assets acquired business combination used research development activities considered indefinite lived completion abandonment associated research development efforts period assets considered indefinite lived shall amortized shall tested impairment annually frequently events changes circumstances indicate likely asset impaired carrying amount intangible asset exceeds fair value entity shall recognize impairment loss amount equal excess asc 98520 requires unamortized capitalized costs computer software product compared net realizable value product amount unamortized capitalized costs computer software product exceed net realizable value asset shall written fiscal 2019 company concluded triggering event requiring assessment impairment certain longlived assets conjunction plans dispose business within global products segment met criteria classified held sale assets liabilities held sale required recorded lower carrying value fair value less costs sell accordingly company recorded impairment charge 235 million within restructuring impairment costs consolidated statements income fiscal 2019 write carrying value assets held sale fair value less costs sell inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2018 company concluded triggering event requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2018 result company reviewed longlived assets impairment recorded 36 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 31 million related global products segment 5 million related corporate assets addition company recorded 6 million asset impairments within discontinued operations related power solutions segment fiscal 2018 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured market approach utilizing appraisal determine fair values impaired assets method consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement fiscal 2017 company concluded triggering events requiring assessment impairment certain longlived assets conjunction restructuring actions announced fiscal 2017 result company reviewed longlived assets impairment recorded 70 million asset impairment charges within restructuring impairment costs consolidated statements income total impairment charges 30 million related building solutions north america segment 20 million related global products segment 19 million related corporate assets 1 million related building solutions asia pacific segment addition company recorded 7 million asset impairments within discontinued operations related power solutions segment fiscal 2017 refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information impairments measured depending asset either income approach utilizing forecasted discounted cash flows market approach utilizing appraisal determine fair values impaired assets methods consistent methods company employed prior periods value longlived assets inputs utilized analyses classified level 3 inputs within fair value hierarchy defined asc 820 fair value measurement september 30 2019 2018 2017 company concluded triggering events requiring assessment impairment longlived assets refer note 1 summary significant accounting policies note 7 goodwill intangible assets notes consolidated financial statements discussion company’s goodwill impairment testing 18 income taxes significant components company’s income tax provision continuing operations follows millions statutory tax rate ireland used comparison since company domiciled ireland effective rate continuing operations statutory rate 125 fiscal 2019 primarily due tax audit reserve adjustments income tax effects marktomarket adjustments tax indemnification reserve release tax benefits asset held sale impairment charge continuing global tax planning initiatives partially offset valuation allowance adjustments result tax law changes discrete tax charge related newly enacted regulations related us tax reform tax rate differentials effective rate continuing operations statutory rate 125 fiscal 2018 primarily due discrete net impacts us tax reform final income tax effects completed divestiture scott safety business valuation allowance adjustments partially offset tax audit closures tax benefits due changes entity tax status benefits continuing global tax planning initiatives tax rate differentials effective rate statutory rate 125 fiscal 2017 primarily due establishment deferred tax liability outside basis difference companys investment certain subsidiaries related divestiture scott safety business income tax effects marktomarket adjustments tax rate differentials partially offset jurisdictional mix significant restructuring impairment costs tyco merger transaction integration costs purchase accounting adjustments tax audit closures tax benefit due changes entity tax status benefits continuing global tax planning initiatives valuation allowances company reviews realizability deferred tax asset valuation allowances quarterly basis whenever events changes circumstances indicate review required determining requirement valuation allowance historical projected financial results legal entity consolidated group recording net deferred tax asset considered along positive negative evidence since future financial results may differ previous estimates periodic adjustments company’s valuation allowances may necessary fourth quarter fiscal 2019 company performed analysis related realizablility worldwide deferred tax assets result considering feasible tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within us belgium japan united kingdom would realized likely certain deferred tax assets us france realized valuation allowance adjustments resulted immaterial net impact income tax expense threemonth period ended september 30 2019 first quarter fiscal 2019 result changes us tax law company recorded discrete tax charge 76 million related valuation allowances certain us deferred tax assets fourth quarter fiscal 2018 company performed analysis related realizability worldwide deferred tax assets result considering feasible tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily within germany would realized therefore company recorded 56 million valuation allowances income tax expense threemonth period ended september 30 2018 fourth quarter fiscal 2017 company performed analysis related realizability worldwide deferred tax assets result considering tax planning initiatives positive negative evidence company determined likely certain deferred tax assets primarily canada china mexico would able realized likely certain deferred tax assets germany would realized therefore company recorded 27 million net valuation allowances income tax expense threemonth period ended september 30 2017 uncertain tax positions company subject income taxes us numerous foreign jurisdictions judgment required determining worldwide provision income taxes recording related assets liabilities ordinary course company’s business many transactions calculations ultimate tax determination uncertain company regularly audit tax authorities september 30 2019 company gross tax effected unrecognized tax benefits continuing operations 2451 million 2121 million recognized would impact effective tax rate total net accrued interest september 30 2019 approximately 181 million net tax benefit september 30 2018 company gross tax effected unrecognized tax benefits continuing operations 2358 million 2225 million recognized would impact effective tax rate total net accrued interest september 30 2018 approximately 119 million net tax benefit september 30 2017 company gross tax effected unrecognized tax benefits continuing operations 2161 million 2034 million recognized would impact effective tax rate total net accrued interest september 30 2017 approximately 99 million net tax benefit reconciliation beginning ending amount unrecognized tax benefits follows millions fiscal 2019 company settled tax examinations impacting fiscal years 2015 2016 adjusted various tax audit reserves resulted 586 million net benefit income tax expense fourth quarter third quarter fiscal 2019 company recorded discrete charge related newly enacted regulations related us tax reform discrete charge related nonus tax examinations impacted company’s reserves uncertain tax positions resulting 226 million net charge income tax expense fiscal 2018 company settled tax examinations impacting fiscal years 2010 fiscal 2012 resulted 25 million net benefit income tax expense fiscal 2017 company settled significant number tax examinations impacting fiscal years 2006 fiscal 2014 fourth quarter fiscal 2017 income tax audit resolutions resulted net 191 million benefit income tax expense company currently exam following major nonus jurisdictions continuing operations reasonably possible certain tax examinations andor tax litigation conclude within next twelve months could material impact tax expense tax matters third quarter fiscal 2019 company recorded 235 million impairment charge related assets held sale refer note 17 impairment longlived assets notes consolidated financial statements information regarding impairment charge impairment charge generated 53 million tax benefit third quarter fiscal 2019 company released 226 million tax indemnification reserve recorded within selling general administrative expenses consolidated statements income refer note 21 guarantees notes consolidated financial statements information regarding reserve release reserve release generated income tax expense fiscal 2019 2018 2017 company recorded transaction integration costs continuing operations 317 million 226 million 427 million respectively costs generated tax benefits 35 million 27 million 69 million respectively reflects company’s current tax position jurisdictions fiscal 2019 2018 2017 company recorded marktomarket gains losses 618 million 24 million 384 million respectively gains losses generated tax expense benefit 130 million 1 million 113 million respectively reflects company’s current tax position jurisdictions fourth quarter fiscal 2018 company recorded tax benefit 139 million due changes entity tax status first quarter fiscal 2018 company completed sale scott safety business 3m company connection sale company recorded pretax gain 114 million income tax expense 30 million addition fiscal 2017 company recorded discrete noncash tax charge 490 million related establishment deferred tax liability outside basis difference companys investment certain subsidiaries scott safety business refer note 2 acquisitions divestitures notes consolidated financial statements additional information fiscal 2018 2017 company incurred significant charges restructuring impairment costs continuing operations 255 million 347 million respectively refer note 16 significant restructuring impairment costs notes consolidated financial statements additional information costs generated tax benefits 36 million 58 million respectively reflects company’s current tax position jurisdictions third quarter fiscal 2017 company recorded discrete tax benefit 75 million due changes entity tax status first quarter fiscal 2017 company recorded discrete tax benefit 101 million due changes entity tax status impacts tax legislation change statutory tax rates september 28 2018 swiss parliament approved federal act tax reform ahv financing “traf” subsequently approved swiss electorate may 19 2019 fourth quarter fiscal 2019 swiss federal council enacted traf becomes effective company january 1 2020 impacts federal enactment material impact company’s financial statements traf also provides parameters enable swiss cantons adjust tax rates establish new regulations companies september 30 2019 canton schaffhausen concluded public referendum however enactment take place october 2019 company still evaluating impact deferred tax assets canton schaffhausen revaluation assets could noncash impact less 100 million company’s financial statements december 22 2017 “tax cuts jobs act” hr 1 enacted significantly revised us corporate income tax among things lowering corporate income tax rates imposing onetime transition tax deemed repatriated earnings nonus subsidiaries implementing territorial tax system various base erosion minimum tax provisions connection company’s analysis impact us tax law changes company recorded provisional net tax charge 108 million fiscal 2018 consistent guidance prescribed staff accounting bulletin 118 provisional net tax charge arises benefit 108 million due remeasurement us deferred tax assets liabilities offset company’s tax charge relating onetime transition tax deemed repatriated earnings inclusive relevant taxes 216 million company’s estimated benefit remeasurement us deferred tax assets liabilities increased 101 million december 31 2017 108 million september 30 2018 due calculation refinement company’s estimated impact company remeasured certain deferred tax assets liabilities based rates expected reverse future generally 21 blended fiscal 2018 rate 245 company’s tax charge transition tax decreased 305 million december 31 2017 216 million september 30 2018 due analysis company’s post1986 nonus earnings profits “ep” previously deferred us federal taxation refinement estimated impact tax law changes fiscal 2019 company completed analysis enactmentdate income tax effects us tax law change adjustment provisional amounts recorded september 30 2018 fiscal years ended 2019 2018 2017 tax legislation adopted various jurisdictions law changes material impact companys consolidated financial statements continuing operations components provision benefit income taxes continuing operations follows millions consolidated us income loss continuing operations income taxes noncontrolling interests fiscal years ended september 30 2019 2018 2017 income loss 259 million 261 million 335 million respectively consolidated nonus income continuing operations income taxes noncontrolling interests fiscal years ended september 30 2019 2018 2017 income 1315 million 1285 million 816 million respectively continuing operations income taxes paid fiscal years ended september 30 2019 2018 2017 377 million 81 million 497 million respectively september 30 2019 2018 company recorded within continuing operations consolidated statements financial position current assets approximately 1069 million 257 million respectively income tax assets september 30 2019 2018 company recorded within continuing operations consolidated statements financial position current liabilities approximately 159 million 336 million respectively accrued income tax liabilities company provided us nonus income taxes approximately 201 billion outside basis differences consolidated subsidiaries johnson controls international plc company indefinitely reinvested basis differences reduction outside basis differences via sale liquidation subsidiaries andor distributions could create taxable income companys intent reduce outside basis differences would tax efficient given numerous ways basis differences may reduced practicable estimate amount unrecognized withholding taxes deferred tax liability outside basis differences deferred taxes classified consolidated statements financial position follows millions temporary differences carryforwards gave rise deferred tax assets liabilities included millions september 30 2019 company available net operating loss carryforwards approximately 233 billion 138 billion expire various dates 2020 2039 remainder indefinite carryforward period company available us foreign tax credit carryforwards september 30 2019 35 million expire 2029 valuation allowance generally loss credit carryforwards realization uncertain unlikely losses andor credits realized given lack sustained profitability andor limited carryforward periods certain countries first quarter 2018 company adopted asu 201609 result company recognized deferred tax assets 179 million consolidated statements financial position related certain operating loss carryforwards resulting exercise employee stock options restricted stock vestings modified retrospective basis cumulativeeffect adjustment retained earnings october 1 2017 19 segment information asc 280 segment reporting establishes standards reporting information segments financial statements applying criteria set forth asc 280 company determined four reportable segments financial reporting purposes • building solutions north america designs sells installs services hvac controls systems integrated electronic security systems including monitoring integrated fire detection suppression systems commercial industrial retail small business institutional governmental customers north america building solutions north america also provides energy efficiency solutions technical services including inspection scheduled maintenance repair replacement mechanical control systems nonresidential building industrial applications north american marketplace • building solutions emeala designs sells installs services hvac controls refrigeration integrated electronic security integrated fire detection suppression systems provides technical services markets europe middle east africa latin america • building solutions asia pacific designs sells installs services hvac controls refrigeration integrated electronic security integrated fire detection suppression systems provides technical services asia pacific marketplace • global products designs produces heating air conditioning residential commercial applications markets products refrigeration systems replacement new construction market customers globally global products business also designs manufactures sells fire protection security products including intrusion security antitheft devices access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide global products also includes johnson controlshitachi joint venture first quarter fiscal 2019 company determined power solutions business met criteria classified discontinued operation required retrospective application financial information periods presented refer note 3 discontinued operations notes consolidated financial statements information regarding companys discontinued operations october 1 2018 company adopted asu 201601 financial instruments overall subtopic 82510 recognition measurement financial assets financial liabilities new standard requires marktomarket marketable securities investments previously recorded within accumulated comprehensive income statement financial position recorded statement income prospective basis beginning adoption date restricted investments relate underlying operating performance business company’s definition segment earnings excludes marktomarket adjustments beginning first quarter fiscal 2019 management evaluates performance business segments primarily segment earnings interest taxes amortization ebita represents income continuing operations income taxes noncontrolling interests excluding general corporate expenses intangible asset amortization net financing charges restructuring impairment costs net marktomarket adjustments related pension postretirement plans restricted asbestos investments financial information relating company’s reportable segments follows millions 1 building solutions north america segment ebita year ended september 30 2018 2017 excludes 20 million 59 million respectively restructuring impairment costs 2 building solutions emeala segment ebita years ended september 30 2018 2017 excludes 56 million 74 million respectively restructuring impairment costs years ended september 30 2019 2018 2017 emeala segment ebita includes 12 million 1 million 5 million respectively equity income 3 building solutions asia pacific segment ebita year ended september 30 2018 2017 excludes 16 million 16 million respectively restructuring impairment costs years ended september 30 2019 2018 2017 asia pacific segment ebita includes 1 million 1 million 1 million respectively equity income 4 global products segment ebita years ended september 30 2019 2018 2017 excludes 235 million 113 million 32 million respectively restructuring impairment costs years ended september 30 2019 2018 2017 global products segment ebita includes 179 million 175 million 151 million respectively equity income 5 corporate expenses years ended september 30 2018 2017 excludes 50 million 166 million respectively restructuring impairment costs 6 current year prior year amounts exclude assets held sale refer note 3 discontinued operations notes consolidated financial statements information regarding companys disposal groups classified held sale 7 buildings solutions north america assets september 30 2019 2018 2017 include 8 million 8 million 8 million respectively investments partiallyowned affiliates 8 building solutions emeala assets september 30 2019 2018 2017 include 109 million 99 million 107 million respectively investments partiallyowned affiliates 9 building solutions asia pacific assets september 30 2019 2018 include 6 million 1 million respectively investments partiallyowned affiliates 10 global products assets september 30 2019 2018 2017 include 730 million 740 million 629 million respectively investments partiallyowned affiliates fiscal years 2019 2018 2017 customer exceeded 10 consolidated net sales geographic segments financial information relating company’s operations geographic area follows millions net sales attributed geographic locations based location assets producing sales longlived assets geographic location consist net property plant equipment 20 nonconsolidated partiallyowned affiliates investments net assets nonconsolidated partiallyowned affiliates stated investments partiallyowned affiliates line consolidated statements financial position september 30 2019 2018 equity net income nonconsolidated partiallyowned affiliates stated equity income line consolidated statements income years ended september 30 2019 2018 2017 following table presents summarized financial data company’s nonconsolidated partiallyowned affiliates amounts included table represent 100 results continuing operations nonconsolidated partiallyowned affiliates accounted equity method summarized balance sheet data september 30 2019 2018 follows millions summarized income statement data years ended september 30 2019 2018 2017 follows millions 21 guarantees certain companys subsidiaries business segment level guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows company offers warranties customers depending upon specific product terms customer purchase agreement typical warranty program requires company replace defective products within specified time period date sale company records estimate future warrantyrelated costs based actual historical return rates known factors based analysis return rates factors company’s warranty provisions adjusted necessary company monitors warranty activity adjusts reserve estimates probable future warranty costs different estimates company’s product warranty liability continuing operations recorded consolidated statements financial position deferred revenue current liabilities warranty less one year noncurrent liabilities warranty extends longer one year changes carrying amount company’s total product warranty liability continuing operations including extended warranties deferred revenue recorded fiscal years ended september 30 2019 2018 follows millions result tyco merger fourth quarter fiscal 2016 company recorded part acquired liabilities tyco 290 million post sale contingent tax indemnification liabilities recorded fair value relate certain tax related matters borne buyer previously divested subsidiaries tyco indemnified certain parties amounts probable paid september 30 2018 company recorded liabilities 255 million 235 million related prior divested businesses remainder relates tyco’s tax sharing agreements 2007 2012 spinoff transactions certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation tax sharing agreements fiscal 2019 majority tax indemnification liabilities resolved including 226 million release result changes likelihood payments due expiration certain statute limitations 22 commitments contingencies environmental matters company accrues potential environmental liabilities probable liability incurred amount liability reasonably estimable september 30 2019 reserves environmental liabilities continuing operations totaled 159 million 52 million recorded within current liabilities 107 million recorded within noncurrent liabilities consolidated statements financial position reserves environmental liabilities continuing operations totaled 37 million september 30 2018 10 million recorded within current liabilities 27 million recorded within noncurrent liabilities consolidated statements financial position tyco fire products lp “tyco fire products” coordination wisconsin department natural resources wdnr conducting environmental assessment fire technology center ftc located marinette wisconsin surrounding areas city marinette town peshtigo wisconsin connection assessment perfluorooctane sulfonate pfos perfluorooctanoic acid pfoa andor per poly fluorinated substances pfas detected ftc groundwater surface water outside boundaries ftc tyco fire products continues investigate extent potential migration compounds working closely wdnr address issues insofar related migration third quarter 2019 company increased environmental reserves included 140 million related remediation efforts undertaken address contamination relating firefighting foams containing pfas compounds near ftc well continued remediation arsenic contaminants tyco fire products stanton street manufacturing facility also located marinette wisconsin “stanton street facility” company able estimate possible loss range loss excess established accruals time substantial portion increased reserves relates remediation resulting use firefighting foams containing pfas ftc use firefighting foams ftc primarily training testing purposes order ensure products sold company’s affiliates chemguard inc chemguard tyco fire products effective suppressing high intensity fires may occur military installations airports elsewhere reserve recorded quarter ended june 30 2019 following comprehensive review independent environmental consultants related presence pfas near ftc well remediation discussions wdnr june 21 2019 wdnr announced received wisconsin department health services “wdhs” recommendation groundwater quality standards among compounds pfoa pfos wdhs recommended groundwater enforcement standard pfoa pfos 20 parts per trillion august 22 2019 governor wisconsin issued executive order among things directed wdnr create pfas coordinating council work wisconsin agencies including wdhs establish final groundwater quality standards based wdhs’s prior recommendation july 2019 company received letter wdnr directing expansion evaluation pfas marinette region include 1 biosolids sludge produced city marinette waste water treatment plant spread certain fields area 2 menominee peshtigo rivers tyco fire products voluntarily responded wdnr’s letter request additional necessary information october 16 2019 wdnr issued “notice noncompliance” tyco fire products johnson controls inc regarding wdnr’s july 3 2019 letter stated “if fail take actions required wis stat § 29211 address contamination dnr move forward wis stat § 29231 implement si workplan evaluate environmental enforcement actions cost recovery wis stat § 292318” wdnr issued letter regarding issue november 4 2019 tyco fire products johnson controls inc believe complied applicable environmental laws regulations company cannot predict regulatory enforcement actions might result wdnr’s actions consequences actions tyco fire products engaged remediation activities stanton street facility since 1990 corporate predecessor ansul incorporated “ansul” manufactured arsenicbased agricultural herbicides stanton street facility resulted significant arsenic contamination soil groundwater site parts adjoining menominee river 2009 ansul entered administrative consent order consent order us environmental protection agency address presence arsenic site agreement tyco fire products’ principal obligations contain arsenic contamination site pump treat onsite groundwater dredge treat properly dispose contaminated sediments adjoining river areas monitor contamination levels ongoing basis activities completed consent order since 2009 include installation subsurface barrier wall around facility contain contaminated groundwater installation groundwater extraction treatment system dredging offsite disposal treated river sediment increase reserve related stanton street facility recorded following review consent order resulted identification several structural upgrades needed preserve effectiveness prior remediation efforts potential environmental liabilities accrued company take consideration possible recoveries future insurance proceeds however take account likely share parties bear remediation sites difficult estimate company’s ultimate level liability many remediation sites due large number parties may involved complexity determining relative liability among parties uncertainty nature scope investigations remediation conducted uncertainty application law risk assessment various choices costs associated diverse technologies may used corrective actions sites often quite lengthy periods eventual remediation may occur possible technological regulatory enforcement developments results additional environmental studies factors could change companys expectations respect future charges cash outlays changes could material companys future results operations financial condition cash flows nevertheless company currently believe claims penalties costs addition amounts accrued material adverse effect company’s financial position results operations cash flows addition company identified asset retirement obligations environmental matters expected addressed retirement disposal removal abandonment existing owned facilities september 30 2019 2018 company recorded conditional asset retirement obligations continuing operations 30 million 29 million respectively asbestos matters company certain subsidiaries along numerous third parties named defendants personal injury lawsuits based alleged exposure asbestos containing materials cases typically involved product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos used asbestos containing components september 30 2019 companys estimated asbestos related net liability recorded discounted basis within companys consolidated statements financial position 141 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 507 million 50 million recorded current liabilities 457 million recorded noncurrent liabilities company also maintained separate cash investments receivables related insurance recoveries within consolidated statements financial position 366 million 46 million recorded current assets 320 million recorded noncurrent assets included 16 million cash 273 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2019 77 million september 30 2018 companys estimated asbestos related net liability recorded discounted basis within companys consolidated statements financial position 173 million net liability within consolidated statements financial position comprised liability pending future claims related defense costs 550 million 55 million recorded current liabilities 495 million recorded noncurrent liabilities company also maintained separate cash investments receivables related insurance recoveries within consolidated statements financial position 377 million 33 million recorded current assets 344 million recorded noncurrent assets included 6 million cash 281 million investments designated restricted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable amount recoveries recorded september 30 2018 90 million companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed discounted present value 2068 companys reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates asbestos related defense costs included asbestos liability companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made 2068 least annually company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable annual basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted amounts recorded company asbestosrelated liabilities insurancerelated assets based companys strategies resolving asbestos claims currently available information number estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims identity defendants resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers many factors closely linked change one variable assumption impact one others single variable assumption predominately influences determination companys asbestosrelated liabilities insurancerelated assets furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries result actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results insurable liabilities company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience september 30 2019 2018 insurable liabilities totaled 379 million 417 million respectively 99 million 95 million recorded within current liabilities 22 million 22 million recorded within accrued compensation benefits 258 million 300 million recorded within noncurrent liabilities consolidated statements financial position respectively company records receivables third party insurers recovery determined probable amount receivables recorded september 30 2019 23 million 5 million recorded within current assets 18 million recorded within noncurrent assets amount receivables recorded september 30 2018 26 million 6 million recorded within current assets 20 million recorded within noncurrent assets respectively company maintains captive insurance companies manage insurable liabilities aqueous filmforming foam afff litigation two subsidiaries chemguard tyco fire products named along defendant manufacturers number class action lawsuits relating use firefighting foam products us department defense dod others fire suppression purposes related training exercises plaintiffs generally allege firefighting foam products manufactured defendants contain break chemicals pfos pfoa andor pfas compounds use products others various airbases airports sites resulted release chemicals environment ultimately communities’ drinking water supplies neighboring airports airbases sites pfoa pfos pfas compounds studied united states environmental protection agency epa environmental health agencies researchers epa issued binding regulatory limits stated propose regulatory standards pfos pfoa drinking water end 2019 accordance pfas action plan released february 2019 studies continue epa issued health advisory level pfoa pfos drinking water pfoa pfos types synthetic chemical compounds present firefighting foam however also present many existing consumer products according epa pfoa pfos used make carpets clothing fabrics furniture paper packaging food materials eg cookware resistant water grease stains plaintiffs generally seek compensatory damages including damages alleged personal injuries medical monitoring diminution property values investigation remediation costs natural resources damages also seek punitive damages injunctive relief address remediation alleged contamination september 2018 company filed petition multidistrict litigation united states judicial panel multidistrict litigation “jpml” seeking consolidate existing future federal cases one jurisdiction december 7 2018 jpml issued order transferring various afff cases multidistrict litigation “mdl” united states district court district south carolina additional cases identified transfer mdl afff putative class actions chemguard tyco fire products named 24 putative class actions federal state courts colorado delaware florida massachusetts new york pennsylvania washington new hampshire guam michigan cases transferred mdl following putative class actions filed since beginning fiscal year 2019 • grubb v 3m company et al filed october 30 2018 united states district court district delaware • county dutchess v 3m company et al filed october 12 2018 united states district court southern district new york • battisti et al v 3m company et al filed december 20 2018 united states district court middle district florida • jackson et al v 3m company et al filed february 5 2019 united states district court western district washington • smith et al v 3m company et al filed may 24 2019 united states district court district new hampshire • cadrette et al v 3m company et al filed may 24 2019 united states district court eastern district michigan • aguon et al v 3m company et al filed october 3 2019 united states district court district guam afff individual mass actions approximately 61 individual “mass” actions pending federal court colorado 41 cases new york 4 cases pennsylvania 11 cases new mexico 2 cases south carolina 3 cases chemguard tyco fire products defendants plaintiffs generally seek compensatory damages including damages alleged personal injuries medical monitoring alleged diminution property values cases involve approximately 7000 plaintiffs colorado approximately 126 plaintiffs new york 15 plaintiffs pennsylvania two plaintiffs new mexico one plaintiff new hampshire two plaintiffs louisiana matters transferred directlyfiled mdl company also notice approximately 660 possible individual product liability claims filings made pennsylvania state court complaints filed matters company anticipates soon afff municipal cases chemguard tyco fire products also defendants 31 cases federal state courts involving municipal water provider plaintiffs alaska arizona california colorado florida massachusetts new jersey new york maryland ohio pennsylvania south carolina municipal plaintiffs generally allege use defendants’ firefighting foam products fire training academies municipal airports air national guard bases navy bases released pfos pfoa public water supply wells allegedly requiring remediation public property cases transferred mdl following municipal actions filed since beginning fiscal year 2019 • dutchess county v 3m company et al filed october 12 2018 removed united states district court southern district new york styled class action • city dayton v 3m company et al filed october 3 2018 united states district court southern district ohio • city stuart v 3m company et al filed october 18 2018 united states district court southern district florida • city tucson town marana v 3m company et al filed november 8 2018 superior court state arizona county pima removed united states district court district arizona • new jerseyamerican water company inc v 3m company et al filed november 8 2018 united states district court district new jersey • village farmingdale v 3m company et al filed december 19 2018 supreme court state new york county nassau removed united states district court eastern district new york • town east hampton v 3m company et al filed december 28 2018 supreme court state new york county suffolk • ridgewood water v 3m company et al filed february 25 2019 superior court state new jersey bergen county removed united states district court district new jersey • atlantic city municipal utilities authority v 3m company et al filed april 10 2019 united states district court district new jersey • town vienna v 3m company et al filed march 30 2019 united states district court district maryland • new york american water company inc v 3m company et al filed april 11 2019 united states district court eastern district new york • city fairbanks v 3m company et al filed april 26 2019 united states district court district alaska • county westchester v 3m company et al filed may 24 2019 united states district court southern district new york • diane hebrank et al v city newburgh v 3m company et al thirdparty complaint filed june 10 2019 supreme court new york orange county • californiaamerican water v 3m company et al directfiled june 21 2019 mdl pending united states district court district south carolina • city sioux falls v 3m company et al directfiled june 26 2019 mdl pending united states district court district south carolina • sioux falls regional airport authority v 3m company et al directfiled june 28 2019 mdl pending united states district court district south carolina • warminster township municipal authority v 3m company et al directfiled august 30 2019 mdl pending united states district court district south carolina • warrington township v 3m company et al directfiled august 30 2019 mdl pending united states district court district south carolina • horsham water sewer authority v 3m company et al directfiled august 30 2019 mdl pending united states district court district south carolina • security water district pike peak community foundation v united states et al filed march 5 2019 united states district court district colorado • bakman water co v 3m company et al directfiled september 30 2019 mdl pending united states district court district south carolina • california water service co v 3m company et al directfiled october 14 2019 mdl pending united states district court district south carolina • town ayer v 3m company et al directfiled november 4 2019 mdl pending united states district court district south carolina may 2018 company also notified widefield water sanitation district colorado springs colorado may assert claims regarding remediation costs connection pfos pfoa contamination allegedly resulting use products peterson air force base state attorneys general litigation related afff june 2018 state new york filed lawsuit new york state court state new york v 3m company et al 90402918 ny sup ct albany county number manufacturers including affiliates company respect alleged pfos pfoa contamination purportedly resulting firefighting foams used locations across new york including stewart air national guard base newburgh gabreski air national guard base southampton plattsburgh air force base plattsburgh griffiss air force base rome unspecified “other” sites throughout state lawsuit seeks recover costs natural resource damages associated contamination sites suit removed united states district court northern district new york transferred mdl february 2019 state new york filed second lawsuit new york state court state new york v 3m company et al ny sup ct albany county number manufacturers including affiliates company respect alleged pfos pfoa contamination purportedly resulting firefighting foams used additional locations across new york suit removed united states district court northern district new york transferred mdl july 2019 state new york filed third lawsuit new york state court state new york v 3m company et al ny sup ct albany county number manufacturers including affiliates company respect alleged pfos pfoa contamination purportedly resulting firefighting foams used additional locations across new york suit removed united states district court northern district new york transferred mdl november 2019 state new york filed fourth lawsuit new york state court state new york v 3m company et al ny sup ct albany county number manufacturers including affiliates company respect alleged pfos pfoa contamination purportedly resulting firefighting foams used additional locations across new york suit served yet january 2019 state ohio filed lawsuit ohio state court state ohio v 3m company et al g4801ci021804752000 court common pleas lucas county ohio number manufacturers including affiliates company respect pfos pfoa contamination allegedly resulting use firefighting foams various specified unspecified locations across ohio lawsuit seeks recover costs natural resource damages associated contamination lawsuit removed united states district court northern district ohio transferred mdl addition may june 2019 three states filed lawsuits respective state courts number manufacturers including affiliates company respect pfos pfoa contamination allegedly resulting use firefighting foams various specified unspecified locations across jurisdictions state new hampshire v 3m company et al state vermont v 3m company et al state new jersey v 3m company et al three suits removed federal court transferred mdl september 2019 government guam filed lawsuit superior court guam number manufacturers including affiliates company respect pfos poa contamination allegedly resulting use firefighting foams various locations within jurisdiction complaint removed federal court transferred mdl afff matters related tyco fire products fire technology center marinette wisconsin tyco fire products chemguard defendants one lawsuit marinette county wisconsin alleging damages due historical use afff products tyco’s fire technology center marinette wisconsin putative class action joan richard campbell behalf similarly situated v tyco fire products lp chemguard inc et al marinette county circuit court filed dec 17 2018 alleges pfas including pfoapfos contaminated groundwater migrated tyco’s property residential drinking water wells causing personal injuries property damage plaintiffs tyco chemguard removed case united states district court eastern district wisconsin transferred mdl second lawsuit duane janell goldsmith individually behalf hg kg v tyco fire products lp chemguard inc et al marinette county circuit court filed dec 17 2018 also filed family alleging personal injuries due contaminated groundwater case dismissed without prejudice company vigorously defending afff matters believes meritorious defenses class certification claims asserted however numerous factual legal issues resolved connection claims extremely difficult predict outcome ultimate financial exposure represented matters assurance exposure material company also pursuing insurance coverage matters bosch litigation march 15 2019 german subsidiary company received complaint robert bosch gmbh “bosch” filed german court complaint relates automotive starter batteries joint venture company bosch 8020 parties joint venture time complaint filed jci’s ownership interest joint venture transferred entities controlled purchaser upon consummation previously announced sale company’s power solutions business complaint alleges certain internal company reorganization transactions compliance arrangements relating joint venture complaint seeks declaration internal reorganization transactions void alternative complaint seeks declaration damages represent alleged difference value ascribed joint venture interests connection power solutions sale ii value assigned interests connection internal reorganization transactions company believes several strong defenses substance complaint substantially overstates reasonable valuation joint venture interests company believe complaint merit intends defend vigorously litigation inherently uncertain company believes ultimate liability may arise proceeding would immaterial business financial condition results operations previously announced stock asset purchase agreement dated november 13 2018 company purchaser company agreed indemnify purchaser damages could arise litigation german court litigation currently stayed parties continue work towards resolution matter matters company involved various lawsuits claims proceedings incident operation businesses including pertaining product liability environmental safety health intellectual property employment commercial contractual matters various casualty matters although outcome litigation cannot predicted certainty lawsuits claims proceedings may disposed unfavorably us management’s opinion none material adverse effect company’s financial position results operations cash flows costs related matters material periods presented 23 related party transactions ordinary course business company enters transactions related parties equity affiliates transactions consist facility management services sale purchase goods arrangements net sales purchases related parties included consolidated statements income 217 million 66 million respectively fiscal 2019 220 million 63 million respectively fiscal 2018 226 million 61 million respectively fiscal 2017 following table sets forth amount accounts receivable due payable related parties consolidated statements financial position millions johnson controls international plc subsidiaries schedule ii valuation qualifying accounts millions item 9 nannannannanitem 15 exhibits financial statement schedules reports form 8k 1 2 financial statements schedulessee item 8 3 exhibit index 1 management contract compensatory plan 2 july 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd massachusetts corporation time former tyco upon consummation merger adt continuing public company changed name tyco international ltd tyco former tyco became whollyowned subsidiary tyco changed name tyco international us inc tyco us b reports form 8k current report form 8k filed july 26 2002 including exhibit press release tyco dated july 25 2002 announcing appointment edward breen chairman board directors chief executive officer tyco international ltd current report form 8k filed september 17 2002 including boies report exhibits following press releases dated august 6 2002 announcing appointment john krol board directors also dated august 6 2002 announcing appointment eric pillmore newly created position senior vice president corporate governance tyco dated september 11 2002 announcing appointment david j fitzpatrick executive vice president chief financial officer tyco dated september 12 2002 announcing appointment william b lytton executive vice president general counsel tyco also dated september 12 2002 announcing nomination jerome b york mackey j mcdonald george w buckley bruce gordon sandra wijnberg fill expected vacancies board c see item 15a3 see item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused form 10k signed behalf undersigned thereunto duly authorized date december 30 2002 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant december 30 2002 capacities indicated certification chief executive officer edward breen certify 1 reviewed annual report form 10k tyco international ltd 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officer disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses certification chief financial officer david j fitzpatrick certify 1 reviewed annual report form 10k tyco international ltd 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officer disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses tyco international ltd index consolidated financial statements managements responsibility financial statements financial statements tyco international ltd subsidiaries responsibility companys management prepared accordance generally accepted accounting principles united states america management responsible integrity objectivity financial statements including estimates judgments reflected fulfills responsibility primarily establishing maintaining accounting systems practices adequately supported internal accounting controls take responsibilities seriously committed building recognized leader governance controls clarity transparency financial statements begun mission take time develop additional time permeate entire organization globally internal controls designed provide reasonable assurance companys assets safeguarded transactions executed accordance managements authorizations financial records reliable purpose preparing financial statements even effective internal control system matter well designed inherent limitations including possibility circumvention overriding controls therefore provide reasonable assurance respect financial statement preparation safeguarding assets company assessed internal control system within past 90 days based assessment notwithstanding instances breakdowns described companys annual report form 10k see item 14 controls procedures management believes internal accounting controls use time filing likely provide reasonable assurance companys assets safeguarded transactions executed accordance managements authorizations financial records reliable purpose preparing financial statements reasonable assurance based part additional procedures performed company light instances breakdowns internal controls occurred fiscal 2002 enhancing internal controls implementing additional policies procedures improve assurance level many difficulties company faced fiscal 2002 highlight business imperative high quality controls corporate governance however given short tenure senior management company ongoing internal investigations companys controls management opportunity conduct comprehensive review approximately 2300 subsidiaries even thorough review assurances given control problems discovered future pricewaterhousecoopers llp independent accountants retained audit tyco international ltds consolidated financial statements accompanying report based audits conducted accordance auditing standards generally accepted united states america include consideration companys internal controls establish basis determining nature timing extent audit tests applied audit committee board directors consisting directors officers employees company meets regularly management independent accountants internal auditors review matters relating financial reporting internal accounting controls auditing report independent accountants board directors shareholders tyco international ltd opinion accompanying consolidated balance sheets related consolidated statements operations shareholders equity cash flows present fairly material respects financial position tyco international ltd subsidiaries september 30 2002 2001 results operations cash flows three years period ended september 30 2002 conformity accounting principles generally accepted united states america addition opinion accompanying financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp boston massachusetts new york new york december 23 2002 tyco international ltd consolidated statements operations millions except share data see notes consolidated financial statements tyco international ltd consolidated balance sheets millions except share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd company incorporated bermuda subsidiaries tyco subsidiaries hereinafter company tyco prepared united states dollars accordance generally accepted accounting principles united states gaap described note 11 cit group inc cit comprised operations tyco capital business segment sold initial public offering ipo july 2002 consequently results tyco capital presented discontinued operations references tyco refer continuing operations exception discussions regarding discontinued operations note 11 continuing operations tyco represent referred tyco industrial prior filings investigationwith arrival new senior management company engaged number internal reviews aimed determining misconduct may committed prior senior management initial review prior managements transactions company conducted law firm boies schiller flexner llp details findings made public form 8k filed september 17 2002 july 2002 new ceo board directors ordered review corporate governance practices accounting selected acquisitions review referred phase 2 review phase 2 review conducted law firm boies schiller flexner llp boies firm turn assisted forensic accountants review received full cooperation tycos auditors pricewaterhousecoopers llp well tycos new senior management team review included examination tycos reported revenues profits cash flow internal auditing control procedures accounting major acquisitions reserves use nonrecurring charges well corporate governance issues personal use corporate assets use corporate funds pay personal expenses employee loan forgiveness programs approximately 25 lawyers 100 accountants worked review august december 2002 total considerable cost 15000 lawyer hours 50000 accountant hours dedicated review team examined documents interviewed tyco personnel 45 operating units united states 12 foreign countries result phase 2 review company identified certain adjustments relating years preceding fiscal 2002 adjustments recorded first quarter fiscal 2002 discussed charges relating prior years recorded fiscal 2002during fourth quarter fiscal 2002 company identified various adjustments relating prior year financial statements management concluded effects adjustments well unrecorded proposed audit adjustments material individually aggregate current year prior year accordingly prior year financial statements restated instead adjustments aggregate 2616 million pretax income basis 1997 million aftertax income basis recorded effective october 1 2001 nature amounts adjustments principally follows company determined amounts reimbursed dealers adts authorized dealer program exceeded costs actually incurred cumulative effect reimbursements recorded years prior fiscal 2002 excess costs incurred net effect deferred credit would amortized described note 1 1859 million tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued company determined net gain 641 million issuance tycom shares previously reported fiscal 2001 lower 396 million company identified several adjustments result phase 2 review recording previously unrecorded audit adjustments appropriately recorded expenses rather part companys acquisition accounting cumulative effect adjustments necessary revise prior accounting pretax charge 361 million fiscal years charges relate follows millions adjustments would impacted income loss continuing operations net income loss income loss continuing operations would impacted follows fiscal 2000 4464 million compared 4520 million fiscal 2001 4297 million compared 4402 million fiscal 2002 2871 million compared 3070 million net income loss would impacted follows fiscal 2000 4464 million compared 4520 million fiscal 2001 3866 million compared 3971 million fiscal 2002 9212 million compared 9412 million see note 28 effect adjustments previously issued unaudited quarterly financial information fiscal 2002 businessthe company operates following business segments fire security services designs manufactures installs monitors services electronic security systems fire protection systems electronics designs manufactures distributes electrical electronic components designs manufactures installs operates maintains fiber optic undersea cable communications systems healthcare specialty products designs manufactures distributes medical devices supplies specialty products engineered products services designs manufactures distributes services engineered products including industrial valves controls steel tubular goods provides environmental consulting services principles consolidationtyco holding company whose assets consist investments subsidiaries intercompany balances holdings cash equivalents businesses consolidated group conducted tycos subsidiaries company consolidates companies owns controls fifty percent voting shares unless control likely temporary results companies acquired disposed fiscal year included tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued consolidated financial statements effective date acquisition date disposal significant intercompany balances transactions eliminated consolidation revenue recognitionthe company adopted staff accounting bulletin 101 sab 101 revenue recognition financial statements fourth quarter fiscal 2001 retroactive beginning fiscal year recognizing revenues installation owned security systems deferring associated direct incremental costs estimated customer lives revenue sale products recognized according terms sales arrangement customarily products reach freeonboard shipping point revenue sale services recognized services rendered subscriber billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems undersea fiber optic cable systems construction related projects recorded percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion cost completion undersea cable systems measured based ratio costs incurred total estimated costs cost completion installation fire protection systems construction related projects measured using effortsexpended method based direct labor hours expended actual material used revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable certain companys longterm contracts warranty obligations estimated warranty costs contract determined based contract terms technology specific issues costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting addition certain product sales also normal warranty provisions company accrues estimated product warranty costs time sale additional amounts recorded costs probable reasonably estimated companys global undersea fiber optic network sells bandwidth capacity known tyco global network tgn companys sales bandwidth capacity generally structured either service arrangements operating leases company recognizes revenue associated service arrangement ratably service period recognizes revenue associated operating leases lease term september 30 2002 accounts receivable longterm receivables included retainage provisions 1648 million 849 million remained unbilled september 30 2001 accounts receivable longterm receivables included retainage provisions 1007 million 737 million remained unbilled retention provisions relate primarily fire protection electronics contracts become due upon contract completion acceptance balance 1648 million september 30 2002 1283 million included accounts receivable expected collected fiscal 2003 research developmentresearch development expenditures expensed incurred included cost sales customerfunded research development costs incurred tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued tyco reimbursed customers net impact research development expense consolidated statement operations customerfunded research development research development expense consolidated statement operations reflects companysponsored research development advertisingadvertising costs expensed incurred included selling general administrative expenses sale common shares subsidiarygains sale common shares issued subsidiary included consolidated statement operations translation foreign currencyassets liabilities companys subsidiaries operating outside united states account functional currency us dollars operating highly inflationary environments translated us dollars using yearend exchange rates revenues expenses translated average exchange rates effective year foreign currency translation gains losses included component accumulated comprehensive loss income within shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments assets liabilities subsidiaries included net income gains losses resulting foreign currency transactions amounts material included net income cash equivalentsall highly liquid investments purchased maturity three months less time purchase considered cash equivalents occasion company required post cash collateral secure reimbursements indemnity obligations letters credit performance guarantees respect various construction projects amount restricted cash collateral amounts september 30 2002 1962 million restricted cash september 30 2001 inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipmentproperty plant equipment recorded cost less accumulated depreciation maintenance repair expenditures charged expense incurred years ended september 30 2002 2001 2000 company capitalized interest 1107 million 763 million 108 million respectively increase capitalized interest primarily due tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued construction tgn began last quarter fiscal 2000 straightline method depreciation used estimated useful lives related assets follows 1 security monitoring systems tgn constructed recorded cost within consolidated balance sheets part tyco global network certain geographic segments tgn completed available capacity sales costs segment removed construction progress reclassified placed service portion tgn placed service recorded within consolidated balance sheet tyco global networkplaced service see note 26 gains losses arising disposal property plant equipment included consolidated statements operations material longlived assetsthe company periodically evaluates net realizable value longlived assets including property plant equipment intangible assets relying number factors including operating results business plans economic projections anticipated future cash flows impairment carrying value asset recognized whenever anticipated future cash flows undiscounted asset estimated less carrying value amount impairment recognized difference carrying value asset fair value goodwill intangible assetseffective october 1 2001 beginning tycos fiscal year 2002 company adopted statement financial accounting standards sfas 142 goodwill intangible assets goodwill longer amortized instead assessed impairment least annually transition provisions sfas 142 goodwill impairment october 1 2001 additionally company elected make july 1 annual impairment assessment date reporting units perform additional impairment tests triggering events occur sfas 142 defines reporting unit operating segment one level operating segment reporting units september 30 2002 follows security services fire protection electronics telecommunications healthcare plastics adhesives flow control electrical metal products tyco infrastructure see note 16 information sfas 142 note 11 discontinued operations tyco capital cit group inc information regarding impairment goodwill relating tyco capital fiscal 2001 2000 goodwill amortized straightline basis periods ranging 10 40 years accordance guidance sfas 142 goodwill associated acquisitions consummated june 30 2001 amortized fourth quarter fiscal 2001 intangible assets include contracts related customer relationships intellectual property items contracts related customer relationships amortized straightline basis estimated useful life ranging 5 40 years intellectual property consists primarily tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued patents trademarks unpatented technology amortized straightline basis range 5 40 years contracts related customer relationships result company purchasing residential monitoring contracts external network independent dealers operate adts authorized dealer program purchase price customer contracts recorded intangible asset amortized selling general administrative expense straightline basis period economic benefits expected obtained customer relationships presently estimated ten years resulting amortization approximates pattern company estimates obtain benefits considers customer attrition company incurs costs associated maintaining operating dealer program including brand advertising due diligence performed company respect contracts offered dealers purchase dealers reimburse company nonrefundable amount contracts purchased representing reimbursement costs described company recognizes nonrefundable charge time contract accepted purchase costs incurred company related reimbursements included selling general administrative expenses within consolidated statements operations extent amount dealer reimbursement companys administrative connection costs exceed actual costs incurred excess recorded deferred credit amortized straight linebasis estimated period economic benefits estimated ten years prior fiscal 2002 company recognized earnings entire amount reimbursements dealers first six twelve months purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records chargeback amount dealer reduction previously recorded intangible asset investmentsthe company invests debt equity securities company accounts longterm investments marketable equity securities represent less twenty percent ownership adjusting securities market value end accounting period unrealized gains losses credited charged shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings debt equity securities classified trading securities recorded fair value unrealized gains losses credited charged earnings debt securities company ability positive intent hold maturity carried amortized cost management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments determined specific identification basis included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting company periodically evaluates carrying value investments accounted cost method accounting september 30 2002 2001 investments recorded lower cost estimated net realizable value tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued equity investments company owns controls twenty percent voting shares exerts significant influence operating financial policies equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented investments included current longterm assets appropriate consolidated balance sheets amounts 3280 million 7401 million september 30 2002 2001 2196 million 7081 million included longterm assets respectively share premium contributed surplusin accordance bermuda companies act 1981 tyco issues shares cash premium par value resulting premium credited share premium account nondistributable reserve tyco issues shares exchange shares another company excess fair value shares acquired par value shares issued tyco credited applicable contributed surplus subject certain conditions distributable reserve income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book values tax bases particular assets liabilities using tax rates effect years differences expected reverse valuation allowance provided offset net deferred tax assets based upon available evidence likely deferred tax assets realized financial instrumentsall derivative instruments reported balance sheet fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized charge credit earnings fair value estimates based relevant market information including current market rates prices assuming adequate market liquidity fair value estimates interest rate swaps provided company banks known high volume participants market company uses derivative instruments manage exposures foreign currency commodity price interest rate risks companys objectives utilizing derivatives manage risks using effective methods eliminate reduce impacts exposures company documents relationships hedging instruments hedged items links derivatives designated fair value cash flow foreign currency hedges specific assets liabilities consolidated balance sheet specific firm commitments forecasted transactions company also assesses documents hedges inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows associated hedged items part managing exposure changes market interest rates company enduser enters various interest rate swap transactions transacted overthecounter tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued markets financial institutions acting principal counterparties ensure appropriate use hedge accounting treatment derivatives entered designated according hedge objective specified liabilities specifically underwritten debt issue companys primary hedge objectives include conversion fixedrate liabilities variable rates derivatives associated objectives classified fair value hedges companys derivative instruments present certain market counterparty risks however concentration counterparty risk mitigated tyco deals variety major banks worldwide longterm standard poors moodys credit ratings aa1 higher accounts receivable spread among number major industries customers geographic areas addition conventional derivatives utilized thereby affording optimum clarity market risk none companys derivative instruments outstanding year end would result significant loss company counterparty failed perform according terms agreement time company require collateral security furnished counterparties derivative instruments use estimatesthe preparation consolidated financial statements conformity gaap requires management make extensive use estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring unusual charges credits purchase accounting reserves allowances doubtful accounts receivable estimates future cash flows associated assets asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenues related costs environmental liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ estimates accounting pronouncementsin june 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 addresses accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs effective fiscal years beginning june 15 2002 expect adoption new standard material impact results operations financial position july 2001 fasb issued sfas 144 impairment disposal longlived assets effective fiscal years beginning december 15 2001 provisions statement provide single accounting model impairment longlived assets expect adoption new standard material impact results operations financial position april 2002 fasb issued sfas 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections effective fiscal years beginning may 15 2002 statement rescinds indicated statements amends existing authoritative pronouncements make various technical corrections clarify meanings describe applicability changed conditions sfas 145 encourages early adoption provision standard rescinds sfas no4 reporting gains losses extinguishments debt accordingly company elected early adopt provision fourth quarter fiscal 2002 resulted increased pretax income 306 million fiscal 2002 reclassified tyco international ltd notes consolidated financial statements continued 1 summary significant accounting policies continued prior year extraordinary losses related early retirement debt expense income consolidated statements operations decreased pretax income 263 million 03 million fiscal 2001 2000 respectively however net income remains unchanged periods see note 8 information adoption remaining provisions new standard material impact results operations financial position july 2002 fasb issued sfas 146 accounting costs associated exit disposal activities effective exit disposal activities initiated december 31 2002 statement nullifies emerging issues task force issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring statement requires liabilities associated exit disposal activities initiated adoption recognized measured fair value incurred opposed date entity commits exit disposal plans expect adoption new standard impact timing future restructuring charges reclassificationscertain prior year amounts reclassified conform current year presentation stock splitsper share amounts share data retroactively restated give effect twoforone stock split october 21 1999 effected form 100 stock dividend see note 23 2 acquisitions divestitures fiscal 2002 fiscal 2002 company purchased businesses aggregate cost 51515 million consisting 30848 million cash net 1580 million cash acquired issuance approximately 478 million common shares valued 19188 million plus fair value stock options preexisting put option rights assumed 1479 million 1026 million put option rights paid cash company purchased voting equity interests businesses acquired connection acquisitions company recorded purchase accounting liabilities 1946 million costs integrating acquired companies transaction costs details regarding purchase accounting liabilities set forth tyco also issued approximately 177 million common shares valued 8199 million connection amalgamation tycom see note 9 addition company recorded 2356 million fair value shares issued options assumed connection fiscal 2001 acquisition mallinckrodt fair value debt acquired companies aggregated 7991 million fiscal 2002 company paid 4748 million cash purchase accounting liabilities related current prior years acquisitions addition company paid cash approximately 1493 million relating holdback earnout liabilities primarily related certain prior year acquisitions holdback liabilities represent portion purchase price withheld seller pending finalization acquired companys net assets purchase price paid time earnout liabilities payments sellers result acquired company achieved certain milestones subsequent acquisition tyco earnout payments tied certain performance measures revenue gross margin earnings growth specified period time accrued milestones met contingent consideration becomes determinable distributable company also issued 44139 common shares tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued valued 23 million relating earnout liabilities fiscal 2002 value earnout common shares based upon fair value stock time issuance cash portions acquisition costs funded utilizing net proceeds issuance longterm debt results operations acquired companies included tycos consolidated results respective acquisition dates time purchase acquisition made company records asset acquired liability assumed estimated fair value amount subject future adjustment appraisals valuation data obtained excess total consideration paid acquired company ii fair value tangible intangible assets acquired less liabilities assumed purchase accounting liabilities recorded goodwill appraisals valuation data obtained company record adjustments fair value net assets acquired liabilities assumed purchase price allocations certain fiscal 2002 acquisitions preliminary company finalizes integrationexit plans expects recognize additional purchase accounting liabilities several factors impact finalization integrationexit plans identifying acquired facilities duplicative tycos existing operations determined approval needs obtained management appropriate level authority estimated cost integrationexit activities needs determined negotiation employee bargaining groups needs completed order finalize plan result final adjustments often extend end one year period acquisition additional purchase accounting liabilities increase amount goodwill recorded changes fair value net assets could increase decrease goodwill company expects record adjustments goodwill related companies acquired fiscal 2002 however company expect impact adjustments material financial statements result acquisitions completed fiscal 2002 adjustments fair value assets liabilities increases purchase accounting liabilities recorded acquisitions completed prior fiscal 2002 company recorded approximately 40714 million goodwill 20252 million intangible assets fiscal 2002 amounts include adjustments consisting 689 million decrease goodwill 405 million decrease intangible assets related fair value adjustments associated prior year acquisitions adjustments goodwill relate primarily fiscal 2001 acquisitions lucent technologies power systems lps acquired december 2000 edison select edison acquired august 2001 deutsche armaturen ag daag acquired september 2001 scott technologies scott acquired may 2001 adjustments goodwill lps relate closure manufacturing plant adjustment certain opening balance sheet items primarily property plant equipment inventory finalization exit plan relating lps acquisition completed quarter ended december 31 2001 adjustments edison relate primarily severance lesser extent facility closures adjustment certain opening balance sheet items fair value adjustments daag relate primarily facility closures related severance adjustment certain opening balance sheet items fair value scott relate primarily adjustment certain opening balance sheet items fair value addition latter half fiscal 2002 company recorded estimated fair value intangible assets acquired related acquisition sensormatic using among factors appraisals amount 5648 million 5648 million consists following developed technology 3482 million trademarks 1359 million customer base 673 million inprocess research development 134 million tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued acquisitions important part tycos growth fiscal 2002 tyco makes acquisitions complement existing products services enhance companys product lines andor expand customer base company begins formulating exit plans part acquisition approval process tyco determines willing pay acquisition partially based expectation cost effectively integrate products services acquired company tycos existing infrastructure improve earnings removing costs areas duplicate sales administrative facilities functions addition company utilizes existing infrastructure eg established sales force distribution channels customer relations etc acquired companies cost effectively introduce tycos products new geographic areas company also targets companies perceived experiencing depressed financial performance factors contribute acquisition prices excess fair value identifiable net assets acquired resultant goodwill following table shows fair values assets liabilities purchase accounting liabilities recorded purchase acquisitions completed fiscal 2002 adjusted reflect changes fair values assets liabilities purchase accounting liabilities holdbackearnout liabilities recorded acquisitions completed prior fiscal 2002 millions 1 value common shares issued based upon average volumeweighted average trading prices new york stock exchange three days three days measurement date stock options assumed relate acquisition sensormatic first quarter fiscal 2002 acquisition mallinckrodt fiscal 2001 value stock options determined using blackscholes valuation model based following assumptions 390 volatility sensormatic 360 volatility mallinckrodt twoyear expected life inthemoney options threeyear expected life outofthemoney options except remaining term options less case onehalf remaining term used annual dividends 005 riskfree interest rates based us stripped treasuries tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued fiscal 2002 acquisitions include among others sbcsmith alarm systems smith alarm century tube corporation century october 2001 sensormatic electronics corporation sensormatic transpower technologies dsc group water power technology water power november 2001 linq industrial fabrics inc linq purchase remaining minority public interest tycom december 2001 paragon trade brands inc paragon communications instruments inc cii january 2002 clean air systems february 2002 smith alarm security monitoring company residential commercial customers purchased 782 million cash integrated within fire security services segment century manufacturer steel tubing purchased 1255 million cash integrated within engineered products services segment sensormatic leading supplier electronic security solutions retail commercial industrial market places purchased approximately 478 million tyco common shares valued 19188 million plus fair value stock options preexisting put option rights assumed 1479 million integrated within fire security services segment primary reason sensormatic acquisition presented tyco opportunity expand tycos security product range include electronic article surveillance systems sensormatic recognized market leader additionally acquisition allowed us expand presence access control video systems businesses sensormatic global company approximately 11 billion revenue talented workforce including established research development group acquisition presented us many synergy opportunities operating regions around world transpower technologies designer manufacturer inductors isolation transformers purchased 626 million cash integrated within electronics segment dsc group manufacturer security alarms fire alarms panels purchased 906 million cash integrated within fire security services segment water power provider water treatment products services purchased 408 million cash integrated within engineered products services segment linq manufacturer flexible intermediate bulk containers purchased 325 million cash integrated within healthcare specialty products segment tycom leading provider undersea fiber optic networks services december 2001 company completed amalgamation tycom shares already owned tyco converted approximately 177 million tyco common shares valued 8199 million paragon global supplier infant disposable diapers absorbent personal care products purchased 7068 million cash integrated within healthcare specialty products segment primary reason paragon acquisition acquire leader global supply disposable absorbent personal care products additionally acquisition allowed us expand presence disposable private label diapers training pants sectors acquisition presented us many synergy opportunities consolidation manufacturing facilities administrative functions elimination duplicate sales marketing overhead cii provider advanced control electronic solutions high performance relays generalpurpose relays transformers emirfi filters purchased 2140 million cash integrated within electronics segment clean air systems manufacturer pollution control systems industrial plants products including industrial valves controls pneumatics purchased 318 million cash integrated within engineered products services segment addition acquisitions listed tyco paid cash 14010 million acquire approximately 14 million customer contracts electronic security services dealer program 4590 million acquire approximately 120 smaller companies acquisitions comprised tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued primarily businesses manufacture broad range electronic products manufacture wide range products used disposable medical products industry well plastic products manufacture fire security products manufacture valves related products provide electronic security services acquisitions integrated within electronics fire security services healthcare specialty products engineered products services segments following table summarizes purchase accounting liabilities recorded connection fiscal 2002 purchase acquisitions millions purchase accounting liabilities recorded fiscal 2002 consist 967 million severance related costs 605 million costs associated shut consolidation certain facilities including unfavorable leases lease terminations related fees costs 64 million distributor supplier contractual cancellation fees 310 million transaction costs purchase accounting liabilities relate primarily acquisitions sensormatic cii paragon connection fiscal 2002 purchase acquisitions tyco began formulate plans date acquisition workforce reductions closure consolidation aggregate 183 facilities costs employee terminations relate elimination 2700 positions united states 522 positions latin america 481 positions canada 442 positions europe 141 positions asiapacific region consisting primarily manufacturing distribution administrative technical sales marketing personnel facilities designated closure include 94 facilities united states 48 facilities europe 24 facilities asiapacific region 14 facilities canada 3 facilities latin america consisting primarily administrative offices sales offices manufacturing plants distribution centers september 30 2002 2833 employees terminated 101 facilities closed consolidated related fiscal 2002 acquisitions tyco yet finalized business integration plans fiscal 2002 acquisitions accordingly purchase accounting liabilities subject revision future quarters approximately 25 acquisitions estimated purchase accounting liabilities additions aggregating approximately 650 million business integration plans finalized individually paragon none acquisitions expected increases purchase accounting liabilities excess 5 million september 30 2002 regards paragon eberle cii anticipate additional purchase accounting liabilities approximately 30 million 8 million 5 million respectively recorded severance facilities fees related finalization integration plans addition company engaged thirdparty valuation firms independently appraise fair value certain assets acquired tyco still process obtaining tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued independent valuations order finalize estimates fair values certain assets acquired liabilities assumed september 30 2002 holdbackearnout liabilities 2682 million remained consolidated balance sheet 1245 million included accrued expenses current liabilities 1437 million included longterm liabilities payable cash addition total 1014 million purchase accounting liabilities related fiscal 2002 acquisitions remained consolidated balance sheet 569 million included accrued expenses current liabilities 445 million included longterm liabilities tyco expects termination employees consolidation facilities related acquisitions substantially complete within two years related dates acquisition except longterm noncancellable lease obligations certain longterm severance arrangements fiscal 2002 company sold certain businesses net proceeds approximately 1387 million cash consist primarily certain businesses within healthcare specialty products fire security services segments connection dispositions company recorded net gain 72 million excluding previous charge 1253 million impairment associated assets held sale following unaudited pro forma data summarize results operations periods indicated fiscal 2002 2001 acquisitions divestitures amalgamation tycom completed beginning periods presented pro forma data give effect actual operating results prior acquisitions adjustments interest expense income taxes effect given cost reductions operating synergies presentation pro forma amounts purport indicative results would actually achieved acquisitions amalgamation occurred beginning periods presented may achieved future 1 includes charges impairment longlived assets 34895 million net restructuring unusual charges 19543 million goodwill impairment charges 13437 million charges related prior years 2616 million see note 1 loss investments 2708 million net gain sale businesses 72 million gain early extinguishment debt 306 million loss discontinued operations 63413 million net tax excludes charge 178 million writeoff purchased inprocess research development associated acquisition sensormatic discussed note 7 tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued 2 includes net gain sale businesses 4104 million related primarily sale adt automotive loss 1338 million related writedown investment net gain 641 million sale shares subsidiary charges impairment longlived assets 1201 million net restructuring unusual charges totaling 4185 million loss early extinguishment debt 263 million cumulative effect accounting changes 6834 million net tax excludes charge 1843 million writeoff purchased inprocess research development associated acquisition mallinckrodt discussed note 7 fiscal 2001 tyco entered agreement acquire cr bard inc healthcare products manufacturer february 6 2002 tyco cr bard inc mutually terminated merger agreement party bore costs break fee paid fiscal 2002 tyco entered agreement acquire mcgrath rentcorp leading provider modular offices classrooms electronic test equipment july 1 2002 mcgrath rentcorp elected terminate transaction agreement tyco reimbursed mcgraths cost expenses amount 125 million fiscal 2001 fiscal 2001 company purchased approximately 240 companies business lines aggregate cost 100987 million consisting 63138 million cash net 3434 million cash acquired issuance approximately 782 million common shares valued 37849 million 63138 million tyco paid 9946 million approximately 10 million customer contracts electronic security services dealer program company purchased voting equity interests businesses acquired connection acquisitions company recorded purchase accounting liabilities 10213 million costs integrating acquired companies transaction costs also fiscal 2001 tyco purchased cit aggregate cost 94555 million consisting 24864 million cash net 21564 million cash acquired issuance approximately 1330 million common shares valued 66505 million plus fair value options assumed 3186 million cit subsequently disposed fiscal 2002 presented discontinued operations fiscal 2001 7887 million cash paid year purchase accounting liabilities related current prior years acquisitions addition company paid approximately 1057 million relating holdback earnout liabilities primarily related certain prior year acquisitions fiscal 2001 purchase acquisitions include among others mallinckrodt inc cigi investment group inc innerdyne inc lps simplex time recorder co scott cit electronic security systems businesses cambridge protection industries llc certain acquisitions provisions defer portion purchase price cover holdback liabilities items finalization acquired companys net assets specified period time pay purchase price period time september 30 2002 company contingent liability 80 million related fiscal 2001 acquisition comnet electronics segment 80 million maximum payable former shareholders comnet construction installation communications system finished state florida approved system based guidelines set forth contract 80 million accrued september 30 2002 outcome contingency cannot reasonably determined cash portions acquisition costs funded utilizing net proceeds issuance longterm debt tyco common shares net proceeds disposal businesses fair value debt acquired companies aggregated 406432 million including 390509 million debt cit tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued acquisition accounted purchase results operations acquired companies included companys consolidated results respective acquisition dates following table summarizes purchase accounting liabilities recorded connection fiscal 2001 purchase acquisitions millions purchase accounting liabilities recorded fiscal 2001 consist 3661 million severance related costs 2829 million costs associated shut consolidation certain acquired facilities including unfavorable leases lease terminations related fees costs 1799 million distributor supplier contractual cancellation fees 1924 million transaction costs purchase accounting liabilities relate primarily acquisitions mallinckrodt inc october 2000 lps simplex time recorder co january 2001 electronic security systems businesses cambridge protection industries llc july 2001 securitylink fiscal 2001 company made payments totaling 200 million mr frank walsh director tyco time cit acquisition charitable organization specified director payments direct incremental costs incurred connection acquisition cit accordingly included part purchase price cit see note 17 connection fiscal 2001 purchase acquisitions company began formulate plans date acquisition workforce reductions closure consolidation aggregate 349 facilities costs employee termination benefits relate elimination 6297 positions united states 1559 positions europe 1354 positions asiapacific region 706 positions canada latin america consisting primarily manufacturing distribution administrative technical sales marketing personnel facilities designated closure include 226 facilities united states 54 facilities europe 48 facilities asiapacific region 21 facilities canada latin america consisting primarily manufacturing plants distribution facilities sales offices corporate administrative facilities research development facilities september 30 2002 14907 employees terminated 500 facilities closed consolidated fiscal 2002 recorded additions purchase accounting liabilities continued formulate integration plans fiscal 2001 acquisitions lps microser sl integrated within tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued electronics segment daag edison securitylink among others finalization components integration plans associated acquisitions resulted additional purchase accounting liabilities 3394 million corresponding increase goodwill deferred tax assets additions reflect elimination additional 8570 employees closure additional 493 facilities additional distributor supplier cancellation fees acquisition related costs consisting primarily professional fees costs fiscal 2002 company reduced estimate purchase accounting liabilities relating fiscal 2001 acquisitions 1309 million primarily actual costs less originally estimated since company severed 1383 fewer employees closed 242 fewer facilities originally anticipated due revisions integration plans goodwill related deferred tax assets reduced equivalent amount also year ended september 30 2002 reclassified certain fair value adjustments related writedown assets fiscal 2001 acquisitions purchase accounting accruals appropriate asset liability account addition reclassified certain amounts preceding table related fiscal 2001 acquisitions separately classify distributor supplier cancellation fees correct categorization accruals reclassifications effect amount goodwill recorded connection purchase acquisitions consummated fiscal 2001 liabilities approximately 1297 million severance related costs 2075 million shutdown consolidation acquired facilities 287 million distributor supplier contractual cancellation fees 291 million transaction direct costs remained consolidated balance sheet september 30 2002 company expects termination employees consolidation facilities related acquisitions substantially complete within one year plan finalization except longterm noncancellable lease obligations certain longterm severance arrangements fiscal 2001 company sold adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 10 billion cash company recorded net gain sale businesses 4104 million principally related sale adt automotive recorded income consolidated statement operations following unaudited pro forma data summarize results operations periods indicated fiscal 2001 2000 acquisitions divestitures completed beginning periods presented pro forma data give effect actual operating results prior acquisitions divestitures adjustments interest expense goodwill amortization income taxes effect given cost reductions operating synergies presentation amounts revised reflect disposition cit discontinued operations see note 11 pro forma amounts purport indicative results would actually tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued obtained acquisitions divestitures occurred beginning periods presented may obtained future 1 includes net gain sale businesses 4104 million related primarily sale adt automotive loss 1338 million related writedown investment net gain 641 million sale shares subsidiary charges impairment longlived assets 1201 million net restructuring unusual charges totaling 4185 million loss early extinguishment debt 263 million cumulative effect accounting changes 6834 million net tax excludes charge 1843 million writeoff purchased inprocess research development associated acquisition mallinckrodt discussed note 7 2 includes unusual gain 17600 million sale subsidiary common shares income also includes net restructuring unusual charges 1763 million charges impairment longlived assets 990 million loss early extinguishment debt 03 million fiscal 2000 fiscal 2000 company purchased approximately 200 companies business lines aggregate cost 49179 million consisting 42465 million cash net 2431 million cash acquired issuance approximately 156 million common shares valued 6714 million 42465 million tyco paid 5001 million approximately 550000 customer contracts electronic security services dealer program addition 5442 million cash paid fiscal 2000 purchase accounting liabilities related 2000 prior years acquisitions fiscal 2000 acquisitions include among others acquisition general surgical innovations inc afc cable systems inc siemens electromechanical components gmbh co kg praegitzer industries inc critchley group plc electronic oem business thomas betts cash portions acquisition costs funded utilizing cash hand issuance longterm debt borrowings companys commercial paper program fair value debt acquired companies aggregated 2441 million acquisitions accounted purchase results operations acquired companies included consolidated results company respective acquisition dates result acquisitions completed fiscal 2000 adjustments fair values assets liabilities purchase accounting liabilities recorded acquisitions completed prior fiscal 2000 company recorded approximately 52068 million goodwill intangible assets tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued following table summarizes purchase accounting liabilities recorded connection fiscal 2000 purchase acquisitions millions purchase accounting liabilities recorded fiscal 2000 consist 2739 million severance related costs 627 million costs associated shut consolidation certain acquired facilities 323 million distributor supplier contractual cancellation fees 573 million transaction direct costs 2739 million severance related costs covers employee termination benefits approximately 7215 employees located throughout world consisting primarily manufacturing distribution employees terminated result shut consolidation production facilities lesser extent administrative technical sales marketing personnel continued formulate integration plans fiscal 2000 acquisitions recorded additions purchase accounting liabilities fiscal 2001 356 million severence related costs reflecting elimination additional 3842 employees september 30 2002 77 employees terminated 89 million severance related costs remained consolidated balance sheet company expects remaining employee terminations completed fiscal 2003 627 million exit costs associated closure consolidation 102 facilities located primarily asiapacific region united states facilities include manufacturing plants sales offices corporate administrative facilities research development facilities included within costs accruals noncancelable leases associated certain facilities fiscal 2001 recorded additional liabilities 365 million closure additional 86 facilities 19 facilities closed consolidated september 30 2002 remaining facilities primarily small sales administrative offices expected shut fiscal 2003 fiscal 2002 company reduced estimate purchase accounting liabilities relating fiscal 2000 acquisitions 498 million accordingly goodwill related deferred tax assets reduced equivalent amount reductions resulted primarily costs less originally anticipated tyco international ltd notes consolidated financial statements continued 2 acquisitions divestitures continued also fiscal 2002 reclassified certain fair value adjustments related writedown assets fiscal 2000 acquisitions purchase accounting accruals appropriate asset liability account addition reclassified certain amounts preceding table related fiscal 2000 acquisitions separately classify distributor supplier cancellation fees reclassifications effect amount goodwill recorded september 30 2002 remained consolidated balance sheet purchase accounting liabilities 221 million employee severance principally payments employees already terminated severance paid time facility related costs principally rents noncancelable leases vacated premises costs following unaudited pro forma data summarize results operations periods indicated fiscal 2000 acquisitions divestitures completed beginning periods presented pro forma data give effect actual operating results prior acquisitions divestitures adjustments interest expense goodwill amortization income taxes effect given cost reductions operating synergies presentation pro forma amounts purport indicative results would actually obtained acquisitions divestitures occurred beginning periods presented may obtained future 1 includes unusual gain 17600 million sale subsidiary common shares income also includes net restructuring unusual charges 1763 million charges impairment longlived assets 990 million loss early extinguishment debt 03 million 3 consolidated segment data companys reportable segments strategic business units operate different industries managed separately format segment data presented consistent business activities reported internally management period covered report certain corporate expenses allocated operating segments operating income based generally net revenues additional information including description products services included segment see note 1 fiscal 2002 company changed internal reporting structure due amalgamation tycom eliminated publicly held minority interest operations former telecommunications segment reported part electronics segment addition fiscal 2002 change made companys internal reporting structure operations tycos flow control businesses environmental engineering business previously tyco international ltd notes consolidated financial statements continued 3 consolidated segment data continued reported within fire security services segment tycos electrical metal products business previously reported within electronics segment comprise companys new engineered products services segment also fiscal 2002 tyco sold financial services business tyco capital ipo historical results financial services business presented discontinued operations see note 11 information regarding discontinued operations tyco capital company conformed segment reporting accordingly reclassified comparative prior period information reflect changes selected information industry segment presented following tables millions amounts exclude restructuring unusual charges credits charges impairment longlived assets charges impairment goodwill writeoff purchased inprocess research development iprd charges related prior years described notes 1 5 6 7 16 1 excludes impairment charge 2170 million primarily related writedown intangible assets resulting curtailment certain end markets termination authorized dealer program writeoff software development project also excludes net restructuring unusual charge 949 million charges 194 million included cost sales 949 million net charge consists charges 1135 million primarily related severance facilityrelated charges associated streamlining business accrual anticipated resolution disposition various labor employment matters offset restructuring credits 186 million due costs less anticipated also excludes charge 178 million writeoff purchased iprd 2 excludes impairment charges 31137 million primarily related writedown tgn property plant equipment associated closure certain facilities net restructuring unusual charges 15595 million 6082 million included cost sales 1150 million included selling general administrative expenses 15595 million net charge consists charges 15858 million primarily related footnotes continued following page tyco international ltd notes consolidated financial statements continued 3 consolidated segment data continued footnotes continued preceding page writedown inventory facility closures slightly offset restructuring credits 263 million due costs less anticipated also excludes charge impairment goodwill 10245 million 3 excludes impairment charge 1304 million primarily writeoff intangible assets related business line sold july 2002 net restructuring unusual charges 549 million 16 million included cost sales 549 million net charge consists charges 588 million primarily related severance associated consolidation operations facilityrelated costs due exiting certain business lines writeoff legal fees deal costs associated acquisitions completed somewhat offset restructuring credits 39 million 4 excludes charge impairment goodwill 3192 million restructuring unusual charges 508 million 62 million included cost sales related severance facilityrelated costs associated streamlining business impairment charges 95 million related property plant equipment due closure facilities become redundant due acquisitions 5 excludes charges related prior years 2616 million see note 1 restructuring unusual charges 1942 million primarily related writeoff investment banking fees deal costs associated terminated breakup plan certain acquisitions completed lesser extent severance associated corporate employees impairment charges 189 million related property plant equipment 6 excludes net restructuring unusual charge 841 million 54 million included cost sales 841 million net charge consists charges 857 million primarily associated closure existing facilities become redundant due acquisitions slightly offset restructuring credits 16 million due costs less anticipated also excludes charge 28 million related primarily impairment property plant equipment associated closure facilities 7 excludes restructuring unusual charges 3838 million charges 1258 million included cost sales primarily related closure facilities within computer consumer electronics communications industries also excludes charge 985 million related impairment property plant equipment associated closure facilities 8 excludes writeoff purchased inprocess research development 1843 million net restructuring unusual charges 567 million 440 million included cost sales 567 million net charge consists charges 723 million primarily related inventory writtenup purchase accounting closure several manufacturing plants offset restructuring credits 156 million also excludes charge 154 million related primarily impairment property plant equipment associated closure plants 9 excludes restructuring unusual charge 573 million 97 million included cost sales related primarily restructuring valves controls business also excludes charge 34 million related primarily impairment property plant equipment associated closure facilities 10 excludes unusual credit 1668 million related settlement litigation unusual charge 34 million related severance 11 excludes merger restructuring unusual credit 112 million representing revision estimates related companys 1997 restructuring accruals 12 excludes restructuring charge 169 million 09 million included cost sales related amps brazilian operations wireless communications business credit 1078 million 63 million included cost sales representing primarily revision estimates merger restructuring unusual accruals related merger amp amps profit improvement plan also excludes unusual charge 131 million incurred connection tycom ipo 13 excludes charges impairment longlived assets 990 million restructuring unusual charges 79 million 64 million included cost sales related exiting us surgicals interventional cardiology business excludes restructuring unusual charges 111 million related us surgicals suture business also excludes credit 299 million representing revision estimates merger restructuring unusual accruals consisting 197 million related primarily merger us surgical 102 million related companys 1997 restructuring accruals 14 excludes unusual charge 2750 million certain claims relating merged company healthcare business unusual charges 12 million tyco international ltd notes consolidated financial statements continued 3 consolidated segment data continued revenue groups products aggregated based upon business units within tycos segments follows total assets depreciation amortization capital expenditures segment follows tyco international ltd notes consolidated financial statements continued 3 consolidated segment data continued 1 capital expenditures presented table represent purchases property plant equipment net proceeds received saleleaseback transactions saledisposition property plant equipment 2 includes 11460 million spending construction tgn 3 net 295 million received saleleaseback transactions 1662 million proceeds received sale property plant equipment 4 includes 22477 million spending construction tgn 5 net 4277 million received saleleaseback transactions 620 million proceeds received sale property plant equipment 6 includes 1111 million spending construction tgn 7 net 1720 million received saleleaseback transactions 616 million proceeds received sale property plant equipment 4 consolidated geographic data selected information geographic area presented millions 1 revenues external customers attributed individual countries based reporting entity records transaction tyco international ltd notes consolidated financial statements continued 4 consolidated geographic data continued 5 restructuring unusual charges credits net restructuring unusual charges credits net follows millions 2002 charges credits fire security services segment recorded net restructuring unusual charges 949 million net 949 million charge consists charges 1135 million charges 194 million included cost sales related primarily severance facility closures associated streamlining business partially offset credit 186 million related current prior years restructuring charges following table provides information restructuring unusual charges excluding impairments longlived assets discussed note 6 related fire security services segment recorded fiscal 2002 millions tyco international ltd notes consolidated financial statements continued 5 restructuring unusual charges credits net continued cost announced workforce reductions 435 million includes elimination 3100 positions primarily united states latin america europe australia consisting primarily manufacturing general administrative technical sales marketing personnel cost facility closures 157 million consists shutdown 109 facilities primarily australia europe consisting primarily sales offices manufacturing plants september 30 2002 1754 employees terminated 6 facilities shut charges 349 million consist primarily accrual anticipated resolution disposition various labor employment matters electronics segment recorded net restructuring unusual charges 15595 million 15595 million net charge consists charges totaling 15858 million charges 6082 million included cost sales bad debt provision 1150 million included selling general administrative expenses primarily related facility closures inventory reserves purchase commitment cancellations due significant downturn telecommunications business certain electronics end markets charges partially offset restructuring credits 263 million primarily related revision estimates current prior years severance facility charges following table provides information restructuring unusual charges excluding impairments longlived assets discussed note 6 related electronics segment recorded fiscal 2002 millions cost announced workforce reductions 1981 million includes elimination 8996 positions across regions consisting primarily manufacturing personnel facilitiesrelated costs 2502 million include building lease termination fees contract cancellation costs shutdown 31 facilities primarily manufacturing plants united states september 30 2002 4336 employees terminated 13 facilities shut 9436 million inventory charges include 6082 million inventory writedowns 3354 million supplier contract termination fees inventory writedowns supplier contract termination fees primarily result sudden significant decrease demand products services primarily telecommunications end markets result company determined current committed inventory levels excess forecasted needs significant sales previously writtendown writtenoff inventory year ended september 30 2002 6082 million 1431 million inventory scrapped september 30 2002 expect remaining writtenoff inventory scrapped next three six months also result uncertainty related continued financial viability certain customer telecommunications industry bad debt provision 1150 million recorded selling general administrative expenses included column tyco international ltd notes consolidated financial statements continued 5 restructuring unusual charges credits net continued addition 1150 million bad debt provision remaining charges also include writeoff uncollectible receivable 607 million result downturn telecommunications industry extent bad debt provisions utilized excess amounts reversed credit selling general administrative expenses line consolidated statement operations described unusual credit tycos consolidated financial statements managements discussion analysis extent inventory subsequently sold related amount income disclosed separately unusual credit tycos consolidated financial statements managements discussion analysis healthcare specialty products segment recorded net restructuring unusual charge 549 million 549 million net charge consists charges 588 million charges 16 million included cost sales related primarily severance associated consolidation operations facilityrelated costs due exiting certain business lines charges partially offset credit 39 million representing revision estimates current prior years restructuring charges following table provides information restructuring unusual charges excluding impairments longlived assets discussed note 6 related healthcare specialty products segment recorded fiscal 2002 millions cost announced workforce reductions 282 million includes elimination 697 positions primarily united states consisting primarily manufacturing sales personnel cost facility closures 171 million consists shutdown 9 manufacturing administrative facilities primarily united states september 30 2002 143 employees terminated 1 facility shut charges 119 million consist primarily legal fees deal costs associated acquisitions completed engineered products services segment recorded restructuring unusual charges 508 million 62 million included cost sales primarily related severance facilityrelated costs associated streamlining business following table provides information restructuring unusual charges excluding impairments longlived assets tyco international ltd notes consolidated financial statements continued 5 restructuring unusual charges credits net continued discussed note 6 related engineered products services segment recorded fiscal 2002 millions cost announced workforce reductions 357 million includes elimination 1217 positions primarily united states europe consisting primarily manufacturing sales personnel facilitiesrelated costs 41 million include shutdown 48 facilities primarily united states europe consisting primarily sales offices manufacturing facilities september 30 2002 712 employees terminated 27 facilities shut addition segment charges company recorded net charges 1942 million consisting 786 million severance 396 million contract terminations legal fees items associated downsizing corporate headquarters 760 million writeoff investment banking fees deal costs associated terminated breakup plan certain acquisitions completed september 30 2002 490 million remained accrued expenses current liabilities consolidated balance sheet 2001 charges credits fiscal 2001 fire security services segment recorded net restructuring unusual charge 841 million 841 million net charge consists charges 857 million charges 54 million included cost sales related primarily restructuring existing us security business us fire protection business connection acquisitions securitylink simplex partially offset credit 16 million representing revision estimates prior years merger restructuring unusual charges following table provides information restructuring unusual charges excluding impairments longlived tyco international ltd notes consolidated financial statements continued 5 restructuring unusual charges credits net continued assets discussed note 6 related fire security services segment recorded fiscal 2001 millions cost announced workforce reductions 130 million includes elimination 972 positions primarily united states europe consisting primarily manufacturing general administrative sales marketing personnel cost facility closures 476 million consists shutdown 176 facilities united states europe canada consisting primarily sales offices manufacturing plants september 30 2002 643 employees terminated 153 facilities shut charges 197 million consist primarily contract cancellation costs charges relating environmental remediation project total remaining balance september 30 2002 351 million 201 million included accrued expenses current liabilities 150 million included longterm liabilities consolidated balance sheet primarily payments noncancelable lease obligations fiscal 2001 electronics segment recorded restructuring unusual charges 3838 million charges 1258 million included cost sales related primarily facility closures related employee terminations within computer consumer electronics communication industries following table provides information restructuring unusual charges excluding impairments longlived assets discussed note 6 related electronics segment recorded fiscal 2001 millions tyco international ltd notes consolidated financial statements continued 5 restructuring unusual charges credits net continued included 3838 million restructuring unusual charges cost announced workforce reductions 1771 million elimination 10375 positions primarily united states latin america consisting primarily manufacturing personnel cost facility closures 444 million include building lease termination fees contract cancellation costs shutdown 38 facilities charges 365 million consisting purchase commitment cancellations payments noncancelable machinery equipment leases inventory charges 1258 million include 741 million related inventory writedowns associated exiting locations scrapping amounts excess forecasted demand unusual charge 517 million related sale inventory written purchase accounting remaining balance september 30 2002 322 million 277 million included accrued expenses current liabilities 45 million included longterm liabilities consolidated balance sheet primarily severance payments noncancelable lease obligations fiscal 2001 healthcare specialty products segment recorded net restructuring unusual charge 567 million 567 million net charge consists charges 723 million charges 440 million included cost sales related primarily sale inventory written purchase accounting closure manufacturing plants partially offset credit 156 million representing revision estimates prior years merger restructuring unusual charges related primarily merger us surgical following table provides information restructuring unusual charges excluding impairments longlived assets discussed note 6 related healthcare specialty products segment recorded fiscal 2001 millions cost announced workforce reductions 192 million includes elimination 1100 positions primarily united states consisting primarily manufacturing sales personnel cost facility closures 15 million consists shutdown 5 manufacturing administrative facilities united states september 30 2002 employees terminated facilities shut inventory charges 440 million include charge 350 million related sale inventory writtenup purchase accounting charges 76 million consist primarily cost lease buyouts distributor termination fees tyco international ltd notes consolidated financial statements continued 5 restructuring unusual charges credits net continued fiscal 2001 engineered products services segment recorded restructuring unusual charges 573 million 97 million included cost sales primarily related restructuring valves controls business following table provides information restructuring unusual charges excluding impairments longlived assets discussed note 6 related engineered products services segment recorded fiscal 2001 millions cost announced workforce reductions 141 million includes elimination 970 positions primarily united states consisting primarily manufacturing personnel facilitiesrelated costs 33 million include shutdown 24 facilities primarily united states consisting primarily manufacturing distribution facilities september 30 2002 957 employees terminated facilities shut charges 302 million consist primarily charges relating acquisitionrelated product replacement addition segment charges company recorded net credit 1634 million consisting unusual credit 1668 million related settlement litigation charge 34 million related severance company recorded charges 2750 million fiscal 2000 certain claims relating merged company healthcare business including 1900 million relating surgical dynamics inc business us surgical 2750 million accrual comprises patent infringement related cases breach contract claim cases relate companys acquisition us surgical october 1 1998 fiscal 2001 company paid 2395 million primarily settlement breach contract claim one patent infringement cases part patent infringement settlement company provided rights ongoing oem arrangement manufacturing rights valued 1668 million allocated intangible assets amortized 10year period corresponding amount initially established accrual patent infringement reversed restructuring unusual charges line consolidated statement operations fiscal 2001 fourth quarter fiscal 2002 company sold business intangible asset relates september 30 2002 355 million 2750 million litigation accrual established fiscal 2000 remains longterm liabilities consolidated balance sheet relating patent infringements yet settled addition 07 million relating 34 million severance charge remains accrued expenses current liabilities consolidated balance sheet september 30 2002 tyco international ltd notes consolidated financial statements continued 5 restructuring unusual charges credits net continued 2000 charges credits fiscal 2000 fire security services segment recorded restructuring unusual credits 112 million related revisions estimates companys 1997 restructuring activities amounts lower originally recorded actions companys 1997 restructuring plans completed fiscal 2000 electronics segment recorded net merger restructuring unusual credit 778 million consists credits 1078 million charges 300 million merger restructuring unusual credit 1078 million credit 63 million included cost sales related merger amp costs associated amps profit improvement plan 1078 million credit consists revision estimates severance liabilities 552 million facility liabilities 78 million liabilities 448 million primarily result certain facilities remaining open due changes market conditions restructuring unusual charges 300 million 09 million included cost sales includes 169 million related restructuring activities amps brazilian operations wireless communications business unusual charge 131 million incurred connection tycom ipo included 169 million amp restructuring unusual charges cost announced workforce reductions 49 million elimination 941 positions primarily brazil cost facility closures 48 million shutdown consolidation 3 facilities charges 72 million consisting writeoff nonfacility assets direct costs september 30 2002 substantially restructuring activities completed remaining balance september 30 2002 30 million 06 million included accrued expenses current liabilities 24 million included longterm liabilities consolidated balance sheet primarily payments noncancelable lease obligations fiscal 2000 healthcare specialty products segment recorded net merger restructuring unusual credit 109 million 109 million net credit consists charges 111 million related us surgicals suture business charges 79 million charges 64 million included cost sales related exiting us surgicals interventional cardiology business restructuring activities completed also recorded credit 299 million representing revision estimates prior years merger restructuring unusual accruals 197 million related primarily merger us surgical 102 million related companys 1997 restructuring accruals 197 million credit relates revision estimates severance liabilities 42 million facility liabilities 45 million liabilities 110 million addition segment charges credits company recorded unusual charges 2750 million fiscal 2000 certain claims relating merged company healthcare business 12 million unusual charges see 2001 charges credits discussion regarding 2750 million charge 6 charges impairment longlived assets company reviews recoverability carrying value longlived assets primarily property plant equipment intangible assets impairment whenever events changes circumstances indicate carrying amount asset may fully recoverable company tyco international ltd notes consolidated financial statements continued 6 charges impairment longlived assets continued evaluates recoverability longlived assets relying number factors including operating results business plans economic projections anticipated future cash flows impairment carrying value asset recognized whenever anticipated future cash flows undiscounted asset estimated less carrying value indicators impairment present carrying values assets evaluated relation operating performance future undiscounted cash flows underlying business net book value asset adjusted fair value expected future undiscounted cash flows less book value fair values based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk 2002 charges fiscal 2002 company recorded total charges impairment longlived assets continuing operations 34895 million fiscal 2002 fire security services segment recorded charge 1100 million related impairment intangible assets resulting curtailment certain markets termination authorized dealer program addition fire security services segment recorded charge 1070 million primarily related impairment property plant equipment associated termination software development project software development project related strategy develop new comprehensive integrated customer database associated applications segment acquired companies fiscal 2002 management assistance thirdparty consultant performed full evaluation determine information technology needs fire security business relative stood expectations near future result review company decided abandon project still development testing stage resulting writeoff capitalized costs 1070 million fiscal 2002 electronics segment recorded charge 31137 million 25447 million related impairment tgn 5410 million primarily related property plant equipment associated closure facilities discussed note 5 280 million related impairment intangible assets associated undersea systems technology knowhow acquired acquisitions fiberoptic capacity available market continues significantly exceed overall market demand creating sharply declining prices reduced anticipated future cash flows company assessed carrying value tgn using analysis employs estimates current future market pricing demand network completion costs analysis highly sensitive changes estimates noted based upon managements estimates company concluded value fiberoptic network impaired consequently recorded impairment charge quarter ended march 31 2002 amount impairment based upon difference carrying value asset group estimated fair value assets groups march 31 2002 estimated fair value asset group determined using income discounted cash flow approach cash flows forecasts prepared using fifteen year estimated weighted average useful life tgn asset groups probability factors applied various scenarios weighting likelihood possible outcome cash flow forecast discounted using weighted average cost capital 15 similar used tyco international ltd notes consolidated financial statements continued 6 charges impairment longlived assets continued sfas 142 purposes prepared independent appraiser part services rendered evaluating companys enterprise value based upon analyses sum expected future discounted cash flows subtracted carrying values asset groups resulting impairment loss tgn entire tgn placed service march 31 2002 writtenoff time well portion construction progress tgn reconsidered factors noted projected operating results business plans estimate discounted future cash flows order retest carrying value tgn impairment june 30 2002 september 30 2002 determined impairment charge necessary june 30 2002 however telecommunications industry declined additional impairment charge necessary recorded amount september 30 2002 changes forecasts assumptions could lead impairment tgn future amount tyco global network consolidated balance sheet september 30 2002 5816 million compared 23424 million september 30 2001 fiscal 2002 healthcare specialty products segment recorded charge 1253 million related impairment intangible assets associated healthcares surgical dynamics inc business sold july 2002 addition healthcare specialty products segment recorded charge 51 million related impairment property plant equipment associated closure facilities discussed note 5 fiscal 2002 engineered products services segment recorded charge 95 million related impairment property plant equipment associated closure facilities discussed note 5 fiscal 2002 company recorded charge 189 million related impairment certain corporate properties associated downsizing corporate headquarters discussed note 5 2001 charges electronics healthcare specialty products engineered products services fire security services segments recorded charges 985 million 154 million 34 million 28 million respectively related primarily impairment property plant equipment associated closure facilities discussed note 5 2000 charges healthcare specialty products segment recorded charge 990 million fiscal 2000 primarily related impairment goodwill intangible assets associated company exiting interventional cardiology business us surgical discussed note 5 7 writeoff purchased inprocess research development fiscal 2002 connection tycos acquisition sensormatic dsc group company wroteoff fair value purchased inprocess research development iprd various projects development new products technologies amount 178 million management determined value iprd using among factors appraisals tyco international ltd notes consolidated financial statements continued 7 writeoff purchased inprocess research development continued connection tycos acquisition mallinckrodt inc fiscal 2001 company wroteoff fair value purchased iprd various projects development new products technologies amount 1843 million management determined valuation iprd using among factors appraisals value based primarily discounted cash flow method valuation included consideration stage completion projects ii technological feasibility projects iii whether projects alternative future use iv estimated future residual cash flows could generated various projects technologies respective projected economic lives mallinckrodt acquisition date several projects development different stages completion primary basis determining technological feasibility projects obtaining food drug administration fda approval acquisition date none iprd projects received fda approval assessing technological feasibility project consideration also given level complexity future technological hurdles project overcome prior submitted fda approval acquisition date none iprd projects considered technologically feasible alternative future use future residual cash flows could generated projects determined based upon managements estimate future revenue expected profitability various products technologies involved projected cash flows discounted present values taking account managements estimate future expenses would necessary bring projects completion discount rates include rate return accounts time value money well risk factors reflect economic risk cash flows projected may realized cash flows discounted discount rates ranging 14 25 per annum depending projects stage completion type fda approval needed discounted cash flow methodology various projects included purchased iprd resulted total valuation 1843 million although work projects related iprd continued acquisition amount purchase price allocated iprd written projects underlying iprd developed considered technologically feasible acquisition date september 30 2002 approximately 44 iprd projects successfully completed approximately 30 projects discontinued currently inactive remainder various stages completion currently expected material variations projected results projects versus time acquisition 8 expense income expense income follows millions tyco international ltd notes consolidated financial statements continued 8 expense income continued tyco repurchased debt prior scheduled maturities fiscal 2002 company recorded income early retirement debt totaling 306 million compared losses early retirement debt totaling 263 million 03 million fiscal 2001 2000 respectively fiscal 2002 company recognized 2708 million loss equity investments primarily related investments flag telecom holdings ltd became evident declines fair value flag investments temporary fiscal 2001 company recognized 1338 million loss equity investments primarily related investment 360networks became evident declines fair value investments temporary fiscal 2002 company sold certain businesses net proceeds approximately 1387 million cash consist primarily certain businesses within healthcare specialty products fire security services segments connection dispositions company recorded net gain 72 million excluding previous charge 1253 million impairment associated assets held sale fiscal 2001 company sold adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 10 billion cash company recorded net gain sale businesses 4104 million deducting commissions direct costs principally related sale adt automotive gain net direct incremental costs transaction well 607 million special nonrecurring bonuses paid key employees 9 tycom ltd fiscal 2000 tycom ltd majorityowned subsidiary company completed initial public offering tycom ipo 70300000 common shares price 3200 per share net proceeds tycom ipo deducting underwriting discount commissions direct costs approximately 21 billion amount tycom paid 200 million dividend company prior tycom ipo companys ownership tycoms outstanding common shares 100 september 30 2001 companys ownership tycoms outstanding common shares approximately 89 result tycom ipo company recognized net pretax gain investment tycom approximately 176 billion 101 billion aftertax included net gain sale common shares subsidiary fiscal 2000 consolidated statement operations gain net direct incremental costs transaction well 851 million special nonrecurring bonuses paid key employees addition connection tycom ipo company paid special nonrecurring bonuses 131 million certain employees included restructuring unusual charges credits net line consolidated statement operations fiscal 2001 company recorded 641 million net gain sale approximately 56 million common shares tycom gain net direct incremental costs transaction well 150 million special nonrecurring bonuses paid key employees fiscal 2002 company recorded 396 million adjustment gain see note 1 december 18 2001 company completed amalgamation tycom approximately 56 million tycom common shares owned tyco converted right receive 03133 tyco common share upon completion amalgamation tycom became tyco international ltd notes consolidated financial statements continued 9 tycom ltd continued whollyowned subsidiary tyco outstanding option purchase tycom common shares exercisable tyco common shares number tyco shares equal number tycom common shares issuable upon exercise immediately prior consummation multiplied exchange ratio 03133 per share exercise price tyco common shares issuable upon exercise tycom options equals exercise price per tycom common share price options exercisable prior amalgamation divided exchange ratio addition outstanding tycom restricted share converted restricted tyco common share based exchange ratio options restricted shares subject terms conditions applicable immediately prior amalgamation 10 income taxes provision income taxes reconciliation notional united states federal income taxes statutory rate consolidated income taxes companys income tax provision follows millions provisions fiscal 2002 fiscal 2001 fiscal 2000 include 5031 million 6292 million 6486 million respectively nonus income taxes nonus component incomeloss income taxes 7399 million 43988 million 33436 million fiscal 2002 fiscal 2001 fiscal 2000 respectively tyco international ltd notes consolidated financial statements continued 10 income taxes continued deferred income tax balance sheet accounts result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset follows millions september 30 2002 company approximately 12750 million net operating loss carryforwards certain nonus jurisdictions 6470 million expiration remaining 6280 million expire future years 2012 us operating loss carryforwards september 30 2002 approximately 25010 million expire future years 2022 us losses approximately 4550 million limited use change ownership rules defined internal revenue code 1986 limitations imposed utilization net operating losses could restrict recognition tax benefits valuation allowance provided primarily operating loss carryforwards expected utilized valuation allowance increased substantially prior year increase valuation allowance primarily due uncertainty utilization certain nonus net operating losses september 30 2002 approximately 1190 million valuation allowance ultimately reduce goodwill net operating losses utilized company subsidiaries income tax returns routinely examined various regulatory tax authorities connection examinations tax authorities including internal revenue service raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting proposed deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable accrued income tax provision management reviewed tax counsel issues raised taxing authorities adequacy tax accrued amounts management believes cannot assure ultimate resolution tax deficiencies tyco international ltd notes consolidated financial statements continued 10 income taxes continued contingencies material adverse effect companys results operations financial position cash flows except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration liability could arise amounts distributed subsidiaries disposed practicable estimate additional taxes related permanently reinvested earnings basis differences related investments subsidiaries 11 discontinued operations tyco capital cit group inc april 25 2002 company announced plan divest tyco capital potentially ipo cits outstanding shares june 2002 management companys board directors approved sale common shares cit ipo establishing measurement date discontinued operations accordingly results tyco capital presented discontinued operations periods prior year amounts include tyco capitals operating results june 1 2001 date acquisition cit tyco sale 100 cits common shares ipo completed july 8 2002 following table presents summary balance sheet information discontinued operations tyco capital september 30 2001 millions tyco international ltd notes consolidated financial statements continued 11 discontinued operations tyco capital cit group inc continued operating results discontinued operations tyco capital july 8 2002 follows millions quarter ended march 31 2002 tyco experienced disruptions business surrounding announced breakup plan downgrade credit ratings significant decline market capitalization time period cit also experienced credit downgrades disruption historical funding base marketbased information used connection companys preliminary consideration proposed ipo cit indicated cits book value exceeded estimated fair value march 31 2002 result company performed sfas 142 first step impairment analysis march 31 2002 concluded impairment charge warranted time managements objective performing sfas 142 first step analysis obtain relevant marketbased data calculate estimated fair value cit march 31 2002 based projected earnings market factors expected used market participants ascribing value cit planned separation cit tyco management obtained relevant market data financial advisors regarding range price earnings multiples market condition discounts applicable cit march 31 2002 applied market data cits projected annual earnings march 31 2002 calculate estimated fair value resulting goodwill tyco international ltd notes consolidated financial statements continued 11 discontinued operations tyco capital cit group inc continued impairment estimated fair value compared corresponding carrying value cit march 31 2002 result recorded 45127 million impairment charge march 31 2002 included discontinued operations sfas 142 requires second step analysis whenever reporting units book value exceeds estimated fair value analysis requires company estimate fair value reporting units individual assets liabilities complete analysis goodwill march 31 2002 company completed second step analysis cit quarter ended june 30 2002 result recorded additional goodwill impairment charge 1320 million june 30 2002 quarter cit experienced credit downgrades business environment factors continued negatively impact likely proceeds ipo result performed another first step second step analysis june 30 2002 manner consistent march 2002 process described analyses based upon updated market data june 30 2002 period immediately following ipo including ipo proceeds analyses resulted goodwill impairment 18670 million also included discontinued operations june 30 2002 tyco also recorded additional impairment charge 1264 million order writedown investment cit fair value total cit goodwill impairment 21254 million quarter ended june 30 2002 writedown based upon net ipo proceeds approximately 44 billion deducting estimated pocket expenses included 62825 million loss discontinued operations fourth quarter fiscal 2002 tyco recorded loss sale tyco capital 588 million accounting policies discontinued operations financing leasing assetstyco capital provides funding variety financing arrangements including term loans lease financing operating leases amounts outstanding loans leases referred finance receivables financing leasing assets consist finance receivables finance receivables held sale net book value operating lease equipment certain investments time designation sale securitization syndication assets classified finance receivables held sale included net assets discontinued operations consolidated balance sheet assets carried lower aggregate cost market value lease financingdirect financing leases recorded aggregate future minimum lease payments plus estimated residual values less unearned finance income operating lease equipment carried cost less accumulated depreciation depreciated estimated residual value using straightline method lease term projected economic life asset equipment acquired satisfaction loans subsequently placed operating lease recorded lower carrying value estimated fair value acquired lease receivables include leveraged leases major portion funding provided thirdparty lenders nonrecourse basis tyco capital providing balance acquiring title property leveraged leases recorded aggregate value future minimum lease payments plus estimated residual value less nonrecourse thirdparty debt unearned finance income management performs periodic reviews estimated residual values impairment temporary recognized current period reserve credit losses finance receivablesthe reserve credit losses periodically reviewed adequacy considering economic conditions collateral values credit quality indicators tyco international ltd notes consolidated financial statements continued 11 discontinued operations tyco capital cit group inc continued including historical expected chargeoff experience levels past due loans nonperforming assets changes economic conditions events affecting specific obligors industries may necessitate additions deductions reserve credit losses chargeoff finance receivablesfinance receivables reviewed periodically determine probability loss chargeoffs taken considering factors borrowers financial condition value underlying collateral guarantees including recourse dealers manufacturers chargeoffs deducted carrying value related finance receivables extent unrecovered balance remains due final chargeoff taken time collection efforts longer deemed useful chargeoffs recorded consumer certain small ticket commercial finance receivables beginning 180 days contractual delinquency based upon historical loss severity impaired loansimpaired loans include primarily large loans placed nonaccrual status troubled debt restructuring loan impairment defined shortfall estimated value recorded investment loan estimated value determined using fair value collateral loan collateral dependent present value expected future cash flows discounted loans effective interest rate securitizationspools assets originated sold independent trusts turn issue securities investors backed asset pools tyco capital retains servicing rights participates certain cash flows pools present value expected net cash flows exceeds estimated cost servicing recorded time sale retained interest tyco capitals retained interests securitized assets included assets subsequent recording retained interests tyco capital reviews values asset basis least often quarterly fair values retained interests calculated utilizing current anticipated credit losses prepayment speeds discount rates compared respective carrying values losses representing excess carrying value estimated current fair market value recorded impairments recognized charge operations unrealized gains credited current earnings reflected shareholders equity part comprehensive income finance incomeincludes interest loans accretion income direct financing leases rents operating leases related origination nonrefundable fees direct origination costs deferred amortized adjustment finance income contractual life transactions income finance receivables leveraged leases recognized accrual basis commencing month origination using methods generally approximate interest method leveraged lease income recognized basis calculated achieve constant aftertax rate return periods tyco capital positive investment transaction net related deferred tax liabilities rental income operating leases recognized accrual basis accrual finance income commercial consumer finance receivables generally suspended account placed nonaccrual status payment principal interest contractually delinquent 90 days earlier opinion management full collection principal interest due doubtful financial instrumentssee companys discussion significant accounting policies included note 1 information related financial instruments additionally tyco capital derivatives tyco international ltd notes consolidated financial statements continued 11 discontinued operations tyco capital cit group inc continued designated cash flow hedge derivative designated cash flow hedge effective portions changes fair value derivative recorded comprehensive loss income recognized consolidated statement operations hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized charge credit earnings 12 cumulative effect accounting changes december 1999 sec issued sab 101 sec staff expressed views regarding appropriate recognition revenue respect variety circumstances relevant company required sab 101 company modified revenue recognition policies respect installation electronic security systems see revenue recognition within note 1 addition response sab 101 company undertook review revenue recognition practices identified certain provisions included limited number sales arrangements delayed recognition revenue sab 101 fourth quarter fiscal 2001 company changed method accounting items retroactive beginning fiscal year conform requirements sab 101 reported 6537 million aftertax 10056 million pretax charge cumulative effect change accounting principle fiscal 2001 consolidated statement operations fiscal 2002 company recognized 2942 million revenue previously included sab 101 cumulative effect adjustment recorded october 1 2000 impact sab 101 net revenues fiscal 2001 net decrease 2411 million reflecting deferral 5205 million fiscal 2001 revenues partially offset recognition 2794 million revenue included cumulative effect adjustment beginning fiscal year company recorded cumulative effect adjustment 297 million loss net tax fiscal 2001 accordance transition provisions sfas 133 13 loss earnings per common share reconciliations basic diluted loss earnings per common share follows millions except per share data computation diluted loss per common share fiscal 2002 excludes effect potential exercise options purchase approximately 100 million shares potential exchange tyco international ltd notes consolidated financial statements continued 13 loss earnings per common share continued convertible debt due 2010 29 million shares effect would antidilutive computation diluted earnings per common share fiscal 2001 fiscal 2000 excludes effect assumed exercise approximately 122 million 73 million stock options respectively outstanding september 30 2001 2000 respectively effect would antidilutive dilutive loss earnings per common share fiscal 2002 also excludes 475 million 224 million shares respectively related companys zero coupon convertible debentures due 2020 2021 respectively conversion conditions met dilutive earnings per common share fiscal 2001 also excludes 480 million 264 million shares respectively related companys zero coupon convertible debentures due 2020 2021 respectively conversion conditions met 14 sale accounts receivable tyco several programs sells participating interests accounts receivable investors turn purchase receive ownership security interests receivables collections reduce accounts receivable included pool company sells new receivables company risk credit loss receivables accordingly full amount allowance doubtful accounts retained consolidated balance sheets september 30 2002 availability programs 1025 million september 30 2002 2001 933 million 695 million respectively utilized programs proceeds sales used repay shortterm longterm borrowings working capital corporate purposes reported operating cash flows consolidated statements cash flows proceeds sale less face amount accounts receivable sold amount approximates cost would incurred commercial paper issued backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative expenses consolidated statements operations discount aggregated 170 million 253 million 257 million 27 53 66 weightedaverage balance receivables outstanding fiscal 2002 2001 2000 respectively company retains collection administrative responsibilities participating interests defined pool also international businesses sell accounts receivable shortterm financing mechanism transactions qualify true sales aggregate amount outstanding arrangements 157 million 153 million september 30 2002 2001 respectively result rating agencies downgrade tycos debt investment grade status june 2002 investors two accounts receivable programs option discontinue reinvestment new receivables terminate programs investors exercised option one program subsequently amended continue reinvestment amount outstanding program 1324 million september 30 2002 addition fiscal 2002 tyco sold certain receivables time tyco capital prior disposition average amount sold period 3325 million net discounts equal 154 million sales eliminated intercompany transaction consolidated financial statements tyco international ltd notes consolidated financial statements continued 14 sale accounts receivable continued also september 27 2001 tyco sold certain accounts receivable tyco capital net proceeds approximately 2978 million net discount 43 million sale eliminated intercompany transaction tycos consolidated financial statements 15 investments september 30 2002 2001 tyco availableforsale equity investments fair market value 246 million 844 million cost basis 324 million 2056 million respectively gross unrealized losses 82 million 1496 million gross unrealized gains 04 million 284 million september 30 2002 2001 recorded net deferred taxes asset 25 million years amounts included separate component shareholders equity see note 8 discussion realized losses equity investments september 30 2002 tyco also heldtomaturity investments current assets 935 million amortized costs approximated fair value 16 goodwill intangible assets effective october 1 2001 beginning tycos fiscal year 2002 company adopted sfas 142 goodwill intangible assets goodwill longer amortized instead assessed impairment least annually goodwill net 260932 million 232640 million september 30 2002 2001 respectively accumulated amortization amounted 15565 million september 30 2001 changes carrying amount goodwill fiscal 2002 including reclassification intangibles goodwill upon adoption sfas 142 follows millions transition provisions sfas 142 transitional benchmark analysis concluded goodwill impairment october 1 2001 however quarter ended march 31 2002 electronics segment recorded charge 21814 million related impairment tgn fixed asset result fiberoptic capacity available market place continuing significantly exceed overall market demand creating sharply declining prices reduced cash flows additional information tgn impairment charge see note 6 updated tyco international ltd notes consolidated financial statements continued 16 goodwill intangible assets continued goodwill valuation completed march 31 2002 tyco telecommunications valuation completed using income approach based upon present value future cash flows reporting unit march 31 2002 however first step analysis resulted impairment telecommunications reporting units goodwill date quarter ended june 30 2002 additional circumstances developed indicated potential impairment value goodwill respect companys reporting units tyco experienced disruptions business surrounding termination previously announced breakup plan resignation chief executive officer downgrades credit ratings additional decline market capitalization updated valuations completed reporting units june 30 2002 using income approach based present value future cash flows reporting unit additional discount factor applied reflect decrease reporting unit valuations recent disruptions companys corporate offices negative publicity tyco evidenced decline companys total market capitalization resulted estimated goodwill impairment 8444 million 6077 million relating tyco telecommunications 2367 million relating tyco infrastructure reporting unit within engineered products services segment quarter ended september 30 2002 step two analyses prescribed sfas142 completed tyco telecommunications tyco infrastructure reporting units resulted incremental goodwill impairment continuing operations 1620 million 795 million relating tyco telecommunications 825 million relating tyco infrastructure quarter ended september 30 2002 circumstances associated restructuring charges related telecommunications reporting unit indicated potential impairment value goodwill reporting unit updated valuation using income approach based present value future cash flows completed september 30 2002 valuation resulted additional estimated goodwill impairment continuing operations 3373 million fiscal 2002 curtailed certain markets terminated adt authorized dealer program due decrease projected purchases customer contracts authorized dealer program updated valuation using income approach based present value future cash flows september 30 2002 performed security services reporting unit valuation results indicated fair value reporting unit exceeded book value reporting unit resulting impairment security services reporting units goodwill date disruptions tycos business end market conditions protracted economic weakness unexpected significant declines operating results reporting units continued downgrades tycos credit ratings additional market capitalization declines may result company perform another sfas 142 first step valuation analysis reporting units prior required annual assessment types events resulting analysis could result additional charges goodwill asset impairments future elected make july 1 annual assessment date reporting units see note 11 discontinued operations tyco capital cit group inc information regarding impairment goodwill relating tyco capital tyco international ltd notes consolidated financial statements continued 16 goodwill intangible assets continued following reconciliation previously reported financial information adjusted amounts excluding goodwill amortization fiscal 2001 2000 millions except per share data intangible assets net 65626 million 54769 million september 30 2002 2001 respectively accumulated amortization amounted 14729 million 8646 million september 30 2002 2001 respectively following table sets forth gross carrying amount accumulated amortization companys intangible assets millions 1 intangible assets subject amortization excluded calculation weighted average amortization period tyco international ltd notes consolidated financial statements continued 16 goodwill intangible assets continued september 30 2002 company 1401 million intellectual property consisting primarily trademarks acquired sensormatic 02 million customer relationships subject amortization september 30 2002 2001 company 262 million 39 million respectively intangible assets subject amortization intangible asset amortization expense fiscal 2002 2001 2000 5674 million 3601 million 2050 million respectively amortization expense intangible assets currently owned company expected approximately 600 million next five fiscal years 17 related party transactions company amounts due related loans advances issued employees companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program payment taxes upon vesting shares granted restricted share ownership plans loans unsecured bear interest payable annually rate based six month libor rate calculated annually average 12 rates effect first day month loans generally repayable ten years except earlier payments required certain circumstances addition company issued mortgages certain employees employee relocation programs mortgages generally payable 15 years secured underlying property fiscal 2002 maximum amount outstanding programs 1175 million loans receivable programs well unsecured advances outstanding 881 934 million september 30 2002 2001 respectively certain loans totaling 303 million 337 million september 30 2002 2001 respectively noninterest bearing interest income interest bearing loans totaled 55 million 13 million 37 million fiscal 2002 fiscal 2001 fiscal 2000 respectively fiscal 2002 l dennis kozlowski former chairman chief executive officer outstanding loans tyco rate interest charged loans 191 maximum amount outstanding loans fiscal 2002 510 million plus accrued interest 32 million amount outstanding september 30 2002 470 million fiscal 2002 mark h swartz former director former chief financial officer outstanding loans tyco rate interest charged loans 211 maximum amount outstanding loans fiscal 2002 250 million plus accrued interest 16 million loans repaid full prior september 30 2002 fiscal 2002 mark belnick former executive vice president chief corporate counsel outstanding loans tyco maximum amount outstanding loans fiscal 2002 165 million amount outstanding september 30 2002 148 million 148 million 145 million non interest bearing mortgage loan 03 million form interest bearing promissory note interest rate promissory note 278 fiscal 2002 fiscal 2002 robert p mead president tyco engineered products services outstanding loan key employee loan program rate interest charged loan tyco international ltd notes consolidated financial statements continued 17 related party transactions continued 203 maximum amount outstanding loan fiscal 2002 09 million loan repaid full prior september 30 2002 fiscal 2002 richard j meelia president tyco healthcare specialty products outstanding loan key employee loan program rate interest charged loan 206 maximum amount outstanding loan fiscal 2002 17 million amount outstanding september 30 2002 182 thousand fiscal 2002 jerry r boggess president tyco fire security services outstanding loan key employee loan program rate interest charged loan 203 maximum amount outstanding loan fiscal 2002 04 million loan repaid full prior september 30 2002 fourth quarter fiscal 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified certain tyco directors executive officers owned tycom ltd shares options converted tyco shares tyco options upon amalgamation subsidiary tyco tycom ltd december 18 2001 exchange ratio applicable holders tycom ltd shares options stephen w foss director tyco mr foss owner corporate aircraft leased starting may 2001 seeking competitive bids mr fosss bid considered competitive given anticipated usage tyco paid mr foss company president aggregate 587000 lease payments use aircraft pilots fiscal 2002 leasing arrangements terminated september 30 2002 joshua berman director tyco december 5 2002 march 1 2000 july 31 2002 also engaged mr berman render legal services period compensated mr berman annual rate 360000 provided mr berman health benefits secretarial assistance cell phone electronic security services homes also reimbursed mr berman legal fees expenses incurred connection matters relating tyco pursuant indemnification provisions applicable directors tyco mr berman retired counsel law firm kramer levin naftalis frankel llp provided legal services us fiscal 2002 previously reported quarterly report form 10q quarterly period ended june 30 2002 tyco certain current former directors defendants four pending actions purporting bring suit derivatively behalf tyco certain former officers certain current former directors tyco nominal defendant connection alleged improper conduct former officers tyco relating use funds key employee loan program assets ultimate resolution actions yet determinable previously reported current reports form 8k filed september 17 2002 october 8 2002 filed civil complaints l dennis kozlowski former chairman chief executive officer mark belnick former executive vice president chief corporate counsel arbitration claim mark h swartz former chief financial officer breach fiduciary duty wrongful conduct relating alleged abuses key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct tyco international ltd notes consolidated financial statements continued 17 related party transactions continued previously reported current report form 8k filed september 17 2002 june 17 2002 filed civil complaint frank e walsh jr breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million went mr walsh balance going charity mr walsh trustee payment purportedly made mr walshs assistance arranging acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought securities exchange commission united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 claims mr walsh still pending tyco international ltd notes consolidated financial statements continued 18 debt follows1 millions 1 debt maturity dates presented calendar basis consistent respective offering documents 2 february 2002 tyco international group sa tig borrowed available 20 billion capacity 5year unsecured revolving credit facility maintained liquidity support commercial paper program facility expires february 2006 fully unconditionally guaranteed tyco variable libobased rate 494 september 30 2002 footnotes continued following page tyco international ltd notes consolidated financial statements continued 18 debt continued footnotes continued preceding page also february 2002 tig borrowed 3855 billion 364day unsecured revolving credit facility exercised option convert facility term loan expiring february 6 2003 loan fully unconditionally guaranteed tyco variable libobased rate 499 september 30 2002 proceeds bridge loan credit facilities used pay maturing commercial paper scheduled maturities provide additional available capital tyco 3 first quarter fiscal 2002 tyco repaid upon maturity 3000 million 65 public notes due 2001 4 fourth quarter fiscal 2002 tig paid 1037 billion 6875 private placement notes due 2002 5 debentures due february 2021 however tig required repurchase debentures based certain contractual put provisions option holders accreted value approximately 19 billion february 2003 tig may repurchase cash tyco common shares combination thereof holders debentures exercise put option number common shares needed satisfy put option lieu cash fair value tycos stock based price defined period time around settlement date based tycos stock prices recent date december 20 2002 would need issue approximately 110 million common shares debentures put back tig elected use common shares satisfy debentures shares issuable debentures registered time offering option holders tyco may required repurchase remaining debentures cash accreted value february 2005 2007 2009 2016 fiscal 2002 tig repurchased 4757 million principal amount maturity debentures 6 june 1998 tig issued 7500 million 625 dealer remarketable securities drs due 2013 terms drs remarketing dealer option remarket drs june 2003 option exercised would subject drs mandatory tender remarketing dealer reset interest rate adjusted fixed rate june 2013 remarketing dealer exercise option drs required tendered company june 2003 debentures tendered tig would required repurchase cash 7 debentures due november 2020 however company required repurchase remaining debentures based certain contractual put provisions option holders accreted value november 2003 tyco may required repurchase debentures cash option holders accreted value november 2005 2007 2014 8 november 2001 tig sold e5000 million 4375 notes due 2004 e6850 million 55 notes due 2008 l2000 million 65 notes due 2011 l2850 million 65 notes due 2031 utilizing capacity available tigs euro medium term note programme established september 2001 notes fully unconditionally guaranteed tyco net proceeds four tranches equivalent 17266 million used repay borrowings tigs commercial paper program 9 october 2001 tig sold 15000 million 6375 notes due 2011 60 billion shelf registration statement public offering notes fully unconditionally guaranteed tyco net proceeds approximately 14878 million used repay borrowings tigs commercial paper program 10 result rating agencies downgrade tycos debt investment grade status june 2002 tig required pay 2567 million repurchase y30 billion 35 notes due 2030 july 2002 addition rating investment grade status caused interest rate 400 million 72 notes due 2008 increase 82 time rating becomes investment grade sp moodys 11 debentures plus 1086 million amount shown comprise current portion longterm debt september 30 2002 january 2002 tig entered 15 billion bridge loan fully unconditionally guaranteed tyco weightedaverage interest rate 366 tig repaid 6450 million april 2002 remainder june 2002 debt agreements including bank credit agreements contain covenants would result default total debt percentage total capitalization total debt shareholders tyco international ltd notes consolidated financial statements continued 18 debt continued equity exceeds 525 total debt percentage total capitalization 494 september 30 2002 zero coupon convertible debentures due 2020 zero coupon convertible debentures due 2021 may converted tyco common shares option holders one following conditions satisfied relevant debentures closing sale price tyco common shares least 20 trading days 30 trading day period ending trading day prior date surrender 110 accreted conversion price per common share relevant debentures preceding trading day company called relevant debentures redemption certain date upon occurrence specified corporate transactions tyco makes significant distribution shareholders party specific consolidations mergers binding share exchanges conversion feature zero coupon convertible debentures due 2020 2021 available debt holders september 30 2002 shown following table 1 accreted conversion price per common share equal accreted value respective debentures september 30 2001 divided respective conversion rates conversion price increases interest notes accretes fair value debt approximately 219346 million book value 242058 million 218950 million book value 216190 million september 30 2002 2001 respectively based discounted cash flow analyses using current market interest rates aggregate amounts total debt maturing next five years follows millions 77190 fiscal 2003 36806 fiscal 2004 17559 fiscal 2005 37442 fiscal 2006 6023 fiscal 2007 weightedaverage rate interest debt 469 427 september 30 2002 2001 respectively weightedaverage rate interest variable debt 471 350 september 30 2002 2001 respectively impact tycos interest rate swap activities weightedaverage borrowing rate material year impact tycos reported interest expense reduction 1161 million 97 million 66 million fiscal 2002 fiscal 2001 fiscal 2000 respectively 19 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable longterm investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivables longterm investments accounts payable tyco international ltd notes consolidated financial statements continued 19 financial instruments continued approximated book value september 30 2002 2001 see note 18 fair value estimates debt accordance sfas 133 derivative financial instruments reported consolidated balance sheet fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met companys intention terminate derivative financial instruments based estimated fair values termination forward foreign currency exchange contracts forward commodity contracts interest rate swaps september 30 2002 would resulted 340 million gain 12 million loss 25 million gain respectively september 30 2001 would resulted 86 million gain 68 million loss 1396 million gain respectively september 30 2002 2001 book values derivative financial instruments recorded consolidated balance sheets approximate fair values interest rate exposures company uses interest rate swaps hedge exposure interest rate risk exchanging fixed rate interest certain debt variable rate amounts interest rate swaps designated fair value hedges certain companys interest rate swaps entered fiscal 2002 assessed using shortcut method sfas 133 highly effective ineffective element gains losses certain interest rate swaps fiscal 2002 fiscal 2001 totaling net gain 1161 million net gain 197 million respectively recognized interest expense net along effective element changes fair value interest rate swaps related hedged debt net investments fiscal 2001 tyco used cross currency swaps designated portions foreigncurrency denominated debt hedge foreigncurrency exposure certain net investments foreign operations net unrealized loss 394 million included cumulative translation adjustment fiscal 2001 connection hedges fiscal 2002 company swaps tyco uses various options swaps forwards designated hedging instruments sfas 133 hedge impact variability price raw materials copper commodities impact variability foreign exchange rates accounts notes receivable intercompany loan balances subsidiary earnings denominated certain foreign currencies 20 commitments contingencies company occupies certain facilities leases expire various dates year 2027 rental expense leases equipment 8489 million 6347 million 4427 million fiscal 2002 fiscal 2001 fiscal 2000 respectively september 30 2002 minimum lease payment obligations noncancelable operating leases follows amounts include payments due saleleaseback transactions 8084 million fiscal 2003 6851 million fiscal 2004 5115 million fiscal 2005 3979 million fiscal 2006 2581 million fiscal 2007 aggregate 10875 million fiscal years 2008 2027 addition company option buy equipment saleleaseback upon expiration lease term payments tyco international ltd notes consolidated financial statements continued 20 commitments contingencies continued would approximate 200 million fiscal 2005 300 million fiscal 2006 340 million fiscal 2007 january 2002 company issued 200 million guarantee exercised customer certain specifications relating recently completed pacific component tgn completed march 2003 company anticipate problems meeting deadline normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations result actions taken former senior management tyco certain members former senior management named defendants number purported class actions alleging violations disclosure provisions federal securities laws number derivative actions several erisa claims subject sec inquiry investigations district attorney new york county us attorney district new hampshire recently signed consent agreement state new hampshire bureau securities regulation resolved bureaus investigation conduct tycos previous management pursuant agreed pay total 5 million administrative settlement state new hampshire paid 100000 cover cost bureaus investigation may obliged indemnify directors former directors officers also named defendants matters addition insurance carrier may decline coverage may insufficient cover expenses liability matters believe meritorious defenses vigorously defending matters however currently unable estimate ultimate liability matters may possible required pay judgments settlements incur expenses aggregate amounts material others received various subpoenas requests sec district attorney new york county us attorney district new hampshire others seeking production voluminous documents connection various investigations governance management operations accounting related controls cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities suffer penalties could material adverse effect business cannot assure effects result various investigations material adverse business financial condition liquidity company defendant number pending legal proceedings incidental present former operations acquisitions dispositions see note 17 company expect outcome proceedings either individually aggregate material adverse effect financial position results operations liquidity tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods based upon tycos experience environmental remediation matters tyco concluded probable incur remedial costs range approximately 160 million 460 million september 30 2002 tyco concluded best estimate within range approximately 248 million 221 million included accrued expenses current liabilities 27 million included longterm liabilities tyco international ltd notes consolidated financial statements continued 20 commitments contingencies continued consolidated balance sheet included within 248 million 193 million related acquisition mallinckrodt view companys financial position reserves environmental matters 248 million company concluded potential payment estimated amounts material adverse effect financial position results operations liquidity believe subsidiaries substantial indemnification protection insurance coverage subject applicable deductibles respect asbestos claims indemnitors relevant carriers typically honoring duty defend indemnify believe valid defenses claims intend continue defend vigorously additionally based historical experience asbestos litigation analysis current cases believe adequate amounts accrued potential settlements judgments asbestosrelated litigation possible time determine certainty ultimate outcome asbestosrelated proceedings believe final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect results operations financial position cash flows 21 retirement plans defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current employees contribution amounts determined accordance advice professionally qualified actuaries countries concerned based subsequent formal reviews companys funding policy make contributions accordance laws customs various countries operates benefits defined benefit plans based various factors years service compensation following tables exclude amounts related discontinued operations cit periods presented net periodic pension cost income us nonus defined benefit pension plans includes following components millions tyco international ltd notes consolidated financial statements continued 21 retirement plans continued curtailmentsettlement gains fiscal 2001 us relate primarily freezing certain pension plans curtailmentsettlement gains recorded selling general administrative expenses consolidated statements operations net pension amount recognized consolidated balance sheet september 30 2002 2001 us nonus defined benefit plans follows millions tyco international ltd notes consolidated financial statements continued 21 retirement plans continued net pension amounts recognized consolidated balance sheet september 30 2002 2001 us nonus defined benefit plans follows millions projected benefit obligation accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 20380 million 19809 million 12425 million respectively september 30 2002 18116 million 17814 million 14302 million respectively september 30 2001 projected benefit obligation accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 17026 million 14233 million 8317 million respectively september 30 2002 10691 million 9294 million 5980 million respectively september 30 2001 tyco international ltd notes consolidated financial statements continued 21 retirement plans continued company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 171 million 64 million 82 million fiscal 2002 fiscal 2001 fiscal 2000 respectively executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 30 2002 506 million 259 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era dispute company defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans pension expense defined contribution plans computed percentage participants compensation 1799 million 1528 million 1327 million fiscal 2002 fiscal 2001 fiscal 2000 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 161 million 93 million 108 million fiscal 2002 fiscal 2001 fiscal 2000 respectively postretirement benefit plansthe company generally provide postretirement benefits pensions employees certain companys acquired operations provide benefits employees eligible date acquisition following tables exclude amounts related discontinued operations cit periods presented net periodic postretirement benefit cost reflects following components millions components accrued postretirement benefit obligation generally unfunded follows millions tyco international ltd notes consolidated financial statements continued 21 retirement plans continued measurement purposes fiscal 2002 705 composite annual rate increase per capita cost covered health care benefits assumed rate assumed decrease gradually 500 year 2008 remain level thereafter yearend composite annual rate increase health care benefit costs increased 1155 decreasing 500 year 2011 onepercentagepoint change assumed healthcare cost trend rates would following effects millions combined weighted average discount rate used determining accumulated postretirement benefit obligation 675 september 30 2002 750 september 30 2001 22 preference shares tyco authorized 125000000 preference shares par value 1 per share september 30 2002 september 30 2001 one share issued designated special voting preference share connection purchase cit june 2001 preference share provided mechanism holders outstanding exchangeable shares exercise voting dividend liquidation rights equivalent tyco common shareholders except exchangeable share equivalent 06907 tyco common share connection ipo cit exchangeable shares redeemed effective july 5 2002 issuance 3243322 tyco international ltd notes consolidated financial statements continued 22 preference shares continued tyco common shares result one entitled exercise rights attaching preference share rights dividends return capital redemption conversion voting otherwise respect preference shares may determined tycos board directors time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders 23 shareholders equity shares owned subsidiaries treated treasury shares recorded cost included within tycos outstanding common shares september 30 2001 4243108 common shares representing assumed exchange 6143199 exchangeable shares 06907 tyco common share per exchangeable share exchangeable shares cit exchangeco inc whollyowned subsidiary tyco capital corporation issued cit prior cits acquisition tyco connection acquisition cit outstanding exchangeable share exchangeable prior merger one share cit common stock became exchangeable 06907 tyco common share holders exchangeable shares dividend liquidation voting rights equivalent tyco common shareholders except exchangeable share equivalent 06907 tyco common share connection ipo cit exchangeable shares redeemed effective july 5 2002 issuance 3243322 tyco common shares fiscal 2001 tyco sold 39 million common shares approximately 21980 million underwritten public offering net proceeds offering 21966 million used repay debt incurred finance portion acquisition cit per share amounts share data retroactively restated give effect twoforone stock split october 21 1999 effected form 100 stock dividend total compensation cost expensed stockbased compensation awards discussed 899 million 1168 million 1374 million fiscal 2002 fiscal 2001 fiscal 2000 respectively restricted sharesthe company maintains restricted share ownership plan provides award initial amount common shares plus amount equal onehalf one percent total shares outstanding beginning fiscal year september 30 2002 49740623 shares authorized plan 15339021 shares granted number shares available issuance 1994 restricted stock plan reduced 999524 october 2002 common shares awarded subject certain restrictions vesting varying periods ten years grants vest based certain specified performance criteria fair market value shares date vesting expensed period performance achievement criteria deemed probable grants vest passage time fair market value shares time grant amortized net tax benefit expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients restricted shares right vote shares receive dividends income tax benefits resulting vesting restricted shares including deduction excess tyco international ltd notes consolidated financial statements continued 23 shareholders equity continued fair market value restricted shares time vesting fair market value time grants payment dividends unvested shares credited contributed surplus employee stock purchase planssubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker company also maintains two employee stock purchase plans benefit employees certain qualified nonus subsidiaries one plan eligible employees granted options purchase shares end three years service 85 market price time grant september 30 2002 approximately 764000 options outstanding 92 million shares available future issuance plan shares purchased plan purchased open market share optionstyco granted employee share options issued two fixed share option plans reserve common shares issuance tycos directors executives managers majority options granted tyco international ltd longterm incentive plan incentive plan incentive plan administered compensation committee board directors company consists exclusively independent directors company options granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant options granted incentive plan date generally vested become exercisable periods five years date grant maximum term ten years tyco reserved 1400 million common shares issuance incentive plan awards tyco becomes obligated make assumption substitution outstanding awards previously granted acquired company assumed administered incentive plan count limit september 30 2002 approximately 186 million shares available future grant incentive plan october 1998 broadbased option plan nonofficer employees tyco longterm incentive plan ii ltip ii approved board directors tyco reserved 1000 million common shares issuance ltip ii terms conditions plan similar incentive plan september 30 2002 approximately 146 million shares available future grant ltip ii options assumed part business combination transactions administered incentive plan retain rights terms conditions respective plans originally granted tyco international ltd notes consolidated financial statements continued 23 shareholders equity continued share option activity tyco plans since september 30 1999 follows following table summarizes information outstanding exercisable tyco options september 30 2002 stockbased compensationsfas 123 accounting stockbased compensation allows companies measure compensation cost connection employee share option plans using fair value based method continue use intrinsic value based method generally result compensation cost tyco continues use intrinsic value based method recognize compensation expense issuance options exercise price equal greater market price time grant fair value based method adopted tyco international ltd notes consolidated financial statements continued 23 shareholders equity continued tycom fiscal 2001 2000 companys pro forma net income pro forma net income per common share fiscal 2002 fiscal 2001 fiscal 2000 would follows dates grant using blackscholes optionpricing model assumptions set forth estimated weightedaverage fair value tyco options granted fiscal 2002 1431 estimated weightedaverage fair value tyco tycom options granted fiscal 2001 1972 911 respectively estimated weightedaverage fair value tyco tycom options granted fiscal 2000 1626 1747 respectively following weightedaverage assumptions used fiscal 2002 following weightedaverage assumptions used fiscal 2001 following weightedaverage assumptions used fiscal 2000 effects applying sfas 123 pro forma disclosure indicative effects may future years sfas 123 apply awards prior 1995 additional awards future years anticipated deferred stock unitsduring fiscal 2002 company granted 17 million deferred stock units dsus existing incentive plan described outstanding september 30 2002 dsus notional units tied value tyco common shares distribution deferred termination employment distribution made form actual shares similar restricted stock grants vest passage time fair market value dsus time grant amortized expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders tyco international ltd notes consolidated financial statements continued 23 shareholders equity continued equity recipients dsus right vote shares right receive cash dividends however right receive dividends form additional dsus dividendstyco paid quarterly cash dividend 00125 per common share since july 1997 24 comprehensive loss income purpose reporting comprehensive loss income report measure changes equity transactions shareholders total comprehensive loss income included consolidated statements shareholders equity components accumulated comprehensive loss income follows millions 1 primarily related tycos investment 360networks inc 2 includes 1128 million pretax 1006 million aftertax reclassification unrealized losses related temporary impairment investments 25 supplementary income statement information selected supplementary income statement information presented millions tyco international ltd notes consolidated financial statements continued 26 supplementary balance sheet information selected supplementary balance sheet information presented millions tyco international ltd notes consolidated financial statements continued 27 supplementary cash flow information selected supplementary cash flow information presented millions net proceeds debt consist following 28 summarized quarterly financial data unaudited described note 1 consolidated financial statements fourth quarter fiscal 2002 company identified various adjustments relating prior year financial statements effects material individually aggregate prior year quarter therefore prior year financial statements restated instead adjustments aggregate 2616 million pretax basis recorded first quarter fiscal 2002 also fourth quarter fiscal 2002 company identified certain matters requiring adjustment previously reported quarterly results first three quarters fiscal 2002 nature amounts adjustments described notes 1 3 quarterly table fiscal 2002 summarized quarterly financial data year ended september 30 2002 previously reported basis adjusted reflect reclassification tyco capital discontinued operations tyco international ltd notes consolidated financial statements continued 28 summarized quarterly financial data unaudited continued restated adjustments referred included table millions except per share data 1 includes restructuring unusual charges 257 million 58 million included cost sales primarily related termination employees writedown inventory associated closure facilities exiting product line also includes charges related prior years 2616 million see note 1 loss 43 million related early retirement debt adjustments related first quarter fiscal 2002 include 1997 million decrease net income 2616 million pretax described note 1 283 million decrease net income related recording deferred credit amount dealer reimbursements exceed actual costs companys adt authorized dealer program 236 million decrease net income reflect reversal intercompany sales 509 million associated margin 290 million companys engineered products services electronics segment footnotes continued following page tyco international ltd notes consolidated financial statements continued 28 summarized quarterly financial data unaudited continued footnotes continued preceding page 2 previously reported information reflects companys previous restatement form 10q record impairment goodwill related tyco capital reporting unit includes charges totaling 31478 million charges consist impairment charges 23517 million primarily related writedown tgn restructuring unusual charges 6551 million 2513 million included cost sales primarily related writedown inventory facility closures within electronics segment loss writeoff investments 1806 million charge related prior years activity 396 million see note 1 also includes loss 24 million relating early retirement debt adjustments related second quarter fiscal 2002 include 269 million decrease net income related recording deferred credit amount dealer reimbursements exceed actual costs companys adt authorized dealer program 274 million increase net income reflect elimination intercompany sales 501 million associated margin 160 million companys engineered products services electronics segment 396 million increase net income reflect reduction impairment charge related temporary impairment associated available sale security 3 includes charges totaling 12866 million charges consist goodwill impairment charges 8444 million relating continuing operations impairment charges 2394 million related primarily impairment intangible assets associated healthcare business line sold impairment property plant equipment associated termination software development project within fire security services segment net restructuring unusual charges 1829 million 25 million included cost sales related primarily writeoff investment banking fees deal costs associated terminated breakup plan certain acquisitions completed less extent severance associated consolidating streamlining operations accrual anticipated resolution disposition various labor employment matters within fire security services segment writeoff purchased inprocess research development related acquisition sensormatic 134 million loss writedown investments 65 million adjustments related third quarter fiscal 2002 include 255 million decrease net income related recording deferred credit amount dealer reimbursements exceed actual costs companys adt authorized dealer program 27 million decrease net income reflect reversal intercompany sales 200 million associated margin 39 million companys engineered products services electronics segment 104 million decrease net income reflect increase interest expense adjust amount capitalized interest 3314 million decrease net income reflect revision amount previously reported goodwill impairment regarding companys infrastructure telecommunications reporting units 4 includes goodwill impairment charges 4993 million relating continuing operations net restructuring unusual charges 10906 million 3758 million included cost sales 1150 million relates bad debt provision included selling general administrative expenses primarily related decision significantly scale back telecommunications business impairment longlived assets 8984 million primarily related writedown property plant equipment within telecommunications business much lesser extent writedown intangible assets associated dealer program within fire security services segment writeoff inprocess research development 44 million within fire security business loss writedown investments 1233 million gain sale businesses 72 million also includes 373 million income related early retirement debt tyco international ltd notes consolidated financial statements continued 28 summarized quarterly financial data unaudited continued 1 described note 1 1254 million pretax charges relating fiscal 2001 reported fiscal 2002 1254 million relate fiscal 2001 quarters follows 1st qtr212 million 2nd qtr229 million 3rd qtr674 million 4th qtr139 million 2 includes net restructuring unusual credit 1756 million charge 250 million included cost sales net credit consists net gain sale businesses 4104 million principally related sale adt automotive writeoff purchased inprocess research development 1843 million unusual charge 250 million related sale inventory writtenup purchase accounting restructuring unusual charges 181 million primarily related environmental remediation project closure manufacturing plant charge 74 million primarily related impairment property plant equipment associated closure manufacturing plant 3 includes net restructuring unusual charge 152 million charge 464 million included cost sales net charge consists unusual credit 1668 million related settlement litigation unusual charge 464 million included cost sales primarily related sale inventory writtenup purchase accounting unusual charge 1140 million primarily related closure facilities charges 177 million related impairment property plant equipment associated closure facilities net loss sale businesses investments 39 million primarily related sale adt automotive also includes 158 million related early retirement debt 4 includes net restructuring unusual charge 1188 million charges 74 million included cost sales net charge consists net loss sale investments 1299 million restructuring unusual charges 502 million impairment charges 28 million related certain fire security services businesses partially offset 641 million net gain sale shares subsidiary also includes 52 million related early retirement debt 5 includes restructuring unusual charge 4238 million charges 1061 million included cost sales charge consists restructuring unusual charges 2839 million charges 584 million included cost sales primarily related closure manufacturing facilities within electronics fire security services segments charges 922 million related impairment property plant equipment associated facilities closures unusual charge 477 million included cost sales related sale inventory writtenup purchase accounting also includes 53 million related early retirement debt 6 cumulative effect accounting changes fiscal 2001 relate adoption sab 101 sfas 133 tyco international ltd notes consolidated financial statements continued 29 tyco international group sa tyco international group sa tig whollyowned subsidiary company public debt securities outstanding see note 18 fully unconditionally guaranteed tyco following tables present condensed consolidating financial information tyco tig subsidiaries condensed financial information tyco tig standalone basis presented using equity method accounting subsidiaries control twenty percent voting shares consolidating statement operations year ended september 30 2002 millions tyco international ltd notes consolidated financial statements continued 29 tyco international group sa continued consolidating statement operations year ended september 30 2001 millions tyco international ltd notes consolidated financial statements continued 29 tyco international group sa continued consolidating statement operations year ended september 30 2000 millions tyco international ltd notes consolidated financial statements continued 29 tyco international group sa continued consolidating balance sheet september 30 2002 millions tyco international ltd notes consolidated financial statements continued 29 tyco international group sa continued consolidating balance sheet september 30 2001 millions tyco international ltd notes consolidated financial statements continued 29 tyco international group sa continued consolidating statement cash flows year ended september 30 2002 millions tyco international ltd notes consolidated financial statements continued 29 tyco international group sa continued consolidating statement cash flows year ended september 30 2001 millions tyco international ltd notes consolidated financial statements continued 29 tyco international group sa continued consolidating statement cash flows year ended september 30 2000 millions tyco international ltd managements discussion analysis financial condition results operations described note 11 consolidated financial statements cit group inc cit comprised operations tyco capital business segment sold initial public offering ipo july 2002 consequently results tyco capital presented discontinued operations references tyco refer continuing operations exception discussions regarding discontinued operations continuing operations tyco represent referred tyco industrial prior filings results operations introduction results fiscal 2002 adversely affected decreased demand result overall economic downturn particularly telecommunications electronics markets termination previously announced plan separate four independent publicly traded companies rumors negative publicity resignation chief executive officer chief financial officer replacement members senior management indictment former members senior management concern regarding ability maintain compliance debt covenants meet upcoming debt maturities announced investigation conducted companys outside counsel factors affected employees customers vendors investors effects continuing january 2002 board directors became aware first many unauthorized actions ultimately led resignations former chief executive officer chief financial officer termination chief legal officer well decision renominate one directors september 2002 former chief executive officer chief financial officer chief legal officer charged violating new york state criminal law result actions december 2002 former director charged pleaded guilty violating new york state criminal law result actions fourth quarter fiscal 2002 announced hiring new chief executive officer new chief financial officer new chief legal officer well key executives also announced initiation external internal investigations investigationwith arrival new senior management company engaged number internal reviews aimed determining misconduct may committed prior senior management initial review prior senior managements transactions company conducted law firm boies schiller flexner llp details findings made public form 8k filed september 17 2002 july 2002 new ceo board directors ordered review corporate governance practices accounting selected acquisitions review referred phase 2 review phase 2 review conducted law firm boies schiller flexner llp boies firm turn assisted forensic accountants review received full cooperation tycos auditors pricewaterhousecoopers llp well tycos new senior management team review included examination tycos reported revenues profits cash flow internal auditing control procedures accounting major acquisitions reserves use nonrecurring charges well corporate governance issues personal use corporate assets use corporate funds pay personal expenses employee loan forgiveness programs approximately 25 lawyers 100 accountants worked review august december 2002 total considerable cost 15000 lawyer hours 50000 accountant hours dedicated review team examined documents interviewed tyco personnel 45 operating units united states 12 foreign countries results phase 2 review reported company form 8k furnished sec december 30 2002 among findings report noted companys prior management engaged pattern aggressive accounting even accordance generally accepted accounting principles intended increase reported earnings would conservative accounting employed matters identified investigation aggressive accounting determined company consultation auditors accordance generally accepted accounting principles certain adjustments identified relating years preceding fiscal 2002 adjustments recorded first quarter fiscal 2002 discussed see also item 14 controls procedures charges relating prior years recorded fiscal 2002during fourth quarter fiscal 2002 company identified various adjustments relating prior year financial statements management concluded effects adjustments well unrecorded proposed audit adjustments material individually aggregate current year prior year accordingly prior year financial statements restated instead adjustments aggregate 2616 million pretax income basis 1997 million aftertax income basis recorded effective october 1 2001 nature amounts adjustments principally follows company determined amounts reimbursed dealers adts authorized dealer program exceeded costs actually incurred cumulative effect reimbursements recorded years prior fiscal 2002 excess costs incurred net effect deferred credit would amortized described note 1 consolidated financial statements 1859 million company determined gain 641 million issuance tycom shares previously reported fiscal 2001 lower 396 million company identified several adjustments result phase 2 review recording previously unrecorded audit adjustments appropriately recorded expenses rather part companys acquisition accounting cumulative effect adjustments necessary revise prior accounting pretax charge 361 million fiscal years charges relate follows millions adjustments would impacted income loss continuing operations net income loss income loss continuing operations would impacted follows fiscal 2000 4464 million compared 4520 million fiscal 2001 4297 million compared 4402 million fiscal 2002 2871 million compared 3070 million net income loss would impacted follows fiscal 2000 4464 million compared 4520 million fiscal 2001 3866 million compared 3971 million fiscal 2002 9212 million compared 9412 million overview strategy nearterm actions focus enhancing internal growth within existing tyco businesses plan achieve goal new product innovation increased market share increased service continued geographic expansion acquisitions important part tycos growth recent years may continue make selected complementary acquisitions anticipate amount acquisition activity significantly reduced therefore expect growth rate revenues earnings acquisitions also reduced compared prior periods evidenced restructuring charges recorded fiscal 2002 continue implement costcutting initiatives order improve earnings margins information periods presented reflects grouping tycos businesses four segments consisting fire security services electronics healthcare specialty products engineered products services fiscal 2002 changed internal reporting structure due amalgamation tycom ltd eliminated publicly held minority interest operations former telecommunications segment reported part electronics segment addition fiscal 2002 change made internal reporting structure operations tycos flow control businesses environmental engineering business previously reported within fire security services segment tycos electrical metal products business previously reported within electronics segment comprise companys new engineered products services segment also fiscal 2002 tyco sold financial services business tyco capital ipo cit group inc historical results financial services business presented discontinued operations see discontinued operations tyco capital cit group inc information regarding discontinued operations tyco capital company conformed segment reporting accordingly reclassified comparative prior period information reflect changes segment revenues increased 47 fiscal 2002 356437 million compared 340366 million fiscal 2001 segment revenues increased 176 fiscal 2001 340366 million 289319 million fiscal 2000 tyco loss continuing operations 30704 million fiscal 2002 compared income continuing operations 44015 million fiscal 2001 45199 million fiscal 2000 loss continuing operations fiscal 2002 included net charges totaling 72999 million 65701 million aftertax consisting following goodwill impairment charge 13437 million relating continuing operations ii impairment charges 34895 million primarily related writedown tgn iii net restructuring unusual charges 19543 million 6354 million included cost sales 1150 million related bad debt provision included selling general administrative expenses primarily related writedown inventory facility closures within electronics segment iv charges related prior years 2616 million v writeoff purchased inprocess research development related acquisitions sensormatic dsc group 178 million vi loss writeoff investments 2708 million vii gain sale businesses 72 million excluding charge 1253 million impairment associated assets held sale viii gain early extinguishment debt 306 million income continuing operations fiscal 2001 included net charge 4085 million 3839 million aftertax consisting following net restructuring unusual charges impairment charges totaling 7054 million related primarily closure facilities within electronics fire security services segments ii 1843 million writeoff purchased inprocess research development related acquisition mallinckrodt inc mallinckrodt iii unusual credit 1668 million related settlement litigation iv net gain sale businesses 4104 million principally related sale adt automotive v loss 1338 million related writedown investment vi 641 million net gain sale common shares subsidiary vii loss early extinguishment debt 263 million income continuing operations fiscal 2000 included net credit 14844 million 7939 million aftertax consisting following gain 17600 million sale subsidiary common shares connection tycoms initial public offering ii restructuring unusual impairment charges 4242 million primarily claims related merged company exiting us surgicals interventional cardiology business iii credit 1489 million representing revision estimates merger restructuring unusual accruals iv loss early extinguishment debt 03 million currently assessing potential impact various legislative proposals would deny us federal government contracts us companies move corporate location abroad tyco became bermudabased company result 1997 business combination tyco international ltd massachusetts corporation adt limited public company located bermuda since 1980s origins dating back united kingdom since early 1900s currently tycos revenues related us federal government contracts account less 3 net revenues fiscal year ended september 30 2002 addition various state municipalities us proposed similar legislation also similar proposed tax legislation could substantially increase corporate income taxes consequently decrease future net income increase future cash outlay taxes unable predict level certainty likelihood final form proposed legislation might become law nature regulations may promulgated future legislative enactments following table details net revenues earnings fiscal 2002 fiscal 2001 fiscal 2000 millions 1 amount includes restructuring unusual charges related inventory amount 6354 million 1849 million 10 million fiscal 2002 2001 2000 respectively deducted part cost sales consolidated statements operations similarly amount includes unusual charge related provision bad debts amount 1150 million fiscal 2002 deducted part selling general administrative expenses consolidated statement operations fiscal 2002 recorded restructuring unusual charges impairment longlived assets related primarily significant decrease demand certain end markets within electronics segment restructuring integration programs terminate employees close facilities made redundant reduction manpower facilities comes manufacturing sales administrative functions addition discontinue dispose product lines fit longterm strategy respective businesses historically tracked impact financial results restructuring integration programs however estimate overall cost structure reduced approximately 910 million annualized basis approximately 315 million relates selling general administrative expenses approximately 595 million cost sales 910 million estimated overall annualized cost savings result restructuring activities fiscal 2002 based summary estimated cost savings determining amount cost savings management looked salaries benefits people terminated derive annual savings relates facility closures cost savings represents rent plant operating expenses depreciation assets longer incurred make acquisition typically begin integrate acquired company existing operations immediately part integration process often eliminate duplicate functions closing corporate administrative offices attempt make combined companies cost efficient combining manufacturing facilities product lines sales offices marketing efforts result integration processes acquired companies longer separately identifiable consequently generally unable separately track postacquisition financial results acquired companies discussions following tables include percentages revenue growth decline exclude increased revenue attributable specified acquisitions eliminate effects period currency fluctuations revenue growth percentages excluding specified acquisitions pro forma estimates calculated assuming acquisitions made beginning relevant fiscal periods adding back preacquisition revenue specified acquired companies periods comparison majority companies acquire operate within industry segment acquired company integrated consequently assume companies acquire generally comparable growth percentage calculate pro forma segment growth using methodology generally ability capture postacquisition revenues related individual acquisitions since companies immediately integrated upon acquisition calculations pro forma growth analysis excluding acquisitions discussed segment narratives include acquisitions purchase price 10 million pro forma calculation include acquisitions purchase price less 10 million due relative size smaller acquisitions compared tycos operating results large number acquisitions periods presented smaller acquisitions represent approximately 6 total purchase price acquisitions years ended september 30 2002 2001 since pro forma estimates based preacquisition revenues necessarily indicative postacquisition results calculation similar method used calculating acquisitionrelated pro forma results operations note 2 consolidated financial statements pursuant statement financial accounting standards 141 discussions follow describe reasons changes results segment although quantify impact various factors order quantify factor contributing change operating income margins would need exclude results acquisitions previously noted since acquisitions generally integrated within existing operations immediately upon acquisition generally ability exclude effect acquired businesses quantifying increases decreases operating income margins segment revenue operating income margins fire security services following table sets forth revenues operating income margins fire security services segment millions net revenues fire security services segment increased 424 fiscal 2002 fiscal 2001 including 418 increase product revenue 429 increase service revenue primarily result higher sales volume increased service revenue worldwide security business lesser extent worldwide fire protection business increase net revenues mostly due acquisitions well higher volume recurring service revenues generated worldwide security business dealer program lesser extent increased sales fire safety video surveillance products access control systems net revenue growth largely due focus increasing revenues growing business acquisitions including authorized dealer program compared current longterm strategy grow existing business plan gaining maintaining high quality security monitoring accounts internal sales force supplemented authorized dealer program key geographic areas revenues fiscal 2002 include effect heightened level security concerns followed september 11th temporarily increased demand securityrelated products significant acquisitions included simplex time recorder co simplex january 2001 scott technologies inc scott may 2001 electronic security systems businesses cambridge protection industries llc securitylink sentry sa july 2001 edison select august 2001 sbc smith alarm systems october 2001 dsc group sensormatic november 2001 excluding 335 million increase foreign currency fluctuations dealer program company purchases residential monitoring contracts external network dealers operate adts authorized dealer program acquisitions listed acquisitions purchase price 10 million pro forma revenues calculated manner described overview segment level prior year expect revenues next fiscal year increase due increased service revenue worldwide security business increased revenue fire protection business europe asia lesser extent increases ansul however expect fiscal 2002 curtailment certain end markets termination adt dealer program partially offset revenue operating income growth going forward operating income decreased 104 fiscal 2002 fiscal 2001 primarily due net restructuring unusual charges impairment longlived assets charge writeoff purchased inprocess research development decrease partially offset increases due acquisitions operating margins decreased primarily due charges mentioned addition decreased margins security business result lower margins businesses acquired year also due decreased margins fire protection business europe australia new zealand expect operating income margins increase next fiscal year due primarily significant charges incurred current year related impairment longlived assets well restructuring unusual charges incurred related improvements resulting charges expect increases partially offset increased costs associated enhancing security business internal sales force softness domestic contracting market expected generate lower margins result increased competition operating income margins fiscal 2002 include net restructuring unusual charge 949 million net 949 million charge consists charges 1135 million inventory writedowns 07 million charge 187 million related writeup inventory purchase accounting included cost sales charges primarily related severance facilityrelated charges associated streamlining business slightly offset credit 186 million relating current prior years restructuring charges also included within operating income fiscal 2002 charge 178 million writeoff purchased inprocess research development associated acquisitions sensormatic dsc group charge 2170 million impairment property plant equipment resulting curtailment certain markets termination authorized dealer program certain nonus markets termination software development project following table provides information fiscal 2002 restructuring unusual charges related fire security services segment result charges recorded within fire security services segment fiscal 2002 estimate overall cost structure reduced due impact charges approximately 115 million approximately 105 million cash 10 million noncash annualized basis 105 million relates selling general administrative expenses 10 million amortization however since business conditions remain constant actual reductions cost may significantly differ amounts revenue increased 230 fiscal 2001 fiscal 2000 including 274 increase product revenue 193 increase service revenue primarily due acquisitions lesser extent higher sales volume increased recurring service revenue fire protection north america asia increased recurring revenues worldwide electronic security services business acquisitions include simplex january 2001 scott may 2001 securitylink july 2001 excluding 3381 million decrease foreign currency exchange fluctuations dealer program acquisitions listed acquisitions purchase price 10 million pro forma revenue calculated manner described overview increased estimated 47 operating income increased 156 fiscal 2001 fiscal 2000 primarily due acquisitions increased service volume fire protection business north america asia worldwide security business partially offset net restructuring unusual charges decrease operating margins primarily due net restructuring unusual charges partially offset increased service revenues fire protection operating income margins fiscal 2001 include net restructuring unusual charges 841 million 841 million net charge consists charges 857 million inventory writedowns 54 million included cost sales primarily related closure facilities became redundant due acquisitions securitylink simplex partially offset credit 16 million relating prior years restructuring charges also included charges 28 million impairment property plant equipment primarily associated facility closures operating income margins fiscal 2000 includes restructuring unusual credit 112 million primarily related revision estimates prior charges required sab 101 modified revenue recognition policies respect installation electronic security systems beginning fiscal 2001 see cumulative effect accounting changes electronics following table sets forth revenues operating income loss margins electronics segment millions net revenues electronics segment decreased 224 fiscal 2002 compared fiscal 2001 including 233 decrease product revenue 45 increase service revenue result severe decline demand undersea telecommunications systems surplus capacity available decline demand electronics components group products communications computer consumer electronics industries across geographic regions electronics segment comprised electronics components group well tyco telecommunications share certain customers revenues electronics components group decreased 19313 million 165 reflecting significant decrease demand certain end markets sales impacted mostly market decline telecommunications computer industries lesser extent industrialcommercial industry market decreases partially offset growth product sales automotive industry revenues tyco telecommunications undersea cable communications business declined 11135 million 598 due lack demand new cable construction weak demand capacity sales tgn excluding 167 million decrease foreign currency fluctuations acquisitions cigi investment group inc cigi october 2000 lucent technologies power systems business lps december 2000 transpower technologies november 2001 communications instruments inc january 2002 acquisitions purchase price 10 million pro forma revenues calculated manner described overview segment decreased estimated 293 expect electronics segment continue experience significant decrease demand next fiscal year result undersea fiber optic installation business anticipating major thirdparty system builds furthermore industrywide surplus telecommunication capacity available sales continues exist although total segment revenue expected decrease year anticipate revenues core electronics components group slightly increase fiscal 2003 due growth due new product development launches increases market share evidenced current periods restructuring charges management implemented plans within segment reduce number manufacturing plants along related employees size appropriate current business environment attempting maintain flexibility needed potential upturn markets significant decrease operating income operating margins fiscal 2002 compared fiscal 2001 primarily due impairment longlived assets goodwill well restructuring unusual charges addition decrease revenue electronics components business significant decrease demand related telecommunications computer consumer electronics industrial machinery aerospace industries resulted much lower manufacturing volumes increased per unit costs telecommunications business margins impacted significantly lack capacity sales tgn significant reduction third party system builds expect operating income increase next fiscal year due significant charges incurred current year related impairment longlived assets well restructuring unusual charges incurred related improvements resulting charges operating loss margins fiscal 2002 include net restructuring unusual charges 15595 million 15595 million net charge consists charges totaling 15858 million inventory reserves 6082 million included cost sales bad debt provision 1150 million included selling general administrative expenses charges primarily relate initiatives taken reduce fixed costs due significant downturn telecommunications business certain electronics end markets including facility closures headcount reductions inventory reserves purchase commitment cancellations charges slightly offset restructuring credit 263 million primarily relating revision estimates current prior years severance facilities charges total inventory charges 9436 million include 6082 million inventory writedowns 3354 million supplier contract termination fees significant sales previously writtendown writtenoff inventory fiscal year ended september 30 2002 6082 million 1431 million inventory scrapped september 30 2002 expect remaining writtenoff inventory scrapped next three six months extent bad debt provisions utilized excess amounts reversed credit selling general administrative expenses line consolidated statements operations separately disclosed unusual credit extent inventory subsequently sold related amount income recognized credit cost sales line disclosed unusual credit also included within operating loss margins fiscal 2002 charges 31137 million impairment property plant equipment primarily related tgn goodwill impairment charges 10245 million related tyco telecommunications additional information regarding accounting goodwill impairments see accounting policiesgoodwill significant restructuring charges recorded fiscal 2002 primarily related restructuring telecommunications business address significant overcapacity market resulting lack demand new system construction fourth fiscal quarter 2002 management decided focus business foreseeable future maintenance revenues capacity sales tyco global network discontinue future additions tgn limit construction activities small projects cash flow positive least breakeven earnings result new strategy management devised plan significantly downsize manufacturing footprint decrease project management staffing reduce research development function minimize staffing expense administrative areas business decrease cash outflows losses maximum extent possible plan carefully crafted ensure technical construction competencies business would preserved industry conditions improve following table provides information fiscal 2002 restructuring unusual charges related electronics segment result charges recorded within electronics segment fiscal 2002 estimate overall cost structure reduced due impact charges approximately 710 million approximately 570 million cash 140 million noncash annualized basis 550 million relates cost sales 160 million selling general administrative expenses however since business conditions remain constant actual reductions cost may significantly differ amounts net revenue increased 90 fiscal 2001 fiscal 2000 including 71 increase product revenue 2523 million increase service revenue due acquisitions electronic components group acquisitions included siemens electromechanical components gmbh co kg november 1999 praegitzer industries inc december 1999 critchley group plc march 2000 electronic oem business thomas betts july 2000 cigi october 2000 lps december 2000 excluding 4368 million decrease foreign currency exchange fluctuations impact acquisitions listed acquisitions purchase price 10 million pro forma revenue calculated manner described overview decreased estimated 55 reflects economic slowdown computer consumer electronics communications industries slight decrease operating income primarily result net restructuring unusual charges impairments largely offset increased operating income due higher revenues electronics components business associated acquisitions fiscal 2001 well full year result acquisitions 2000 addition margin improvements 266 lower revenues tyco telecommunications business due completion several large thirdparty system contracts fiscal 2001 higher margins offset approximately 365 million incremental expenses related bad debt provisions legal costs due industry conditions operating income margins fiscal 2001 include restructuring unusual charges 3838 million primarily related closure facilities within communications computer consumer electronics industries response severe downturn experienced included within 3838 million inventory writedowns 741 million charges 517 million writeup inventory purchase accounting included cost sales operating income margins charges credits fiscal 2001 also includes charges 985 million impairment property plant equipment associated facility closures operating income margins fiscal 2000 include net merger restructuring unusual credit 778 million fiscal 2000 net credit 54 million related inventory included cost sales primarily related revision estimates merger restructuring unusual accruals related merger amp amps profit improvement plan healthcare specialty products following table sets forth revenues operating income margins healthcare specialty products segment millions net revenues healthcare specialty products segment increased 109 fiscal 2002 fiscal 2001 including 110 increase product revenue 101 increase service revenue primarily result acquisitions healthcare specialty products segment comprised tyco healthcare tyco plastics adhesives tyco healthcares revenues increased 8338 million 118 reflecting increased sales volume resulting acquisitions us healthcare businesses much lesser extent increased revenues domestic international healthcare businesses revenues tyco plastics adhesives increased 1408 million 81 prior year due solely effect acquisitions addition revenues fiscal 2001 included 99 million related adt automotive business sold october 2000 excluding 67 million decrease foreign currency exchange fluctuations acquisitions mallinckrodt inc mallinckrodt october 2000 innerdyne inc innerdyne december 2000 linq industrial fabrics inc december 2001 paragon trade brands january 2002 acquisitions purchase price 10 million pro forma revenues calculated manner described overview healthcare specialty products segment level prior year expect revenues next fiscal year increase due introduction new products growth market share operating income increased 68 fiscal 2002 compared fiscal 2001 primarily due decrease charges recorded fiscal 2002 compared fiscal 2001 well impact acquisitions operating efficiencies realized cost reductions mallinckrodt increase partially offset lower margins businesses acquired tyco healthcare decreased margins plastics adhesives result volume shortfalls slight decrease operating margins due primarily shift product mix lower selling prices certain areas unfavorable manufacturing variances addition healthcare specialty products segment incurred expenses mostly relating inventory writedowns uncollectable accounts receivable primarily related plastics adhesives business expect operating income increase next fiscal year result impairment charges incurred current year related longlived assets well restructuring unusual charges incurred related improvements resulting charges addition increase revenue however margins expected remain approximately level due increased spending research development lesser extent increase royalty expense operating income margins fiscal 2002 reflect net restructuring unusual charges 549 million 549 million net charge consists charges 588 million inventory writedowns 03 million charge 13 million related writeup inventory purchase accounting included cost sales charges primarily relate severance associated consolidation operations facilityrelated costs due exiting certain business lines partially offset credit 39 million relating current prior years restructuring charges operating income margins fiscal 2002 also include charge writeoff longlived assets 1304 million primarily related writeoff intangible assets associated business line sold july 2002 following table provides information fiscal 2002 restructuring unusual charges related healthcare specialty products segment result charges recorded within healthcare specialty products segment fiscal 2002 estimate overall cost structure reduced due impact charges approximately 40 million approximately 30 million cash 10 million noncash annualized basis 30 million relates selling general administrative expenses 10 million cost sales however since business conditions remain constant actual reductions cost may significantly differ amounts net revenues increased 363 fiscal 2001 fiscal 2000 including 355 increase product revenue 550 million increase service revenue primarily due acquisitions included general surgical innovations inc november 1999 radionics january 2000 fiberlam march 2000 mallinckrodt october 2000 innerdyne december 2000 revenue increase somewhat offset sale adt automotive business excluding 1304 million decrease foreign currency exchange fluctuations impact acquisitions divestiture listed acquisitions purchase price 10 million pro forma revenue calculated manner described overview remained level prior year 253 increase operating income slight decrease operating margins fiscal 2001 compared fiscal 2000 primarily due acquisition mallinckrodt generally lower operating margins businesses segment partially offset decrease operating income due charge writeoff purchased inprocess research development fiscal 2001 operating income margins fiscal 2001 include net restructuring unusual charges 567 million primarily related closure several manufacturing plants included within 567 million charges 723 million charges 350 million writeup inventory purchase accounting inventory writedowns 90 million included cost sales partially offset credits 156 million related merger us surgical operating income margins also include charge 1843 million writeoff purchased inprocess research development associated acquisition mallinckrodt charges 154 million impairment property plant equipment related closure manufacturing plants operating income margins fiscal 2000 includes charges 990 million impairment property plant equipment net merger restructuring unusual credits 109 million included within 109 million net credits 173 million primarily related exiting us surgicals interventional cardiology business partially offset charges 64 million included cost sales related writedown inventory engineered products services following table sets forth revenues operating income margins engineered products services segment millions net revenues increased 125 fiscal 2002 fiscal 2001 including 126 increase product revenue 120 increase service revenue primarily result acquisitions much lesser extent increased revenues tyco flow control largely due increased demand industrial valve control thermal control products however offsetting increase demand valve control products decline general economic conditions well slowdown commercial contruction market acquisitions included pyrotenax march 2001 imi bailey birkett june 2001 century tube corporation october 2001 water power technologies november 2001 clean air systems february 2002 excluding 92 million decrease foreign currency exchange impact acquisitions listed acquisitions purchase price 10 million pro forma revenues calculated manner described overview segment level prior year expect revenues next fiscal year increase primarily result increased sales prices due increased raw material costs expected improved market conditions tyco infrastructure services furthermore expect sales volume tyco fire building products show signs recovery commercial construction markets latter half fiscal 2003 642 decrease operating income decrease operating margins fiscal 2002 fiscal 2001 primarily due goodwill impairment charges addition impact lower margins tyco electrical metal products tyco flow control decreased royalty licensing fee income divested businesses reduced market activity due continued softness demand worldwide competitive pressures overall decrease slightly offset results acquisitions savings realized costcutting initiatives tyco flow control expect operating income increase 2003 primarily result increased selling prices reduced operating cost well lower expected charges however expect margins remain level fiscal 2002 operating income margins fiscal 2002 reflect restructuring unusual charges 508 million inventory writedowns 62 million included cost sales primarily related severance facilityrelated costs associated streamlining business charges 95 million impairment property plant equipment associated closure facilities also included goodwill impairment charges 3192 million relating tyco infrastructure additional information regarding accounting goodwill impairments see accounting policiesgoodwill following table provides additional information fiscal 2002 restructuring unusual charges related engineered products services segment result charges recorded within engineered products services segment fiscal 2002 estimate overall cost structure reduced due impact charges approximately 45 million approximately 43 million cash 2 million noncash annualized basis 35 million relates cost sales 10 million selling general administrative expenses however since business conditions remain constant actual reductions cost may significantly differ amounts net revenues increased 61 fiscal 2001 fiscal 2000 including 33 increase product revenue 279 increase service revenue result acquisitions included kitamura valve co january 2000 flow control technologies february 2000 tracer august 2000 pyrotenax march 2001 imi june 2001 excluding 1483 million decrease foreign currency exchange impact acquisitions listed acquisitions purchase price 10 million pro forma revenues segment decreased 26 operating income fiscal 2001 level compared fiscal 2000 due acquisitions lesser extent improved margins tyco flow control tyco infrastructure offset net restructuring unusual charges decreased operating income margins allied tube conduit resulting higher raw material prices operating margins decreased due net restructuring unusual charges fiscal 2001 decreased margins allied tube conduit partially offset improved margins tyco flow control tyco infrastructure operating income margins fiscal 2001 include restructuring unusual charges 573 million inventory writedowns 97 million included cost sales charges impairment property plant equipment 34 million primarily related closure facilities corporate items foreign currency effect changes foreign exchange rates fiscal 2002 compared fiscal 2001 increase revenues approximately 09 million decrease operating income approximately 482 million effect changes foreign exchange rates fiscal 2001 compared fiscal 2000 decrease revenues approximately 10536 million decrease operating income approximately 1995 million corporate expenses corporate expenses 1962 million fiscal 2002 amount excludes net unusual impairment charges 2131 million primarily related writeoff investment banking fees deal costs associated terminated breakup plan certain acquisitions completed costs incurred date internal investigation severance associated certain corporate employees addition corporate expenses fiscal 2002 exclude charges relating prior years 2220 million corporate expenses 1972 million fiscal 2001 excluding unusual credit 1634 million primarily settlement litigation fiscal 2001 compared 1874 million fiscal 2000 corporate expenses level fiscal 2002 compared fiscal 2001 due overall decrease compensation expense lower expected advertising costs expenses charitable giving offset increased insurance costs legal accounting fees costs associated business disruptions began second quarter fiscal 2002 increase fiscal 2000 due principally higher compensation expense equitybased incentive compensation plans increase corporate staffing related costs support monitor expanding businesses operations total costs incurred internal investigation 91 million fiscal 2002 additional expense approximately 40 million estimated conclude process 2003 amortization goodwill amortization goodwill 5374 million 3444 million fiscal 2001 2000 respectively accordance recently adopted accounting rule changes goodwill longer amortized beginning fiscal 2002 year see goodwill intangibles within note 1 consolidated financial statements discussion accounting rule changes expense income fiscal 2002 includes income early retirement debt totaling 306 million compared losses early retirement debt totaling 263 million 03 million fiscal 2001 2000 respectively fiscal 2002 company recognized 2708 million loss equity investments primarily related investments flag telecom holdings ltd telecommunications companies became evident declines fair value flag investments temporary fiscal 2001 company recognized 1338 million loss equity investments primarily related investment 360networks became evident declines fair value investments temporary fiscal 2002 company sold certain businesses net proceeds approximately 1387 million cash consist primarily certain businesses within healthcare specialty products fire security services segments connection dispositions company recorded net gain 72 million excluding previous charge 1253 million impairment associated assets held sale fiscal 2001 company sold adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 10 billion cash company recorded net gain sale businesses 4104 million principally related sale adt automotive gain net direct incremental costs transaction well 607 million special nonrecurring bonuses paid key employees interest expense net interest expense net increased 1832 million 9597 million fiscal 2002 compared fiscal 2001 increased 69 million 7765 million fiscal 2001 compared fiscal 2000 increase fiscal 2002 compared fiscal 2001 due higher average debt balance year offset decrease weightedaverage interest rate fiscal 2002 weightedaverage rates interest longterm debt outstanding fiscal 2002 2001 45 48 respectively weightedaverage rate fiscal 2002 decreased due general decline market rates however decline partially offset increase spreads market rates able borrow due credit downgrades began february 2002 increase fiscal 2001 due primarily higher average debt balance resulting borrowings finance acquisitions share repurchase program offset lower interest rates fiscal 2001 income tax expense effective income tax rate 92 223 298 fiscal 2002 2001 2000 respectively decrease tax rate fiscal 2001 fiscal 2002 primarily due nonrecognition tax benefits significant impairment charges also minimal tax benefits due combination expenses low taxing jurisdictions establishment valuation allowances nondeductibility charges effective income tax rate excluding impact purchased inprocess research development restructuring unusual charges credits charges impairment longlived assets net gain sale businesses investments net gain sale common shares subsidiary accounting change 220 fiscal 2002 compared 212 fiscal 2001 248 fiscal 2000 increase effective income tax rate 212 fiscal 2001 220 fiscal 2002 primarily due lower earnings tax jurisdictions lower income tax rates well lower benefits interest deductions offset goodwill deductible tax purposes longer amortized favorable tax adjustments mainly related settling certain tax audits year decrease effective income tax rate fiscal 2001 compared fiscal 2000 primarily due higher earnings tax jurisdictions lower income tax rates expect effective income tax rate increase percentage high twenties fiscal 2003 due full year impact lower benefits interest deductions favorable tax adjustments prior year valuation allowance maintained due continued uncertainties realization certain tax benefits primarily tax loss carryforwards see note 10 consolidated financial statements believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets balance sheet company subsidiaries income tax returns routinely examined various regulatory tax authorities connection examinations certain tax authorities raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting proposed deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable accrued income tax provision management reviewed tax counsel issues raised taxing authorities adequacy tax accrued amounts management believes ultimate resolution tax deficiencies contingencies material adverse effect companys results operations financial position cash flows except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration liability could arise amounts distributed subsidiaries disposed practicable estimate additional taxes related permanently reinvested earnings basis differences related investments subsidiaries cumulative effect accounting changes december 1999 securities exchange commission sec issued sab 101 sec staff expressed views regarding appropriate recognition revenue variety circumstances relevant us required sab 101 modified revenue recognition policies respect installation electronic security systems see revenue recognition within note 1 consolidated financial statements addition response sab 101 undertook review revenue recognition practices identified certain provisions included limited number sales arrangements delayed recognition revenue sab 101 fourth quarter fiscal 2001 changed method accounting items retroactive beginning fiscal year conform requirements sab 101 reported 6537 million aftertax 10056 million pretax charge cumulative effect change accounting principle fiscal 2001 consolidated statement operations impact sab 101 net revenues fiscal 2001 net decrease 2411 million reflecting deferral 5205 million fiscal 2001 revenues partially offset recognition 2794 million revenue included cumulative effect adjustment beginning fiscal year recorded cumulative effect adjustment 297 million loss net tax fiscal 2001 accordance transition provisions sfas 133 critical accounting policies preparation consolidated financial statements conformity gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period longlived assetsmanagement periodically evaluates net realizable value longlived assets including property plant equipment tgn intangible assets relying number factors including operating results business plans economic projections anticipated future cash flows carry longlived assets lower cost fair value since judgment involved determining fair value longlived assets risk carrying value longlived assets may overstated understated wroteoff significant portion tgn fiscal 2002 management continues monitor developments fiberoptic capacity markets possible assumptions underlying impairment analysis change manner impairment value may occur future addition may experience additional tgn impairments downturn telecommunications industry continues determination depreciable lives subscriber systems included property plant equipment amortizable lives customer contracts related customer relationships included intangible assets primarily based historical attrition rates third party lifing studies useful life underlying tangible asset realizable value remaining useful lives assets could impacted changes customer attrition rates goodwilleffective october 1 2001 beginning tycos fiscal year 2002 adopted sfas 142 goodwill intangible assets tyco subsidiaries since adoption sfas 142 goodwill longer amortized instead assessed impairment least often annually triggering events occur making assessment management relies number factors including operating results business plans economic projections anticipated future cash flows transactions market place data inherent uncertainties related factors managements judgment applying analysis goodwill impairment since managements judgment involved performing goodwill valuation analyses risk carrying value goodwill may overstated understated determined impact adopting new standard transition provisions sfas 142 however quarter ended march 31 2002 circumstances developed indicated potential impairment value goodwill respect tyco telecommunications reporting unit within electronics segment tyco capital segment quarter ended march 31 2002 electronics segment recorded charge 21814 million related impairment tgn result fiberoptic capacity available market place continuing significantly exceed overall market demand creating sharply declining prices reduced cash flows additional information tgn impairment charge see note 6 consolidated financial statements since tgn represented significant asset group within tyco telecommunications reporting unit updated goodwill valuation completed march 31 2002 reporting unit valuation completed using income approach based upon present value future cash flows reporting unit march 31 2002 however first step analysis resulted impairment tyco telecommunications reporting units goodwill date quarter ended june 30 2002 additional circumstances developed indicated potential impairment value goodwill respect reporting units experienced disruptions business surrounding termination previously announced breakup plan resignation chief executive officer downgrades credit ratings additional decline market capitalization updated valuations completed reporting units june 30 2002 using income approach based present value future cash flows reporting unit additional discount factor applied reflect decrease reporting unit valuations recent disruptions corporate offices negative publicity evidenced decline total market capitalization resulted estimated goodwill impairment continuing operations 8444 million 6077 million relating tyco telecommunications 2367 million relating tyco infrastructure reporting unit within engineered products services segment quarter ended september 30 2002 step two analyses prescribed sfas 142 book value exceeds estimated fair value individual assets liabilities reporting unit completed tyco telecommunications reporting unit tyco infrastructure reporting unit resulted incremental goodwill impairment continuing operations 1620 million 795 million relating tyco telecommunications 825 million relating tyco infrastructure quarter ended september 30 2002 circumstances associated restructuring charges related tyco telecommunications reporting unit indicated potential impairment value goodwill reporting unit updated valuation using income approach based present value future cash flows completed september 30 2002 valuation resulted additional estimated goodwill impairment continuing operations 3373 million fiscal 2002 curtailed certain end markets terminated adt authorized dealer program due decrease projected purchases customer contracts authorized dealer program updated valuation using income approach based present value future cash flows september 30 2002 performed security services reporting unit valuation results indicated fair value reporting unit exceeded book value reporting unit disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units continued downgrades credit ratings additional market capitalization declines may result perform another sfas 142 first step valuation analysis reporting units prior required annual assessment types events resulting analysis could result additional charges goodwill asset impairments future elected make july 1 annual assessment date reporting units information regarding impairment goodwill relating tyco capital see discontinued operations tyco capital cit group inc revenue recognitioncontract sales installation fire protection systems large security intruder systems underwater cable systems construction related projects recorded percentageofcompletion method profits recognized contracts process based upon contracted revenue related estimated cost completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable estimates inaccurate risk revenues profits period may overstated understated income taxesestimates full year taxable income various legal entities jurisdictions used tax rate calculation change throughout year management uses judgement estimating income year since judgement involved risk tax rate may significantly increase decrease period discontinued operations tyco capital cit group inc april 25 2002 company announced plan divest tyco capital potentially ipo cits outstanding shares june 2002 management companys board directors approved sale common shares cit ipo establishing measurement date discontinued operations accordingly results tyco capital presented discontinued operations periods prior year amounts include tyco capitals operating results june 1 2001 date acquisition cit tyco sale 100 cits common shares ipo completed july 8 2002 following table presents summary balance sheet information discontinued operations tyco capital september 30 2001 millions operating results discontinued operations tyco capital july 8 2002 follows millions 1 average earning assets average finance receivables operating lease equipment finance receivables held sale certain investments less credit balances factoring clients tyco capitals revenues 40687 million period october 1 2001 july 8 2002 consisting finance income 33276 million income 7411 million tyco capitals revenues period june 2 september 30 2001 20116 million consisting finance income 16765 million income 3351 million percentage aea finance income 119 128 period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively period october 1 2001 july 8 2002 tyco capitals loss income taxes minority interest 59587 million period june 2 september 30 2001 tyco capitals income taxes minority interest 4511 million interest expense totaled 10915 million 5971 million period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively percentage aea interest expense 39 46 period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively income tyco capital 7411 million 3351 million period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively set forth following table millions included fees income miscellaneous fees syndication fees gains receivable sales period october 1 2001 july 8 2002 tyco capital recorded charges 3550 million relating primarily weakness competitive local exchange carrier industry included within telecommunications portfolio economic reforms instituted argentine government converted tyco capitals dollardenominated receivables pesodenominated receivables charges included provision credit losses provision credit losses 6656 million 24 aea 1161 million 09 aea period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively financing leasing portfolio assets totaled 407 billion september 30 2001 managed assets totaled 509 billion september 30 2001 managed assets include finance receivables operating lease equipment finance receivables held sale certain investments finance receivables previously securitized still managed tyco capital reduced asset levels reflect sale liquidation underperforming assets industries expected continue low margins coupled lower origination volumes due soft economic environment funding constraints arising tyco capitals increased costs borrowing quarter ended march 31 2002 experienced disruptions business surrounding announced breakup plan downgrade credit ratings significant decline market capitalization time period cit also experienced credit downgrades disruption historical funding base marketbased information used connection preliminary consideration proposed ipo cit indicated cits book value exceeded estimated fair value march 31 2002 result performed sfas 142 first step impairment analysis march 31 2002 concluded impairment charge warranted time managements objective performing sfas 142 first step analysis obtain relevant marketbased data calculate estimated fair value cit march 31 2002 based projected earnings market factors expected used market participants ascribing value cit planned separation cit tyco management obtained relevant market data financial advisors regarding range price earnings multiples market condition discounts applicable cit march 31 2002 applied market data cits projected annual earnings march 31 2002 calculate estimated fair value resulting goodwill impairment estimated fair value compared corresponding carrying value cit march 31 2002 result recorded 45127 million impairment charge march 31 2002 included discontinued operations sfas 142 requires second step analysis whenever reporting units book value exceeds estimated fair value analysis requires estimate fair value reporting units individual assets liabilities complete analysis goodwill march 31 2002 completed second step analysis cit quarter ended june 30 2002 result recorded additional goodwill impairment 1320 million june 30 2002 quarter cit experienced credit downgrades business environment factors continued negatively impact likely proceeds ipo result performed another first step second step analysis june 30 2002 manner consistent march 2002 process described analyses based upon updated market data june 30 2002 period immediately following ipo including ipo proceeds analyses resulted goodwill impairment 18670 million also included discontinued operations june 30 2002 also recorded additional impairment charge 1264 million order writedown investment cit fair value total cit goodwill impairment charge 21254 million quarter ended june 30 2002 writedown based upon net ipo proceeds approximately 44 billion deducting estimated pocket expenses included 62825 million loss discontinued operations fourth quarter fiscal 2002 tyco recorded loss sale tyco capital 588 million liquidity capital resources following table summarizes sources cash flow operating activities use portion cash operations fiscal 2002 fiscal 2001 fiscal 2000 refer net amount cash generated operating activities less capital expenditures dividends increases decreases associated sale accounts receivable program free cash flow management believes operating cash flow free cash flow important measures operating performance however free cash flow determined measure financial performance gaap considered substitute cash flows operating activities determined accordance gaap measure liquidity may comparable similarly titled measures reported companies 1 amount sum depreciation tangible property 14655 million 12431 million 10950 million fiscal 2002 fiscal 2001 fiscal 2000 respectively amortization intangible assets goodwill 5674 million 3601 million 2050 million fiscal 2002 fiscal 2001 fiscal 2000 respectively 2 amount excludes cash paid restructuring unusual charges 3 amount cash paid restructuring unusual charges 4 amount net proceeds 295 million 4277 million 1720 million received saleleaseback transactions fiscal 2002 fiscal 2001 fiscal 2000 respectively also net proceeds 1662 million 620 million 616 million received saledisposition property plant equipment fiscal 2002 fiscal 2001 fiscal 2000 respectively 5 amount cash payments purchase accounting holdbackearnout liabilities 6241 million 8944 million 5442 million fiscal 2002 fiscal 2001 fiscal 2000 respectively following table shows cash flow operating activities free cash flow segment fiscal 2002 millions 1 amounts exclude cash paid restructuring unusual charges net change total working capital net effects acquisitions divestitures decrease 3776 million fiscal 2002 including cash paid restructuring unusual charges 5568 million components change set forth detail consolidated statement cash flows significant changes working capital included 10145 million decrease accounts receivable due primarily collection contracts within tyco telecommunications lesser extent overall decrease within electronics segment result lower sales addition accounts payable decreased 8337 million primarily result decrease within tyco telecommunications due general downturn industry well overall decrease across business segments due lower purchasing volume result decline sales effect vendors demanding earlier payments result liquidity concerns focus maximizing cash flow operating businesses attempt keep working capital employed businesses minimum level required efficient operations fiscal 2002 decreased participation sale accounts receivable program 564 million fiscal 2002 2001 2000 paid 6241 million 8944 million 5442 million respectively cash charged reserves established connection acquisitions accounted purchase accounting method amount included cash paid purchase accounting holdbackearnout liabilities consolidated statements cash flows reserves restructuring unusual items taken charge current earnings time reserves established amounts expended restructuring unusual costs charged reserves paid amount reserves proves greater costs actually incurred excess credited restructuring unusual charges consolidated statement operations period determination made fiscal 2002 recorded net restructuring unusual charges 19543 million charges 6354 million included cost sales related primarily writedown inventory closure facilities within electronics segment september 30 2001 existed reserves restructuring unusual charges 3402 million fiscal 2002 paid 5568 million cash incurred 3818 million noncash charges september 30 2002 remained 13559 million reserves restructuring unusual charges consolidated balance sheet 10955 million included accrued expenses current liabilities 2604 million included longterm liabilities april 2002 terminated previously announced plan separate four independent publicly traded companies addition announced planned divest tyco capital initial public offering ipo outstanding shares cit group inc completed july 8 2002 fiscal 2002 purchased businesses 37505 million customer contracts electronic security services 14010 million aggregate cost 51515 million consists 30848 million paid cash net 1580 million cash acquired 19188 million paid form tyco common shares assumed stock options preexisting put option rights fair value 1479 million 1026 million put option rights paid cash also fiscal 2002 completed amalgamation tycom shares already owned tyco converted approximately 177 million tyco common shares valued 8199 million fair value debt acquired companies aggregated 7991 million beginning fiscal 2002 purchase accounting reserves 7021 million result purchase accounting transactions made prior years connection fiscal 2002 acquisitions established purchase accounting reserves 1946 million transaction integration costs addition purchase accounting liabilities 3394 million corresponding increase goodwill deferred tax assets recorded fiscal 2002 relating fiscal 2001 acquisitions reserves related primarily revisions associated finalizing exit plans lps microser sl daag edison securitylink acquired fiscal 2001 also fiscal 2002 reclassified 327 million fair value adjustments related writedown assets prior year acquisitions purchase accounting accruals appropriate asset liability account fiscal 2002 paid 4748 million cash purchase accounting liabilities related current prior years acquisitions incurred 02 million noncash charges addition paid 1493 million relating holdbackearnout liabilities primarily related certain prior period acquisitions including 23 million relating earnout liabilities reserves established prior fiscal 2002 addition fiscal 2002 assumed preexisting put option rights 1059 million 1026 million paid cash holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet certain acquisitions provisions require tyco make additional earnout payments sellers acquired company achieves certain milestones subsequent acquisition tyco earnout payments tied certain performance measures revenue gross margin earnings growth also fiscal 2002 determined 1894 million purchase accounting reserves related acquisitions prior fiscal 2002 needed reversed amount goodwill september 30 2002 remained 5390 million purchase accounting reserves consolidated balance sheet 3241 million included accrued expenses current liabilities 2149 million included longterm liabilities addition 2682 million holdbackearnout liabilities remained consolidated balance sheet 1245 million included accrued expenses current liabilities 1437 million included longterm liabilities required sfas 142 business combinations completed fiscal 2002 accounted purchase accounting method time purchase acquisition made recorded transaction costs integrating purchased company within relevant tyco business segment amounts reserves established fiscal 2002 detailed note 2 consolidated financial statements amounts charged current earnings treated additional purchase price consideration effect increasing amount goodwill recorded connection respective acquisition view costs equivalent additional purchase price consideration consider making acquisition amount reserves proves excess costs actually incurred excess used reduce goodwill account established time acquisition made shortfall recorded earnings fiscal 2002 company sold certain businesses net proceeds approximately 1387 million cash consist primarily certain businesses within healthcare specialty products fire security services segments connection dispositions company recorded net gain 72 million excluding previous charge 1253 million impairment associated assets held sale fiscal 2001 entered agreement acquire cr bard inc healthcare products manufacturer february 6 2002 tyco cr bard inc mutually terminated merger agreement party bore costs break fee paid fiscal 2002 entered agreement acquire mcgrath rentcorp leading rental provider modular offices classrooms electronic test equipment july 1 2002 mcgrath rentcorp elected terminate transaction agreement tyco reimbursed mcgraths cost expenses amount 125 million following details fiscal 2002 capital expenditures net depreciation segment millions 1 includes 11460 million spending construction tgn 2 net 295 million received saleleaseback transactions 1665 million proceeds received sale property plant equipment continue fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards level capital expenditures fire security services segment significantly exceeded expected continue exceed depreciation due growth number new security system installations fiscal 2002 spent 11460 million construction tgn construction tgn substantially completed fiscal 2002 consequently level capital expenditures electronics segment expected decrease significantly fiscal 2003 level capital expenditures segments exceed depreciation fiscal 2003 approximate level spending fiscal 2002 provision income taxes relating continuing operations consolidated statement operations fiscal 2002 2577 million amount income taxes paid net refunds year 3681 million difference due timing differences well tax benefits related exercise share options current income tax liability september 30 2002 22189 million compared 18450 million september 30 2001 fiscal 2002 received proceeds 1857 million exercise common share options used 7892 million cash repurchase common shares satisfy preexisting put option rights associated acquisition sensormatic ceased repurchasing common shares consider implementing future repurchases shortterm debt levels significantly reduced capitalization shareholders equity 247906 million 1242 per share september 30 2002 compared 317374 million 1640 per share september 30 2001 decrease shareholders equity due primarily net loss 94117 million repurchase common shares discussed decrease partially offset following issuance approximately 478 million common shares valued 19188 million acquisition sensormatic ii conversion tycom shares already owned tyco 177 million tyco common shares valued 8199 million connection amalgamation tycom iii 2356 million fair value shares issued options assumed connection fiscal 2001 acquisition mallinckrodt iv issuance 44139 common shares valued 23 million related earnout payment iv 420 million fair value options assumed tangible shareholders deficit 78652 million september 30 2002 tangible shareholders equity 29965 million september 30 2001 goodwill intangible assets 326558 million september 30 2002 compared 287409 million september 30 2001 acquisitions important part tycos growth recent years may continue make selected complementary acquisitions anticipate amount acquisition activity significantly reduced therefore growth rate acquisitions continue reduced compared prior quarters total debt percentage total capitalization total debt shareholders equity 49 september 30 2002 41 september 30 2001 debt agreements including bank credit agreements contain covenants would result default total debt percentage total capitalization exceeds 525 significant decline shareholders equity including decline due significant impairment goodwill assets could cause default covenant 62 billion cash equivalents september 30 2002 net debt total debt less cash equivalents percent net capitalization net debt shareholders equity 42 september 30 2002 39 september 30 2001 source cash used acquisitions fiscal 2002 primarily proceeds issuance debt september 30 2002 total debt 242058 million compared total debt relating continuing operations 216190 million september 30 2001 increase resulted principally net proceeds approximately 17266 million sale notes tigs european medium term note programme 14878 million sale notes due 2011 full discussion debt activity see note 18 consolidated financial statements cash balance increased 61868 million september 30 2002 compared cash relating continuing operations 17792 million september 30 2001 following summarizes tycos change net debt fiscal 2002 millions october 2001 tyco international group sa tig whollyowned subsidiary tyco sold 15000 million 6375 notes due 2011 60 billion shelf registration statement public offering notes fully unconditionally guaranteed tyco net proceeds approximately 14878 million used repay borrowings tigs commercial paper program tig 45 billion available shelf registration statement november 2001 tig sold e5000 million 4375 notes due 2005 e6850 million 55 notes due 2009 l2000 million 65 notes due 2012 l2850 million 65 notes due 2032 utilizing capacity available tigs european medium term note programme established september 2001 notes fully unconditionally guaranteed tyco net proceeds four tranches equivalent 17266 million used repay borrowings tigs commercial paper program first quarter fiscal 2002 tyco repaid upon maturity 3000 million 65 public notes due 2001 january 2002 tig entered 15 billion bridge loan fully unconditionally guaranteed tyco weighted average interest rate 366 tig repaid 6450 million april 2002 remainder june 2002 february 2002 tig borrowed available 20 billion capacity 5year unsecured revolving credit facility maintained liquidity support commercial paper program facility expires february 2006 fully unconditionally guaranteed tyco variable libobased rate 494 september 30 2002 also february 2002 tig borrowed 3855 billion 364day unsecured revolving credit facility exercised option convert facility term loan expiring february 6 2003 loan fully unconditionally guaranteed tyco variable libobased rate 499 september 30 2002 proceeds bridge loan credit facilities used pay maturing commercial paper scheduled maturities provide additional available capital fourth quarter fiscal 2002 tig paid 1037 billion 6875 private placement notes due 2002 following table details debt ratings september 30 2001 march 31 2002 september 30 2002 following borrowings february 2002 standard poors fitch downgraded longterm debt commercial paper ratings moodys confirmed ratings resulting ratings shown march 31 2002 column table subsequent march 31 2002 moodys standard poors fitch downgraded ratings shown september 30 2002 column table primarily result tycos revision plan separate four independent public companies weak economic environment electronics telecommunications industries public speculation regarding liquidity concerns tyco resignations former chief executive officer chief financial officer chief corporate counsel 1 september 30 2002 moodys differentiated ratings tycos tigs outstanding debt moodys debt rating tycos convertible debentures downgraded ba3 rating security ratings set forth recommendation buy sell hold securities may subject revision withdrawal assigning rating organization rating evaluated independently rating result rating agencies downgrade tycos debt investment grade status june 2002 tig required pay 2567 million repurchase y30 billion 35 notes due 2030 july 2002 addition rating investment grade status caused interest rate 400 million 72 notes due 2008 increase 82 time rating moodys returns investment grade downgrade also gave investors two accounts receivable programs option discontinue reinvestment new receivables terminate programs investors exercise option one program subsequently amended continue reinvestment amount outstanding program 1324 million september 30 2002 june 1998 tig issued 7500 million 625 dealer remarketable securities drs due 2013 terms drs remarketing dealer option remarket drs june 2003 option exercised would subject drs mandatory tender remarketing dealer reset interest rate adjusted fixed rate june 2013 remarketing dealer exercise option drs required tendered company june 2003 debentures tendered tig would required repurchase cash table includes projected cash flows december 2003 first quarter fiscal 2004 millions table assumes convertible debentures described retired cash 1 fiscal 2002 free cash flow 28 billion fiscal 2003 free cash flow estimated range 25 billion 30 billion free cash flow first quarter fiscal 2004 estimated range breakeven 300 million 2 19 billion amount represents payment repurchase zero coupon convertible bonds option holders february 2003 intend negotiate new bank credit facility refinance portion 39 billion outstanding existing facility expires february 2003 3 amount represents payment repurchase zero coupon convertible bonds option holders november 2003 4 amount excludes approximately 196 million shortterm restricted cash treasury bills maturities excess ninety days less one year approximately 94 million fiscal 2003 2004 free cash flow ranges reflect uncertainties result liquidity issues general economic uncertainties july 2002 received net proceeds 44 billion deducting estimated pocket expenses sale cits common shares initial public offering plan use net proceeds repay shortterm longterm borrowings working capital corporate purposes november 2000 tyco issued 46575 million principal amount maturity zero coupon convertible debentures due 2020 aggregate net proceeds approximately 33740 million debentures accrete interest rate 15 per annum tyco required repurchase remaining securities cash option holders accreted value november 2003 2005 2007 2014 february 2001 tig issued 30350 million principal amount maturity zero coupon convertible debentures due 2021 aggregate net proceeds 22034 million debentures guaranteed tyco accrete interest rate 15 per annum tig required repurchase remaining securities option holders accreted value approximately 19 billion february 2003 tig may elect refinance debentures repurchase cash tyco common shares combination thereof holders debentures exercise put option number common shares needed satisfy put option lieu cash fair value tycos stock based stock price defined period time around settlement date based tycos stock price recent date december 20 2002 would need issue approximately 110 million common shares debentures put back company elected use common shares satisfy debentures shares issuable debentures registered time offering tig may also required repurchase securities cash option holders accreted value february 2005 2007 2009 2016 fiscal 2002 tig repurchased 4757 million principal amount maturity debentures illustrated foregoing table discussed significant amounts debt matures fiscal 2003 well future periods including without limitation approximately 19 billion matures february 2003 addition outstanding approximately 39 billion existing credit facility expires february 2003 intend enter new credit facility refinance portion 39 billion outstanding existing credit facility believe cash flow operations together proceeds cit ipo adequate fund operations service debt end fiscal 2003 however events beyond control result ongoing litigation governmental investigations decrease demand products services debt rating downgrades deterioration financial ratios could negatively impact accessibility financing cost funds addition negotiating new bank credit facility believe number financing alternatives could available meet projected cash deficit first quarter fiscal 2004 including refinancing maturing debt raising funds sale noncore businesses raising capital new debt andor equity issuances calendar year 2003 total maturities potential puts convertible debentures amounts approximately 113 billion zero coupon convertible debentures due 2020 zero coupon convertible debentures due 2021 may converted tyco common shares option holders one following conditions satisfied relevant debentures closing sale price tyco common shares least 20 trading days 30 trading day period ending trading day prior date surrender 110 accreted conversion price per common share relevant debentures preceding trading day company called relevant debentures redemption certain date upon occurrence specified corporate transactions tyco makes significant distribution shareholders party specific consolidations mergers binding share exchanges conversion feature zero coupon convertible debentures due 2020 2021 available debt holders september 30 2002 shown following table 1 accreted conversion price per common share equal accreted value respective debentures september 30 2001 divided respective conversion rates conversion price increases interest notes accreted commitments contingencies summary contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases obligations follows millions 1 includes capital lease obligations september 30 2002 company outstanding letters credit amount 6272 million september 30 2002 addition unsecured credit facilities 39 billion 20 billion due 2003 2006 respectively certain companys operating subsidiaries overdraft similar types facilities total 07 billion 04 billion undrawn available facilities expire various dates year 2012 established primarily within international operations january 2002 company issued 200 million guarantee exercised customer certain specifications relating recently completed pacific component tgn completed march 2003 company anticipate problems meeting deadline result actions taken former senior management tyco certain members former senior management named defendants number purported class actions alleging violations disclosure provisions federal securities laws number derivative actions several erisa claims may obliged indemnify directors former directors officers also named defendants matters addition insurance carrier may decline coverage may insufficient cover expenses liability matteres see businessrisk factors legal proceedings others received various subpoenas requests sec district attorney new york county us attorney district new hampshire others seeking production voluminous documents connection various investigations governance management operations accounting related controls cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities suffer penalties could material adverse effect business see bussinessrisk factors legal proceedings like many companies tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation observed increase number lawsuits past several years majority cases filed subsidiaries healthcare specialty products division engineered products services division limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore experience large percentage claims never substantiated dismissed courts vigorous defense lawsuits resulted judgments favor cases tried verdict suffered adverse verdict trial court proceeding related asbestos claims appropriate settle claims however total amount paid date settle defend asbestos claims immaterial currently approximately 11000 asbestos liability cases pending us subsidiaries believe subsidiaries substantial indemnification protection insurance coverage subject applicable deductibles respect asbestos claims indemnitors relevant carriers typically honoring duty defend indemnify believe valid defenses claims intend continue defend vigorously additionally based historical experience asbestos litigation analysis current cases believe adequate amounts accrued potential settlements judgments asbestosrelated litigation possible time determine certainty ultimate outcome asbestosrelated proceedings believe final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect results operations financial position cash flows backlog september 30 2002 backlog unfilled orders 115913 million compared backlog 111742 million september 30 2001 expect approximately 79 backlog september 30 2002 filled fiscal 2003 backlog reportable industry segment follows millions backlog fire security services includes recurring revenue force represents one years fees security monitoring maintenance services contract amount recurring revenue force september 30 2002 2001 34920 million 30996 million respectively within fire security services segment backlog increased primarily due increase recurring revenue force result growth certain geographies adts dealer program offset part curtailment certain endmarkets termination adt dealer program backlog also increased due increase uk fire protection business acquisition sensormatic resulted addition approximately 57 million backlog engineered products services increased primarily due acquisitions completed current fiscal year fiscal 2001 backlog segment increased 1751 million result certain longterm contracts previously reported offset adjustment reflect net revenues instead gross revenues tyco infrastructure services 6434 million decrease within electronics segment backlog decreased approximately 500 million new contracts undersea cable communication systems signed fiscal 2002 result downturn telecommunications industry backlog also decreased electronics components group due cancellation andor delay orders customers primarily endmarkets including communications computer consumer electronics industries backlog healthcare specialty products segment represents unfilled orders nature business normally shipped shortly purchase orders received view backlog healthcare specialty products segment significant indicator level future sales activity quantitative qualitative disclosures market risk subject market risk associated changes interest rates foreign currency exchange rates certain commodity prices order manage volatility relating significant market risks enter forward foreign currency exchange contracts crosscurrency swaps foreign currency options commodity swaps interest rate swaps anticipate material changes primary market risk exposures fiscal 2003 utilize risk management procedures controls executing derivative financial instrument transactions execute transactions hold derivative financial instruments trading purposes derivative financial instruments related interest rate sensitivity debt obligations intercompany crossborder transactions anticipated nonfunctional currency cash flows well commodity price exposures used goal mitigating significant portion exposures cost effective counterparties derivative financial instruments limited financial institutions least longterm debt rating interest rate sensitivity table provides information financial instruments sensitive changes interest rates including debt obligations interest rate swaps debt obligations table presents cash flows principal repayment weightedaverage interest rates interest rate swaps table presents notional amounts weightedaverage interest rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars millions 1 weightedaverage variable interest rates based applicable rates september 30 2002 per terms contracts related financial instruments exchange rate sensitivity table provides information financial instruments sensitive foreign currency exchange rates instruments include debt obligations forward foreign currency exchange contracts debt obligations table presents cash flows principal repayment weightedaverage interest rates forward foreign currency exchange contracts table presents notional amounts weightedaverage contractual exchange rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars unless noted millions 1 weightedaverage variable interest rates based applicable rates september 30 2002 per terms contracts related financial instruments commodity price sensitivity table provides information tycos financial instruments sensitive changes commodity prices total contract dollar amounts notional quantity amounts presented forward commodity contracts contract amounts used calculate contractual payments quantity commodity exchanged contracts millions accounting technical pronouncements june 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 addresses accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective fiscal years beginning june 15 2002 expect adoption new standard material impact results operations financial position july 2001 fasb issued sfas 144 impairment disposal longlived assets effective fiscal years beginning december 15 2001 provisions statement provide single accounting model impairment longlived assets expect adoption new standard material impact results operations financial position april 2002 fasb issued sfas 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections effective fiscal years beginning may 15 2002 statement rescinds indicated statements amends existing authoritative pronouncements make various technical corrections clarify meanings describe applicability changed conditions sfas 145 encourages early adoption provision standard rescinds sfas no4 reporting gains losses extinguishments debt accordingly company elected early adopt provision fourth quarter fiscal 2002 resulted increased pretax income 306 million fiscal 2002 reclassified prior year extraordinary losses related early retirement debt expense income consolidated statements operations decreased pretax income 263 million 03 million fiscal 2001 2000 respectively however net income remains unchanged periods see note 8 consolidated financial statements information adoption new standard material impact results operations financial position july 2002 fasb issued sfas 146 accounting costs associated exit disposal activities effective exit disposal activities initiated december 31 2002 statement nullifies emerging issues task force issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring statement requires liabilities associated exit disposal activities initiated adoption recognized measured fair value incurred opposed date entity commits exit disposal plans expect adoption new standard impact timing future restructuring charges forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed securities exchange commission tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect sales earnings cash flows operating efficiencies product expansion backlog consummation benefits acquisitions matters well financings share repurchases subject known unknown risks uncertainties contingencies many beyond control may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forwardlooking statements include among things overall economic business conditions demand tycos goods services competitive factors industries tyco competes changes tax requirements including tax rate changes new tax laws revised tax law interpretations results consequences tycos internal investigation governmental investigations concerning companys governance management internal controls operations outcome litigation governmental proceedings result actions taken former management ratings debt ability repay refinance outstanding indebtedness matures interest rate fluctuations changes borrowing costs capital market conditions including foreign currency rate fluctuations economic political conditions international markets including governmental changes restrictions ability transfer capital across borders ability achieve anticipated synergies cost savings connection acquisitions timing impact uncertainties future acquisitions potential impairment goodwill impact fluctuations share price tyco common shares changes us nonus government regulations general particular changes rules regulations regarding safety efficacy sales promotions insurance reimbursement pricing tycos disposable medical products specialty products regarding tycos ability operate set prices respect undersea cable communications systems impact recent management changes possible effects tyco pending legislation us enacted may limit eliminate potential us tax benefits resulting tycos incorporation bermuda may deny us government contracts tyco based upon incorporation bermuda potential continuing disruption business related distraction costs associated negative publicity recent announcements tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules reports form 8k a1 2 financial statements schedulessee item 8 3 exhibit index exhibit number exhibit 21 agreement plan merger dated june 28 2000 among tyco acquisition corp vi nv evm merger corp mallinckrodt inc incorporated reference registrants form s4 filed july 12 2000 22 agreement purchase sale assets dated november 13 2000 lucent technologies tyco group sarl incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2000 23 amendment 1 dated december 29 2000 agreement purchase sale assets dated november 13 2000 lucent technologies tyco group sarl incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2001 filed december 28 2001 24 agreement plan merger dated march 12 2001 tyco acquisition corp xix nv cit group inc including guarantee tyco international ltd incorporated reference registrants form s4 filed march 29 2001 25 agreement plan merger dated august 3 2001 tyco acquisition corp xxiv nv sensormatic electronic corporation including guarantee tyco international ltd incorporated reference registrants form s4 filed august 24 2001 26 amendment dated august 23 2001 agreement plan merger dated august 3 2001 tyco acquisition corp xxivnv cit group inc incorporated reference registrants form s4 filed september 13 2001 27 agreement plan amalgamation dated october 18 2001 tgn holdings ltd tycom ltd including guarantee tyco international ltd incorporated reference registrants form s4 filed october 23 2001 31 memorandum association altered incorporating amendments july 2 1997 incorporated reference exhibit registrants quarterly report form 10q quarter ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 32 certificate incorporation incorporating amendments july 2 1997 incorporated reference exhibit registrants quarterly report form 10q quarter ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 33 byelaws tyco international ltd incorporating amendments march 6 2003 incorporated reference exhibit registrants quarterly report form 10q quarter ended march 31 2003 filed may 15 2003 41 form indenture dated june 9 1998 among tyco international group sa tig tyco bank new york trustee incorporated reference exhibit registrants tigs coregistration statement form s3 filed june 9 1998 42 certain instruments defining rights holders tigs tyco international ltds longterm debt none authorize total amount indebtedness excess 10 total assets tyco international ltd subsidiaries consolidated basis filed exhibits tyco international ltd agrees furnish copy agreements commission upon request 43 indenture among tig tyco state street bank trust company trustee dated february 12 2001 relating zero coupon convertible debentures due 2021 incorporated reference exhibit registrants tigs coregistration form s3 filed march 16 2001 44 364day revolving credit agreement dated january 31 2003 among tyco international group sa tyco international ltd sensormatic electronics corporation scott technologies inc innerdyne inc banks named therein bank america na administrative agent incorporated reference exhibit registrants quarterly report form 10q quarter ended march 31 2003 filed may 15 2003 45 amendment 1 dated may 25 2001 among tig tyco banks named therein chase manhattan bank agent relating 364day credit agreement dated february 7 2001 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2001 46 indenture dated november 17 2000 tyco state street bank trust company trustee relating zero coupon convertible debentures due 2020 incorporated reference registrants form s3 filed december 8 2000 47 fiveyear credit agreement dated february 7 2001 among tig tyco banks named therein chase manhattan bank agent incorporated reference exhibit registrants quarterly report form 10q quarter ended march 31 2001 48 amendment 1 dated may 25 2001 among tig tyco banks named therein chase manhattan bank agent relating fiveyear credit agreement dated february 7 2001 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2001 filed december 28 2001 49 indenture among tyco international group sa us bank na trustee dated january 13 2003 relating series 2750 convertible senior debentures due 2018 series b 3125 convertible senior debentures due 2023 incorporated reference exhibit registrants quarterly report form 10q quarter ended december 31 2002 filed february 14 2003 410 supplemental indenture 1 dated january 10 2003 among tyco international group sa tyco international ltd us bank na formerly state street bank trust company incorporated reference registrants tigs schedule filed january 14 2003 101 tyco international ltd long term incentive plan formerly known adt 1993 longterm incentive plan amended may 12 1999 incorporated reference registrants form s8 filed june 10 19991 102 1981 key employee loan program incorporated reference former tycos form 10k fiscal year ended may 31 198212 103 1983 restricted stock ownership plan key employees incorporated reference former tyco shareholders proxy statement annual meeting shareholders october 18 198312 104 1983 key employee loan program amended december 9 1993 incorporated reference former tycos form 10k fiscal year ended june 30 199412 105 1994 restricted stock ownership plan key employees incorporated reference registrants form s8 filed december 21 19991 106 tyco international ltd supplemental executive retirement plan incorporated reference former tycos form 10k fiscal year ended june 30 199512 107 tyco international ltd long term incentive plan ii incorporated reference registrants form s8 filed march 25 19991 108 retention agreement l dennis kozlowski dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 20011 109 retention agreement mark h swartz dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 20011 1010 retention agreement richard j meelia dated february 14 2002 incorporated reference exhibit registrants quarterly report form 10q quarter ended december 31 20011 1011 retention agreement mark belnick dated february 28 2002 incorporated reference exhibit registrants quarterly report form 10q quarter ended march 31 20021 1012 edward breen employment contract dated july 25 2002 incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 20021 1013 memo summarizing mark h swartzs severance arrangement incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 20021 1014 memo summarizing john f fort iiis interim consulting arrangement incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 20021 1015 memo summarizing joshua bermans compensation arrangement incorporated reference exhibit registrants quarterly report form 10q quarter ended june 30 20021 1016 david j fitzpatrick employment contract dated september 18 2002 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1017 william b lytton employment contract dated september 30 2002 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1018 tyco international ltd uk savings related share option plan incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1019 tyco employee stock purchase plan amended may 2003 incorporated reference exhibit 101 registrants registration statement form s8 dated july 30 2003 1020 tyco international ireland employee share scheme incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 2002 1021 eric pillmore employment contract effective august 12 2002 executed january 29 2003 incorporated reference exhibit registrants quarterly report form 10q quarter ended march 31 2003 filed may 15 20031 1022 tyco international us inc deferred compensation plan amended june 2002 incorporated reference exhibit registrants quarterly report form 10q quarter ended march 31 2003 filed may 15 2003 1023 juergen gromer employment contract effective october 1 1999 executed june 19 2000 filed herewith 181 preferability letter incorporated reference exhibit registrants quarterly report form 10q quarter ended march 31 2003 filed may 15 2003 211 subsidiaries registrant filed herewith 231 consent pricewaterhousecoopers llp filed herewith 241 power attorney filed herewith 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 filed herewith 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 1management contract compensatory plan 2in july 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd massachusetts corporation time former tyco upon consummation merger adt continuing public company changed name tyco international ltd tyco former tyco became whollyowned subsidiary tyco changed name tyco international us inc tyco us b reports form 8k current report form 8k furnished item 9 july 29 2003 include exhibit press release tyco international ltd dated july 29 2003 announcing companys filing restated financial statements fiscal year ended september 30 2002 quarter ended december 31 2002 quarter ended march 31 2003 current report form 8k furnished item 9 place item 12 accordance interim guidance provided securities exchange commission release 338216 issued march 27 2003 july 29 2003 include exhibit press release tyco international ltd dated july 29 2003 announcing companys results third fiscal quarter current report form 8k furnished item 9 august 8 2003 include exhibit press release tyco international ltd dated august 8 2003 announcing companys request accelerated effectiveness shelf registration statement form s3 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused form 10k signed behalf undersigned thereunto duly authorized tyco international ltd david j fitzpatrick david j fitzpatrick executive vice president chief financial officer principal financial accounting officer date december 17 2003 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant december 17 2003 capacities indicated name title edward breen edward breen chairman chief executive officer director principal executive officer david j fitzpatrick david j fitzpatrick executive vice president chief financial officer principal financial accounting officer dennis c blair director george w buckley director bruce gordon director john krol director h carl mccall director mackey j mcdonald director brendan r oneill director sandra wijnberg director jerome b york director william b lytton signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report william b lytton william b lytton attorneyinfact tyco international ltd index consolidated financial information managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior team leading example includes every one tycos approximately 258600 global employees well customers suppliers business partners one crucial objectives restoring public employee shareholder confidence tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective adopting appropriate accounting standards designing maintaining adequate systems internal disclosure controls devoting full commitment necessary resources items dedication governance controls financial reporting number us tyco 2003 first full year roles made significant progress designing maintaining monitoring internal controls financial reporting disclosures improving corporate governance practices many discussed annual report form 10k believe strong control environment dynamic process therefore intend continue devote substantial resources effort company continually assessed improved controls 2003 believe controls provide reasonable assurance companys assets safeguarded transactions accordance authorizations financial records reliable financial statements pleased corporate governance control improvements 2003 still much accomplish dynamic quite complex environment recognize culture control environment cannot completely implemented one year goal identifying remediating control deficiencies timely manner continuing devote substantial resources document test effectiveness aspects internal disclosure controls done approximately 2300 subsidiaries throughout world take time experience however confident place rigorous effective controls board directors desire welcome oversight financial reporting activities independent auditors pricewaterhousecoopers llp pwc audit testing pwc takes consideration internal control environment audit committee meets regularly separately management pwc internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls edward breen edward breen chairman chief executive officer david j fitzpatrick david j fitzpatrick executive vice president chief financial officer report independent auditors board directors shareholders tyco international ltd opinion accompanying consolidated balance sheets related consolidated statements operations shareholders equity cash flows present fairly material respects financial position tyco international ltd subsidiaries september 30 2003 2002 results operations cash flows three years period ended september 30 2003 conformity accounting principles generally accepted united states america addition opinion accompanying financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed notes 1 12 17 company adopted provisions financial accounting standards board interpretation 46 consolidation variable interest entities fiscal year 2003 statement financial accounting standards 142 goodwill intangible assets fiscal year 2002 sec staff accounting bulletin 101 revenue recognition financial statements fiscal year 2001 pricewaterhousecoopers llp new york new york november 4 2003 except note 33 date november 18 2003 tyco international ltd consolidated statements operations millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets millions except share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd company incorporated bermuda subsidiaries tyco subsidiaries hereinafter company tyco prepared united states dollars accordance generally accepted accounting principles united states gaap businessthe company operates following business segments •fire security designs manufactures installs monitors services electronic security fire protection systems •electronics designs manufactures distributes electrical electronic components designs manufactures installs operates maintains undersea fiber optic cable communications systems •healthcare designs manufactures distributes medical devices supplies imaging agents pharmaceuticals adult incontinence infant care products •engineered products services designs manufactures distributes services engineered products including industrial valves controls steel tubular goods provides environmental industrial consulting services •plastics adhesives designs manufactures distributes plastic products adhesives films principles consolidationtyco holding company whose assets consist investments subsidiaries intercompany balances longterm debt holdings cash equivalents businesses consolidated group conducted tycos subsidiaries company consolidates companies owns controls fifty percent voting shares unless control likely temporary also accordance fin 46 company consolidates variable interest entities company bears majority risk potential losses stands gain majority expected returns results companies acquired disposed fiscal year included consolidated financial statements effective date acquisition date disposal significant intercompany balances transactions eliminated consolidation revenue recognitionthe company adopted staff accounting bulletin 101 sab 101 revenue recognition financial statements fourth quarter fiscal 2001 retroactive beginning fiscal year recognizing revenues installation owned security systems deferring associated direct incremental costs estimated customer lives revenue sale products recognized according terms sales arrangement customarily products reach freeonboard shipping point revenue sale services recognized services rendered subscriber billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems undersea fiber optic cable systems construction related projects recorded percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion cost completion undersea cable systems measured based ratio costs incurred total estimated costs cost completion installation fire protection systems construction related projects measured using effortsexpended method based direct labor hours expended actual material used revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable certain companys longterm contracts warranty obligations estimated warranty costs contract determined based contract terms technology specific issues costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting companys global undersea fiber optic network sells bandwidth capacity known tyco global network tgn companys sales bandwidth capacity generally structured either service arrangements operating leases company recognizes revenue associated service arrangement ratably service period recognizes revenue associated operating leases lease term 2003 decided sell tgn see note 16 continue recognize revenue disposal date september 30 2003 accounts receivable longterm receivables included retainage provisions 1745 million 1007 million remained unbilled september 30 2002 accounts receivable longterm receivables included retainage provisions 1648 million 849 million remained unbilled retention provisions consist primarily electronics contracts fire protection contracts well transportation water environmentalrelated contracts retention provisions become due upon contract completion acceptance balance 1745 million september 30 2003 1388 million included accounts receivable expected collected fiscal 2004 research developmentresearch development expenditures expensed incurred included cost sales customerfunded research development costs incurred tyco reimbursed customers net impact research development expense consolidated statement operations customerfunded research development research development expense consolidated statement operations reflects companysponsored research development advertisingadvertising costs expensed incurred included selling general administrative expenses sale common shares subsidiarygains sale common shares issued subsidiary included consolidated statement operations translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars operate highly inflationary environments assets liabilities translated us dollars using yearend exchange rates revenues expenses translated average exchange rates effective year foreign currency translation gains losses included component accumulated comprehensive income loss within shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments assets liabilities subsidiaries included net income gains losses resulting foreign currency transactions amounts material period presented included net income cash equivalentsall highly liquid investments purchased maturity three months less time purchase considered cash equivalents occasion company required post cash collateral secure reimbursements indemnity obligations letters credit performance guarantees respect various construction projects amount restricted cash collateral 4448 million 1418 million included current assets 3030 million included longterm assets 1962 million included current assets september 30 2003 2002 respectively allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipmentproperty plant equipment recorded cost less accumulated depreciation maintenance repair expenditures charged expense incurred years ended september 30 2003 2002 2001 company capitalized interest 252 million 1001 million 763 million respectively decrease capitalized interest fiscal 2003 due completion construction tgn straightline method depreciation used estimated useful lives related assets follows expenditures incurred build tgn costs classified within consolidated balance sheets construction progresstyco global network certain geographic segments tgn completed available capacity sales costs segment removed construction progress reclassified placed service portion tgn placed service recorded within consolidated balance sheet tyco global networkplaced service september 30 2002 see note 28 september 30 2003 tgn impaired entirely writtenoff see note 6 company generally divides electronic security assets various asset pools internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program subscriber systems represent internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program recorded intangible assets internal purposes divide internally generated commercial accounts three smaller groups consisting small business core commercial national commercial accounts internally generated residential commercial account pools generally amortized using straightline method tenyear period fourteenyear period national commercial accounts fourteenyear period writeoff specific accounts upon discontinuance residential commercial accounts certain nonus geographic locations gains losses arising disposal property plant equipment included consolidated statements operations material period presented longlived assetsthe company periodically evaluates net realizable value longlived assets including property plant equipment amortizable intangible assets relying number factors including operating results business plans economic projections anticipated future cash flows indicators impairment present carrying values assets evaluated relation operating performance estimated future undiscounted cash flows underlying business impairment carrying value asset recognized whenever anticipated future cash flows undiscounted asset estimated less carrying value amount impairment recognized difference carrying value asset fair value fair values based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk goodwilleffective october 1 2001 beginning tycos fiscal year 2002 company adopted statement financial accounting standards sfas 142 goodwill intangible assets goodwill longer amortized instead assessed impairment least annually triggering events occur making assessment management relies number factors including operating results business plans economic projections anticipated future cash flows transactions market place data inherent uncertainties related factors managements judgment applying analysis goodwill impairment company elected make july 1 annual impairment assessment date reporting units perform additional impairment tests triggering events occur sfas 142 defines reporting unit operating segment one level operating segment reporting units september 30 2003 follows electronic security services fire protection contracting services electronic components wireless electrical contracting services power systems printed circuit group submarine telecommunications medical devices supplies retail pharmaceuticals flow control fire products electrical metal products infrastructure services plastics ae products adhesives ludlow coated products changes occur composition one segments reporting units goodwill reassigned segmentsreporting units affected based relative fair value prescribed sfas 142 goodwill valuations historically calculated using income approach based present value future cash flows reporting unit approach includes many assumptions related future growth rates discount factors future tax rates etc changes economic operating conditions impacting assumptions could result goodwill impairment future periods disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit market capitalization declines may result perform sfas 142 first step valuation analysis tycos reporting units prior required annual assessment types events resulting analysis could result additional charges goodwill asset impairments future see note 17 information sfas 142 note 11 discontinued operations tyco capital cit group inc information regarding impairment goodwill relating tyco capital fiscal 2001 goodwill amortized straightline basis periods ranging 10 40 years accordance guidance sfas 142 goodwill associated acquisitions consummated june 30 2001 amortized fourth quarter fiscal 2001 intangible assetsintangible assets primarily include contracts related customer relationships intellectual property certain contracts related customer relationships result company purchasing residential security monitoring contracts external network independent dealers operate adt dealer program acquired contracts related customer relationships recorded contractually determined net purchase price company incurs costs associated maintaining operating adt dealer program including brand advertising costs due diligence costs relating contracts offered sale company adt dealer program certain programs dealers paid company nonrefundable amount contracts sold company representing reimbursement dealer program costs nonrefundable charge represents dealer reimbursement company costs incurred company associated maintaining operating adt dealer program accordingly acquired contract related customer relationship recorded contractually determined purchase price net nonrefundable amount charged dealers time contract accepted purchase first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price nonrefundable charge dealer retained company even event customer cancellation company records chargeback amount dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship based upon attrition studies adt dealer program customer base conducted independent appraiser company believes accelerated method presently best achieves matching objective doubledeclining balance method based tenyear life first eight years estimated life customer relationship converting straightline method amortization remaining four years estimated relationship period actual attrition data regularly reviewed order assess continued applicability accelerated method amortization described contracts related customer relationships well intellectual property consisting primarily patents trademarks unpatented technology amortized straightline basis five forty years investmentsthe company invests equity securities company accounts longterm investments marketable equity securities represent less twenty percent ownership adjusting securities market value end accounting period unrealized gains losses credited charged shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings debt equity securities classified trading securities recorded fair value unrealized gains losses credited charged earnings debt securities company ability positive intent hold maturity carried amortized cost management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments determined specific identification basis included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting company periodically evaluates carrying value investments accounted cost method accounting september 30 2003 2002 investments recorded lower cost estimated net realizable value equity investments company owns controls twenty percent voting shares exerts significant influence operating financial policies equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented investments included current longterm assets appropriate consolidated balance sheets see note 28 restricted investmentsrestricted investments included current noncurrent assets appropriate consolidated balance sheets consist fixed income securities maturities excess three months investments restricted currently used collateral certain insurance obligations share premium contributed surplusin accordance bermuda companies act 1981 tyco issues shares cash premium par value resulting premium credited share premium account nondistributable reserve tyco issues shares exchange shares another company excess fair value shares acquired par value shares issued tyco credited applicable contributed surplus subject certain conditions distributable reserve income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book values tax basis particular assets liabilities using tax rates effect years differences expected reverse valuation allowance provided offset net deferred tax assets based upon available evidence likely deferred tax assets realized financial instrumentsall derivative instruments reported balance sheet fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met inception derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized charge credit earnings fair value estimates based relevant market information including current market rates prices assuming adequate market liquidity fair value estimates interest rate crosscurrency swaps provided company highquality thirdparty financial institutions known high volume participants market company uses derivative instruments manage exposures foreign currency commodity price interest rate risks companys objectives utilizing derivatives manage risks using effective methods eliminate reduce impacts exposures company documents relationships hedging instruments hedged items links derivatives designated fair value cash flow foreign currency hedges specific assets liabilities consolidated balance sheet specific firm commitments forecasted transactions company also assesses documents hedges inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows associated hedged items part managing exposure changes market interest rates company enduser enters various interest rate swap transactions transacted overthecounter markets financial institutions acting principal counterparties ensure appropriate use hedge accounting treatment derivatives entered designated according hedge objective specified liabilities specifically underwritten debt issue companys primary hedge objectives include conversion fixedrate liabilities variable rates derivatives associated objectives classified fair value hedges part managing exposure changes foreign currencies company utilizes forward option contracts transacted overthecounter markets financial institutions acting principal counterparties objective hedging contracts minimize impacts cash flows due changes foreign exchange rates intercompany loans booked accounts notes receivable accounts payable forecasted transactions limited circumstances hedge accounting designated remaining hedges marked market companys derivative instruments present certain market counterparty risks however concentration counterparty risk mitigated tyco deals variety major banks worldwide longterm standard poors moodys credit ratings aa1 higher addition conventional derivatives utilized thereby affording optimum clarity market risk none companys derivative instruments outstanding year end would result significant loss company counterparty failed perform according terms agreement time company require collateral security furnished counterparties derivative instruments accrued product warrantythe company generally accrues estimated product warranty costs time sale additional amounts recorded costs probable reasonably estimated manufactured products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty manufactured equipment also warranted manner product warranties however instances warranty either negotiated contract sold separate component warranty period terms range 90 days eg consumable products 20 years eg power system batteries amount accrued warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage use estimatesthe preparation consolidated financial statements conformity gaap requires management make extensive use estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges credits purchase accounting liabilities allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenues related costs environmental legal liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ estimates changes estimates recorded results operations period event circumstances giving rise changes occur accounting pronouncementseffective october 1 2002 company adopted sfas 143 accounting asset retirement obligations sfas 143 addresses accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs adoption new standard material impact results operations financial position effective october 1 2002 company adopted sfas 144 accounting impairment disposal longlived assets provisions statement provide single accounting model impairment longlived assets initial adoption new standard material impact results operations financial position effective january 1 2003 company adopted sfas 146 accounting costs associated exit disposal activities effective exit disposal activities initiated december 31 2002 statement nullifies fasbs emerging issues task force eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring statement requires liabilities associated exit disposal activities recognized measured fair value incurred opposed date entity commits exit disposal plans initial adoption new standard material impact results operations financial position effective january 1 2003 company adopted sfas 148 accounting stockbased compensationtransition disclosure amends sfas 123 accounting stockbased compensation provide transition methods voluntary change measuring compensation cost connection employee share option plans using fair value based method statement also amends disclosure requirements sfas 123 require prominent disclosures method accounting compensation cost associated employee share option plans well effect method used reported results company adopted disclosure requirements sfas 148 changed method measuring compensation cost share options tyco continues use intrinsic value based method recognize compensation expense issuance options exercise price equal greater market price time grant result adoption sfas 148 impact results operations financial position fair value based provisions sfas 123 adopted tyco effect net income earnings per common share fiscal 2003 fiscal 2002 fiscal 2001 would follows millions dates grant using blackscholes optionpricing model assumptions set forth estimated weightedaverage fair value tyco options granted fiscal 2003 2002 634 1431 respectively estimated weightedaverage fair value tyco tycom options granted fiscal 2001 1972 911 respectively following weightedaverage assumptions used fiscal 2003 fiscal 2002 fiscal 2001 effects applying sfas 123 pro forma disclosure indicative effects may future years sfas 123 apply awards prior 1995 additional awards future years anticipated fiscal 2003 company adopted fasb interpretation fin 45 guarantors accounting disclosure requirements guarantees fin 45 requires increased disclosure guarantees including likelihood payment remote product warranty information see note 20 fin 45 also requires guarantors recognize liability certain types guarantees equal fair value guarantee upon issuance adoption fin 45 material impact results operations financial position january 2003 fasb issued fin 46 consolidation variable interest entities interpretation clarifies application accounting research bulletin 51 consolidated financial statements relating consolidation certain entities fin 46 requires identification companys participation variable interest entities vies defined entities level invested equity sufficient fund future activities permit operate stand alone basis whose equity holders lack certain characteristics controlling financial interest entities identified vies fin 46 sets forth model evaluate potential consolidation based assessment party vies bears majority risk expected losses stands gain majority expected returns fin 46 also sets forth certain disclosures regarding interests vies deemed significant even consolidation required company adopted fin 46s accounting provisions july 1 2003 see notes 12 30 discussion impact fin 46 november 2002 eitf reached consensus eitf issue 0021 revenue arrangements multiple deliverables eitf 0021 provides guidance determine arrangement involves multiple revenuegenerating activities deliverables divided separate units accounting revenue recognition purposes states division required arrangement consideration allocated among separate units accounting guidance consensus effective revenue arrangements entered fiscal periods began june 15 2003 adoption new standard material impact results operations financial position april 2003 fasb issued sfas 149 amendment statement 133 derivative instruments hedging activities amends clarifies financial accounting reporting derivative instruments including certain derivative instruments embedded contracts hedging activities sfas 133 accounting derivative instruments hedging activities sfas 149 applied prospectively effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption new standard material impact results operations financial position may 2003 fasb issued sfas 150 accounting certain financial instruments characteristics liabilities equity establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability asset circumstances effective instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 adoption new standard material impact results operations financial position reclassificationscertain prior year amounts reclassified conform current year presentation 2 acquisitions divestitures company purchased substantially voting equity interests businesses acquired periods presented addition acquisition accounted purchase results operations acquired companies included companys consolidated results respective acquisition dates time purchase acquisition made company records asset acquired liability assumed estimated fair value amount subject future adjustment appraisals valuation data obtained excess total consideration paid acquired company ii fair value tangible intangible assets acquired less liabilities assumed purchase accounting liabilities established recorded goodwill appraisals valuation data obtained company records adjustments fair value net assets acquired liabilities assumed purchase price allocations certain acquisitions preliminary year acquired company finalizes integrationexit plans expects recognize additional purchase accounting liabilities several factors impact finalization integrationexit plans identifying acquired facilities duplicative tycos existing operations determined approval needs obtained management appropriate level authority estimated cost integrationexit activities needs determined negotiation employee bargaining groups needs completed order finalize plan result final adjustments often extend end oneyear period acquisition additional purchase accounting liabilities increase amount goodwill recorded changes fair value net assets could increase decrease goodwill company expects record adjustments goodwill related companies acquired fiscal 2003 however company expect impact adjustments material financial statements acquisitions important part tycos growth prior years tyco made acquisitions sought complement existing products services enhance companys product lines andor expand customer base tyco determined willing pay acquisition partially based expectation could cost effectively integrate products services acquired companies tycos existing infrastructure improve earnings removing overhead costs areas duplicate sales administrative facilities functions addition company utilized existing infrastructure eg established sales force distribution channels customer relations etc acquired companies cost effectively introduce tycos products new geographic areas company also targeted companies perceived experiencing depressed financial performance factors contributed acquisition prices excess fair value net assets acquired resultant goodwill however beginning fiscal 2003 company completed significantly fewer acquisitions compared past years due focus enhancing internal growth within existing businesses fiscal 2003 fiscal 2003 company purchased seven businesses within healthcare engineered products services fire security electronics segments aggregate cost 440 million cash net 11 million cash acquired addition company paid 5968 million cash fiscal 2003 acquire approximately 635500 customer contracts electronic security services companys dealer program fiscal 2003 company paid 1715 million cash utilization purchase accounting liabilities related prior years acquisitions addition company paid cash approximately 1003 million relating holdback earnout liabilities related certain prior period acquisitions holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet certain acquisitions provisions would require tyco make additional earnout payments sellers acquired company achieves certain milestones subsequent acquisition tyco earnout payments tied certain performance measures revenue gross margin earnings growth generally treated additional purchase price cash portions acquisition costs business customer contracts funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates result acquisitions completed fiscal 2003 adjustments fair value assets liabilities recorded acquisitions completed prior fiscal 2003 company recorded net decrease 4624 million goodwill additional 407 million intangible assets fiscal 2003 net decrease goodwill includes 4805 million associated prior years acquisitions primarily sensormatic electronics corporation sensormatic acquired november 2001 mallinckrodt inc mallinckrodt acquired october 2000 lucent technologies power systems lps acquired december 2000 deutsche armaturen ag daag acquired september 2001 slightly offset increase 181 million due current year acquisitions adjustments sensormatic primarily relate fair value adjustments well finalization deferred tax adjustments related previously recorded purchase accounting liabilities adjustments lps mallinckrodt primarily relate reductions purchase accounting liabilities due actual costs less originally estimated see roll forwards purchase accounting accruals adjustments daag relate fair value adjustments increase intangible assets due adjustments associated prior years acquisitions following table shows fair values assets liabilities recorded purchase acquisitions completed fiscal 2003 adjusted reflect changes fair values assets liabilities purchase accounting liabilities holdbackearnout liabilities recorded purchase acquisitions completed prior fiscal 2003 millions purchase accounting liabilities recorded fiscal 2003 connection fiscal 2003 purchase acquisitions immaterial september 30 2003 holdbackearnout liabilities 2117 million remained consolidated balance sheet 931 million included accrued expenses current liabilities 1186 million included longterm liabilities addition total 1990 million purchase accounting liabilities related mostly fiscal 2001 2002 acquisitions remained consolidated balance sheet 797 million included accrued expenses current liabilities 1193 million included longterm liabilities september 30 2003 company contingent liability 80 million related fiscal 2001 acquisition comnet electronics segment 80 million maximum amount payable former shareholders comnet construction installation communications system state florida finished state approved system based guidelines set forth contract 80 million accrued september 30 2003 outcome contingency cannot reasonably determined pro forma effects fiscal 2003 acquisitions divestitures companys results operations material fiscal 2002 fiscal 2002 company purchased approximately 130 businesses aggregate cost 37505 million consisting 16838 million cash net 1580 million cash acquired issuance approximately 478 million common shares valued 19188 million plus fair value stock options preexisting put option rights assumed 1479 million 1026 million put option rights paid cash fiscal 2002 acquisitions include among others sbcsmith alarm systems century tube corporation sensormatic transpower technologies dsc group dsc water power technology linq industrial fabrics inc paragon trade brands inc paragon communications instruments inc clean air systems purchase remaining minority public interest tycom addition fiscal 2002 tyco paid 11393 million approximately 14 million customer contracts electronic security services adt dealer program connection acquisitions company recorded purchase accounting liabilities 1946 million costs integrating acquired companies transaction costs details regarding purchase accounting liabilities set forth tyco also issued approximately 177 million common shares valued 8199 million connection amalgamation tycom see note 9 fair value debt acquired companies aggregated 7991 million fiscal 2002 company paid 4748 million cash purchase accounting liabilities related current prior years acquisitions addition company paid cash 1493 million relating holdback earnout liabilities primarily related certain prior year acquisitions company also issued 44139 common shares valued 23 million relating earnout liabilities fiscal 2002 value earnout common shares based upon fair value stock time issuance cash portions acquisition costs funded utilizing net proceeds issuance longterm debt results operations acquired companies included tycos consolidated results respective acquisition dates following table summarizes purchase accounting liabilities recorded connection fiscal 2002 purchase acquisitions millions fiscal 2003 company recorded additions purchase accounting liabilities continued formulate integration plans fiscal 2002 acquisitions paragon eberle controls gmbh finalization components integration plans associated acquisitions resulted additional purchase accounting liabilities 258 million corresponding increase goodwill deferred tax assets additions reflect termination additional 570 employees closure additional 22 facilities additional distributor supplier cancellation fees acquisition related costs consisting primarily professional fees costs fiscal 2003 company reduced estimate purchase accounting liabilities relating fiscal 2002 acquisitions 274 million primarily actual costs less originally estimated since company severed 659 fewer employees closed 37 fewer facilities originally anticipated due revisions integration plans goodwill related deferred tax assets reduced equivalent amount also fiscal 2003 reclassified certain fair value adjustments related writedown assets fiscal 2002 acquisitions purchase accounting accruals appropriate asset liability account addition reclassified certain amounts related fiscal 2002 acquisitions separately classify distributor supplier cancellation fees correct categorization accruals reclassifications effect amount goodwill recorded termination employees consolidation facilities related fiscal 2002 acquisitions substantially complete except longterm noncancellable lease obligations certain longterm severance arrangements fiscal 2002 company sold certain businesses net proceeds 1387 million cash consist primarily certain businesses within healthcare fire security segments connection dispositions company recorded net gain 236 million following unaudited pro forma data summarize results operations periods indicated fiscal 2002 2001 acquisitions divestitures amalgamation tycom completed beginning periods presented pro forma data give effect actual operating results prior acquisitions adjustments interest expense income taxes effect given cost reductions operating synergies presentation pro forma amounts purport indicative results would actually achieved acquisitions divestitures amalgamation occurred beginning periods presented may achieved future 1includes charges impairment longlived assets 33095 million net restructuring charges 18747 million goodwill impairment charges 13437 million loss investments 2708 million net gain sale businesses 236 million gain early extinguishment debt 306 million loss discontinued operations 62825 million net tax loss sale discontinued operations 588 million net tax excludes charges 178 million writeoff purchased inprocess research development associated acquisitions sensormatic dsc discussed note 7 2includes net gain sale businesses 4104 million related primarily sale adt automotive loss 1338 million related writedown investment net gain 245 million sale shares subsidiary charges impairment longlived assets 1201 million net restructuring charges totaling 5853 million loss early extinguishment debt 263 million income discontinued operations 2525 million net tax cumulative effect accounting changes 6834 million net tax excludes charge 1843 million writeoff purchased inprocess research development associated acquisition mallinckrodt discussed note 7 fiscal 2001 fiscal 2001 company purchased approximately 240 companies aggregate cost 93397 million consisting 53192 million cash net 3434 million cash acquired issuance approximately 782 million common shares valued 39046 million plus fair value stock options assumed 1159 million fiscal 2001 purchase acquisitions include among others mallinckrodt inc cigi investment group inc innerdyne inc lps simplex time recorder co scott electronic security systems businesses cambridge protection industries llc addition fiscal 2001 tyco paid 7981 million approximately 10 million customer contracts electronic security services adt dealer program connection acquisitions company recorded purchase accounting liabilities 10213 million costs integrating acquired companies transaction costs also fiscal 2001 tyco purchased cit aggregate cost 94555 million consisting 24864 million cash net 21564 million cash acquired issuance approximately 1330 million common shares valued 66505 million plus fair value options assumed 3186 million cit subsequently disposed fiscal 2002 presented discontinued operations see note 11 cash portions acquisition costs funded utilizing net proceeds issuance longterm debt tyco common shares net proceeds disposal businesses fair value debt acquired companies aggregated 406432 million including 390509 million debt cit fiscal 2001 7730 million cash paid year purchase accounting liabilities related current prior years acquisitions addition company paid approximately 1057 million relating holdback earnout liabilities primarily related certain prior year acquisitions following table summarizes purchase accounting liabilities recorded connection fiscal 2001 purchase acquisitions millions fiscal 2003 company reduced estimate purchase accounting liabilities relating fiscal 2001 acquisitions 1628 million primarily actual costs less originally estimated since company severed 897 fewer employees closed 25 fewer facilities originally anticipated due revisions integration plans goodwill related deferred tax assets aggregate reduced equivalent amount fiscal 2001 company made payments totaling 200 million mr frank walsh director tyco time cit acquisition charitable organization specified director payments direct incremental costs incurred connection acquisition cit accordingly included part purchase price cit payments refunded company fiscal 2003 see note 18 connection purchase acquisitions consummated fiscal 2001 liabilities 138 million severance related costs 980 million shutdown consolidation acquired facilities 36 million distributor supplier contractual cancellation fees 21 million transaction direct costs remained consolidated balance sheet september 30 2003 termination employees consolidation facilities related acquisitions substantially complete except longterm noncancelable lease obligations certain longterm severance arrangements fiscal 2001 company sold adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 10 billion cash company recorded net gain sale businesses 4104 million principally related sale adt automotive recorded income consolidated statement operations following unaudited pro forma data summarize results operations periods indicated fiscal 2001 acquisitions divestitures completed beginning period presented pro forma data give effect actual operating results prior acquisitions divestitures adjustments interest expense goodwill amortization income taxes effect given cost reductions operating synergies presentation amounts revised reflect disposition cit discontinued operations see note 11 pro forma amounts purport indicative results would actually achieved acquisitions divestitures occurred beginning periods presented may obtained future 1includes net gain sale businesses 4104 million related primarily sale adt automotive loss 1338 million related writedown investment net gain 245 million sale shares subsidiary charges impairment longlived assets 1201 million net restructuring charges totaling 5853 million loss early extinguishment debt 263 million income discontinued operations 2525 million net tax cumulative effect accounting changes 6834 million net tax excludes charge 1843 million writeoff purchased inprocess research development associated acquisition mallinckrodt discussed note 7 3 consolidated segment data companys reportable segments strategic business units operate different industries managed separately certain corporate expenses allocated operating segments operating income based generally net revenues additional information including description products services included segment see note 1 fiscal 2003 change made companys internal reporting structure operations tycos plastics adhesives businesses previously reported within healthcare specialty products segment comprise companys new plastics adhesives reportable segment company conformed segment reporting accordingly reclassified comparative prior period information reflect change fiscal 2002 tyco sold financial services business tyco capital initial public offering ipo historical results financial services business presented discontinued operations see note 11 information regarding discontinued operations tyco capital company conformed segment reporting accordingly reclassified comparative prior period information reflect changes selected information industry segment presented following tables millions amounts include restructuring credits charges impairment longlived assets charges writeoff purchased inprocess research development iprd charges impairment goodwill charges related changes estimate recorded quarter ended march 31 2003 described notes 5 6 7 17 31 respectively 1includes net revenues tgn business 144 million 80 million 17 million fiscal 2003 fiscal 2002 fiscal 2001 respectively 1includes operating loss tgn business 7998 million 31257 million 580 million fiscal 2003 fiscal 2002 fiscal 2001 respectively revenue groups products within tycos segments follows 1includes net revenues tgn business 144 million 80 million 17 million fiscal 2003 fiscal 2002 fiscal 2001 respectively total assets depreciation amortization capital expenditures segment follows 1includes total assets excluding cash held sale tgn business 475 million 6422 million 26573 million september 30 2003 2002 2001 respectively 1includes depreciation amortization tgn business totaling 371 million 289 million 158 million fiscal 2003 fiscal 2002 fiscal 2001 respectively 1includes capital expenditures net tgn business 1207 million 11460 million 22194 million fiscal 2003 fiscal 2002 fiscal 2001 respectively 4 consolidated geographic data selected information geographic area presented millions 1revenues external customers attributed individual countries based reporting entity records transaction 1longlived assets comprised primarily property plant equipment exclude goodwill intangible assets 5 restructuring credits charges net restructuring credits charges net follows millions 2003 charges credits company engaged series restructuring programs attempted make operations efficient exiting certain noncore businesses business lines streamlining general operations fire security segment recorded net restructuring charges 97 million charges 35 million included cost sales 28 million relates noncash charges remaining 34 million net charge consists charges 194 million associated streamlining business partially offset credit 160 million related changes estimates charges recorded prior periods 194 million charge primarily comprised 160 million employee severance connection elimination 1367 positions primarily relating general administrative manufacturing technical sales marketing personnel united states canada asia europe australia fiscal 2003 company incurred costs 54 million related restructuring program consisting primarily 50 million severance termination 553 employees electronics segment recorded restructuring credits 905 million credits 199 million included cost sales restructuring credits primarily related severance costs less originally anticipated due employee attrition redeployment termination fees less anticipated due negotiated settlements healthcare segment recorded restructuring credits 92 million credits 02 million included cost sales engineered products services segment recorded net restructuring charges 78 million excluding impairments longlived assets discussed note 6 charges 61 million included cost sales remaining 17 million net charge consists charges 121 million associated streamlining business partially offset credit 104 million primarily related changes estimates charges recorded prior periods 121 million includes 95 million severance associated elimination 113 positions primarily manufacturing sales personnel united states europe 20 million related shutdown 2 manufacturing facilities located united states europe costs 06 million september 30 2003 employees terminated facilities shut addition restructuring accruals fully utilized september 30 2003 fiscal 2003 corporate recorded net restructuring credits 16 million consisting charges 171 million 79 million relates noncash charges excluding impairments longlived assets discussed note 6 offset credits 187 million related changes estimates charges recorded prior periods remaining charges 92 million includes 58 million elimination 33 administrative positions primarily united states 34 million shutdown 1 administrative office united states september 30 2003 32 employees terminated facility closed remained 44 million 33 million severance facilityrelated restructuring accruals respectively consolidated balance sheet 2002 charges credits fire security segment recorded net restructuring charges 949 million charges 194 million included cost sales additionally net charge includes charges totaling 941 million related primarily severance facility closures associated streamlining business partially offset credit 186 million related current prior years restructuring charges following table provides information restructuring charges excluding impairments longlived assets discussed note 6 related fire security segment recorded fiscal 2002 millions workforce reductions includes elimination manufacturing general administrative technical sales marketing personnel primarily united states latin america europe australia facility closures primarily relate shutdown sales offices manufacturing plants australia europe charges consist primarily accrual anticipated resolution disposition various labor employment matters september 30 2003 66 million remaining balance included accrued expenses current liabilities remaining 23 million included longterm liabilities consolidated balance sheet amounts primarily payments noncancelable lease obligations electronics segment recorded net restructuring charges 15045 million 6082 million included cost sales initial charge included 1661 million associated writedown existing inventory market value lower cost time charge remaining charge 4421 million comprised inventory considered excess intended scrapped september 30 2003 remaining inventory scrapped exception 199 million originally included inventory written fiscal 2002 recorded restructuring credit cost sales fiscal 2003 additionally net charge includes charges totaling 9226 million bad debt provision 1150 million included selling general administrative expenses primarily related facility closures purchase commitment cancellations due significant downturn telecommunications business certain electronics end markets charges partially offset restructuring credits 263 million primarily related revision estimates current prior years severance facility charges following table provides information restructuring charges excluding impairments longlived assets discussed note 6 related electronics segment recorded fiscal 2002 millions workforce reductions primarily relate elimination manufacturing personnel across regions facilitiesrelated costs include building lease termination fees contract cancellation costs primarily shutdown manufacturing plants united states supplier contract termination fees primarily result sudden significant decrease demand products services primarily telecommunications end markets also result uncertainty related continued financial viability certain customer telecommunications industry bad debt provision 1150 million recorded selling general administrative expenses included column addition 1150 million bad debt provision remaining charges also include writeoff uncollectible receivable 57 million result downturn telecommunications industry extent bad debt provisions utilized excess amounts reversed credit selling general administrative expenses line consolidated statement operations described credit tycos consolidated financial statements september 30 2003 1067 million remaining balance included accrued expenses current liabilities remaining 1216 million included longterm liabilities consolidated balance sheet amounts primarily payments noncancelable lease obligations healthcare segment recorded net restructuring charge 448 million 05 million included cost sales additionally net charge includes charges 482 million associated consolidation operations exiting certain business lines partially offset credit 39 million representing revision estimates current prior years restructuring charges following table provides information restructuring charges excluding impairments longlived assets discussed note 6 related healthcare segment recorded fiscal 2002 millions workforce reductions primarily relate elimination manufacturing sales personnel associated shutdown 4 manufacturing administrative facilities united states charges 101 million consist primarily legal fees deal costs associated acquisitions completed total remaining balance september 30 2003 primarily payments noncancelable lease obligations severance included accrued expenses current liabilities engineered products services segment recorded restructuring charges 508 million 62 million included cost sales additionally charge includes charges 446 million related primarily streamlining business following table provides information restructuring charges excluding impairments longlived assets discussed note 6 related engineered products services segment recorded fiscal 2002 millions workforce reductions primarily relate elimination manufacturing sales personnel associated closure sales offices manufacturing facilities united states europe september 30 2003 04 million remaining balance included accrued expenses current liabilities 04 million included longterm liabilities consolidated balance sheet amounts primarily relate noncancelable lease payments plastics adhesives segment recorded restructuring charges 101 million charges 11 million included cost sales additionally charge includes charges 90 million associated consolidation operations exiting certain business lines following table provides information restructuring charges excluding impairments longlived assets discussed note 6 related plastics adhesives segment recorded fiscal 2002 millions workforce reductions primarily relate elimination manufacturing sales personnel associated shutdown manufacturing administrative facilities united states september 30 2003 17 million remaining balance included accrued expenses current liabilities remaining 07 million included longterm liabilities consolidated balance sheet amounts primarily relate noncancelable lease obligations severance addition segment charges company recorded charges 1696 million consisting 786 million severance 150 million contract terminations legal fees items associated downsizing corporate headquarters 760 million writeoff investment banking fees deal costs associated terminated breakup plan certain acquisitions completed september 30 2003 56 million remained accrued expenses current liabilities consolidated balance sheet 2001 charges credits fiscal 2001 fire security segment recorded net restructuring charge 841 million charges 54 million included cost sales 841 million net charge consists charges 803 million related primarily restructuring existing us security business us fire protection business connection acquisitions securitylink simplex partially offset credit 16 million representing revision estimates prior years restructuring charges following table provides information restructuring charges excluding impairments longlived assets discussed note 6 related fire security segment recorded fiscal 2001 millions workforce reductions primarily relate elimination manufacturing general administrative sales marketing personnel united states europe facility closures primarily relate shutdown sales offices manufacturing plants united states europe canada charges 197 million consist primarily contract cancellation costs charges relating environmental remediation project september 30 2003 56 million remaining balance included accrued expenses current liabilities remaining 55 million included longterm liabilities consolidated balance sheet amounts primarily payments noncancelable lease obligations fiscal 2001 electronics segment recorded restructuring charges 3838 million 1258 million included cost sales 3838 million charge includes charges 2580 million related primarily facility closures related employee terminations within computer consumer electronics communication industries following table provides information restructuring charges excluding impairments longlived assets discussed note 6 related electronics segment recorded fiscal 2001 millions workforce reductions primarily relate elimination manufacturing personnel united states latin america facility closures include building lease termination fees contract cancellation costs charges consist purchase commitment cancellations payments noncancelable machinery equipment leases september 30 2003 79 million remaining balance included accrued expenses current liabilities remaining 08 million included longterm liabilities consolidated balance sheet amounts primarily severance payments noncancelable lease obligations fiscal 2001 healthcare segment recorded net restructuring charge 640 million 400 million included cost sales remaining 240 million net charge consists charges 396 million relating closure manufacturing plants partially offset credit 156 million representing revision estimates prior years restructuring charges related primarily merger us surgical following table provides information restructuring charges excluding impairments longlived assets discussed note 6 related healthcare segment recorded fiscal 2001 millions workforce reductions primarily relate elimination manufacturing sales personnel united states facility closures consists shutdown manufacturing administrative facility united states charges consist primarily cost lease buyouts distributor termination fees fiscal 2001 engineered products services segment recorded restructuring charges 573 million 97 million included cost sales following table provides information restructuring charges excluding impairments longlived assets discussed note 6 related engineered products services segment recorded fiscal 2001 millions workforce reductions primarily relate elimination manufacturing personnel united states facilities closures primarily relate shutdown manufacturing distribution facilities united states charges consist primarily charges relating acquisitionrelated product replacement fiscal 2001 plastics adhesives segment recorded restructuring charges 83 million 40 million included cost sales excluding impairments longlived assets discussed note 6 remaining 43 million consists 26 million cost announced workforce reductions elimination 322 positions primarily united states consisting primarily manufacturing sales personnel cost facility closures 02 million shutdown 3 manufacturing administrative facilities united states charges 15 million primarily lease buyouts distributor termination fees september 30 2002 employees terminated facilities shut addition restructuring accruals fully utilized september 30 2002 addition segment charges company recorded charge 34 million related severance utilized september 30 2003 6 charges impairment longlived assets company evaluates recoverability longlived assets relying number factors including operating results business plans economic projections anticipated future cash flows impairment carrying value asset recognized whenever anticipated future cash flows undiscounted asset estimated less carrying value indicators impairment present carrying values assets evaluated relation operating performance future undiscounted cash flows underlying business net book value asset adjusted fair value expected future undiscounted cash flows less book value fair values based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk 2003 charges fiscal 2003 company recorded total charges impairment longlived assets 8249 million fire security segment recorded charges impairment intangible assets 1007 million resulting deterioration future estimated cash flows anticipated customers primarily mexico certain latin american countries following curtailment instances termination adt dealer program countries addition 112 million impairment charges recorded related discontinuance two brand names fire security segment also recorded charges impairment property plant equipment 209 million related primarily subscriber systems fixed assets 102 million associated termination software development project electronics segment recorded charges 6651 million 6643 million relates impairment tgn impairment recorded writeoff entire tgn result intention divest business amount impairment based upon estimates fair value less costs dispose company recorded charges impairment property plant equipment 146 million corporate primarily related closure relocation corporate offices new york new jersey impairment charges 22 million within engineered products services segment 2002 charges fiscal 2002 company recorded total charges impairment longlived assets continuing operations 33095 million fire security segment recorded charge 56 million related impairment intangible assets resulting curtailment certain markets termination adt dealer program addition fire security segment recorded charge 1091 million primarily related impairment property plant equipment associated termination software development project software development project related strategy develop new comprehensive integrated customer database associated applications segment acquired companies fiscal 2002 management assistance thirdparty consultant performed full evaluation determine information technology needs fire security business relative stood expectations near future result review company decided abandon project still development testing stage resulting writeoff capitalized costs 1091 million electronics segment recorded charge 31507 million 25817 million related impairment tgn 5410 million primarily related property plant equipment associated closure facilities discussed note 5 280 million related impairment intangible assets associated undersea systems technology knowhow acquired acquisitions fiscal 2002 fiber optic capacity available market significantly exceeded overall market demand created sharply declining prices reduced anticipated future cash flows result company assessed carrying value tgn assuming held used model using analysis employed estimates current future market pricing demand network completion costs analysis highly sensitive changes estimates noted based upon estimates company concluded value fiber optic network partially impaired consequently recorded impairment charge quarter ended march 31 2002 amount impairment based upon difference carrying value asset group estimated fair value assets groups march 31 2002 estimated fair value asset group determined using income discounted cash flow approach cash flow forecasts prepared using 15year estimated weightedaverage useful life tgn asset groups probability factors applied various scenarios weighting likelihood possible outcome cash flow forecast discounted using weightedaverage cost capital 15 similar used sfas 142 purposes prepared independent appraiser part services rendered evaluating companys enterprise value based upon analyses sum expected future discounted cash flows subtracted carrying values asset groups resulting impairment loss tgn entire tgn placed service march 31 2002 writtenoff time well portion tgn construction progress reconsidered factors noted projected operating results business plans estimate discounted future cash flows order retest carrying value tgn impairment june 30 2002 september 30 2002 determined impairment charge necessary june 30 2002 however telecommunications industry declined additional impairment charge necessary therefore recorded september 30 2002 healthcare segment recorded charge 25 million related impairment property plant equipment associated closure facilities discussed note 5 engineered products services segment recorded charge 95 million related impairment property plant equipment associated closure facilities discussed note 5 plastics adhesives segment recorded charge 26 million related impairment property plant equipment associated closure facilities discussed note 5 company recorded charge 295 million related impairment certain corporate properties associated downsizing corporate headquarters discussed note 5 2001 charges electronics healthcare plastics adhesives engineered products services fire security segments recorded charges 985 million 142 million 12 million 34 million 28 million respectively related primarily impairment property plant equipment associated closure facilities discussed note 5 7 writeoff purchased inprocess research development fiscal 2002 connection tycos acquisition sensormatic dsc group company wroteoff fair value purchased inprocess research development iprd various projects development new products technologies amount 178 million management determined value iprd using among factors appraisals connection tycos acquisition mallinckrodt inc fiscal 2001 company wroteoff fair value purchased iprd various projects development new products technologies amount 1843 million company determined valuation iprd using among factors appraisals value based primarily discounted cash flow method valuation included consideration stage completion projects ii technological feasibility projects iii whether projects alternative future use iv estimated future residual cash flows could generated various projects technologies respective projected economic lives mallinckrodt acquisition date several projects development different stages completion primary basis determining technological feasibility projects obtaining food drug administration fda approval acquisition date none iprd projects received fda approval assessing technological feasibility project consideration also given level complexity future technological hurdles project overcome prior submitted fda approval acquisition date none iprd projects considered technologically feasible alternative future use future residual cash flows could generated projects determined based upon estimate future revenue expected profitability various products technologies involved projected cash flows discounted present values taking account estimate future expenses would necessary bring projects completion discount rates include rate return accounts time value money well risk factors reflect economic risk cash flows projected may realized cash flows discounted discount rates ranging 14 25 per annum depending projects stage completion type fda approval needed discounted cash flow methodology various projects included purchased iprd resulted total valuation 1843 million although work projects related iprd continued acquisition amount purchase price allocated iprd written projects underlying iprd developed considered technologically feasible acquisition date september 30 2003 approximately 53 iprd projects successfully completed approximately 25 projects discontinued currently inactive remainder various stages completion currently expected material variations projected results projects versus time acquisition 8 expense income net expense income net follows millions tyco repurchased debt prior scheduled maturities fiscal 2003 company recorded income early retirement debt totaling 241 million compared 306 million fiscal 2002 loss early retirement debt totaling 263 million fiscal 2001 fiscal 2003 company repurchased 625 dealer remarketable securities drs due 2013 total dollar price paid 902 million based upon 750 million par value drs portion excess par 1518 million recorded loss retirement debt fiscal 2003 company recognized charge 871 million relating writedown various investments accounted cost equity methods 813 million recorded became evident declines fair value investments temporary primarily due continuing depressed economic conditions specifically within telecommunications industry included within 813 million 756 million recorded quarter ended march 31 2003 see note 31 remaining 58 million charge adjusted portion remaining portfolio fair value based upon estimates received conjunction decision sell investments fiscal 2002 company recognized 2708 million loss various investments primarily related investments flag telecom holdings ltd flag became evident declines fair value flag investments temporary fiscal 2001 company recognized 1338 million loss various investments primarily related investment 360networks became evident declines fair value investments temporary fiscal 2003 company recognized expense 86 million connection bank guarantee behalf equity investee fiscal 2002 company sold certain businesses net proceeds approximately 1387 million cash consist primarily certain businesses within healthcare fire security segments connection dispositions company recorded net gain 236 million fiscal 2001 company sold adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 10 billion cash company recorded net gain sale businesses 4104 million deducting commissions direct costs principally related sale adt automotive gain net direct incremental costs transaction well 607 million special bonuses paid key employees 9 tycom ltd fiscal 2001 company recorded 245 million net gain sale approximately 56 million common shares tycom gain net direct incremental costs transaction well 150 million special bonuses paid key employees december 18 2001 company completed amalgamation tycom approximately 56 million tycom common shares owned tyco converted right receive 03133 tyco common share upon completion amalgamation tycom became whollyowned subsidiary tyco outstanding option purchase tycom common shares exercisable tyco common shares number tyco shares equal number tycom common shares issuable upon exercise immediately prior consummation multiplied exchange ratio 03133 per share exercise price tyco common shares issuable upon exercise tycom options equals exercise price per tycom common share price options exercisable prior amalgamation divided exchange ratio addition outstanding tycom restricted share converted restricted tyco common share based exchange ratio options restricted shares subject terms conditions applicable immediately prior amalgamation 10 income taxes provision income taxes reconciliation notional united states federal income taxes statutory rate consolidated income taxes companys income tax provision follows millions 1excludes asset impairments nondeductible charges items broken separately table provisions fiscal 2003 fiscal 2002 fiscal 2001 include 8059 million 4876 million 5148 million respectively nonus income taxes nonus component income loss continuing operations income taxes 28351 million 6463 million 40058 million fiscal 2003 fiscal 2002 fiscal 2001 respectively deferred income tax balance sheet accounts result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset follows millions september 30 2003 company 18265 million net operating loss carryforwards certain nonus jurisdictions 8041 million expiration remaining 10224 million expire future years 2013 us approximately 12567 million federal 43764 million state net operating loss carryforwards september 30 2003 expire future years 2023 deferred tax asset valuation allowance increased approximately 249 million due uncertainty utilization certain nonus deferred tax assets company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets balance sheet valuation allowance calculated accordance provisions sfas 109 requires valuation allowance established maintained likely portion deferred tax assets realized september 30 2003 approximately 119 million valuation allowance ultimately reduce goodwill net operating losses utilized company subsidiaries income tax returns periodically examined various regulatory tax authorities connection examinations tax authorities including internal revenue service raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable accrued income tax provision management reviewed tax counsel issues raised taxing authorities adequacy accrued amounts management believes ultimate resolution tax deficiencies contingencies material adverse effect companys financial condition annual results operations cash flows except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration liability could arise amounts distributed subsidiaries disposed practicable estimate additional taxes related permanently reinvested earnings basis differences related investments subsidiaries 11 discontinued operations tyco capital cit group inc july 8 2002 company divested tyco capital sale 100 cits common shares ipo accordingly results tyco capital presented discontinued operations periods prior year amounts include tyco capitals operating results june 1 2001 date acquisition cit tyco operating results discontinued operations tyco capital july 8 2002 follows millions quarter ended march 31 2002 tyco experienced disruptions business surrounding announced breakup plan downgrade credit ratings significant decline market capitalization time period cit also experienced credit downgrades disruption historical funding base marketbased information used connection companys preliminary consideration proposed ipo cit indicated cits book value exceeded estimated fair value march 31 2002 result company performed sfas 142 first step impairment analysis march 31 2002 concluded impairment charge warranted time managements objective performing sfas 142 first step analysis obtain relevant marketbased data calculate estimated fair value cit march 31 2002 based projected earnings market factors expected used market participants ascribing value cit planned separation cit tyco management obtained relevant market data financial advisors regarding range price earnings multiples market condition discounts applicable cit march 31 2002 applied market data cits projected annual earnings march 31 2002 calculate estimated fair value resulting goodwill impairment estimated fair value compared corresponding carrying value cit march 31 2002 result company recorded 45127 million impairment charge march 31 2002 included discontinued operations sfas 142 requires second step analysis whenever reporting units book value exceeds estimated fair value analysis requires company estimate fair value reporting units individual assets liabilities complete analysis goodwill march 31 2002 company completed second step analysis cit quarter ended june 30 2002 result recorded additional goodwill impairment charge 1320 million june 30 2002 quarter cit experienced credit downgrades business environment factors continued negatively impact likely proceeds ipo result performed another first step second step analysis june 30 2002 manner consistent march 2002 process described analyses based upon updated market data june 30 2002 period immediately following ipo including ipo proceeds analyses resulted goodwill impairment 18670 million also included discontinued operations tyco also recorded additional impairment charge 1264 million order writedown investment cit fair value total cit goodwill impairment 21254 million writedown based upon net ipo proceeds approximately 44 billion deducting estimated pocket expenses included 62825 million loss discontinued operations fourth quarter fiscal 2002 tyco recorded loss sale tyco capital 588 million fiscal 2003 tyco recorded income discontinued operations 200 million 200 million represented restitution payment made frank e walsh jr see note 18 accounting policies discontinued operations financing leasing assetstyco capital provided funding variety financing arrangements including term loans lease financing operating leases amounts outstanding loans leases referred finance receivables financing leasing assets consisted finance receivables finance receivables held sale net book value operating lease equipment certain investments time designation sale securitization syndication assets classified finance receivables held sale assets carried lower aggregate cost market value lease financingdirect financing leases recorded aggregate future minimum lease payments plus estimated residual values less unearned finance income operating lease equipment carried cost less accumulated depreciation depreciated estimated residual value using straightline method lease term projected economic life asset equipment acquired satisfaction loans subsequently placed operating lease recorded lower carrying value estimated fair value acquired lease receivables included leveraged leases major portion funding provided thirdparty lenders nonrecourse basis tyco capital providing balance acquiring title property leveraged leases recorded aggregate value future minimum lease payments plus estimated residual value less nonrecourse thirdparty debt unearned finance income management performed periodic reviews estimated residual values impairment temporary recognized appropriate period reserve credit losses finance receivablesthe reserve credit losses periodically reviewed adequacy considering economic conditions collateral values credit quality indicators including historical expected chargeoff experience levels past due loans nonperforming assets changes economic conditions events affecting specific obligors industries may necessitated additions deductions reserve credit losses chargeoff finance receivablesfinance receivables reviewed periodically determine probability loss chargeoffs taken considering factors borrowers financial condition value underlying collateral guarantees including recourse dealers manufacturers chargeoffs deducted carrying value related finance receivables extent unrecovered balance remained due final chargeoff taken time collection efforts longer deemed useful chargeoffs recorded consumer certain small ticket commercial finance receivables beginning 180 days contractual delinquency based upon historical loss severity impaired loansimpaired loans included primarily large loans placed nonaccrual status troubled debt restructuring loan impairment defined shortfall estimated value recorded investment loan estimated value determined using fair value collateral loan collateral dependent present value expected future cash flows discounted loans effective interest rate securitizationspools assets originated sold independent trusts turn issued securities investors backed asset pools tyco capital retained servicing rights participated certain cash flows pools present value expected net cash flows exceeded estimated cost servicing recorded time sale retained interest subsequent recording retained interests tyco capital reviewed values asset basis least often quarterly fair values retained interests calculated utilizing current anticipated credit losses prepayment speeds discount rates compared respective carrying values losses representing excess carrying value estimated current fair market value recorded impairments recognized charge operations unrealized gains credited earnings reflected shareholders equity part comprehensive income finance incomeincludes interest loans accretion income direct financing leases rents operating leases related origination nonrefundable fees direct origination costs deferred amortized adjustment finance income contractual life transactions income finance receivables leveraged leases recognized accrual basis commencing month origination using methods generally approximated interest method leveraged lease income recognized basis calculated achieve constant aftertax rate return periods tyco capital positive investment transaction net related deferred tax liabilities rental income operating leases recognized accrual basis accrual finance income commercial consumer finance receivables generally suspended account placed nonaccrual status payment principal interest contractually delinquent 90 days earlier opinion management full collection principal interest due doubtful financial instrumentssee companys discussion significant accounting policies included note 1 information related financial instruments additionally tyco capital derivatives designated cash flow hedge derivative designated cash flow hedge effective portions changes fair value derivative recorded comprehensive loss income recognized consolidated statement operations hedged item affected earnings ineffective portions changes fair value cash flow hedges recognized charge credit earnings 12 cumulative effect accounting changes discussed note 30 company three synthetic lease programs utilized extent companys segments finance capital expenditures manufacturing machinery equipment ships used tyco submarine telecommunications fiscal 2003 company adopted fin 46 accordingly restructured one synthetic leases meet requirements fin 46 operating lease accounting company reclassified remaining two leases capital leases consequently recorded cumulative effect adjustment 751 million loss aftertax 1155 million pretax fiscal 2003 accordance provisions fin 46 addition four joint ventures within tyco infrastructure services met consolidation criteria set forth fin 46 result synthetic lease reclassifications joint venture consolidations company increased property plant equipment net 4338 million total debt 5622 million effective july 1 2003 december 1999 sec issued sab 101 sec expressed views regarding appropriate recognition revenue respect variety circumstances relevant company required sab 101 company modified revenue recognition policies respect installation electronic security systems see revenue recognition within note 1 addition response sab 101 company undertook review revenue recognition practices identified certain provisions included limited number sales arrangements delayed recognition revenue sab 101 fourth quarter fiscal 2001 company changed method accounting items retroactive beginning fiscal year conform requirements sab 101 reported 6537 million aftertax 10056 million pretax charge cumulative effect change accounting principle fiscal 2001 consolidated statement operations fiscal 2003 2002 company recognized 2494 million 2942 million respectively revenue previously included sab 101 cumulative effect adjustment recorded october 1 2000 impact sab 101 net revenues fiscal 2001 net decrease 2411 million reflecting deferral 5205 million fiscal 2001 revenues partially offset recognition 2794 million revenue included cumulative effect adjustment beginning fiscal 2001 company recorded cumulative effect adjustment 297 million loss net zero tax fiscal 2001 accordance transition provisions sfas 133 accounting derivative instruments hedging activities 13 earnings loss per common share reconciliations basic diluted earnings loss per common share follows millions except per share data computation diluted earnings per common share fiscal 2003 excludes effect potential exercise options purchase approximately 1101 million shares effect would antidilutive diluted earnings per common share fiscal 2003 excludes 330 million shares related companys zero coupon convertible debentures due 2020 conversion conditions met diluted earnings per common share fiscal 2003 also excludes 942 million shares 493 million shares related companys convertible senior debentures due 2018 2023 respectively effect would antidilutive computation diluted loss per common share fiscal 2002 excludes effect potential exercise options purchase approximately 100 million shares potential exchange convertible debt due 2010 29 million shares effect would antidilutive diluted loss per common share fiscal 2002 also excludes 475 million 224 million shares related companys zerocoupon convertible debentures due 2020 2021 respectively conversion conditions met computation diluted earnings per common share fiscal 2001 excludes effect potential exercise options purchase approximately 122 million shares effect would antidilutive diluted earnings per common share fiscal 2001 also excludes 480 million 264 million shares related companys zero coupon convertible debentures due 2020 2021 respectively conversion conditions met 14 sale accounts receivable tyco several programs sells participating interests accounts receivable investors turn purchase receive ownership security interests receivables collections reduce accounts receivable included pool company sells new receivables company risk credit loss receivables accordingly full amount allowance doubtful accounts retained consolidated balance sheets september 30 2003 availability programs 1025 million september 30 2003 2002 803 million 933 million respectively utilized programs proceeds sales used repay shortterm longterm borrowings working capital corporate purposes reported operating cash flows consolidated statements cash flows sale proceeds less face amount accounts receivable sold amount approximates cost would incurred commercial paper issued backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative expenses consolidated statements operations discount aggregated 290 million 170 million 253 million 35 27 53 weightedaverage balance receivables outstanding fiscal 2003 2002 2001 respectively company retains collection administrative responsibilities participating interests defined pool also international businesses sell accounts receivable shortterm financing mechanism transactions qualify true sales aggregate amount outstanding arrangements 202 million 157 million september 30 2003 2002 respectively result rating agencies downgrade tycos debt june 2002 investors one accounts receivable programs option discontinue reinvestment new receivables terminate program however investors exercised option amount outstanding program 1032 million 1324 million september 30 2003 2002 respectively 15 availableforsale investments september 30 2003 2002 tyco availableforsale equity investments fair market value 232 million 246 million cost basis 255 million 324 million respectively september 30 2003 gross unrealized losses 57 million gross unrealized gains 35 million associated investments september 30 2002 gross unrealized losses 82 million gross unrealized gains 04 million associated investments amounts included separate component shareholders equity see note 8 discussion realized losses equity investments 16 assets held sale fourth quarter fiscal 2003 company initiated divestiture program plans dispose noncore businesses part divestiture program tyco intends sell tgn company plans exit tgn business decided invest industry believes need consolidation company plans retain ownership construction maintenance portion tyco submarine telecommunications connection decision sell tgn company written carrying value network net realizable value accordingly recorded loss impairment 6643 million discussed note 6 fiscal 2003 revenues operating loss tgn business 144 million 7998 million respectively 7998 million includes 6643 million impairment described restructuring charges 201 million following table presents balance sheet information tgn business held sale september 30 2003 millions 17 goodwill intangible assets goodwill 259387 million 260205 million september 30 2003 2002 respectively changes carrying amount goodwill fiscal 2002 2003 follows millions fiscal 2003 discussed note 3 fiscal 2003 change made companys internal reporting structure operations tycos plastics adhesives businesses previously reported within healthcare specialty products segment comprise companys new plastics adhesives reportable segment result goodwill within previous healthcare specialty products segment reassigned based relative fair value new reporting units within new segment impairments resulted reevaluation company performed annual impairment assessments reporting units july 1 2003 assessment also resulted goodwill impairment fourth quarter fiscal 2003 company reorganized reporting structure see note 1 part reorganization company finalized plan september 2003 sell tgn major operating asset tyco submarine telecommunications business previously included electronics segment company plans exit tgn business decided invest industry reorganization resulted change composition reporting units result goodwill reassigned new reporting units using relative fair value allocation approach resulting recognition impairment charges 2784 million power systems electrical contracting services printed circuit group charge based valuation performed third party using income approach based present value estimated future cash flows reporting units impairment writeoff goodwill remaining power systems printed circuit group reporting units fiscal 2002 transition provisions sfas 142 transitional benchmark analysis concluded goodwill impairment october 1 2001 however quarter ended march 31 2002 electronics segment recorded charge 22184 million related impairment tgn result fiber optic capacity available market significantly exceeding overall market demand thereby creating sharply declining prices reduced cash flows additional information tgn impairment charge see note 6 updated goodwill valuation completed march 31 2002 tyco submarine telecommunications valuation completed using income approach based upon present value future cash flows reporting unit march 31 2002 however first step analysis resulted impairment submarine telecommunications reporting units goodwill date quarter ended june 30 2002 additional circumstances developed indicated potential impairment value goodwill respect companys reporting units tyco experienced disruptions business surrounding termination previously announced breakup plan resignation chief executive officer downgrades credit ratings additional decline market capitalization updated valuations completed reporting units june 30 2002 using income approach based present value future cash flows reporting unit additional discount factor applied reflect decrease reporting unit valuations recent disruptions companys corporate offices negative publicity tyco evidenced decline companys total market capitalization resulted estimated goodwill impairment 8444 million 6077 million relating submarine tyco telecommunications 2367 million relating tyco infrastructure services reporting unit within engineered products services segment quarter ended september 30 2002 step two analyses prescribed sfas 142 completed tyco submarine telecommunications tyco infrastructure services reporting units resulted incremental goodwill impairment continuing operations 1620 million 795 million relating tyco submarine telecommunications 825 million relating tyco infrastructure services quarter ended september 30 2002 circumstances associated restructuring charges related submarine telecommunications reporting unit indicated potential impairment value goodwill reporting unit updated valuation using income approach based present value future cash flows completed september 30 2002 valuation resulted additional goodwill impairment continuing operations 3373 million following impairments recorded fiscal 2002 totaling 13437 million goodwill remaining tyco submarine telecommunications tyco infrastructure services reporting units fiscal 2002 curtailed certain markets terminated adt dealer program due decrease projected purchases customer contracts adt dealer program updated valuation using income approach based present value future cash flows september 30 2002 performed security services reporting unit valuation results indicated fair value reporting unit exceeded book value reporting unit resulting impairment security services reporting units goodwill date see note 11 discontinued operations tyco capital cit group inc information regarding impairment goodwill relating tyco capital following reconciliation previously reported financial information adjusted amounts excluding goodwill amortization fiscal 2001 millions except per share data intangible assets net 57900 million 58058 million september 30 2003 2002 respectively accumulated amortization amounted 24929 million 16551 million september 30 2003 2002 respectively following table sets forth gross carrying amount accumulated amortization companys intangible assets millions 1intangible assets subject amortization excluded calculation weighted average amortization period september 30 2003 2002 company 1304 million 1401 million respectively intellectual property subject amortization balances consist primarily trademarks acquired sensormatic september 30 2002 company 02 million customer relationships subject amortization september 30 2003 2002 company 283 million 262 million respectively intangible assets subject amortization intangible asset amortization expense fiscal 2003 fiscal 2002 fiscal 2001 7250 million 6209 million 3993 million respectively estimated aggregate amortization expense intangible assets currently owned company expected approximately 700 million fiscal 2004 600 million fiscal 2005 550 million fiscal 2006 500 million fiscal 2007 450 million fiscal 2008 see note 6 information regarding impairment intangible assets 18 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans loans collateralized bear interest payable annually rate based six month libor calculated annually average 12 rates effect first day month loans generally repayable ten years except earlier payments required certain circumstances employee terminated addition company issued mortgages certain employees employee relocation programs mortgages generally payable 15 years collateralized underlying property fiscal 2003 fiscal 2002 maximum amount outstanding programs 824 million 1175 million respectively loans receivable programs well unsecured advances outstanding 785 881 million september 30 2003 2002 respectively certain loans totaling 239 million 303 million september 30 2002 respectively noninterest bearing interest income interest bearing loans totaled 05 million 55 million 13 million fiscal 2003 fiscal 2002 fiscal 2001 respectively fiscal 2003 company engaged commercial transactions normal course business companies directors employed served officers including marsh mclennan companies inc brunswick corporation vf corporation verizon communications inc imperial chemical industries plc microwarehouse inc sandra wijnberg member tycos board directors executive officer marsh mcclennan companies inc george w buckley director executive officer brunswick corporation mackey j mcdonald director executive officer vf corporation bruce gordon director officer verizon communications inc brendan r oneill jerome b york directors executive officers imperial chemical industries plc microwarehouse inc respectively time commercial transactions purchases marsh mclennan companies inc imperial chemical industries plc fiscal 2003 approximately 18 million 16 million respectively purchases companies noted fiscal 2003 aggregated less 15 million fiscal 2002 l dennis kozlowski former chairman chief executive officer june 2002 outstanding loans tyco rate interest charged loans 191 amount outstanding loans plus accrued interest 480 million 470 million september 30 2003 2002 respectively fiscal 2002 mark h swartz former director former chief financial officer outstanding loans tyco rate interest charged loans 211 maximum amount outstanding loans fiscal 2002 250 million plus accrued interest 16 million loans repaid full prior september 30 2002 tyco authorized compensation arrangements messrs kozlowski swartz fiscal 2001 connection arrangements tyco purchased executive split dollar life insurance policies messrs kozlowski swartz entered shared ownership agreement whereby company agreed pay premiums insurance policies 11 year period beginning fiscal 2001 amended policies executed providing additional company paid premiums company cobeneficiary policies less amounts owed messrs kozlowski swartz messrs kozlowski swartz beneficiaries cash surrender values policies plus amount unpaid premiums companys obligations arrangements entered recognition services rendered officers contingent upon continuing employment fiscal 2001 company deposited 308 million consolidated rabbi trust fund premiums policies consolidated financial statements include charges 267 million related initial awards mr kozlowski 136 million mr swartz fiscal 2001 charges 49 million mr kozlowski 21 million mr swartz fiscal 2002 policy amended consolidated financial statements include charges 64 million mr kozlowski fiscal 2003 event investment options within policies earn specified interest amounts tyco guaranteed supplemental premium payment amounting ensure 10 annual return cash surrender value unpaid premiums liability accreted charge earnings throughout period arrangements make specified supplemental premium payments conjunction mr swartzs termination employment lump sum payment 246 million represented present value annual premium amounts termination date remainder contractual period made mr swartz return mr swartz waived tycos obligation continue making premium payments company accrued 531 million 466 million consolidated balance sheets september 30 2003 2002 respectively connection arrangements 234 million held rabbi trust september 30 2003 tycos ability withdraw monies purposes premium payments rabbi trust requires mr kozlowskis approval tyco discontinued making premium payments mr kozlowskis insurance policy october 1 2002 filed affirmative actions messrs kozlowski swartz seeking disgorgement benefits executive life insurance policies pending resolution action mr kozlowski premium obligations since october 2002 drawn cash surrender value policy avoid termination policys death benefit mark belnick former executive vice president chief corporate counsel outstanding loans tyco maximum amount outstanding loans fiscal 2003 fiscal 2002 148 million 165 million respectively amount outstanding september 30 2003 2002 148 million 148 million 145 million noninterest bearing mortgage loan collateralized real estate 03 million form interest bearing promissory note interest rate promissory note 278 fiscal 2003 fiscal 2002 richard j meelia president tyco healthcare outstanding loan key employee loan program rate interest charged loan 223 206 fiscal 2003 fiscal 2002 respectively maximum amount outstanding loan fiscal 2003 fiscal 2002 182 thousand 17 million respectively amount outstanding september 30 2002 182 thousand loan repaid full prior september 30 2003 fiscal 2002 robert p mead president tyco engineered products services outstanding loan key employee loan program rate interest charged loan 203 maximum amount outstanding loan fiscal 2002 09 million loan repaid full prior september 30 2002 fiscal 2002 jerry r boggess former president tyco fire security outstanding loan key employee loan program rate interest charged loan 203 maximum amount outstanding loan fiscal 2002 04 million loan repaid full prior september 30 2002 fourth quarter fiscal 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified certain former tyco directors executive officers owned tycom ltd shares options converted tyco shares tyco options upon amalgamation subsidiary tyco tycom ltd december 18 2001 exchange ratio applicable holders tycom ltd shares options stephen w foss director tyco march 6 2003 mr foss owner corporate aircraft leased starting may 2001 seeking competitive bids mr fosss bid considered competitive given anticipated usage tyco paid mr foss company president aggregate 587000 lease payments use aircraft pilots fiscal 2002 leasing arrangements terminated september 30 2002 joshua berman director tyco december 5 2002 march 1 2000 july 31 2002 also engaged mr berman render legal services period compensated mr berman annual rate 360000 provided mr berman health benefits secretarial assistance cell phone electronic security services homes also reimbursed mr berman legal fees expenses incurred connection matters relating tyco pursuant indemnification provisions applicable directors tyco mr berman retired counsel law firm kramer levin naftalis frankel llp provided legal services us fiscal 2002 tyco certain former directors defendants four pending actions purporting bring suit derivatively behalf tyco certain former officers certain former directors tyco nominal defendant connection alleged improper conduct former officers tyco relating use funds key employee loan program assets ultimate resolution actions yet determinable filed civil complaints l dennis kozlowski former chairman chief executive officer mark belnick former executive vice president chief corporate counsel mark h swartz former chief financial officer breach fiduciary duty wrongful conduct relating alleged abuses key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct june 2002 filed civil complaint frank e walsh jr breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million went mr walsh balance going charity mr walsh trustee payment purportedly made mr walshs assistance arranging acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought securities exchange commission united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 claims mr walsh still pending 19 debt follows1 millions 1debt maturity dates presented calendar basis consistent respective offering documents 2in january 2003 tyco international group sa tig whollyowned subsidiary company entered 15 billion 364day unsecured revolving credit facility also provides issuance unsecured letters credit facility fully unconditionally guaranteed tyco certain subsidiaries guaranteed part various subsidiaries tig variable interest rate based libor margin libor payable tig vary depending upon changes credit rating market price one outstanding debt securities tig also pays commitment fee 050 annually unused portion line credit facility utilized fiscal 2003 3in january 2003 tig repaid 3855 billion unsecured term loan banks scheduled expire february 6 2003 4in june 2003 tig repurchased cash 625 dealer remarketable securities drs due 2013 total dollar price paid 902 million based upon 750 million par value drs plus difference base rate 555 current tenyear united states treasury yieldtomaturity 5in november 2000 tyco issued 46575 million principal amount maturity zero coupon convertible debentures due 2020 aggregate net proceeds approximately 33740 million debentures accrete interest rate 15 per annum fiscal 2003 tyco purchased 10857 million par value 14152 million debentures cash approximately 10628 million november 17 2003 holders principal amount maturity 31967 million notified tyco exercised option require tyco repurchase notes price 77566 per 1000 principal maturity representing accreted value notes date november 18 2003 tyco purchased notes cash 24796 million 6in january 2003 tig issued 30 billion 275 series convertible senior debentures due january 2018 15 billion 3125 series b convertible senior debentures due january 2023 debentures fully unconditionally guaranteed tyco time prior stated maturity holders may convert debentures tyco common shares rate 227832 217476 respectively per share additionally holders series debentures may require company purchase portion debentures january 15 2008 january 15 2013 holders series b debentures may require company purchase portion debentures january 15 2015 option exercised one aforementioned dates tig must repurchase debentures par plus accrued unpaid interest may elect repurchase securities cash tyco common shares combination thereof tig may redeem cash series debentures series b debentures time january 20 2006 january 20 2008 respectively net proceeds approximately 43875 million outofpocket expenses debentures used primarily repay debt 7at february 12 2003 accreted value tigs zero coupon convertible debentures february 2003 put option 18508 million february 13 2003 tig purchased 18501 million accreted value debentures cash purchase resulted exercise investors option indenture require tig purchase accreted value debentures validly surrendered february 12 2003 8these instruments plus 1691 million amount shown comprise current portion longterm debt september 30 2003 9includes 5622 million debt recorded connection adoption fin 46 see note 30 bank credit agreements contain number financial covenants interest coverage leverage ratios restrictive covenants limit amount debt incur restrict ability pay dividends make payments connection capital stock make acquisitions investments pledge assets prepay debt matures december 31 2004 specifically tig borrower 5year 20 billion revolving credit facility contains financial covenant based companys leverage ratio maximum allowable leverage ratio defined agreement 525 september 30 2003 ratio declined 463 513 september 30 2002 also several synthetic lease facilities similar covenants outstanding indentures contain customary covenants including negative pledge limit subsidiary debt limit saleleasebacks none covenants presently considered restrictive operations fair value debt approximately 216560 million book value 209691 million 219346 million book value 242481 million september 30 2003 2002 respectively based discounted cash flow analyses using current market interest rates aggregate amounts total debt maturing next five years follows millions 27184 fiscal 2004 22586 fiscal 2005 39492 fiscal 2006 7040 fiscal 2007 1226 fiscal 2008 weightedaverage rate interest debt 489 469 september 30 2003 2002 respectively weightedaverage rate interest variable debt 593 471 september 30 2003 2002 respectively impact tycos interest rate swap activities weightedaverage borrowing rate material year impact tycos reported interest expense reduction zero 1161 million 97 million fiscal 2003 fiscal 2002 fiscal 2001 respectively 20 guarantees company may time enter sales contracts whereby buy back discount transaction customers thirdparty financier event customers default transactions include shared risk company accrues liability based historical loss data september 30 2003 32 million accrued related contracts event company must pay shared risk companys recourse follows place lease financially viable thirdparty financier repossess purchased products equipment seek payment personal guarantee issued customer alternatively sue customer companys fire security business guaranteed performance thirdparty contractor performance guarantee arose contract negotiations contractor could provide costeffective service telecommunications contract event contractor perform contractual obligations tyco fire security would perform service therefore companys exposure would cost services performed would material effect companys financial position annual results operations probable company make payments perform services pursuant guarantee recorded obligation related guarantee contract entered july 2002 expires end warranty period july 2004 thirdparty subcontractor perform obligations tyco may consider withholding future payment work performed contractor company disposing assets businesses often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination hazardous waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however reason believe uncertainties would material adverse effect companys financial position annual results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 22 discussion liabilities company guaranteed fair value certain vessels exceed 235 million accrued 104 million 44 million september 30 2003 2002 respectively based estimate fair value vessels see note 22 due companys downsizing certain operations part restructuring plans acquisitions otherwise company leased properties vacated sublet third parties event third parties vacate premises company would legally obligated master lease arrangements company believes financial risk default sublessors individually aggregate material companys financial position annual results operations cash flows normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position annual results operations cash flows company generally accrues estimated product warranty costs time sale instances additional amounts recorded costs probable reasonably estimated information estimated product warranty see note 1 following roll forward companys warranty accrual year ended september 30 2003 millions settlements made include spending 1035 million engineered products services segment connection voluntary replacement program vrp associated acquisition central sprinkler vrp initiated fiscal 2001 relates recall certain model gb fire sprinkler heads originally manufactured central sprinkler identification investigation problems sprinkler heads commenced prior tycos acquisition affected sprinkler heads replaced 57 year period free charge property owners 21 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable longterm investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable longterm investments accounts payable approximated book value september 30 2003 2002 see note 19 fair value estimates debt accordance sfas 133 amended derivative financial instruments reported consolidated balance sheet fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met companys intention terminate derivative financial instruments based estimated fair values termination september 30 2003 would resulted proceeds 442 million forward option foreign currency exchange contracts proceeds forward commodity contracts proceeds 209 million interest rate swaps termination september 30 2002 would resulted proceeds 340 million forward option foreign currency exchange contracts payments 12 million forward commodity contracts proceeds 25 million interest rate swaps september 30 2003 2002 book values derivative financial instruments recorded consolidated balance sheets approximate fair values interest rate exposures company uses interest rate swaps hedge exposure interest rate risk exchanging fixed rate interest certain debt variable rate amounts interest rate swaps designated fair value hedges certain companys interest rate swaps entered fiscal 2003 assessed using shortcut method sfas 133 highly effective ineffective element gains losses certain interest rate swaps fiscal 2002 totaling net gain 1161 million recognized interest expense net along effective element changes fair value interest rate swaps related hedged debt tyco uses various options swaps forwards designated hedging instruments sfas 133 hedge impact variability price raw materials copper commodities impact variability foreign exchange rates accounts notes receivable accounts payable intercompany loan balances forecast transactions denominated certain foreign currencies 22 commitments contingencies company facility vehicle equipment leases expire various dates year 2050 rental expense leases equipment 8618 million 8489 million 6347 million fiscal 2003 fiscal 2002 fiscal 2001 respectively september 30 2003 minimum lease payment obligations noncancelable operating leases follows 7142 million fiscal 2004 5632 million fiscal 2005 4214 million fiscal 2006 3031 million fiscal 2007 2278 million fiscal 2008 aggregate 10301 million fiscal years 2009 2050 payments include obligations offbalance sheet leasing arrangement five cable laying sea vessels upon expiration lease fiscal 2007 subsidiary company option buy vessels approximately 280 million return vessels lessor guarantee pay shortfall sales proceeds third party amount exceed 235 million september 30 2003 company contingent liability 80 million related fiscal 2001 acquisition comnet electronics segment 80 million maximum amount payable former shareholders comnet construction installation communications system state florida finished state approved system based guidelines set forth contract 80 million accrued september 30 2003 outcome contingency cannot reasonably determined tig entered 15 billion 364day unsecured revolving credit facility also provides issuance unsecured letters credit facility utilized fiscal 2003 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position annual results operations result actions taken former senior corporate management tyco members former senior corporate management former members board directors current chief executive officer named defendants number purported class actions alleging violations disclosure provisions federal securities laws well number derivative actions consolidated derivative action plaintiffs filed motion seeks add certain members current board directors management defendants tyco certain current former employees members former senior corporate management former members board directors also named defendants several employee retirement income security act erisa actions addition tyco members former senior corporate management subject sec inquiry members former senior corporate management named defendants criminal cases prosecuted district attorney new york county findings outcomes prosecutions sec civil action may affect course purported class actions derivative actions erisa claims pending tyco may july 2003 complaints filed tyco current chairman chief executive officer purporting represent class purchasers tyco securities alleging violations disclosure provisions federal securities laws generally obliged indemnify directors officers former directors officers also named defendants matters extent permitted bermuda law addition insurance carriers may decline coverage may insufficient cover expenses liability matters unable time estimate ultimate liability matters may possible required pay judgments settlements incur expenses aggregate amounts would material adverse effect financial condition results operations cash flows possible estimate amount loss probable losses might result adverse settlement matters others received subpoenas requests secs division enforcement district attorney new york county us attorney district new hampshire equal opportunity employment commission others seeking production voluminous documents connection various investigations governance management operations accounting related controls department labor investigating tyco administrators certain benefit plans addition believe adequately responded governmental services administration gsa action questioning whether tyco lacked present responsibility government contractor due concerns gsa expressed result alleged serious criminal misconduct former chief executive officer chief financial officer general counsel gsa reserved right take appropriate actions additional information warrants cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities turn could negatively impact business nongovernmental customers suffer penalties could material adverse effect business possible estimate amount loss range possible loss might result adverse settlement matters tyco subsidiaries income tax returns periodically examined various regulatory tax authorities connection examinations tax authorities including internal revenue service raised issues proposed tax deficiencies reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable accrued income tax provision company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position annual results operations cash flows tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 30 2003 tyco concluded probable would incur remedial costs range approximately 142 million 451 million september 30 2003 tyco concluded best probable estimate within range approximately 270 million 32 million included accrued expenses current liabilities 238 million included longterm liabilities consolidated balance sheet view companys financial position reserves environmental matters 270 million company concluded potential payment estimated amounts material adverse effect financial position annual results operations cash flows like many companies tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation observed increase number lawsuits past several years majority cases filed subsidiaries healthcare division engineered products services division limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore experience large percentage claims never substantiated dismissed courts vigorous defense lawsuits resulted judgments favor cases tried verdict suffered adverse verdict trial court proceeding related asbestos claims appropriate settle claims however total amount paid date settle defend asbestos claims immaterial september 30 2003 approximately 14000 asbestos liability cases pending us subsidiaries believe subsidiaries substantial indemnification protection insurance coverage subject applicable deductibles respect asbestos claims indemnitors relevant carriers typically honoring duty defend indemnify believe valid defenses claims intend continue defend vigorously additionally based historical experience asbestos litigation analysis current cases believe adequate amounts accrued potential settlements adverse judgments asbestosrelated litigation possible time determine certainty ultimate outcome asbestosrelated proceedings believe final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect financial position annual results operations cash flows 23 retirement plans defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost income based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current employees contribution amounts determined based advice professionally qualified actuaries countries concerned companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions benefits defined benefit plans based various factors years service compensation following tables exclude amounts related discontinued operations cit periods presented net periodic benefit cost income us nonus defined benefit pension plans includes following components millions curtailmentsettlement gains fiscal 2001 us relate primarily freezing certain pension plans curtailmentsettlement gains recorded selling general administrative expenses consolidated statements operations net pension amount recognized consolidated balance sheet september 30 2003 2002 us nonus defined benefit plans follows millions net pension amounts recognized consolidated balance sheet september 30 2003 2002 us nonus defined benefit plans follows millions amounts tables include defined benefit arrangements certain current key executive officers projected benefit obligation accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 22367 million 22005 million 14964 million respectively september 30 2003 20380 million 19809 million 12425 million respectively september 30 2002 projected benefit obligation accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 22773 million 19364 million 11335 million respectively september 30 2003 17026 million 14233 million 8317 million respectively september 30 2002 company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 228 million 171 million 64 million fiscal 2003 fiscal 2002 fiscal 2001 respectively executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 30 2003 541 million 277 million respectively companys accrued benefit obligations messrs kozlowski swartz september 30 2002 506 million 259 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era dispute company information see note 18 defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans pension expense defined contribution plans computed percentage participants compensation 1840 million 1799 million 1528 million fiscal 2003 fiscal 2002 fiscal 2001 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 40 million 161 million 93 million fiscal 2003 fiscal 2002 fiscal 2001 respectively deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation expense 174 million 159 million 103 million fiscal 2003 fiscal 2002 fiscal 2001 respectively total deferred compensation liabilities 1890 million 1823 million 2923 million fiscal 2003 fiscal 2002 fiscal 2001 company established rabbi trust currently funded corporateowned life insurance policies rabbi trust assets consolidated available pay plan benefits subject claims companys creditors event companys insolvency cash surrender value policies net outstanding loans included noncurrent assets consolidated balance sheet 2317 million 3160 million 3286 million fiscal 2003 fiscal 2002 fiscal 2001 respectively employees general creditors company respect benefits postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits following tables exclude amounts related discontinued operations cit periods presented net periodic postretirement benefit cost reflects following components millions components accrued postretirement benefit obligation substantially unfunded follows millions measurement purposes fiscal 2003 1155 composite annual rate increase per capita cost covered health care benefits assumed rate assumed decrease gradually 500 year 2011 remain level thereafter yearend composite annual rate increase health care benefit costs increased 1271 decreasing 500 year 2013 onepercentagepoint change assumed healthcare cost trend rates would following effects income millions combined weighted average discount rate used determining accumulated postretirement benefit obligation 552 675 september 30 2003 2002 respectively 24 preference shares tyco authorized 125000000 preference shares par value 1 per share september 30 2003 2002 one share issued designated special voting preference share connection purchase cit june 2001 preference share provided mechanism holders outstanding exchangeable shares exercise voting dividend liquidation rights equivalent tyco common shareholders except exchangeable share equivalent 06907 tyco common share connection ipo cit exchangeable shares redeemed effective july 5 2002 issuance 3243322 tyco common shares result one entitled exercise rights attaching preference share rights dividends return capital redemption conversion voting otherwise respect preference shares may determined tycos board directors time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders 25 shareholders equity shares owned subsidiaries treated treasury shares recorded cost fiscal 2001 tyco sold 39 million common shares approximately 21980 million underwritten public offering net proceeds offering 21966 million used repay debt incurred finance portion acquisition cit total compensation cost expensed stockbased compensation awards discussed 434 million 899 million 1168 million fiscal 2003 fiscal 2002 fiscal 2001 respectively restricted sharesthe company maintains restricted share ownership plan provides award initial amount common shares plus amount equal onehalf one percent total shares outstanding beginning fiscal year september 30 2003 59831883 shares authorized plan 16223413 shares granted number shares available issuance 1994 restricted stock plan reduced 999524 october 2002 common shares awarded subject certain restrictions vesting varying periods ten years grants vest based certain specified performance criteria fair market value shares date vesting expensed period performance achievement criteria deemed probable grants vest passage time fair market value shares time grant amortized net tax benefit expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients restricted shares right vote shares receive dividends income tax benefits resulting vesting restricted shares including deduction excess fair market value restricted shares time vesting fair market value time grants payment dividends unvested shares credited contributed surplus employee stock purchase planssubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker company also maintains two employee stock purchase plans benefit employees certain qualified nonus subsidiaries one plan eligible employees granted options purchase shares end three years service 85 market price time grant september 30 2003 approximately 30 million options outstanding 70 million shares available future issuance plan shares purchased plan purchased open market share optionstyco granted employee share options issued two fixed share option plans reserve common shares issuance tycos directors executives managers majority options granted tyco international ltd longterm incentive plan incentive plan incentive plan administered compensation committee board directors company consists exclusively independent directors company options granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant options granted incentive plan date generally vested become exercisable periods five years date grant maximum term ten years tyco reserved 1400 million common shares issuance incentive plan awards tyco becomes obligated make assumption substitution outstanding awards previously granted acquired company assumed administered incentive plan count limit september 30 2003 approximately 255 million shares available future grant incentive plan october 1998 broadbased option plan nonofficer employees tyco longterm incentive plan ii ltip ii approved board directors tyco reserved 1000 million common shares issuance ltip ii terms conditions plan similar incentive plan september 30 2003 approximately 63 million shares available future grant ltip ii options assumed part business combination transactions administered incentive plan retain rights terms conditions respective plans originally granted share option activity tyco plans september 30 2000 september 30 2003 follows following table summarizes information outstanding exercisable tyco options september 30 2003 deferred stock unitsthe company granted 17 million deferred stock units dsus existing incentive plan described fiscal 2003 fiscal 2002 outstanding september 30 2003 dsus notional units tied value tyco common shares distribution deferred termination employment distribution made form actual shares similar restricted stock grants vest passage time fair market value dsus time grant amortized expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients dsus right vote shares right receive cash dividends however right receive dividends form additional dsus dividendstyco paid quarterly cash dividend 00125 per common share since july 1997 26 comprehensive income loss purpose reporting comprehensive income loss report measure changes equity transactions shareholders total comprehensive income loss included consolidated statements shareholders equity components accumulated comprehensive income loss follows millions 1primarily related tycos investment 360networks inc 2includes 1128 million pretax 1006 million aftertax reclassification unrealized losses related temporary impairment investments 27 supplementary income statement information selected supplementary income statement information presented millions 28 supplementary balance sheet information selected supplementary balance sheet information presented millions 29 supplementary cash flow information selected supplementary cash flow information presented millions net repayments proceeds debt consist following millions 30 variable interest entities fiscal 2003 company adopted fin 46 requires identification companys participation vies entities level invested equity sufficient fund future activities permit operate stand alone basis whose equity holders lack certain characteristics controlling financial interest entities identified vies fin 46 sets forth model evaluate potential consolidation based assessment party vies bears majority risk expected losses stands gain majority expected returns company programs sells machinery equipment investors turn purchase receive ownership security interests assets company may certain investments affiliated companies whereby provides varying degrees financial support investors entitled share results entities consolidate entities may substantive operating companies evaluated potential consolidation fin 46 discussed note 12 company three synthetic lease programs utilized extent companys segments finance capital expenditures manufacturing machinery equipment ships used tyco submarine telecommunications fiscal 2003 company restructured one synthetic leases meet requirements fin 46 operating lease accounting reclassified remaining two leases capital leases addition company evaluated investments concluded four joint ventures previously accounted equity method accounting within tyco infrastructure services minority interest meet consolidation criteria set forth fin 46 accordingly ventures consolidated onto companys balance sheet following table presents balance sheet information vies included within companys consolidated balance sheet transitional accounting prescribed fin 46 effective july 1 2003 millions 1includes elimination 162 million equity investments related joint ventures previously recorded equity method consolidated fin 46 2includes elimination 327 million accrued expenses associated synthetic leases previously recorded operating leases recorded capital leases fin 46 3includes elimination 147 million longterm liabilities associated synthetic leases previously recorded operating leases recorded capital leases fin 46 31 summarized quarterly financial data unaudited summarized quarterly financial data years ended september 30 2003 2002 millions except per share data 1includes net restructuring credits 37 million credits 02 million included cost sales charges 551 million included selling general administrative expenses also includes income 14 million early retirement debt net income also includes income discontinued operations 200 million net tax 2includes charges recorded changes estimates 3887 million arose companys intensified internal audits detailed controls operating reviews see changes estimates recorded quarter ended march 31 2003 charge impairment intangible assets 770 million addition includes charge 915 million retroactive incremental premium prior period directors officers insurance included selling general administrative expenses addition includes income 227 million early retirement debt 3includes net restructuring credits 165 million credits 70 million included cost sales net charge impairment longlived assets 01 million net charges 437 million charges 200 million included cost sales net charges 237 million included selling general administrative expenses addition includes 1518 million loss retirement debt 187 million interest income 4includes net restructuring charges 79 million charges 96 million included cost sales charges impairment longlived assets 7376 million charges impairment goodwill 2784 million charges totaling 498 million 140 million included cost sales related dismantlement customers adt security systems 358 million included selling general administrative expenses primarily related uncollectible receivables severance corporate employees also includes charges 115 million writedown investments charge 01 million charge 24 million included interest expense net income also includes aftertax loss 751 million cumulative effect accounting change changes estimates recorded quarter ended march 31 2003during quarter ended march 31 2003 company intensified process whereby internal audits detailed controls operating reviews conducted result process company recorded 3887 million pretax charges relating new information changes facts circumstances occurring quarter process included assessing continued recoverability assets including accounts receivable inventory installed security systems equity investments estimated costs settling legal environmental insurance obligations assessments based analysis impact circumstances occurred quarter assessment recoverability certain assets costs settle certain liabilities assessments include changes judgments relative adequacy reserves contingent liabilities concurrent review process resulting assessments management quarter decided discontinue existing product lines terminate information technology systems implementation project result decisions inventory asset balances written net realizable value impact 3887 million net charges recorded second quarter included consolidated statement operations fiscal 2003 follows net charges 3887 million include 1396 million related asset reserve valuations 954 million increased cost estimates insurance accruals 493 million workers compensation accruals 461 million product general liability insurance accruals 841 million related temporary decline value investments 623 million accounting estimate changes described environmental accruals 180 million legal accruals 200 million various accruals 152 million 164 million account writeoffs included primarily selling general administrative expenses concluded recoverability various asset balances become doubtful 102 million writeoff representing capitalized external costs european financial computer system based companys decision second quarter discontinue new system development continue use existing system charges partially offset credits 725 million 129 million included cost sales related restructuring charge reversals see note 5 arose second quarter fiscal 2003 1396 million adjustments asset valuations includes 764 million writedown inventories 519 million increase allowance doubtful accounts 113 million writeoff subscriber systems inventory charge 764 million primarily due finalization plans regarding disposition inventory connection curtailed programs product lines companys decision second quarter exit certain product lines fire security business increase allowance doubtful accounts 519 million writeoff subscriber systems 113 million primarily due deterioration accounts receivable aging increased customer cancellations certain nonstrategic european security businesses second quarter inventory charge subscriber systems adjustments included cost sales allowance doubtful accounts included selling general administrative expenses expect changes adverse impact future operations workers compensation product general liability changes estimate based thirdparty actuarial reviews insurance liabilities charge 954 million included selling general administrative expenses 652 million cost product sales 302 million adjustment relates changes facts circumstances occurring quarter ended march 31 2003 necessitate change assumptions estimates particular company identified trend data required company revise assumptions result unanticipated increase number changes nature claims incurred rate increase medical costs well emergence previously unanticipated new claims addition company experienced increase workers compensation expense particularly california result adverse legal developments toward employers 841 million investment writedown included expense income net primarily consists 756 million loss various equity investments became evident quarter ended march 31 2003 declines fair values investments temporary primarily due depressed economic conditions factors management considered making assessment included investees inability raise funds quarter bankruptcy continued losses investees lack sufficient future expected cash flows lower entity valuations based recent private financing activity quarter ended march 31 2003 company also recognized expense 85 million connection bank guarantee behalf equity investee see note 20 possible company may additional writedowns investments market conditions continue recent negative trends 623 million accounting estimates includes charge selling general administrative expenses 173 million resulting companys revision second quarter deferred commissions related longterm contracts 121 million writedown companyowned properties based real estate assessments purchase offers received second quarter assets held sale 115 million additional severance related terminated executives 214 million accounting estimate changes none individually significant included primarily selling general administrative expenses increase 180 million due increased environmental accruals resulting finalization companys plan remediate one manufacturing sites second quarter 200 million establish accrual related estimated settlement amount contractual disputes legal matters based determination amounts became probable estimable second quarter 152 million miscellaneous increased accrual estimates primarily included selling general administrative expenses 1includes charges totaling 305 million includes restructuring charges impairment charges 262 million 58 million included cost sales primarily related termination employees writedown inventory associated closure facilities exiting product line also includes loss 43 million related early retirement debt 2includes charges totaling 31327 million charges consist impairment charges 23892 million primarily related writedown tgn restructuring charges 6001 million 2513 million included cost sales primarily related writedown inventory facility closures within electronics segment loss writeoff investments 1410 million loss 24 million relating early retirement debt 3includes charges totaling 11724 million charges consist goodwill impairment charges 8444 million relating continuing operations impairment charges 1252 million related primarily impairment property plant equipment associated termination software development project within fire security segment net restructuring charges 1829 million 25 million included cost sales related primarily writeoff investment banking fees deal costs associated terminated breakup plan certain acquisitions completed less extent severance associated consolidating streamlining operations accrual anticipated resolution disposition various labor employment matters within fire security segment writeoff purchased inprocess research development related acquisition sensormatic 134 million loss writedown investments 65 million 4includes charges totaling 24267 million consisting goodwill impairment charges 4993 million relating continuing operations net restructuring charges 10660 million 3758 million included cost sales 1150 million relates bad debt provision included selling general administrative expenses primarily related decision significantly scale back telecommunications business impairment longlived assets 7946 million primarily related writedown property plant equipment within telecommunications business writeoff inprocess research development 44 million within fire security business loss writedown investments 1233 million gain sale businesses 236 million 373 million income related early retirement debt 32 tyco international group sa tyco international group sa tig whollyowned subsidiary company public debt securities outstanding see note 19 fully unconditionally guaranteed tyco following tables present condensed consolidating financial information tyco tig subsidiaries condensed financial information tyco tig standalone basis presented using equity method accounting subsidiaries control twenty percent voting shares consolidating statement operations year ended september 30 2003 millions consolidating statement operations year ended september 30 2002 millions consolidating statement operations year ended september 30 2001 millions consolidating balance sheet september 30 2003 millions consolidating balance sheet september 30 2002 millions consolidating statement cash flows year ended september 30 2003 millions consolidating statement cash flows year ended september 30 2002 millions consolidating statement cash flows year ended september 30 2001 millions 33 subsequent events november 12 2003 tig issued 10 billion par value 6 notes due 2013 private placement offering notes fully unconditionally guaranteed tyco addition subsequent year end tig executed liborinarrears interest rate swaps notional value 875 million notes swaps tyco receive 6 pay average 6month libor plus 903 basis points november 17 2003 holders principal amount maturity 31967 million zero coupon convertible debentures due 2020 notified tyco exercised option require tyco repurchase notes price 77566 per 1000 principal maturity representing accreted value notes date november 18 2003 tyco purchased notes cash 24796 million tyco international ltd managements discussion analysis financial condition results operations results operations introduction consolidated financial statements include consolidated accounts tyco international ltd company incorporated bermuda subsidiaries tyco subsidiaries hereinafter company tyco prepared united states dollars accordance generally accepted accounting principles united states gaap company operates following business segments •fire security designs manufactures installs monitors services electronic security fire protection systems •electronics designs manufactures distributes electrical electronic components designs manufactures installs operates maintains undersea fiber optic cable communications systems •healthcare designs manufactures distributes medical devices supplies imaging agents pharmaceuticals adult incontinence infant care products •engineered products services designs manufactures distributes services engineered products including industrial valves controls steel tubular goods provides environmental industrial consulting services •plastics adhesives designs manufactures distributes plastic products adhesives films overview although acquisitions complementary businesses important part tycos growth past business strategy focuses enhancing internal growth operational efficiency existing tyco businesses plan achieve goal new product innovation increased market share increasing service repair components existing businesses continued geographic expansion also implementing initiatives across business segments achieve bestinclass operating practices utilizing six sigma measurements additionally announced evaluating disposition proposed noncore businesses effected next year information periods presented reflects grouping tycos businesses five segments consisting fire security electronics healthcare engineered products services plastics adhesives fiscal 2003 change made companys internal reporting structure operations tycos plastics adhesives businesses previously reported within healthcare specialty products segment comprise companys new plastics adhesives reportable segment company conformed segment reporting accordingly reclassified comparative prior period information reflect change references tyco refer companys continuing operations also fiscal 2002 tyco sold financial services business tyco capital initial public offering ipo cit historical results financial services business presented discontinued operations see discontinued operations tyco capital cit group inc information regarding discontinued operations tyco capital company conformed segment reporting accordingly reclassified comparative prior period information reflect changes net revenues increased 34 fiscal 2003 368013 million 355898 million fiscal 2002 net revenues increased 47 fiscal 2002 compared 340021 million fiscal 2001 tyco income continuing operations 10347 million fiscal 2003 compared loss continuing operations 28382 million fiscal 2002 income continuing operations 38949 million fiscal 2001 income continuing operations fiscal 2003 included net charges totaling 18326 million 15668 million aftertax consisting following charges impairment longlived assets 8147 million ii charges recorded changes estimates 3887 million arose companys intensified internal audits detailed controls operating reviews discussed includes net restructuring credits 725 million credits 129 million included costs sales charges impairment longlived assets 102 million charges 2431 million included selling general administrative expenses charges 1234 million included cost sales charge 756 million relating writedown investments expense 85 million included expenses income net charge 04 million included interest expense iii charges impairment goodwill 2784 million iv loss 1518 million related retirement debt v charges 1486 million 340 million included cost sales related primarily product warranty accruals dismantlement customers adt security systems 1146 million included selling general administrative expenses related primarily uncollectible accounts receivable internal investigation fees well severance facility closures slightly offset credit changes estimates charges recorded prior periods vi charge 915 million retroactive incremental premium prior period directors officers insurance included selling general administrative expenses vii charge 115 million relating writedown investments viii interest expense 24 million ix expense 01 million x income early retirement debt 241 million xi interest income 187 million xii net restructuring credits 123 million charges 24 million included cost sales loss continuing operations fiscal 2002 included net charge totaling 67623 million 60914 million aftertax consisting following goodwill impairment charge 13437 million relating continuing operations ii charges impairment longlived assets 33095 million primarily related writedown tyco global network tgn iii net restructuring charges 18747 million 6354 million included cost sales 1150 million related bad debt provision included selling general administrative expenses iv writeoff purchased inprocess research development 178 million v loss writeoff investments 2708 million vi gain sale businesses 236 million vii gain early extinguishment debt 306 million income continuing operations fiscal 2001 included net charge 6149 million 5463 million aftertax consisting following net restructuring impairment charges totaling 7054 million ii writeoff purchased inprocess research development 1843 million iii net gain sale businesses 4104 million iv loss 1338 million related writedown investment v 245 million net gain sale common shares subsidiary vi loss early extinguishment debt 263 million currently assessing potential impact various legislative proposals would deny us federal government contracts us companies move corporate location abroad legislative proposals could cover 1997 acquisition tyco international ltd massachusetts corporation adt limited public company located bermuda since 1980s origins dating back united kingdom since early 1900s result adt changed name tyco international ltd became parent tyco group fourth quarter fiscal 2003 state california adopted legislation purports limit eligibility certain bermuda foreignchartered companies participate certain state contracts although california law provides waivers may issued permitting companies participate state contracts certain circumstances unclear waiver authority exercised addition various states municipalities us proposed similar legislation also similarly proposed tax legislation could substantially increase corporate income taxes consequently decrease future net income increase future cash outlay taxes tycos revenues related us federal government california state contracts account less 2 01 respectively total net revenues fiscal year ended september 30 2003 unable predict level certainty likelihood final form proposed legislation might become law nature regulations may promulgated future legislative enactments impact enactments increased regulatory scrutiny may governmental business nongovernmental customers willingness business us result uncertainties unable assess impact us proposed legislation area provide assurance materially adverse following table details net revenues earnings fiscal 2003 fiscal 2002 fiscal 2001 millions fourth quarter fiscal 2003 completed comprehensive review tycos core businesses result initiated divestiture restructuring program part program plan sell tgn undersea fiber optic telecommunications system market tgn challenged significant overcapacity severe pricing pressure industry need consolidation however plan retain ownership construction maintenance portion tyco submarine telecommunications addition selling tgn also starting broader divestiture program designed increase focus core operations exiting certain operations meet criteria strategic fit financial returns combined fiscal 2003 revenues businesses consideration potential divestiture within electronics fire security engineered products services healthcare segments totaled approximately 2 billion operating income totaled approximately 55 million excluding operating loss tgn 115 million overall entire potential divestiture program represents 6 tycos fiscal 2003 revenue estimating potential proceeds excluding proceeds sale tgn could least 400 million program completed dispose businesses may fully recover recorded book values september 30 2003 however held used model assets businesses fully recoverable restructuring program announced november 2003 designed improve cost structure primarily fire security also plastics adhesives engineered products services segments important element building stronger operating foundation fiscal 2002 recorded restructuring charges impairment longlived assets related primarily significant decrease demand certain end markets within electronics segment restructuring integration programs terminate employees close facilities made redundant reduction manpower facilities comes manufacturing sales administrative functions addition discontinue dispose product lines fit longterm strategy respective businesses historically tracked impact financial results restructuring integration programs however estimate overall cost structure reduced approximately 910 million annualized basis approximately 315 million relates selling general administrative expenses approximately 595 million cost sales 910 million estimated overall annualized cost savings result restructuring activities fiscal 2002 based summary estimated cost savings determining amount cost savings management looked salaries benefits people terminated derive annual savings relates facility closures cost savings represents rent plant operating expenses depreciation assets longer incurred historically made acquisition began integrate acquired company existing operations immediately part integration process often eliminate duplicate functions closing corporate administrative offices attempt make combined companies cost efficient combining manufacturing facilities product lines sales offices marketing efforts result integration processes acquired companies longer separately identifiable consequently generally unable separately track postacquisition financial results acquired companies discussions following tables include percentages revenue growth decline exclude increased revenue attributable specified acquisitions eliminate effects period currency fluctuations revenue growth decline percentages excluding specified acquisitions estimates calculated assuming acquisitions made beginning relevant fiscal periods adding back preacquisition revenue specified acquired companies periods comparison majority companies acquire operate within industry segment acquired company integrated consequently assume companies acquire generally comparable growth percentage calculate segment growth using methodology generally ability capture postacquisition revenues related individual acquisitions since companies immediately integrated upon acquisition calculations growth analysis excluding acquisitions discussed segment narratives include acquisitions purchase price 10 million calculation include acquisitions purchase price less 10 million due relative size smaller acquisitions compared tycos operating results large number acquisitions certain periods presented smaller acquisitions represent approximately 6 total purchase price acquisitions years ended september 30 2003 2002 since estimates based preacquisition revenues necessarily indicative postacquisition results calculation similar method used calculating acquisitionrelated pro forma results operations note 2 consolidated financial statements pursuant statement financial accounting standards sfas 141 discussions follow describe reasons changes results segment although quantify impact every factor order quantify factor contributing change operating income margins would need exclude results acquisitions previously noted since acquisitions generally integrated within existing operations immediately upon acquisition generally ability exclude effect acquired businesses quantifying increases decreases operating income margins changes estimates changes estimates recorded quarter ended march 31 2003 preparation consolidated financial statements conformity gaap requires management make extensive use estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates companys consolidated financial statements include restructuring charges credits purchase accounting liabilities allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenues related costs environmental liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ estimates changes estimates recorded results operations period events circumstances giving rise changes occur quarter ended march 31 2003 company intensified process whereby internal audits detailed controls operating reviews conducted result process company recorded 3887 million pretax charges relating new information changes facts circumstances occurring quarter process included assessing continued recoverability assets including accounts receivable inventory installed security systems equity investments estimated costs settling legal environmental insurance obligations assessments based analysis impact circumstances occurred quarter assessment recoverability certain assets costs settle certain liabilities assessments include changes judgments relative adequacy reserves contingent liabilities concurrent review process resulting assessments management quarter decided discontinue existing product lines terminate information technology systems implementation project result decisions inventory asset balances written net realizable value impact 3887 million net charges recorded second quarter included consolidated statement operations fiscal 2003 follows net charges 3887 million include 1396 million related asset reserve valuations 954 million increased cost estimates insurance accruals 493 million workers compensation accruals 461 million product general liability insurance accruals 841 million related temporary decline value investments 623 million accounting estimate changes described environmental accruals 180 million legal accruals 200 million various accruals 152 million 164 million account writeoffs included primarily selling general administrative expenses concluded recoverability various asset balances become doubtful 102 million writeoff representing capitalized external costs european financial computer system based companys decision second quarter discontinue new system development continue use existing system charges partially offset credits 725 million 129 million included cost sales related restructuring charge reversals see note 5 consolidated financial statements arose second quarter fiscal 2003 1396 million adjustments asset valuations includes 764 million writedown inventories 519 million increase allowance doubtful accounts 113 million writeoff subscriber systems inventory charge 764 million primarily due finalization plans regarding disposition inventory connection curtailed programs product lines companys decision second quarter exit certain product lines fire security business increase allowance doubtful accounts 519 million writeoff subscriber systems 113 million primarily due deterioration accounts receivable aging increased customer cancellations certain nonstrategic european security businesses second quarter inventory charge subscriber systems adjustments included cost sales allowance doubtful accounts included selling general administrative expenses expect changes adverse impact future operations workers compensation product general liability changes estimate based thirdparty actuarial reviews insurance liabilities charge 954 million included selling general administrative expenses 652 million cost product sales 302 million adjustment relates changes facts circumstances occurring quarter ended march 31 2003 necessitate change assumptions estimates particular company identified trend data required company revise assumptions result unanticipated increase number changes nature claims incurred rate increase medical costs well emergence previously unanticipated new claims addition company experienced increase workers compensation expense particularly california result adverse legal developments toward employers 841 million investment writedown included expense income net primarily consists 756 million loss various equity investments became evident quarter ended march 31 2003 declines fair values investments temporary primarily due depressed economic conditions factors management considered making assessment included investees inability raise funds quarter bankruptcy continued losses investees lack sufficient future expected cash flows lower entity valuations based recent private financing activity quarter ended march 31 2003 company also recognized expense 85 million connection bank guarantee behalf equity investee see note 20 consolidated financial statements possible company may additional writedowns investments market conditions continue recent negative trends 623 million accounting estimates includes charge selling general administrative expenses 173 million resulting companys revision second quarter deferred commissions related longterm contracts 121 million writedown companyowned properties based real estate assessments purchase offers received second quarter assets held sale 115 million additional severance related terminated executives 214 million accounting estimate changes none individually significant included primarily selling general administrative expenses increase 180 million due increased environmental accruals resulting finalization companys plan remediate one manufacturing sites second quarter 200 million establish accrual related estimated settlement amount contractual disputes legal matters based determination amounts became probable estimable second quarter 152 million miscellaneous increased accrual estimates primarily included selling general administrative expenses segment revenue operating income margins fire security following table sets forth net revenues operating income margins fire security segment millions net revenues fire security services segment increased 61 fiscal 2003 fiscal 2002 including 34 increase product revenue 85 increase service revenue increase net revenues due favorable changes foreign currency exchange rates 5197 million fiscal 2002 acquisitions 2138 million calculated manner described overview acquisitions included sbcsmith alarm systems october 2001 dsc group sensormatic november 2001 acquisitions purchase price 10 million addition increase net revenues due customer contracts purchased adt dealer program 3712 million generated internal sales force offset decline revenue due increased attrition rates worldwide security overall increase also partially offset decline net revenues worldwide fire protection due continued softness commercial construction market operating income margins decreased significantly fiscal 2003 fiscal 2002 due charges totaling 5124 million recorded fiscal 2003 included within 5124 million charges 2667 million related changes estimates recorded quarter ended march 31 2003 includes charges 1276 million primarily related adjustments accrual balances workers compensation professional fees environmental exposure charge 981 million primarily due adjusting reserves doubtful accounts slow nonmoving inventory well writeoff subscriber systems charges 345 million accounting adjustments primarily related deferred commissions charges 65 million related reconciling items current period connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates also included within 5124 million impairment charges 1430 million primarily related impairment intangible assets associated adt dealer program mostly result increased attrition rates discussed impairment property plant equipment subscriber systems fixed assets net restructuring charges 97 million charges 35 million included cost sales 28 million writeoff noncurrent assets related streamlining business charges 930 million 340 million included cost sales 590 million included selling general administrative expenses primarily related uncollectible receivables product warranty dismantlement customers adt security systems included within 1430 million impairment charge 97 million net restructuring charge 102 million credit 20 million respectively also related changes estimates recorded quarter ended march 31 2003 decrease operating income margins also due increased depreciation amortization expense security business due growth subscriber asset dealer asset base well impact acquisitions sensormatic electronics corporation sensormatic dsc group dsc fiscal 2002 decline operating income continental european security business weaker worldwide fire contracting environment fire security segment expects incur additional restructuring charges future periods related comprehensive cost reduction program announced november 4 2003 attrition rates customers global electronic security services business averaged 159 trailing twelvemonth basis fiscal 2003 compared 132 fiscal 2002 increase relates attrition customer accounts acquired worldwide dealer program well internally generated commercial customer accounts continental europe internally generated residential customer accounts united states partly driven increased management control delinquent accounts account pools experiencing increased attrition prior lifing studies reexamined company concluded existing amortization methods asset lives continue appropriate given observed actual attrition data pools net revenues fire security segment increased 424 fiscal 2002 fiscal 2001 including 418 increase product revenue 429 increase service revenue primarily result higher sales volume increased service revenue worldwide security business lesser extent worldwide fire protection business increase net revenues mostly due acquisitions well higher volume recurring service revenues generated worldwide security business dealer program lesser extent increased sales fire safety video surveillance products access control systems net revenue growth largely due focus prior years increasing revenues growing business acquisitions including authorized dealer program compared current longterm strategy grow existing business net revenues fiscal 2002 also include effect heightened level security concerns followed september 11th temporarily increased demand securityrelated products significant acquisitions included simplex time recorder co simplex january 2001 scott technologies inc may 2001 electronic security systems businesses cambridge protection industries llc securitylink sentry sa july 2001 edison select august 2001 sbcsmith alarm systems october 2001 dsc sensormatic november 2001 excluding 335 million increase foreign currency fluctuations adt dealer program acquisitions listed acquisitions purchase price 10 million pro forma revenues calculated manner described overview segment level prior year operating income increased slightly fiscal 2002 primarily due acquisitions increase partially offset net restructuring charges impairment longlived assets charge writeoff purchased inprocess research development operating income margins fiscal 2002 include net restructuring charge 949 million net 949 million charge includes charges 1135 million inventory writedowns 07 million charge 187 million related writeup inventory purchase accounting included cost sales charges primarily related severance facilityrelated charges associated streamlining business slightly offset credit 186 million relating current prior years restructuring charges also included within operating income fiscal 2002 charge 178 million writeoff purchased inprocess research development associated acquisitions sensormatic dsc charge 1147 million impairment property plant equipment resulting primarily termination software development project lesser extent curtailment certain markets termination adt dealer program certain nonus markets operating income margins fiscal 2001 include net restructuring charges 841 million 841 million net charge consists charges 857 million inventory writedowns 54 million included cost sales primarily related closure facilities became redundant due acquisitions securitylink simplex partially offset credit 16 million relating prior years restructuring charges also included charges 28 million impairment property plant equipment primarily associated facility closures electronics following table sets forth net revenues operating income loss margins electronics segment millions net revenues electronics segment decreased slightly fiscal 2003 compared fiscal 2002 including 12 decrease product revenue 14 increase service revenue net revenues electronic components group increased 4263 million 44 due favorable impact foreign currency exchange rates net revenues segments submarine telecommunications business declined 5354 million 781 due completion thirdparty undersea fiber optic system installations fiscal 2002 overall decrease net revenues submarine telecommunications business offset increase total segment revenues due favorable changes foreign currency exchange rates 5239 million 689 million calculated manner described overview due acquisitions transpower technologies transpower november 2001 communications instruments inc cii january 2002 acquisitions purchase price 10 million increase operating income margins fiscal 2003 compared fiscal 2002 due operating losses prior year primarily result charges totaling 56797 million discussed recorded fiscal 2002 operating income margins fiscal 2003 include net charges totaling 8818 million 8818 million includes charges impairment longlived assets 6651 million primarily related companys intended sale tgn entirely written charges impairment goodwill 2784 million power systems electrical contracting services printed circuit group restructuring credits 905 million 199 million included cost sales related changes estimates severance facilitiesrelated charges recorded prior years net restructuring credit 905 million includes 548 million credits changes estimates recorded quarter ended march 31 2003 also included within 8818 million charges 141 million related adjusting asset reserves 62 million related adjustments accrual balances 85 million reconciliation accounting adjustments also changes estimates recorded quarter ended march 31 2003 net revenues electronics segment decreased 227 fiscal 2002 compared fiscal 2001 including 236 decrease product revenue 43 increase service revenue result severe decline demand undersea telecommunications systems surplus capacity available decline demand electronic components group products communications computer consumer electronics industries across geographic regions net revenues electronic components group consists electronic components wireless electrical contracting services power systems printed circuit group decreased 19313 million 165 reflecting significant decrease demand certain end markets sales impacted mostly market decline telecommunications computer industries lesser extent industrialcommercial industry market decreases partially offset growth product sales automotive industry net revenues tyco submarine telecommunications business declined 11502 million 626 due lack demand new cable construction weak demand capacity sales tgn excluding 167 million decrease foreign currency fluctuations acquisitions cigi investment group inc october 2000 lucent technologies power systems business december 2000 transpower cii acquisitions purchase price 10 million pro forma revenues calculated manner described overview segment decreased estimated 296 operating loss fiscal 2002 primarily due impairment longlived assets goodwill well restructuring charges addition decrease revenue electronic components business significant decrease demand related telecommunications computer consumer electronics industrial machinery commercial aerospace industries overall decrease demand resulted much lower manufacturing volumes increased per unit costs submarine telecommunications business margins impacted significantly lack capacity sales tgn significant reduction third party system builds operating loss margins fiscal 2002 include net restructuring charges 15045 million 15045 million net charge includes charges totaling 15308 million inventory reserves 6082 million included cost sales bad debt provision 1150 million included selling general administrative expenses charges primarily relate initiatives taken reduce fixed costs due significant downturn telecommunications business certain electronics end markets including facility closures headcount reductions inventory reserves purchase commitment cancellations charges slightly offset restructuring credit 263 million primarily relating revision estimates current prior years severance facilities charges total inventory charges 9436 million include 6082 million inventory writedowns 3354 million supplier contract termination fees fiscal 2002 199 million originally included inventory written recorded restructuring credit cost sales fiscal 2003 extent bad debt provisions utilized excess amounts reversed credit selling general administrative expenses line consolidated statements operations separately disclosed credit also included within operating loss margins fiscal 2002 charges 31507 million impairment property plant equipment primarily related tgn goodwill impairment charges 10245 million related tyco submarine telecommunications additional information regarding accounting goodwill impairments see accounting policiesgoodwill significant restructuring charges recorded fiscal 2002 primarily related restructuring submarine telecommunications business address significant overcapacity market resulting lack demand new system construction fourth fiscal quarter 2002 management decided focus business foreseeable future maintenance revenues capacity sales tgn discontinue future additions tgn limit construction activities small projects cash flow positive least breakeven earnings result strategy management devised plan significantly downsize manufacturing footprint decrease project management staffing reduce research development function minimize staffing expense administrative areas business decrease cash outflows losses maximum extent possible plan carefully crafted ensure technical construction competencies business would preserved event industry conditions improve operating income margins fiscal 2001 include restructuring charges 3838 million primarily related closure facilities within communications computer consumer electronics industries response severe downturn experienced included within 3838 million inventory writedowns 741 million charges 517 million writeup inventory purchase accounting included cost sales operating income margins fiscal 2001 also includes charges 985 million impairment property plant equipment associated facility closures healthcare following table sets forth net revenues operating income margins healthcare segment millions net revenues healthcare segment increased 85 fiscal 2003 fiscal 2002 including 85 increase product revenue 74 increase service revenue increase net revenues resulted primarily organic growth favorable foreign currency exchange rates lesser extent acquisitions net divestitures organic growth due following increases surgical sector concurrent award major contract continued organic growth within certain surgical stapling lines increases medical sector resulting award significant wound care contract coupled exit major competitor traditional wound care business new product launches higher demand ultrasound market increases pharmaceuticals imaging due higher volumes increased market share strong sales within respiratory division sales increases partially offset decrease diaper product segment retail business largely resulting adverse impact industrywide downcount issues decline international division due lower sales continental europe latin america increase net revenues also resulted favorable changes foreign exchange rates 2682 million incremental revenues generated acquisition paragon trade brands paragon january 2002 1238 million calculated manner described overview slightly offset decline revenues 481 million related divestiture surgical dynamics inc july 2002 152 increase operating income increase margins fiscal 2003 compared fiscal 2002 due primarily favorable margin impact result higher sales favorable manufacturing variances result increased production volumes shift favorable product mix cost savings result closure certain paragon facilities back office consolidations continued focus optimizing operating expenses slightly offsetting effect items increased legal fees insurance pension expense higher sales marketing expense result program development aimed supporting organic growth initiatives also contributing increase operating income margins favorable fluctuations foreign currency exchange rates impact acquisitions divestitures fiscal 2003 recorded net credits totaling 33 million included within total credits 33 million charges 117 million related asset reserves inventory charges 07 million adjustments accrual balances related workers compensation changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates also included within 33 million restructuring credits 92 million 02 million included cost sales due costs less anticipated credit 65 million included selling general administrative expenses related insurance reimbursement certain legal fees associated product liability cases restructuring credits 92 million include credits 47 million also changes estimates recorded quarter ended march 31 2003 net revenues healthcare segment increased 118 fiscal 2002 fiscal 2001 including 118 increase product revenue 101 increase service revenue primarily result increased sales volume resulting acquisitions us healthcare businesses much lesser extent increased revenues domestic international healthcare businesses excluding 112 million decrease foreign currency exchange fluctuations acquisitions mallinckrodt inc mallinckrodt october 2000 innerdyne inc december 2000 paragon acquisitions purchase price 10 million pro forma revenues calculated manner described overview healthcare segment increased estimated 29 operating income increased 224 fiscal 2002 compared fiscal 2001 primarily due decrease charges recorded fiscal 2002 compared fiscal 2001 well impact acquisitions operating efficiencies realized cost reductions mallinckrodt increase partially offset lower margins businesses acquired tyco healthcare operating income margins fiscal 2002 reflect net restructuring charges 448 million 448 million net charge includes charges 487 million inventory writedowns 05 million included cost sales charges primarily relate severance associated consolidation operations facilityrelated costs due exiting certain business lines partially offset credit 39 million relating current prior years restructuring charges operating income margins fiscal 2002 also include charge writeoff longlived assets 25 million primarily related impairment longlived assets operating income margins fiscal 2001 include net restructuring charges 484 million primarily related closure several manufacturing plants included within 484 million charges 640 million charges 350 million writeup inventory purchase accounting inventory writedowns 50 million included cost sales partially offset credits 156 million related merger us surgical operating income margins also include charge 1843 million writeoff purchased inprocess research development associated acquisition mallinckrodt charges 142 million impairment property plant equipment related closure manufacturing plants engineered products services following table sets forth net revenues operating income margins engineered products services segment millions net revenues engineered products services segment remained essentially level fiscal 2003 compared fiscal 2002 including 13 decrease product revenue partially offset 45 increase service revenue net revenue decreased year increase net revenues due favorable changes foreign currency exchange rates 2331 million calculated manner described overview effect acquisitions 412 million offset continued weak conditions major markets flow control electrical metal products notably nonresidential construction also contributing overall decrease lower levels capital spending increased pricing pressure resulting lower selling prices 412 million effect acquisitions included century tube corporation century october 2001 water power technologies water power november 2001 clean air systems clean air february 2002 acquisitions purchase price 10 million 407 increase operating income increase margins fiscal 2003 compared fiscal 2002 due lower usual operating income prior year period result recording charges 3795 million discussed fiscal 2003 recorded charges totaling 567 million included within 567 million charges 331 million related changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates including 190 million related adjustments workers compensation 10 million primarily related reconciling items current period 131 million associated asset reserves also included within 567 million net restructuring charges 78 million 61 million included cost sales due changes estimates costs less anticipated charges impairment longlived assets 22 million relating manufacturing distribution consolidation flow control cost reduction projects costs 136 million included within selling general administrative expenses primarily related reorganization consolidation manufacturing facility certain business offices operating income margins also negatively effected lower sales discussed competitive conditions major markets valves controls thermal controls electrical metal products increased raw material costs mostly steel engineered products services segment expects incur additional charges future periods related comprehensive cost reduction program announced november 4 2003 net revenues increased 129 fiscal 2002 fiscal 2001 including 131 increase product revenue 120 increase service revenue primarily result acquisitions much lesser extent increased revenues flow control largely due increased demand industrial valve control thermal control products however offsetting increase demand valve control products decline general economic conditions well slowdown commercial construction market acquisitions included pyrotenax march 2001 imi bailey birkett june 2001 century water power clean air excluding 92 million decrease foreign currency exchange impact acquisitions listed acquisitions purchase price 10 million pro forma revenues calculated manner described overview segment level prior year 642 decrease operating income decrease operating margins fiscal 2002 fiscal 2001 primarily due goodwill impairment charges addition impact lower margins electrical metal products flow control decreased royalty licensing fee income divested businesses reduced market activity due continued softness demand worldwide competitive pressures overall decrease slightly offset results acquisitions savings realized costcutting initiatives flow control infrastructure services operating income margins fiscal 2002 reflect restructuring charges 508 million inventory writedowns 62 million included cost sales primarily related severance facilityrelated costs associated streamlining business charges 95 million impairment property plant equipment associated closure facilities also included goodwill impairment charges 3192 million relating tyco infrastructure services additional information regarding accounting goodwill impairments see accounting policiesgoodwill operating income margins fiscal 2001 include restructuring charges 573 million inventory writedowns 97 million included cost sales charges impairment property plant equipment 34 million primarily related closure facilities plastics adhesives following table sets forth net revenues operating income margins plastics adhesives segment millions net revenues tyco plastics adhesives increased slightly fiscal 2003 fiscal 2002 due effect favorable changes foreign currency exchange rates 293 million acquisitions 210 million calculated manner described overview included linq industrial fabrics inc linq december 2001 acquisitions purchase price 10 million sales increases achieved higher selling prices result higher raw material costs increased sales volume plastic sheeting duct tape products result heightened level security related potential likelihood terrorist attacks strong residential construction market ludlow coated products increases offset increased competition decreases corrosion protection business negatively impacted slow oil gas pipeline construction markets created uncertainty middle east venezuela decline hanger sales due weak demand retail garment industry significant decrease operating income decrease operating margins fiscal 2003 fiscal 2002 primarily due increased raw material costs mostly polyethylene increased pricing competition driven excess production capacity increase lower priced imported goods fiscal 2003 recorded net credits totaling 14 million included within 14 million charges 56 million related changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates including 32 million adjustments accrual balances 26 million related asset reserves inventory credit 02 million related reconciliation items also included within total credits 14 million restructuring credits 10 million due costs less anticipated credit 60 million included selling general administrative expenses related settlement lawsuit restructuring credits 10 million include credit 04 million also recorded connection companys intensified internal audits plastics adhesives segment expects incur additional restructuring charges future periods related comprehensive cost reduction program announced november 4 2003 net revenues plastics adhesives segment increased 75 1309 million fiscal 2002 fiscal 2001 increase solely due effect acquisitions addition net revenues fiscal 2001 included 99 million related adt automotive business sold october 2000 excluding 45 million increase foreign currency exchange fluctuations acquisition linq industrial fabrics inc december 2001 acquisitions purchase price 10 million pro forma revenues calculated manner described overview plastics adhesives segment decreased estimated 130 operating income decreased 305 fiscal 2002 compared fiscal 2001 primarily due decreased margins result volume shortfalls shift product mix lower selling prices certain areas unfavorable manufacturing variances addition segment incurred increased expenses mostly relating inventory writedowns uncollectible accounts receivable operating income margins fiscal 2002 reflect net restructuring charges 101 million inventory writedowns 11 million included cost sales charges primarily relate severance associated consolidation operations facilityrelated costs due exiting certain business lines operating income margins fiscal 2002 also include charge writeoff longlived assets 26 million primarily related impairment longlived assets operating income margins fiscal 2001 include net restructuring charges 83 million primarily related closure several manufacturing plants included within 83 million charges 40 million related inventory writedowns included cost sales operating income margins also include charge 12 million impairment longlived assets related closure manufacturing plants corporate items foreign currency effect changes foreign exchange rates fiscal 2003 compared fiscal 2002 increase net revenues operating income 15742 million 1921 million respectively effect changes foreign exchange rates fiscal 2002 compared fiscal 2001 increase net revenues approximately 09 million decrease operating income approximately 482 million corporate expenses corporate expenses 4006 million fiscal 2003 corporate expenses fiscal 2003 include charges totaling 1789 million included within 1789 million charge 915 million incremental increase directors officers insurance charges 385 million related internal investigation fees also included charge 199 million primarily related severance accrual corporate employees restructuring credit 106 million due costs less anticipated changes estimates recorded connection companys intensified internal audits detailed controls operating reviews result applying managements judgments estimates also included within 1789 million net restructuring charges 90 million net charges 160 million included selling general administrative expenses charges impairment longlived assets 146 million primarily related closure relocation corporate offices severance corporate expenses 4197 million fiscal 2002 amount includes net restructuring impairment charges 1991 million primarily related writeoff investment banking fees deal costs associated terminated breakup plan certain acquisitions completed costs incurred internal investigation severance corporate expenses level fiscal 2003 compared fiscal 2002 excluding items noted corporate expenses 2439 million fiscal 2001 included charge 34 million related severance corporate expenses slightly fiscal 2002 compared fiscal 2001 due overall decrease compensation expense lower expected advertising costs expenses charitable giving however decreases partially offset increased insurance costs legal accounting fees costs associated business disruptions began second quarter fiscal 2002 amortization goodwill amortization goodwill 5430 million fiscal 2001 accordance accounting rule changes goodwill longer amortized beginning fiscal 2002 year see goodwill intangibles within note 1 consolidated financial statements discussion accounting rule changes expense income net tyco repurchased debt prior scheduled maturities fiscal 2003 company recorded income early retirement debt totaling 241 million compared 306 million fiscal 2002 loss early retirement debt totaling 263 million fiscal 2001 fiscal 2003 company repurchased 625 dealer remarketable securities drs due 2013 total dollar price paid 902 million based upon 750 million par value drs portion excess par 1518 million recorded loss retirement debt fiscal 2003 company recognized charge 871 million relating writedown various investments accounted cost equity methods 813 million recorded became evident declines fair value investments temporary primarily due continuing depressed economic conditions specifically within telecommunications industry included within 813 million 756 million recorded second quarter see changes estimates recorded quarter ended march 31 2003 remaining 58 million charge adjusted portion remaining portfolio net realizable value based upon estimates received conjunction decision sell investments fiscal 2002 company recognized 2708 million loss various investments primarily related investments flag telecom holdings ltd flag became evident declines fair value flag investments temporary fiscal 2001 company recognized 1338 million loss various investments primarily related investment 360networks became evident declines fair value investments temporary fiscal 2003 company recognized expense 86 million connection bank guarantee behalf equity investee see offbalance sheet arrangementsguarantees information fiscal 2002 company sold certain businesses net proceeds approximately 1387 million cash consist primarily certain businesses within healthcare fire security segments connection dispositions company recorded net gain 236 million fiscal 2001 company sold adt automotive business manheim auctions inc whollyowned subsidiary cox enterprises inc approximately 10 billion cash company recorded net gain sale businesses 4104 million deducting commissions direct costs principally related sale adt automotive gain net direct incremental costs transaction well 607 million special bonuses paid key employees interest expense net interest income 1072 million fiscal 2003 compared 1173 million 1283 million fiscal 2002 2001 respectively interest expense 11480 million fiscal 2003 compared 10770 million fiscal 2002 9048 million fiscal 2001 interest expense fiscal 2003 includes charge 04 million related changes estimates recorded quarter ended march 31 2003 charge 24 million related interest component state sales tax charge fiscal 2003 interest income includes 187 million related interest received tax refund increase net interest expense fiscal 2003 fiscal 2002 primarily result negative impact cancellation certain swaps fiscal 2002 decrease capitalized interest due completion tgn increase weightedaverage interest rate year addition decrease interest income result collection note receivable slightly offsetting overall increase favorable impact lower average debt balance fiscal 2003 increase fiscal 2002 compared fiscal 2001 due higher average debt balance year offset decrease weightedaverage interest rate fiscal 2002 weightedaverage rates interest longterm debt outstanding fiscal 2003 2002 47 45 respectively weightedaverage rate fiscal 2003 increased due continued effects credit downgrades began february 2002 including exiting commercial paper market retirement lower interest rate debt income tax expense income tax expense 7645 million pretax income 18028 million fiscal 2003 compared income tax expense 2081 million pretax loss 26287 million fiscal 2002 income tax expense 11723 million pretax income 51147 million fiscal 2001 effective income tax rate 424 79 229 fiscal 2003 fiscal 2002 fiscal 2001 respectively difference rate fiscal 2002 2003 primarily result decrease nonrecognition tax benefits impairments decrease nondeductible charges difference tax rate fiscal 2001 fiscal 2002 primarily due nonrecognition tax benefits significant impairment charges occurred fiscal 2002 tax effect purchased inprocess research development restructuring credits charges impairment longlived assets charges impairment goodwill net gain sale businesses investments net gain sale common shares subsidiary accounting change benefit 2658 million fiscal 2003 compared benefit 6709 million fiscal 2002 benefit 686 million fiscal 2001 valuation allowance increased approximately 249 million due uncertainty utilization certain nonus deferred tax assets see note 10 consolidated financial statements believe generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets balance sheet valuation allowance calculated accordance provisions sfas 109 requires valuation allowance established maintained likely portion deferred tax assets realized company subsidiaries income tax returns periodically examined various regulatory tax authorities connection examinations certain tax authorities including internal revenue service raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable accrued income tax provision management reviewed tax counsel issues raised taxing authorities adequacy accrued amounts fiscal 2003 company reached agreement internal revenue service relating examination one subsidiarys income tax returns result company recorded tax benefit 224 million except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration liability could arise amounts distributed subsidiaries disposed practicable estimate additional taxes related permanently reinvested earnings basis differences related investments subsidiaries cumulative effect accounting changes discussed offbalance sheet arrangementsvariable interest entities company three synthetic lease programs utilized extent companys segments finance capital expenditures manufacturing machinery equipment ships used tyco submarine telecommunications fiscal 2003 company adopted fin 46 accordingly restructured one synthetic leases meet requirements fin 46 operating lease accounting company reclassified remaining two leases capital leases consequently recorded cumulative effect adjustment 751 million loss aftertax 1155 million pretax fiscal 2003 accordance provisions fin 46 addition four joint ventures within tyco infrastructure services met consolidation criteria set forth fin 46 result synthetic lease reclassifications joint venture consolidations company increased property plant equipment net 4338 million total debt 5622 million effective july 1 2003 december 1999 sec issued sab 101 sec expressed views regarding appropriate recognition revenue respect variety circumstances relevant us required sab 101 modified revenue recognition policies respect installation electronic security systems see revenue recognition within note 1 consolidated financial statements addition response sab 101 undertook review revenue recognition practices identified certain provisions included limited number sales arrangements delayed recognition revenue sab 101 fourth quarter fiscal 2001 changed method accounting items retroactive beginning fiscal year conform requirements sab 101 reported 6537 million aftertax 10056 million pretax charge cumulative effect change accounting principle fiscal 2001 consolidated statement operations fiscal 2003 2002 company recognized 2494 million 2942 million respectively revenue previously included sab 101 cumulative effect adjustment recorded october 1 2000 impact sab 101 net revenues fiscal 2001 net decrease 2411 million reflecting deferral 5205 million fiscal 2001 revenues partially offset recognition 2794 million revenue included cumulative effect adjustment beginning fiscal 2001 recorded cumulative effect adjustment 297 million loss net zero tax fiscal 2001 accordance transition provisions sfas 133 accounting derivative instruments hedging activities critical accounting policies preparation consolidated financial statements conformity gaap requires management use judgment making estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses following accounting policies based among things judgments assumptions made management include inherent risks uncertainties managements estimates based relevant information available end period longlived assetsmanagement periodically evaluates net realizable value longlived assets including property plant equipment amortizable intangible assets relying number factors including operating results business plans economic projections anticipated future cash flows carry longlived assets lower cost fair value fair values based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk since judgment involved determining fair value longlived assets risk carrying value longlived assets may overstated understated company generally divides electronic security assets various asset pools internally generated residential systems internally generated commercial systems accounts acquired adt dealer program discussed amortization method customer contracts respect companys depreciation policy security monitoring systems installed residential commercial customer premises costs systems combined separate pools internally generated residential commercial account customers generally depreciated ten years company concluded residential commercial account pools straightline method amortization tenyear period continues appropriate given observed actual attrition data pools determination depreciable lives subscriber systems included property plant equipment amortizable lives customer contracts related customer relationships included intangible assets primarily based historical attrition rates thirdparty lifing studies useful life underlying tangible asset realizable value remaining useful lives assets could impacted changes customer attrition rates attrition rates rise company may required accelerate amortization goodwilleffective october 1 2001 beginning tycos fiscal year 2002 adopted sfas 142 goodwill intangible assets goodwill longer amortized instead management assesses goodwill impairment least often annually triggering events occur making assessment management relies number factors including operating results business plans economic projections anticipated future cash flows transactions market place data inherent uncertainties related factors managements judgment applying analysis goodwill impairment since managements judgment involved performing goodwill valuation analyses risk carrying value goodwill may overstated understated elected make july 1 annual assessment date reporting units goodwill valuations historically calculated using income approach based present value future cash flows reporting unit approach includes many assumptions related future growth rates discount factors future tax rates etc changes economic operating conditions impacting assumptions could result goodwill impairment future periods disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit downgrades credit ratings market capitalization declines may result perform sfas 142 first step valuation analysis reporting units prior required annual assessment types events resulting analysis could result additional charges goodwill asset impairments future amortization method customer contractsthe company purchases residential security monitoring contracts external network independent dealers operate adt dealer program purchase price customer contracts recorded intangible asset ie contracts related customer relationships discussed longlived assets company generally divides electronic security assets various asset pools internally generated residential systems internally generated commercial systems accounts acquired adt dealer program intangible assets arising adt dealer program described amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship company believes accelerated method presently best achieves matching objective described doubledeclining balance method based tenyear life first eight years estimated life customer relationships converting straightline method amortization remaining four years estimated relationship period actual attrition data regularly reviewed order assess continued applicability accelerated method amortization described revenue recognitioncontract sales installation fire protection systems large security intruder systems undersea cable systems construction related projects recorded percentageofcompletion method profits recognized contracts process based upon contracted revenue related estimated cost completion risk methodology dependence upon estimates costs completion subject uncertainties inherent longterm contracts revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable estimates inaccurate risk revenues profits period may overstated understated income taxesestimates full year taxable income various legal entities jurisdictions used tax rate calculation change throughout year management uses judgment estimating income year since judgment involved risk tax rate may significantly increase decrease period determining income loss financial statement purposes must make certain estimates judgments estimates judgments occur calculation certain tax liabilities determination recoverability certain deferred tax assets arise temporary differences tax financial statement recognition revenue expense sfas 109 also requires deferred tax assets reduced valuation allowance based weight available evidence likely portion recorded deferred tax assets realized future periods evaluating ability recover deferred tax assets consider available positive negative evidence including past operating results existence cumulative losses recent fiscal years forecast future taxable income estimating future taxable income develop assumptions including amount future state federal international pretax operating income reversal temporary differences implementation feasible prudent tax planning strategies assumptions require significant judgment forecasts future taxable income consistent plans estimates using manage underlying businesses intend maintain valuation allowance likely deferred tax assets realized income tax expense recorded future reduced extent offsetting decreases valuation allowance realization remaining deferred tax assets primarily dependent forecasted future taxable income reduction estimated forecasted future taxable income including limited future restructuring activities may require record additional valuation allowance deferred tax assets increase valuation allowance would result additional income tax expense period could significant impact future earnings addition calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions recognize potential liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due payment amounts ultimately proves unnecessary reversal liabilities would result tax benefits recognized period determine liabilities longer necessary estimate tax liabilities proves less ultimate assessment charge expense would result discontinued operations tyco capital cit group inc july 8 2002 company divested tyco capital sale 100 cits common shares ipo accordingly results tyco capital presented discontinued operations periods prior year amounts include tyco capitals operating results june 1 2001 date acquisition cit tyco operating results discontinued operations tyco capital july 8 2002 follows millions 1average earning assets average finance receivables operating lease equipment finance receivables held sale certain investments less credit balances factoring clients fiscal 2003 tyco recorded income discontinued operations 200 million 200 million represented restitution payment made frank e walsh jr see note 18 consolidated financial statements tyco capitals revenues 40687 million period october 1 2001 july 8 2002 consisting finance income 33276 million income 7411 million tyco capitals revenues period june 2 september 30 2001 20116 million consisting finance income 16765 million income 3351 million percentage aea finance income 119 128 period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively period october 1 2001 july 8 2002 tyco capitals loss income taxes minority interest 59587 million period june 2 september 30 2001 tyco capitals income taxes minority interest 4511 million interest expense totaled 10915 million 5971 million period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively percentage aea interest expense 39 46 period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively income tyco capital 7411 million 3351 million period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively set forth following table millions included fees income miscellaneous fees syndication fees gains receivable sales period october 1 2001 july 8 2002 tyco capital recorded charges 3550 million relating primarily weakness competitive local exchange carrier industry included within telecommunications portfolio economic reforms instituted argentine government converted tyco capitals dollardenominated receivables pesodenominated receivables charges included provision credit losses provision credit losses 6656 million 24 aea 1161 million 09 aea period october 1 2001 july 8 2002 period june 2 september 30 2001 respectively financing leasing portfolio assets totaled 407 billion september 30 2001 managed assets totaled 509 billion september 30 2001 managed assets include finance receivables operating lease equipment finance receivables held sale certain investments finance receivables previously securitized still managed tyco capital reduced asset levels reflect sale liquidation underperforming assets industries expected continue low margins coupled lower origination volumes due soft economic environment funding constraints arising tyco capitals increased costs borrowing quarter ended march 31 2002 experienced disruptions business surrounding announced breakup plan downgrade credit ratings significant decline market capitalization time period cit also experienced credit downgrades disruption historical funding base marketbased information used connection preliminary consideration proposed ipo cit indicated cits book value exceeded estimated fair value march 31 2002 result performed sfas 142 first step impairment analysis march 31 2002 concluded impairment charge warranted time managements objective performing sfas 142 first step analysis obtain relevant marketbased data calculate estimated fair value cit march 31 2002 based projected earnings market factors expected used market participants ascribing value cit planned separation cit tyco management obtained relevant market data financial advisors regarding range price earnings multiples market condition discounts applicable cit march 31 2002 applied market data cits projected annual earnings march 31 2002 calculate estimated fair value resulting goodwill impairment estimated fair value compared corresponding carrying value cit march 31 2002 result recorded 45127 million impairment charge march 31 2002 included discontinued operations sfas 142 requires second step analysis whenever reporting units book value exceeds estimated fair value analysis requires estimate fair value reporting units individual assets liabilities complete analysis goodwill march 31 2002 completed second step analysis cit quarter ended june 30 2002 result recorded additional goodwill impairment 1320 million june 30 2002 quarter cit experienced credit downgrades business environment factors continued negatively impact likely proceeds ipo result performed another first step second step analysis june 30 2002 manner consistent march 2002 process described analyses based upon updated market data june 30 2002 period immediately following ipo including ipo proceeds analyses resulted goodwill impairment 18670 million also included discontinued operations also recorded additional impairment charge 1264 million order writedown investment cit fair value total cit goodwill impairment charge 21254 million writedown based upon net ipo proceeds approximately 44 billion deducting estimated pocket expenses included 62825 million loss discontinued operations fourth quarter fiscal 2002 tyco recorded loss sale tyco capital 588 million liquidity capital resources following table summarizes sources cash flow operating activities continuing operations use portion cash operations fiscal 2003 fiscal 2002 fiscal 2001 1this amount sum depreciation tangible property 14719 million 14641 million 12427 million fiscal 2003 fiscal 2002 fiscal 2001 respectively amortization intangible assets goodwill 7250 million 6209 million 3993 million fiscal 2003 fiscal 2002 fiscal 2001 respectively 2this amount includes cash paid restructuring charges 5033 million 5175 million 2155 million fiscal 2003 fiscal 2002 fiscal 2001 respectively 3this amount includes 1518 million related loss retirement debt associated 625 dealer remarketable securities drs due 2013 fiscal 2003 4this amount net proceeds 295 million 4277 million received saleleaseback transactions fiscal 2002 fiscal 2001 respectively also net proceeds 1238 million 1662 million 620 million received saledisposition property plant equipment fiscal 2003 fiscal 2002 fiscal 2001 respectively following table shows cash flow operating activities cash flow items segment fiscal 2003 millions 1these amounts include cash paid restructuring charges additionally amount includes 1518 million related loss retirement debt associated 625 dealer remarketable securities drs due 2013 fiscal 2003 net change total working capital net effects acquisitions divestitures increase 3070 million fiscal 2003 including cash paid restructuring charges 5033 million components change set forth detail consolidated statement cash flows significant changes working capital included 6276 million decrease accounts payable due primarily overall decrease across business segments resulting improved inventory management well decrease within tyco telecommunications due lower purchasing resulting completion tgn addition accrued expenses current liabilities decreased 5599 million primarily result cash paid associated accruals restructuring charges focus maximizing cash flow operating businesses attempt keep working capital employed businesses minimum level required efficient operations fiscal 2003 decreased participation sale accounts receivable program 1190 million fiscal 2003 fiscal 2002 fiscal 2001 paid 2718 million 6241 million 8787 million respectively cash charged accruals established connection acquisitions amount included cash paid purchase accounting holdbackearnout liabilities cash flows investing activities consolidated statements cash flows accruals restructuring items taken charge current earnings time accruals established accordance sfas 146 accounting costs associated exit disposal activities amounts expended restructuring costs charged accruals paid amount accruals proves greater costs actually incurred excess credited restructuring charges consolidated statement operations period determination made september 30 2002 existed accruals restructuring charges 10216 million consolidated balance sheet fiscal 2003 recorded net restructuring credits 848 million credits 105 million included cost sales related revision estimates prior years restructuring charges fiscal 2003 paid 5033 million cash incurred 03 million noncash uses charged liabilities also reclassified 1975 million restructuring accruals appropriate balance sheet accounts recorded 74 million foreign currency translation adjustments recorded noncash adjustments 400 million september 30 2003 remained 2936 million accruals restructuring charges consolidated balance sheet 1593 million included accrued expenses current liabilities 1343 million included longterm liabilities fiscal 2003 purchased customer contracts electronic security services cash 5968 million businesses cash 440 million net 11 million cash acquired beginning fiscal 2003 purchase accounting accruals 5390 million result purchase accounting transactions prior years connection fiscal 2003 acquisitions established purchase accounting liabilities 02 million transaction integration costs addition purchase accounting liabilities 258 million corresponding increase goodwill deferred tax assets recorded fiscal 2003 relating fiscal 2002 prior years acquisitions accruals related primarily revisions associated finalizing exit plans paragon eberle acquired fiscal 2002 also fiscal 2003 reclassified 38 million fair value adjustments related writedown assets fiscal 2002 acquisitions purchase accounting accruals appropriate asset liability account also recorded 165 million cumulative translation adjustments fiscal 2003 paid 1715 million cash utilization purchase accounting liabilities related prior years acquisitions addition paid 1003 million relating holdbackearnout liabilities related certain prior period acquisitions holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet certain acquisitions provisions require tyco make additional earnout payments sellers acquired company achieves certain milestones subsequent acquisition tyco earnout payments tied certain performance measures revenue gross margin earnings growth also fiscal 2003 determined 2072 million purchase accounting liabilities related acquisitions prior fiscal 2003 needed reversed amount goodwill september 30 2003 remained 1990 million purchase accounting accruals consolidated balance sheet 797 million included accrued expenses current liabilities 1193 million included longterm liabilities addition 2117 million holdbackearnout liabilities remained consolidated balance sheet 931 million included accrued expenses current liabilities 1186 million included longterm liabilities required sfas 142 business combinations completed fiscal 2002 accounted purchase accounting method time purchase acquisition made recorded transaction costs integrating purchased company within relevant tyco business segment amounts liabilities established fiscal 2002 detailed note 2 consolidated financial statements amounts charged current earnings treated additional purchase price consideration effect increasing amount goodwill recorded connection respective acquisition view costs equivalent additional purchase price consideration consider making acquisition amount liabilities prove excess costs actually incurred excess used reduce goodwill account established time acquisition made shortfall recorded earnings fourth quarter fiscal 2003 company initiated proposed divestiture program includes tgn noncore businesses within operating segments except plastics adhesives combined fiscal 2003 revenues businesses consideration potential divestiture totaled approximately 2 billion estimated potential proceeds sales excluding tgn could least 400 million dispose businesses may fully recover recorded book values september 30 2003 however held used model assets businesses fully recoverable continue fund capital expenditures improve cost structure businesses invest new processes technology maintain high quality production standards fiscal 2003 spent 1127 million construction tgn construction tgn completed fiscal 2003 consequently level capital expenditures electronics segment expected decrease fiscal 2004 level capital expenditures segments exceed depreciation fiscal 2004 approximate level spending fiscal 2003 provision income taxes relating continuing operations consolidated statement operations fiscal 2003 7645 million amount income taxes paid net refunds year 1425 million difference due timing differences well net operating loss carryforward carryback utilization capitalization shareholders equity 263690 million 1320 per share september 30 2003 compared 240813 million 1207 per share september 30 2002 increase shareholders equity due primarily currency translation adjustments 14454 million net income 9796 million tangible shareholders deficit 53597 million 77450 million september 30 2003 2002 respectively goodwill intangible assets 317287 million september 30 2003 compared 318263 million september 30 2002 acquisitions important part tycos growth prior years continued make selected complementary acquisitions amount acquisition activity significantly reduced therefore growth rate acquisitions reduced compared prior periods total debt percentage total capitalization total debt shareholders equity 44 september 30 2003 50 september 30 2002 approximately 42 billion cash equivalents september 30 2003 net debt total debt less cash equivalents percent net capitalization net debt shareholders equity 39 september 30 2003 43 september 30 2002 management believes net debt important measure liquidity uses measure ability meet future debt obligations september 30 2003 total debt 209691 million compared 242481 million september 30 2002 decrease resulted principally repayment tyco international group sas tig whollyowned subsidiary tyco 3855 billion unsecured term loan repurchase tigs 750 million par value 625 dealer remarketable securities due 2013 repurchase tigs remaining floating rate notes 495 notes approximately 488 million 534 million respectively purchase 18501 million par value 24211 million tigs zero coupon convertible debentures due 2021 cash 18501 million purchase 10857 million par value 14152 million tycos zero coupon convertible debentures due 2020 cash approximately 10628 million decrease partially offset issuance 30 billion 275 series convertible senior debentures due january 2018 15 billion 3125 series b convertible senior debentures due january 2023 net proceeds approximately 43875 million debt activity discussed detail cash balance decreased 41867 million september 30 2003 compared 61857 million september 30 2002 following summarizes tycos change net debt fiscal 2003 millions 1includes decrease sales accounts receivable programs 1190 million january 2003 tig repaid 3855 million unsecured term loan banks scheduled expire february 6 2003 january 2003 tig issued 30 billion 275 series convertible senior debentures due january 2018 15 billion 3125 series b convertible senior debentures due january 2023 debentures fully unconditionally guaranteed tyco time prior stated maturity holders may convert debentures tyco common shares rate 227832 217476 respectively per share additionally holders series debentures may require company purchase portion debentures january 15 2008 january 15 2013 holders series b debentures may require company purchase portion debentures january 15 2015 option exercised one aforementioned dates tig must repurchase debentures par plus accrued unpaid interest may elect repurchase securities cash tyco common shares combination thereof tig may redeem cash series debentures series b debentures time january 20 2006 january 20 2008 respectively net proceeds 43875 million pocket expenses debentures used primarily repay debt also january 2003 tig entered 15 billion 364day unsecured revolving credit facility also provides issuance unsecured letters credit facility fully unconditionally guaranteed tyco certain subsidiaries guaranteed part various subsidiaries tig variable interest rate based libor margin libor payable tig vary depending upon changes credit rating market price one outstanding debt securities tig also pays commitment fee 050 annually unused portion line credit facility utilized fiscal 2003 february 12 2003 accreted value tigs zero coupon convertible debentures february 2003 put option 18508 million february 13 2003 tig purchased 18501 million accreted value debentures cash purchase resulted exercise investors option indenture require tig purchase accreted values debentures validly surrendered february 12 2003 june 2003 tig repurchased cash 625 dealer remarketable securities drs due 2013 total dollar price paid 902 million based upon 750 million par value drs plus difference base rate 555 current tenyear united states treasury yieldtomaturity july 30 2003 august 1 2003 tig paid cash entire remaining par value floating rate notes 495 notes approximately 488 million 534 million respectively november 2000 tyco issued 46575 million principal amount maturity zero coupon convertible debentures due 2020 aggregate net proceeds approximately 33740 million debentures accrete interest rate 15 per annum fiscal 2003 tyco purchased 10857 million par value 14152 million debentures cash approximately 10628 million november 17 2003 holders principal amount maturity 31967 million notified tyco exercised option require tyco repurchase notes price 77566 per 1000 principal maturity representing accreted value notes date november 18 2003 tyco purchased notes cash 24796 million bank credit agreements contain number financial covenants interest coverage debt ebitda leverage ratios minimum levels net worth restrictive covenants limit amount debt incur restrict ability pay dividends make payments connection capital stock ii make acquisitions investments iii enter saleleaseback transactions iv pledge assets v prepay debt matures december 31 2004 specifically tig borrower 5year 20 billion revolving credit facility contains financial covenant based companys leverage ratio maximum allowable leverage ratio defined agreement 525 september 30 2003 ratio declined 463 513 september 30 2002 also several synthetic lease facilities similar covenants outstanding indentures contain customary covenants including negative pledge limit subsidiary debt limit saleleasebacks none covenants presently considered restrictive operations result rating agencies downgrade tycos debt fiscal 2002 investors one accounts receivable programs option discontinue reinvestment new receivables amount outstanding program 1032 million september 30 2003 november 12 2003 tig issued 10 billion par value 6 notes due 2013 private placement offering notes fully unconditionally guaranteed tyco company announced intention negotiate new revolving bank credit facilities upon negotiation facilities use note proceeds reduce 20 billion outstanding 5year revolving credit facility due 2006 addition subsequent year end tig executed liborinarrears interest rate swaps notional value 875 million notes swaps tyco receive 6 pay average 6month libor plus 903 basis points tyco currently negotiating 15 billion 3year revolving credit facility includes 500 million sublimit issuance standby commercial letters credit 10 billion 364day revolving credit facility 1year term option facilities variable interest rate based libor margin libor payable tig vary depending upon changes credit rating new facilities replace 15 billion undrawn 364day revolving credit facility due expire end january 2004 20 billion drawn 5year revolving credit facility due expire february 2006 following table details debt ratings september 30 2003 december 3 2003 fitch upgraded rating bb senior unsecured debt tyco well unconditionally guaranteed debt tig fitchs upgrade tycos longterm debt recognizes progress made company respect debt reduction improving cash flow december 11 2003 moodys confirmed debt ratings tig raised rating outlook tyco positive moodys indicated action reflects progress company made addressing recent liquidity concerns refinancingrepayment approximately 11 billion debt maturities putable debt 2003 well moodys expectation continuedstrong free cash flow generation profit improvement debt reduction neartointermediateterm security ratings set forth recommendation buy sell hold securities may subject revision withdrawal assigning rating organization rating evaluated independently rating commitments contingencies summary contractual obligations commitments debt minimum lease payment obligations noncancelable operating leases obligations follows millions 1includes capital lease obligations 2includes obligations offbalance sheet leasing arrangement five cable laying sea vessels addition commitments discussed table subsidiary company option buy five cable laying sea vessels upon expiration lease fiscal 2007 approximately 280 million return vessels lessor guarantee pay shortfall sales proceeds third party amount exceed 235 million september 30 2003 company outstanding letters credit letters guarantee amount 8492 million september 30 2003 tyco unsecured credit facilities 15 billion due 2004 undrawn available 20 billion due 2006 drawn see note 19 consolidated financial statements addition certain companys operating subsidiaries overdraft similar types facilities total 11 billion 07 billion undrawn available facilities expire various dates year 2015 renewable established primarily within international operations september 30 2003 company contingent liability 80 million related fiscal 2001 acquisition comnet electronics segment 80 million maximum amount payable former shareholders comnet construction installation communications system state florida finished state approved system based guidelines set forth contract 80 million accrued september 30 2003 outcome contingency cannot reasonably determined result actions taken former senior corporate management tyco members former senior corporate management former members board directors current chief executive officer named defendants number purported class actions alleging violations disclosure provisions federal securities laws well number derivative actions consolidated derivative action plaintiffs filed motion seeks add certain members current board directors management defendants tyco certain current former employees members former senior corporate management former members board directors also named defendants several employee retirement income security act erisa actions addition tyco members former senior corporate management subject sec inquiry members former senior corporate management named defendants criminal cases prosecuted district attorney new york county findings outcomes prosecutions sec civil action may affect course purported class actions derivative actions erisa claims pending tyco may july 2003 complaints filed tyco current chairman chief executive officer purporting represent class purchasers tyco securities alleging violations disclosure provisions federal securities laws generally obliged indemnify directors officers former directors officers also named defendants matters extent permitted bermuda law addition insurance carriers may decline coverage may insufficient cover expenses liability matters see risk factors legal proceedings unable time estimate ultimate liability matters may possible required pay judgments settlements incur expenses aggregate amounts would material adverse effect financial condition results operations liquidity possible estimate amount loss probable losses might result adverse settlement matters others received subpoenas requests secs division enforcement district attorney new york county us attorney district new hampshire equal opportunity employment commission others seeking production voluminous documents connection various investigations governance management operations accounting related controls department labor investigating tyco administrators certain benefit plans addition believe adequately responded governmental services action gsa action questioning whether tyco lacked present responsibility government contractor due concerns gsa expressed result alleged serious criminal misconduct former chief executive officer chief financial officer general counsel gsa reserved right take appropriate actions additional information warrants cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities time could negatively impact business nongovernmental customers suffer penalties could material adverse effect business possible estimate amount loss range possible loss might result adverse settlement matters tyco subsidiaries income tax returns periodically examined various regulatory tax authorities connection examinations tax authorities including internal revenue service raised issues proposed tax deficiencies reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable accrued income tax provision management believes ultimate resolution tax deficiencies contingencies material adverse effect companys financial condition annual results operations cash flows company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position annual results operations liquidity tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 30 2003 tyco concluded probable would incur remedial costs range approximately 142 million 451 million september 30 2003 tyco concluded best probable estimate within range approximately 270 million 32 million included accrued expenses current liabilities 238 million included longterm liabilities consolidated balance sheet view companys financial position reserves environmental matters 270 million company concluded potential payment estimated amounts material adverse effect financial position annual results operations liquidity like many companies tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation observed increase number lawsuits past several years majority cases filed subsidiaries healthcare division engineered products services division limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore experience large percentage claims never substantiated dismissed courts vigorous defense lawsuits resulted judgments favor cases tried verdict suffered adverse verdict trial court proceeding related asbestos claims appropriate settle claims however total amount paid date settle defend asbestos claims immaterial september 30 2003 approximately 14000 asbestos liability cases pending us subsidiaries believe subsidiaries substantial indemnification protection insurance coverage subject applicable deductibles respect asbestos claims indemnitors relevant carriers typically honoring duty defend indemnify believe valid defenses claims intend continue defend vigorously additionally based historical experience asbestos litigation analysis current cases believe adequate amounts accrued potential settlements adverse judgments asbestosrelated litigation possible time determine certainty ultimate outcome asbestosrelated proceedings believe final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect financial position annual results operations liquidity backlog september 30 2003 backlog unfilled orders 115339 million compared backlog 110155 million september 30 2002 expect approximately 83 backlog september 30 2003 filled fiscal 2004 backlog reportable industry segment follows millions backlog fire security includes recurring revenueinforce represents one years fees security monitoring maintenance services contract amount recurring revenueinforce september 30 2003 2002 36067 million 34839 million respectively within fire security segment backlog increased primarily due favorable foreign currency exchange rates within electronics segment backlog remained level backlog engineered products services increased primarily due several new contracts lesser extent due favorable foreign currency exchange rates backlog healthcare plastics adhesives segments represents unfilled orders nature businesses normally shipped shortly purchase orders received view backlog healthcare plastics adhesives segments significant indicator level future sales activity offbalance sheet arrangements sales accounts receivable tyco several programs sells participating interests accounts receivable investors turn purchase receive ownership security interests receivables collections reduce accounts receivable included pool company sells new receivables company risk credit loss receivables accordingly full amount allowance doubtful accounts retained consolidated balance sheets september 30 2003 availability programs 1025 million september 30 2003 2002 803 million 933 million respectively utilized programs proceeds sales used repay shortterm longterm borrowings working capital corporate purposes reported operating cash flows consolidated statements cash flows sale proceeds less face amount accounts receivable sold amount approximates cost would incurred commercial paper issued backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative expenses consolidated statements operations discount aggregated 290 million 170 million 253 million 35 27 53 weightedaverage balance receivables outstanding fiscal 2003 2002 2001 respectively company retains collection administrative responsibilities participating interests defined pool also international businesses sell accounts receivable shortterm financing mechanism transactions qualify true sales aggregate amount outstanding arrangements 202 million 157 million september 30 2003 2002 respectively result rating agencies downgrade tycos debt june 2002 investors one accounts receivable programs option discontinue reinvestment new receivables terminate program however investors exercised option amount outstanding program 1032 million 1324 million september 30 2003 2002 respectively variable interest entities fiscal 2003 company adopted fin 46 requires identification companys participation vies entities level invested equity sufficient fund future activities permit operate stand alone basis whose equity holders lack certain characteristics controlling financial interest entities identified vies fin 46 sets forth model evaluate potential consolidation based assessment party vies bears majority risk expected losses stands gain majority expected returns company programs sells machinery equipment investors turn purchase receive ownership security interests assets company may certain investments affiliated companies whereby provides varying degrees financial support investors entitled share results entities consolidate entities may substantive operating companies evaluated potential consolidation fin 46 discussed results operationscumulative effect accounting changes company three synthetic lease programs utilized extent companys segments finance capital expenditures manufacturing machinery equipment ships used tyco submarine telecommunications fiscal 2003 company restructured one synthetic leases meet requirements fin 46 operating lease accounting reclassified remaining two leases capital leases addition company evaluated investments concluded four joint ventures previously accounted equity method accounting within tyco infrastructure services minority interest meet consolidation criteria set forth fin 46 accordingly ventures consolidated onto companys balance sheet following table presents balance sheet information vies included within companys consolidated balance sheet transitional accounting prescribed fin 46 effective july 1 2003 millions 1includes elimination 162 million equity investments related joint ventures previously recorded equity method consolidated fin 46 2includes elimination 327 million accrued expenses associated synthetic leases previously recorded operating leases recorded capital leases fin 46 3includes elimination 147 million longterm liabilities associated synthetic leases previously recorded operating leases recorded capital leases fin 46 guarantees company may time enter sales contracts whereby buy back discount transaction customers thirdparty financier event customers default transactions include shared risk company accrues liability based historical loss data september 30 2003 32 million accrued related contracts event company must pay shared risk companys recourse follows place lease financially viable thirdparty financier repossess purchased products equipment seek payment personal guarantee issued customer alternatively sue customer companys fire security business guaranteed performance thirdparty contractor performance guarantee arose contract negotiations contractor could provide costeffective service telecommunications contract event contractor perform contractual obligations tyco fire security would perform service therefore companys exposure would cost services performed would material effect companys financial position annual results operations probable company make payments perform services pursuant guarantee recorded obligation related guarantee contract entered july 2002 expires end warranty period july 2004 thirdparty subcontractor perform obligations tyco may consider withholding future payment work performed contractor company disposing assets businesses often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination hazardous waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however reason believe uncertainties would material adverse effect companys financial position annual results operations liquidity company recorded liabilities known indemnifications included part environmental liabilities see liquidity capital resourcescommitments contingencies discussion liabilities company guaranteed fair value certain vessels exceed 235 million accrued 104 million 44 million september 30 2003 2002 respectively based estimate fair value vessels see liquidity capital resourcescommitments contingencies due companys downsizing certain operations part restructuring plans acquisitions otherwise company leased properties vacated sublet third parties event third parties vacate premises company would legally obligated master lease arrangements company believes financial risk default sublessors individually aggregate material companys financial position annual results operations liquidity normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position annual results operations liquidity company generally accrues estimated product warranty costs time sale instances additional amounts recorded costs probable reasonably estimated information estimated product warranty see notes 1 20 consolidated financial statements risk factors carefully consider risks described investing publicly traded securities risks described ones facing us business also subject risks affect many companies competition technological obsolescence labor relations general economic conditions geopolitical events international operations additional risks currently known us currently believe immaterial also may impair business operations liquidity risks relating recent developments tyco continuing negative publicity may adversely affect business result actions taken former senior corporate management tyco subject continuing negative publicity focusing former senior corporate managements actions negative publicity contributed significant declines prices publicly traded securities 2002 brought increased regulatory scrutiny upon us number suppliers requested letters credit support purchase orders also believe many employees operating stressful conditions reduces morale could lead increased employee turnover continuing negative publicity could material adverse effect results operations liquidity market price publicly traded securities pending litigation could material adverse effect liquidity financial condition result actions taken former senior corporate management tyco members former senior corporate management former members board directors current chief executive officer named defendants number purported class actions alleging violations disclosure provisions federal securities laws well number derivative actions consolidated derivative action plaintiffs filed motion seeks add certain members current board directors management defendants tyco certain current former employees members former senior corporate management former members board directors also named defendants several employee retirement income security act erisa actions addition tyco members former senior corporate management subject sec inquiry members former senior corporate management named defendants criminal cases prosecuted district attorney new york county findings outcomes prosecutions sec civil action may affect course purported class actions derivative actions erisa claims pending tyco may july 2003 complaints filed tyco current chairman chief executive officer purporting represent class purchasers tyco securities alleging violations disclosure provisions federal securities laws generally obliged indemnify directors officers former directors officers also named defendants matters extent permitted bermuda law addition insurance carriers may decline coverage may insufficient cover expenses liability matters unable time estimate ultimate liability matters may possible required pay judgments settlements incur expenses excess insurance coverage aggregate amounts would material adverse effect financial condition results operations liquidity senior corporate management team required devote significant attention matters arising actions prior management replaced senior corporate executives entirely new team entire board directors determined stand reelection new board directors elected annual general meeting shareholders march 2003 take time new management team new board directors learn various businesses develop strong working relationships cadre operating managers various subsidiary companies new senior corporate management teams ability complete process continues hindered need spend significant time effort dealing internal external investigations developing effective corporate governance procedures strengthening reporting lines reviewing internal controls period order complete process new executives depend part advisors including certain former directors cannot assure major restructuring board directors senior management team accompanying distractions environment adversely affect results operations continued scrutiny resulting ongoing investigations may adverse effect business others received subpoenas requests secs division enforcement district attorney new york county us attorney district new hampshire equal opportunity employment commission others seeking production voluminous documents connection various investigations governance management operations accounting related controls department labor investigating tyco administrators certain benefit plans addition believe adequately responded gsa action questioning whether tyco lacked present responsibility government contractor due concerns gsa expressed result alleged serious criminal misconduct former chief executive officer chief financial officer general counsel gsa reserved right take appropriate actions additional information warrants also subject ongoing audits internal revenue service various state tax authorities cannot predict investigations completed predict results investigations may possible required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities turn could negatively impact business nongovernmental customers suffer penalties could material adverse effect business cannot assure effects results investigations material adverse business financial condition results operations liquidity tyco subsidiaries income tax returns periodically examined various regulatory tax authorities connection examinations tax authorities including internal revenue service raised issues proposed tax deficiencies reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable accrued income tax provision believe cannot assure ultimate resolution tax deficiencies contingencies material adverse effect financial condition annual results operations liquidity ongoing sec investigation may require us amend restate public disclosures subject investigation secs division enforcement cannot assure resolution division enforcements investigation necessitate amendments restatements previouslyfiled periodic reports lead enforcement proceedings tyco sec division enforcement completed review prior managements actions accounting including matters covered companys form 8k filed december 30 2002 instances breakdowns internal controls procedures could adverse effect us new management determined past tyco general suffered poor documentation inadequate policies procedures prevent misconduct senior corporate executives inadequate procedures proper corporate authorizations inadequate approval procedures documentation lack oversight senior management corporate level pattern using aggressive accounting even accordance gaap intended increase reported earnings would conservative accounting employed pressure inducements segment unit managers increase current earnings including decisions accounting treatment employ lack stated demonstrable commitment former senior corporate management set high standards ethics integrity accounting corporate governance implemented new procedures cannot assure discover instances breakdowns internal controls procedures material adverse legal judgments fines penalties settlements could adversely affect financial health prevent us fulfilling obligations outstanding indebtedness estimate available cash flow operations adequate fund operations service debt forseeable future making estimate assumed need make material payments connection pending litigation assumed able renegotiate bank credit facilities prior expiration january 2004 material adverse legal judgments fines penalties settlements arising pending investigations litigations could require additional funding developments require us obtain additional funding cannot assure able obtain additional funding need commercially reasonably terms would material adverse effect results operations liquidity outcome could important consequences example could •require us dedicate substantial portion cash flow operations payments indebtedness thereby reducing availability cash flow fund working capital expenditures research development efforts general corporate purposes •increase vulnerability general adverse economic industry conditions •limit flexibility planning reacting changes businesses industries operate •restrict ability introduce new technologies exploit business opportunities •make difficult us satisfy payment obligations respect outstanding indebtedness •increase difficulty andor cost us refinancing indebtedness restrictive covenants debt instruments may adversely affect us bank credit agreements contain number financial covenants interest coverage debt ebitda leverage ratios minimum levels net worth restrictive covenants limit amount debt incur restrict ability pay dividends make payments connection capital stock ii make acquisitions investments iii enter saleleaseback transactions iv pledge assets v prepay debt matures december 31 2004 three synthetic lease facilities similar covenants outstanding indentures contain customary covenants including negative pledge limit subsidiary debt limit saleleasebacks although believe none covenants presently considered restrictive operations ability meet financial ratios affected events beyond control cannot assure meet tests breach covenants could result default credit agreements indentures upon occurrence event default credit facilities indentures lenders trustees could elect declare amounts outstanding thereunder immediately due payable terminate commitments extend credit lenders trustees accelerate repayment borrowings cannot assure sufficient assets repay credit facilities indebtedness acceleration obligation material debt instruments permit holders material debt accelerate obligations downgrades ratings would adversely affect us certain downgrades moodys sp would permit providers receivables facilities cease purchases facilities would increase interest cost credit facility borrowings downgrades may also increase cost capital make difficult us obtain new financing risks relating businesses cyclical industry economic conditions affected may continue adversely affect financial condition results operations operating results segments affected adversely general cyclical pattern industries operate example demand products services fire security engineered products services segments significantly affected levels commercial construction consumer business discretionary spending importantly electronic components business heavily dependent end markets serves therefore affected weak demand declining capital investment communications computer industrial machine commercial aerospace industries also experienced pricing pressures reduced margins several businesses cannot assure significant margin improvements near future cyclical impact amplified business segments purchase products business segments example fire security segment purchases certain products sold engineered products services segment therefore drop demand fire prevention products due lower new residential office construction factors cause drop demand certain products sold engineered products services segment operations expose us risk material environmental liabilities litigation violations subject numerous foreign federal state local environmental protection health safety laws governing among things generation storage use transportation hazardous materials emissions discharges substances environment health safety employees assurances times compliance environmental laws violate laws could fined criminally charged otherwise sanctioned regulators one subsidiaries electronics segment advised us attorney district connecticut target federal grand jury investigation concerning alleged clean water act violations two manufacturing plants understand certain former current employees plants subjects investigation relating violations applicable permits employees one plants pleaded guilty felony violations clean water act addition connecticut commissioner environmental protection filed civil action hartford superior court alleging violations connecticut environmental statutes regulations certain environmental laws assess liability current previous owners operators real property cost removal remediation hazardous substances properties disposed hazardous substances costs restore damage natural resources addition cleanup costs resulting environmental laws private parties could bring personal injury claims due presence exposure hazardous substances used stored disposed us contained products notified us environmental protection agency certain foreign state environmental agencies conditions number sites others disposed hazardous wastes require cleanup possible remedial action may require reimburse government otherwise pay cost cleanup sites natural resource damages also number projects underway several current former manufacturing facilities order comply environmental laws projects relate variety activities including radioactive materials decontamination decommissioning solvent metal contamination cleanup oil spill equipment upgrades replacement projects voluntary required applicable law involve remediation expenses capital improvements addition remain responsible certain environmental issues manufacturing locations sold us ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods concluded probable incur remedial costs range approximately 142 million 451 million september 30 2003 concluded best estimate within range approximately 270 million 32 million included accrued expenses current liabilities 238 million included longterm liabilities consolidated balance sheet september 30 2003 environmental laws complex change frequently tended become stringent time budgeted future capital operating expenditures maintain compliance laws cannot assure costs complying current future environmental protection health safety laws liabilities arising past future releases exposures hazardous substances exceed estimates adversely affect financial condition results operations subject additional environmental claims personal injury cleanup future based past present future business activities may required recognize additional impairment charges may required recognize additional impairment charges pursuant gaap required periodically assess goodwill intangibles longlived assets determine impaired disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit market capitalization declines may result additional charges goodwill asset impairments future impairment charges could substantially affect reported earnings period charge addition charges would reduce consolidated net worth shareholders equity increasing debttototalcapitalization ratio reduction consolidated net worth increase debt percentage total capitalization could result default credit facilities subject variety litigation course business could cause adverse effect results operations financial condition ordinary course business subject significant amount litigation including litigation alleging infringement intellectual property rights litigation alleging anticompetitive behavior product liability litigation patent infringement antitrust laws permit successful plaintiffs recover treble damages addition healthcare business subject regulation potential litigation defense lawsuits may divert managements attention may incur significant expenses defending lawsuits addition may required pay awards settlements could cause material adverse effect financial condition results operations healthcare business subject extensive regulation government failure comply regulations could adverse effect results operations financial condition food drug administration fda regulates approval manufacturing sale marketing many healthcare products failure comply current good manufacturing practices applicable regulations quality assurance guidelines could lead temporary manufacturing shutdowns product shortages delays product manufacturing efficacy safety concerns increase trends adverse events market place andor manufacturing quality issues respect products could lead product recalls withdrawals declining sales adt business recently experienced higher rates customer attrition may reduce future revenues caused us change useful life accounts increasing depreciation amortization expense attrition rates customers global electronic security services business 159 132 123 trailing 12month basis fiscal years ended september 30 2003 2002 2001 respectively attrition rates continue rise adts recurring revenues results operations adversely affected company amortizes costs adts contracts related customer relationships purchased adt dealer program using doubledeclining balance method based tenyear life first eight years estimated life customer relationships converting straightline method amortization completely amortize asset pool end twelfth year internally generated residential commercial account pools amortized using straightline method ten fourteen years attrition rates rise account pools company may required accelerate amortization costs related pools risks relating jurisdictions incorporation legislation negative publicity regarding bermuda companies could increase tax burden affect operating results several members us congress introduced legislation relating tax treatment us companies undertaken certain types expatriation transactions could deemed cover combination 1997 adt result adt bermuda company changed name tyco became parent tyco group legislation enacted could effect substantially reducing eliminating tax benefits structure materially increasing future tax burden otherwise adversely affecting business addition even tax legislation ultimately enacted specifically covers 1997 combination enactment tax proposals may made future address expatriation transactions could material impact future tax burden state california recently adopted legislation purports limit eligibility certain bermuda foreignchartered companies participate certain state contracts although california law provides waivers may issued permitting companies participate state contracts certain circumstances unclear waiver authority exercised federal state legislative proposals enacted could limit even prohibit eligibility awarded us state government contracts unable predict likelihood final form proposed legislation might become law nature regulations may promulgated future legislative enactments result uncertainties unable assess impact us proposed legislation area recently negative publicity regarding criticism us companies use relocation offshore jurisdictions including bermuda company negative publicity could harm reputation impair ability generate new business companies government agencies decline business us result negative public image bermuda companies possibility clients receiving negative media attention business bermuda company bermuda law differs laws effect united states may afford less protection holders securities holders tyco securities may difficulty protecting interests would holders securities corporation incorporated jurisdiction united states see enforcement civil liabilities bermuda company tyco governed companies act 1981 bermuda differs material respects laws generally applicable united states corporations shareholders including among others differences relating interested director officer transactions shareholder lawsuits indemnification bermuda law directors officers may personal interest contracts arrangements company subsidiaries transactions long personal interest first disclosed company likewise duties directors officers bermuda company generally owed company shareholders bermuda companies generally personal right action directors officers company may exercise rights action behalf company limited circumstances bermuda law company may also agree indemnify directors officers personal liability involving fraud dishonesty incurred relation company quantitative qualitative disclosures market risk subject market risk associated changes interest rates foreign currency exchange rates certain commodity prices order manage volatility relating significant market risks enter forward foreign currency exchange contracts crosscurrency swaps foreign currency options commodity swaps interest rate swaps anticipate material changes primary market risk exposures fiscal 2004 utilize risk management procedures controls executing derivative financial instrument transactions execute transactions hold derivative financial instruments trading purposes derivative financial instruments related interest rate sensitivity debt obligations intercompany crossborder transactions anticipated nonfunctional currency cash flows well commodity price exposures used goal mitigating significant portion exposures cost effective counterparties derivative financial instruments limited financial institutions least longterm debt rating interest rate sensitivity table provides information financial instruments sensitive changes interest rates including debt obligations interest rate swaps debt obligations table presents cash flows principal repayment weightedaverage interest rates interest rate swaps table presents notional amounts weightedaverage interest rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars millions 1weightedaverage variable interest rates based applicable rates september 30 2003 per terms contracts related financial instruments exchange rate sensitivity table provides information financial instruments sensitive foreign currency exchange rates instruments include debt obligations forward option foreign currency exchange contracts debt obligations table presents cash flows principal repayment weightedaverage interest rates forward option foreign currency exchange contracts table presents notional amounts weightedaverage contractual exchange rates notional amounts used calculate contractual payments exchanged contract amounts included table us dollars unless noted millions 1weightedaverage variable interest rates based applicable rates september 30 2003 per terms contracts related financial instruments accounting technical pronouncements effective october 1 2002 company adopted sfas 143 accounting asset retirement obligations sfas 143 addresses accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs adoption new standard material impact results operations financial position effective october 1 2002 company adopted sfas 144 accounting impairment disposal longlived assets provisions statement provide single accounting model impairment longlived assets initial adoption new standard material impact results operations financial position effective january 1 2003 company adopted sfas 146 accounting costs associated exit disposal activities effective exit disposal activities initiated december 31 2002 statement nullifies fasbs emerging issues task force issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring statement requires liabilities associated exit disposal activities recognized measured fair value incurred opposed date entity commits exit disposal plans initial adoption new standard material impact results operations financial position effective january 1 2003 company adopted sfas 148 accounting stockbased compensationtransition disclosure amends sfas 123 accounting stockbased compensation provide transition methods voluntary change measuring compensation cost connection employee share option plans using fair value based method statement also amends disclosure requirements sfas 123 require prominent disclosures method accounting compensation cost associated employee share option plans well effect method used reported results company adopted disclosure requirements sfas 148 changed method measuring compensation cost share options fiscal 2003 company adopted fasb interpretation fin 45 guarantors accounting disclosure requirements guarantees fin 45 requires increased disclosure guarantees including likelihood payment remote product warranty information see note 20 consolidated financial statements fin 45 also requires guarantors recognize liability certain types guarantees equal fair value guarantee upon issuance adoption fin 45 material impact results operations financial position january 2003 fasb issued fin 46 consolidation variable interest entities interpretation clarifies application accounting research bulletin 51 consolidated financial statements relating consolidation certain entities fin 46 requires identification companys participation variable interest entities vies defined entities level invested equity sufficient fund future activities permit operate stand alone basis whose equity holders lack certain characteristics controlling financial interest entities identified vies fin 46 sets forth model evaluate potential consolidation based assessment party vies bears majority risk expected losses stands gain majority expected returns fin 46 also sets forth certain disclosures regarding interests vies deemed significant even consolidation required company adopted fin 46s accounting provisions july 1 2003 see notes 12 30 consolidated financial statements discussion impact fin 46 november 2002 eitf reached consensus eitf issue 0021 revenue arrangements multiple deliverables eitf 0021 provides guidance determine arrangement involves multiple revenuegenerating activities deliverables divided separate units accounting revenue recognition purposes states division required arrangement consideration allocated among separate units accounting guidance consensus effective revenue arrangements entered fiscal periods began june 15 2003 adoption new standard material impact results operations financial position april 2003 fasb issued sfas 149 amendment statement 133 derivative instruments hedging activities amends clarifies financial accounting reporting derivative instruments including certain derivative instruments embedded contracts hedging activities sfas 133 accounting derivative instruments hedging activities sfas 149 applied prospectively effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption new standard material impact results operations financial position may 2003 fasb issued sfas 150 accounting certain financial instruments characteristics liabilities equity establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability asset circumstances effective instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 adoption new standard material impact results operations financial position forwardlooking information certain statements report forwardlooking statements within meaning us private securities litigation reform act 1995 forwardlooking statements involve risks uncertainties statements contained herein clearly historical nature forwardlooking words anticipate believe expect estimate project similar expressions generally intended identify forwardlooking statements forwardlooking statement contained herein press releases written statements documents filed securities exchange commission tycos communications discussions investors analysts normal course business meetings webcasts phone calls conference calls regarding expectations respect sales earnings cash flows operating efficiencies product expansion backlog consummation benefits acquisitions matters well financings share repurchases subject known unknown risks uncertainties contingencies many beyond control may cause actual results performance achievements differ materially anticipated results performances achievements factors might affect forwardlooking statements include among things •overall economic business conditions •the demand tycos goods services •competitive factors industries tyco competes •changes tax requirements including tax rate changes new tax laws revised tax law interpretations •results consequences tycos internal investigation governmental investigations concerning companys governance management internal controls operations •the outcome litigation governmental proceedings result actions taken former management •the ratings debt ability repay refinance outstanding indebtedness matures •interest rate fluctuations changes borrowing costs •other capital market conditions including foreign currency rate fluctuations •economic political conditions international markets including governmental changes restrictions ability transfer capital across borders •the ability achieve cost savings connection companys strategic restructuring six sigma initiatives •potential impairment goodwill •the impact fluctuations share price tyco common shares •changes us nonus government regulations general particular changes rules regulations regarding safety efficacy sales promotions insurance reimbursement pricing tycos disposable medical products specialty products regarding tycos ability operate set prices respect undersea cable communications systems •impact recent management changes •the possible effects tyco pending legislation us enacted may limit eliminate potential us tax benefits resulting tycos incorporation bermuda may deny us government contracts tyco based upon incorporation bermuda •the potential continuing disruption business related distraction costs associated negative publicity recent announcements tyco international ltd schedule iivaluation qualifying accounts millions part ii part iii part iv signatures tyco international ltd index consolidated financial information managements responsibility financial statements report independent auditors tyco international ltd consolidated statements operations millions except per share data tyco international ltd consolidated balance sheets millions except share data tyco international ltd consolidated statements shareholders equity millions tyco international ltd consolidated statements cash flows millions tyco international ltd notes consolidated financial statements consolidating statement operations year ended september 30 2003 millions consolidating statement operations year ended september 30 2002 millions consolidating statement operations year ended september 30 2001 millions consolidating balance sheet september 30 2003 millions consolidating statement cash flows year ended september 30 2001 millions tyco international ltd managements discussion analysis financial condition results operations results operations liquidity capital resources offbalance sheet arrangements risk factors quantitative qualitative disclosures market risk accounting technical pronouncements forwardlooking information tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules a1 2 financial statements schedulessee item 8 3exhibit index exhibit number exhibit 31 memorandum association altered incorporating amendments july 2 1997 incorporated reference exhibit registrants quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 32 certificate incorporation incorporating amendments july 2 1997 incorporated reference exhibit registrants quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 33 amended restated byelaws tyco international ltd incorporating amendments march 25 2004 incorporated reference annex registrants definitive proxy statement schedule 14a annual general meeting shareholders march 25 2004 filed january 28 2004 41 form indenture dated june 9 1998 among tyco international group sa tigsa tyco bank new york trustee incorporated reference exhibit registrants tigsas coregistration statement form s3 filed june 9 1998 42 indenture among tigsa tyco state street bank trust company trustee dated february 12 2001 relating zero coupon convertible debentures due 2021 incorporated reference exhibit registrants tigsas coregistration statement form s3 filed march 16 2001 43 indenture tyco state street bank trust company trustee dated november 17 2000 relating zero coupon convertible debentures due 2020 incorporated reference registrants registration statement form s3 filed december 8 2000 44 indenture among tigsa us bank na trustee dated january 13 2003 relating series 275 convertible senior debentures due 2018 series b 3125 convertible senior debentures due 2023 incorporated reference exhibit registrants quarterly report form 10q quarterly period ended december 31 2002 filed february 14 2003 45 supplemental indenture 1 dated january 10 2003 among tigsa tyco international ltd us bank na incorporated reference registrants tigsas schedule filed january 14 2003 101 tyco international ltd long term incentive plan formerly known adt 1993 longterm incentive plan amended may 12 1999 incorporated reference registrants form s8 filed june 10 19991 102 1994 restricted stock ownership plan key employees incorporated reference registrants registration statement form s8 filed december 21 19991 103 tyco international us inc supplemental executive retirement plan amended restated october 1 2000 dated december 30 2000 filed herewith1 104 second amendment tyco international us inc supplemental executive retirement plan dated february 14 2002 filed herewith1 105 third amendment tyco international us inc supplemental executive retirement plan dated july 30 2002 filed herewith1 106 amendments tyco international ltd supplemental executive retirement plan dated december 24 2003 filed herewith12 107 december 2003 amendment tyco international us inc supplemental executive retirement plan dated december 24 2003 filed herewith1 108 amendment 20041 tyco international us inc supplemental executive retirement plan dated april 30 2004 filed herewith1 109 tyco international ltd long term incentive plan ii incorporated reference registrants registration statement form s8 filed march 25 19991 1010 retention agreement l dennis kozlowski dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 20011 1011 retention agreement mark h swartz dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 20011 1012 retention agreement richard j meelia dated february 14 2002 incorporated reference exhibit registrants quarterly report form 10q quarterly period ended december 31 20011 1013 retention agreement mark belnick dated february 28 2002 incorporated reference exhibit registrants quarterly report form 10q quarterly period ended march 31 20021 1014 edward breen employment contract dated july 25 2002 incorporated reference exhibit registrants quarterly report form 10q quarterly period ended june 30 20021 1015 memo summarizing mark h swartzs severance arrangement incorporated reference exhibit registrants quarterly report form 10q quarterly period quarter ended june 30 20021 1016 david j fitzpatrick employment contract dated september 18 2002 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1017 first amendment executive employment agreement dated september 18 2004 david j fitzpatrick tyco international ltd filed herewith1 1018 william b lytton employment contract dated september 30 2002 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1019 first amendment executive employment agreement dated september 30 2004 william b lytton tyco international ltd filed herewith1 1020 tyco international ltd uk savings related share option plan incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1021 tyco employee stock purchase plan amended may 2003 incorporated reference exhibit 101 registrants registration statement form s8 dated july 30 20031 1022 tyco international ireland employee share scheme incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1023 tyco international us inc deferred compensation plan amended june 2002 incorporated reference exhibit registrants quarterly report form 10q quarterly period ended march 31 2003 filed may 15 20031 1024 juergen gromer employment contract effective october 1 1999 executed june 19 2000 incorporated reference exhibit registrants annual report form 10k fiscal year ended september 30 2003 filed december 17 20031 1025 tyco international ltd 2004 stock incentive plan incorporated reference appendix registrants proxy statement fiscal year ended september 30 2003 filed january 28 20041 1026 amendment tyco international ltd 2004 stock incentive plan effective october 1 2004 filed herewith1 1027 terms conditions option award restricted stock award restricted unit award form director deferred stock unit award letter 2004 stock incentive plan filed herewith1 1028 tyco international us inc severance plan us officers executives filed herewith1 1029 364day credit agreement dated december 22 2003 among tyco international group sa tyco international ltd banks named therein bank america na citigroup north america coadministrative agents incorporated reference exhibit registrants quarterly report form 10q quarterly period ended december 31 2003 1030 threeyear credit agreement dated december 22 2003 among tyco international group sa tyco international ltd banks named therein bank america na citigroup north america coadministrative agents incorporated reference exhibit registrants quarterly report form 10q quarterly period ended december 31 2003 1031 amendment retention agreement dated december 9 2004 tyco international ltd richard j meelia filed herewith1 211 subsidiaries registrant filed herewith 231 consent deloitte touche llp filed herewith 232 consent pricewaterhousecoopers llp filed herewith 241 power attorney filed herewith 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 filed herewith 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 1management contract compensatory plan 2in july 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd massachusetts corporation time former tyco upon consummation merger adt continuing public company changed name tyco international ltd tyco former tyco became whollyowned subsidiary tyco changed name tyco international us inc bsee item 15a3 csee item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd david j fitzpatrick david j fitzpatrick executive vice president chief financial officer date december 13 2004 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant december 13 2004 capacities indicated name title edward breen edward breen chairman chief executive officer director principal executive officer david j fitzpatrick david j fitzpatrick executive vice president chief financial officer principal financial officer carol anthony davidson carol anthony davidson senior vice president controller principal accounting officer adm dennis c blair director george w buckley director brian duperreault director bruce gordon director john krol director h carl mccall director mackey j mcdonald director dr brendan r oneill director sandra wijnberg director jerome b york director william b lytton signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report william b lytton william b lytton attorneyinfact tyco international ltd index consolidated financial information managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior team leading example includes every one tycos 258400 global employees well customers suppliers business partners one crucial objectives continuing restore public employee shareholder confidence tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective adopting appropriate accounting standards designing maintaining adequate systems internal disclosure controls devoting full commitment necessary resources items dedication governance controls financial reporting throughout 2004 continued make significant progress designing maintaining monitoring internal controls financial reporting disclosures improving corporate governance practices many discussed annual report form 10k believe strong control environment dynamic process therefore intend continue devote substantial resources document assess improve internal controls corporate governance believe controls currently place provide reasonable assurance assets safeguarded transactions accordance authorizations financial records reliable financial statements pleased corporate governance control improvements however still accomplish dynamic quite complex environment fully confident place rigorous effective controls board directors desire audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls edward breen edward breen chairman chief executive officer david j fitzpatrick david j fitzpatrick executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheet tyco international ltd subsidiaries company september 30 2004 related consolidated statements operations shareholders equity cash flows year ended audit also included financial statement schedule year ended september 30 2004 listed index item 15a financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion 2004 consolidated financial statements present fairly material respects financial position company september 30 2004 results operations cash flows year ended conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp deloitte touche llp new york new york december 13 2004 report independent registered public accounting firm board directors shareholders tyco international ltd opinion accompanying consolidated balance sheet related consolidated statements operations shareholders equity cash flows present fairly material respects financial position tyco international ltd subsidiaries september 30 2003 results operations cash flows two years period ended september 30 2003 conformity accounting principles generally accepted united states america addition opinion financial statement schedule two years period ended september 30 2003 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed notes 9 13 company adopted provisions financial accounting standards board interpretation 46 consolidation variable interest entities fiscal year 2003 statement financial accounting standards 142 goodwill intangible assets fiscal year 2002 pricewaterhousecoopers llp pricewaterhousecoopers llp new york new york november 4 2003 except amounts impacted discontinued operations disclosed note 4 date december 10 2004 tyco international ltd consolidated statements operations years ended september 30 2004 2003 2002 millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets september 30 2004 2003 millions except share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 30 2004 2003 2002 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 30 2004 2003 2002 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd company organized laws bermuda subsidiaries tyco subsidiaries hereinafter collectively referred company tyco prepared united states dollars accordance generally accepted accounting principles united states gaap principles consolidationtyco holding company conducts business operating subsidiaries company global diversified company provides products services five business segments fire security electronics healthcare engineered products services plastics adhesives see note 23 company consolidates companies owns controls fifty percent voting shares unless control likely temporary also company consolidates variable interest entities company bears majority risk entities potential losses stands gain majority entities expected returns significant intercompany transactions eliminated company presents results operations september 30 year end certain subsidiaries consistently close books one month prior closing date results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal significant intercompany balances transactions eliminated consolidation revenue recognitionthe company recognizes revenue principally four types transactionssales products sales security systems subscriber billings monitoring services contract sales revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonable assured provisions certain rebates sales incentives trade promotions coupons product returns discounts customers accounted reductions determining sales period related sales recorded provisions based estimates derived current program requirements historical experience sales security monitoring systems include multiple components including installation amounts assigned component based components objectively determined fair value fair value cannot objectively determined sale involving multiple elements company recognizes revenue installation services along associated direct incremental costs contract life revenue sale services recognized services rendered subscriber billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems undersea fiber optic cable systems construction related projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion cost completion measured based ratio actual cost incurred total estimated cost revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable providing services certain contracts infrastructure services business unit within engineered products services incurs subcontract costs paid infrastructure services rebilled customers costs historically treated pass therefore included reported revenue cost revenue infrastructure services effective january 1 2004 retroactive october 1 2003 company began reflecting subcontract costs revenue cost revenue infrastructure services resulting incremental revenue cost revenue 739 million year ended september 30 2004 company adjusted revenue cost revenue years ended september 30 2003 2002 change material adjustment would impact previously reported operating income net income loss cash flow certain companys longterm contracts warranty obligations estimated warranty costs contract determined based contract terms technology specific issues costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting companys global undersea fiber optic network sells bandwidth capacity known tyco global network tgn companys sales bandwidth capacity generally structured either service arrangements operating leases company recognizes revenue associated service arrangement ratably service period recognizes revenue associated operating leases lease term company plans sell tgn see note 28 september 30 2004 2003 accounts receivable longterm receivables included retainage provisions 86 million 122 million respectively 34 million 54 million unbilled respectively retainage provisions consist primarily electronics contracts fire protection contracts well transportation water environmentalrelated contracts become due upon contract completion acceptance september 30 2004 retainage provision included 57 million expected collected 2005 addition september 30 2004 2003 48 million 47 million respectively accounts receivable unbilled related longterm contracts research developmentresearch development expenditures expensed incurred included cost sales customerfunded research development costs incurred tyco reimbursed customers net impact research development expense consolidated statements operations customerfunded research development research development expense consolidated statements operations reflects companysponsored research development advertisingadvertising costs expensed incurred included selling general administrative expenses employee share option planstyco measures compensation cost connection employee share option plans using intrinsic value method accordingly recognize compensation expense issuance options exercise price equal greater market price date grant fair value based method applied tyco using blackscholes option pricing model assumptions set forth note 21 effect net income loss earnings loss per share years ended september 30 2004 2003 2002 would follows millions except per share data translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars operate highly inflationary environments assets liabilities translated us dollars using yearend exchange rates revenue expenses translated average exchange rates effect year foreign currency translation gains losses included component accumulated comprehensive income loss within shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments assets liabilities subsidiaries included net income gains losses resulting foreign currency transactions amounts material period presented included net income cash equivalentsall highly liquid investments purchased maturity three months less time purchase considered cash equivalents occasion company required post cash collateral secure reimbursements indemnity obligations letters credit performance guarantees respect various construction projects amount restricted cash collateral 84 million 30 million included current assets 54 million included longterm assets 445 million 142 million included current assets 303 million included longterm assets september 30 2004 2003 respectively allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense years ended september 30 2004 2003 2002 1478 million 1459 million 1454 million respectively maintenance repair expenditures charged expense incurred years ended september 30 2004 2003 2002 company capitalized interest 2 million 25 million 100 million respectively high level capitalized interest 2002 due construction tgn depreciation calculated using straightline method estimated useful lives related assets follows company generally considers electronic security assets three asset pools internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program subscriber systems represent internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program recorded intangible assets internal purposes company considers internally generated commercial accounts three smaller groups consisting small business core commercial national commercial accounts internally generated residential commercial account pools generally amortized using straightline method tenyear period fourteenyear period used national commercial accounts fourteenyear period writeoff specific accounts upon discontinuance used residential commercial accounts certain nonus geographic locations longlived assetsthe company periodically evaluates net realizable value longlived assets including property plant equipment amortizable intangible assets relying number factors including operating results business plans economic projections anticipated future cash flows indicators potential impairment present carrying values assets evaluated relation operating performance estimated future undiscounted cash flows underlying business impairment carrying value asset recognized whenever anticipated future cash flows undiscounted asset estimated less carrying value net book value asset adjusted fair value expected future undiscounted cash flows less book value amount impairment recognized difference carrying value asset fair value fair values based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk goodwilleffective october 1 2001 beginning tycos fiscal year 2002 company adopted statement financial accounting standards sfas 142 goodwill intangible assets goodwill longer amortized instead assessed impairment least annually triggering events occur making assessment management relies number factors including operating results business plans economic projections anticipated future cash flows transactions market place data inherent uncertainties related factors managements judgment applying analysis goodwill impairment company elected make july 1 annual impairment assessment date reporting units sfas 142 defines reporting unit operating segment one level operating segment reporting units september 30 2004 follows electronic security services fire protection contracting services electronic components wireless electrical contracting services power systems printed circuit group submarine telecommunications medical devices supplies retail pharmaceuticals flow control fire products electrical metal products infrastructure services plastics ae products adhesives ludlow coated products changes occur composition one segments reporting units goodwill reassigned segments reporting units affected based relative fair value prescribed sfas 142 goodwill valuations calculated using income approach based present value future cash flows reporting unit approach incorporates many assumptions including future growth rates discount factors income tax rates changes economic operating conditions impacting assumptions could result goodwill impairment future periods disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit market capitalization declines may result perform sfas 142 first step valuation analysis tycos reporting units prior required annual assessment types events resulting analysis could result additional charges goodwill asset impairments future see note 13 information sfas 142 note 4 information regarding impairment goodwill relating tyco capital intangible assets netintangible assets primarily include contracts related customer relationships intellectual property certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program acquired contracts related customer relationships recorded contractually determined purchase price instances company incurs costs associated maintaining operating adt dealer program including brand advertising due diligence certain programs dealers pay company nonrefundable amount contracts sold company nonrefundable charge represents dealer reimbursement company costs incurred company associated maintaining operating adt dealer program accordingly acquired contract related customer relationship recorded contractually determined purchase price net nonrefundable amount charged dealers time contract accepted purchase first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price nonrefundable charge dealer retained company even event customer cancellation company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship based upon attrition studies adt dealer program customer base conducted independent appraiser company believes accelerated method presently best achieves matching objective doubledeclining balance method based tenyear life first eight years estimated life customer relationship converting straightline method amortization remaining four years estimated relationship period actual attrition data regularly reviewed order assess continued applicability accelerated method amortization described contracts related customer relationships well intellectual property consisting primarily patents trademarks unpatented technology amortized straightline basis five forty years company evaluates remaining useful life intangible assets periodic basis determine whether events circumstances warrant revision remaining useful life addition intangible assets subject amortization tested impairment annually frequently events changes circumstances indicate asset might impaired investmentsthe company invests equity debt securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged comprehensive income within shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments determined specific identification basis included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting company periodically evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company owns controls twenty percent voting shares exerts significant influence operating financial policies equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented restricted investmentsrestricted investments consist fixed income securities maturities excess three months restricted currently held collateral certain insurance obligations product warrantythe company generally records estimated product warranty costs time sale manufactured products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty manufactured equipment also warranted manner product warranties however instances warranty either negotiated contract sold separate component warranty period terms range 90 days eg consumable products 20 years eg power system batteries warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage environmental coststyco subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated company discounts environmental liabilities using riskfree rate return obligation fixed reliably determinable impact discount consolidated balance sheets september 30 2004 2003 reduce obligation 20 million 17 million respectively income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book values tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence likely deferred tax assets realized insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities predetermined program deductibles subsequent risk loss transferred companys insurance carriers determination liabilities related expenses dependent claims experience certain liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurance liabilities discounted using riskfree rate return obligation reliably determinable impact discount consolidated balance sheets september 30 2004 2003 reduce obligation 45 million 32 million respectively financial instrumentsall derivative financial instruments reported consolidated balance sheets fair value changes derivative financial instruments fair value recognized currently earnings unless specific hedge criteria met inception derivative financial instrument designated fair value hedge changes fair value derivative financial instrument hedged item attributable hedged risk recognized charge credit earnings fair value estimates based relevant market information including current market rates prices assuming adequate market liquidity fair value estimates interest rate crosscurrency swaps calculated company provided company highquality thirdparty financial institutions known high volume participants market company uses derivative financial instruments manage exposures foreign currency interest rate risks companys objective utilizing derivatives manage risks using effective methods eliminate reduce impacts exposures transactions designated hedges company documents relationships hedging instruments hedged items links derivatives designated fair value cash flow foreign currency hedges specific assets liabilities consolidated balance sheets specific firm commitments forecasted transactions designated hedges company also assesses documents hedges inception ongoing basis whether derivatives used hedging transactions effective offsetting changes fair values cash flows associated hedged items part managing exposure changes market interest rates company enters various interest rate swap transactions financial institutions acting principal counterparties ensure appropriate use hedge accounting treatment derivatives entered designated according hedge objective specified liabilities specifically underwritten debt issue companys primary hedge objectives include conversion fixedrate liabilities variable rates derivative financial instruments associated objectives classified fair value hedges part managing exposure changes foreign currency exchange rates company utilizes forward option contracts financial institutions acting principal counterparties objective hedging contracts minimize impacts cash flows due changes foreign currency exchange rates intercompany loans booked accounts notes receivable accounts payable forecasted transactions limited circumstances hedge accounting designated remaining hedges marked market companys derivative financial instruments present certain market counterparty risks however concentration counterparty risk mitigated tyco deals variety major banks worldwide longterm standard poors moodys credit ratings aa2 higher addition conventional derivative financial instruments utilized thereby affording optimum clarity market risk none companys derivative financial instruments outstanding year end would result significant loss company counterparty failed perform according terms agreement time company require collateral security furnished counterparties derivative financial instruments share premium contributed surplusin accordance bermuda companies act 1981 tyco issues shares cash premium par value resulting premium credited share premium account nondistributable reserve tyco issues shares exchange shares another company excess fair value shares acquired par value shares issued tyco credited applicable contributed surplus subject certain conditions distributable reserve use estimatesthe preparation consolidated financial statements conformity gaap requires management make extensive use estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges credits acquisition liabilities allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenue related costs environmental legal liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ materially estimates changes estimates recorded results operations period event circumstances giving rise changes occur reclassificationscertain prior year amounts reclassified conform current year presentation significant deferred taxes discontinued operations accounting pronouncementsin november 2003 emerging issues task force eitf financial accounting standards board fasb reached consensus eitf issue 031 meaning otherthantemporary impairment application certain investments eitf 031 provides guidance determining otherthantemporary impairments application marketable equity securities debt securities accounted sfas 115 accounting certain investments debt equity securities september 2004 fasb issued fasb staff position fsp eitf issue 0311 delayed effective date measurement recognition guidance contained eitf 031 pending finalization draft fsp eitf issue 031a implementation guidance application paragraph 16 eitf 031 disclosure requirements eitf 031 remain effect company adopted disclosure requirements eitf 031 september 30 2004 adoption recognition measurement provisions eitf 031 expected material impact companys results operations financial position cash flows december 2003 fasb issued fasb interpretation fin 46 consolidation variable interest entities revised december 2003 fin 46r fin 46r explains identify variable interest entities vie determine business enterprise include assets liabilities noncontrolling interest results vie financial statements company adopted fin 46r march 31 2004 result joint ventures previously consolidated fin 46 deconsolidated effective march 31 2004 see note 9 discussion impact fin 46r december 2003 fasb issued revision sfas 132 employers disclosures pensions postretirement benefits improve financial statement disclosure defined benefit plans statement requires additional disclosures assets including plan assets category obligations cash flows defined pension plans defined benefit postretirement plans also requires reporting various elements pension postretirement benefit costs quarterly basis generally disclosure requirements effective interim periods beginning december 15 2003 however information foreign plans effective fiscal years ending june 15 2004 tyco adopted revised sfas 132 quarter ended march 31 2004 see note 19 discussion retirement plans december 2003 securities exchange commission sec issued staff accounting bulletin sab 104 revenue recognition supercedes sab 101 revenue recognition financial statements sab 104s primary purpose rescind accounting guidance contained sab 101 related multiple element revenue arrangements superceded result issuance eitf 0021 accounting revenue arrangements multiple deliverables issuance sab 104 reflects concepts contained eitf 0021 revenue recognition concepts contained sab 101 remain largely unchanged issuance sab 104 material impact companys results operations financial position cash flows may 2004 fasb issued fsp 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 fsp 1062 provides guidance accounting effects medicare prescription drug improvement modernization act 2003 act postretirement health care plans provide prescription drug benefits fsp 1062 also requires certain disclosures regarding effect federal subsidy provided act fsp 1062 effective tyco fourth quarter 2004 adoption fsp 1062 material impact companys results operations financial position cash flows september 2004 eitf reached consensus eitf issue 048 effect contingently convertible instruments diluted earnings per share eitf requires contingently convertible debt securities market price trigger included diluted earnings per share regardless whether market price trigger met eitf 048 effective periods ending december 15 2004 requires retroactive restatement previously reported earnings per share contingently convertible instrument settled cash december 31 2004 would reflected retroactive restatement adoption eitf expected material impact companys results operations financial position cash flows november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 sfas 151 amends accounting research bulletin arb 43 chapter 4 clarify abnormal amounts idle facility expense freight handling costs wasted materials spoilage recognized currentperiod charges addition sfas 151 requires allocation fixed production overhead inventory based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 company currently assessing impact sfas 151 results operations financial position cash flows 2 restructuring charges credits net restructuring charges credits net years ended september 30 2004 2003 2002 follows millions 1includes restructuring credits charges tgn business held sale 0 million 19 million 390 million 2004 2003 2002 respectively tyco international ltd notes consolidated financial statements 2004 charges credits activity companys 2004 restructuring reserves follows millions 2004 company approved announced employees various plans exit 210 facilities primarily united states plans included termination approximately 10840 employees resulted restructuring charges totaling 329 million including 7 million reflected cost sales noncash writedown carrying value inventory 212 million employee severance benefits 82 million facility exit costs 28 million related costs september 30 2004 total 100 million 30 million 25 million related employee severance benefits facilities exit costs respectively expended related plans 2004 company completed certain activities related plans amounts less originally estimated accordingly company reversed 8 million restructuring reserves restructuring credit september 30 2004 reserves aggregate balance 161 million company expects incur approximately 15 million additional restructuring charges related 2004 restructuring plans early 2005 cash payments related reserves expected 2005 addition amounts reflected table 2004 company sold certain cablelaying sea vessels assets written expected net realizable value prior years amounts greater originally estimated recorded related gains restructuring credits 40 million 2004 company also completed certain restructuring activities announced prior years amounts less originally estimated accordingly company reversed 25 million restructuring reserves restructuring credit 2004 fire security recorded restructuring charges 184 million related 2004 restructuring plans including 4 million reflected cost sales noncash writedown carrying value inventory additionally fire security completed certain restructuring activities announced prior years amounts less originally estimated accordingly reversed 9 million restructuring reserves restructuring credit 2004 electronics recorded restructuring charges 16 million related 2004 restructuring plans including 1 million reflected cost sales noncash writedown carrying value inventory additionally 2004 electronics sold certain cablelaying sea vessels assets impaired prior years amounts greater originally anticipated recorded related gain restructuring credit 34 million electronics also completed certain restructuring activities amounts less originally estimated accordingly reversed 15 million restructuring reserves restructuring credit 2004 healthcare recorded restructuring charges 13 million related 2004 restructuring plans additionally healthcare completed restructuring activities announced prior years amounts less originally anticipated accordingly reversed 2 million restructuring reserves restructuring credit 2004 engineered products services recorded restructuring charges 55 million related 2004 restructuring plans including 1 million reflected cost sales noncash writedown carrying value inventory engineered products services expects incur approximately 15 million additional restructuring charges related 2004 restructuring plans early 2005 additionally engineered products services completed certain restructuring activities amounts less originally anticipated accordingly reflected 2 million restructuring credit 2004 plastics adhesives recorded restructuring charges 44 million related 2004 restructuring plans including 1 million reflected cost sales noncash writedown carrying value inventory 2004 corporate recorded restructuring charges 17 million related 2004 restructuring plans addition corporate completed certain restructuring activities announced prior years amounts less originally anticipated accordingly reversed 7 million restructuring reserves restructuring credit addition 2004 corporate sold certain tgn assets written expected net realizable value prior years amounts greater originally anticipated recorded related gain restructuring credit 4 million 2003 charges credits activity companys 2003 restructuring reserves summarized follows millions 2003 company approved announced employees various plans exit 22 facilities primarily united states germany plans included termination approximately 1500 employees related exit costs decisions resulted restructuring charges totaling 61 million including 10 million reflected cost sales noncash writedown carrying value inventory 11 million noncash charges 30 million employee severance benefits 8 million facility exit costs 2 million related costs september 30 2004 total 27 million 6 million 1 million related employee severance benefits facility exit costs respectively expended related plans 2004 company completed certain restructuring activities related plans amounts less originally estimated accordingly company reversed 4 million restructuring reserves restructuring credit addition amounts reflected table 2003 company recorded 145 million restructuring credits includes reversal restructuring reserves related completing certain restructuring activities announced prior years amounts less originally estimated 2003 fire security recorded restructuring charges 26 million related 2003 restructuring plans including 4 million reflected cost sales noncash writedown carrying value inventory 3 million noncash restructuring charges additionally fire security completed certain restructuring activities announced prior years amounts less originally estimated accordingly reversed 16 million restructuring reserves restructuring credit 2003 electronics recorded restructuring credits 72 million including 20 million credits reflected cost sales relating sales certain inventory impaired prior years amounts greater originally anticipated restructuring credits primarily related severance costs less originally anticipated due employee attrition redeployment termination fees less anticipated due negotiated settlements 2003 healthcare recorded restructuring credits 8 million related completion restructuring activities announced prior years amounts less originally anticipated 2003 engineered products services recorded restructuring charges 18 million related 2003 restructuring plans including 6 million reflected cost sales noncash writedown carrying value inventory additionally engineered products services recorded 10 million restructuring credits includes reversal restructuring reserves related completing certain restructuring activities announced prior years amounts less originally estimated 2003 plastics adhesives recorded restructuring credits 1 million related completion restructuring activities announced prior years amounts less originally anticipated 2003 corporate recorded restructuring charges 17 million related 2003 restructuring plans includes 8 million noncash charges addition corporate recorded 38 million restructuring credits includes reversal restructuring reserves related completing certain restructuring activities announced prior years amounts less originally estimated 2002 charges credits activity companys 2002 restructuring reserves summarized follows millions 2002 company approved announced employees various plans exit 198 facilities primarily united states europe latin america includes restructuring certain operations within tyco telecommunications business plans included termination approximately 14100 employees related exit costs decisions resulted restructuring charges totaling 1921 million including 636 million cost sales noncash writedown carrying value inventory 115 million recorded selling general administrative expenses increase bad debt provision balance 2002 charge includes 381 million employee severance benefits 277 million facility exit costs 512 million related costs september 30 2004 total 345 million 185 million 382 million related employee severance benefits facility exits costs related costs respectively expended related plans september 30 2004 company completed certain activities plans amounts less originally estimated result reversed 89 million restructuring reserves restructuring credits company also reclassified 140 million primarily related bad debt provision balance sheet accounts addition 2002 company completed certain restructuring activities announced prior years amounts less previously estimated result company reversed 31 million restructuring reserves restructuring credits 2002 fire security recorded restructuring charges 113 million related 2002 restructuring plans including 19 million reflected cost sales noncash writedown carrying value inventory additionally fire security completed certain restructuring activities announced prior years amounts less originally estimated accordingly reversed 18 million restructuring reserves restructuring credit 2002 electronics recorded restructuring charges 1141 million related 2002 restructuring plans including 609 million reflected cost sales noncash writedown carrying value inventory 533 million related primarily facility closures 2002 additionally electronics also completed certain restructuring activities amounts less originally estimated accordingly reversed 26 million restructuring reserves restructuring credit 2002 healthcare recorded restructuring charges 49 million related 2002 restructuring plans including 1 million reflected cost sales noncash writedown carrying value inventory additionally healthcare completed restructuring activities announced prior years amounts less originally anticipated accordingly reversed 4 million restructuring reserves restructuring credit 2002 engineered products services recorded restructuring charges 48 million related 2002 restructuring plans including 6 million reflected cost sales noncash writedown carrying value inventory 2002 plastics adhesives recorded restructuring charges 10 million related 2002 restructuring plans including 1 million reflected cost sales noncash writedown carrying value inventory 2002 corporate recorded charges 559 million including 115 million reflected selling general administrative expenses increase bad debt provision charges include 390 million related impairment tgn including bad debt provision discussed charges also reflect costs consolidate corporate headquarters writeoff investment banking fees deal costs associated terminated breakup plan certain acquisitions completed total restructuring reserves companys restructuring reserves segment september 30 2004 follows millions september 30 2004 2003 restructuring reserves included companys consolidated balance sheets follows millions 3 charges impairment longlived assets 2004 charges 2004 company recorded total charges impairment longlived assets held use continuing operations 99 million plastics adhesives recorded charges impairment property plant equipment 47 million related companys decision close certain facilities discussed note 2 fire security recorded charges 34 million primarily related writedown united states facility estimated fair value lesser extent writeoff cash management software addition corporate engineered products services electronics healthcare recorded combined charges 18 million related impairment property plant equipment 2003 charges 2003 company recorded total charges impairment longlived assets 825 million fire security recorded charges impairment intangible assets 101 million resulting deterioration future estimated cash flows anticipated customers primarily mexico certain latin american countries following curtailment instances termination adt dealer program countries addition 11 million impairment charges recorded related discontinuance two brand names fire security also recorded charges impairment property plant equipment 21 million related primarily subscriber systems fixed assets well 10 million associated termination software development project company recorded charges impairment property plant equipment 679 million corporate 664 million related impairment tgn classified held sale impairment recorded writeoff entire tgn result intention divest business amount impairment based upon estimates fair value less costs dispose remaining 15 million charge primarily related closure relocation corporate offices addition impairment charges 2 million 1 million recorded engineered products services electronics respectively 2002 charges 2002 company recorded total charges impairment longlived assets continuing operations 3310 million fire security recorded charge 6 million related impairment intangible assets resulting curtailment certain markets termination adt dealer program addition fire security recorded charge 109 million primarily related impairment property plant equipment associated termination software development project software development project related strategy develop new comprehensive integrated customer database associated applications segment acquired companies 2002 management assistance thirdparty consultant performed full evaluation determine information technology needs fire security business relative stood expectations near future result review company decided abandon project still development testing stage resulting writeoff capitalized costs electronics recorded charge 569 million 541 million primarily related impairment property plant equipment related closure facilities discussed note 2 28 million related impairment intangible assets associated undersea systems technology knowhow acquired acquisitions company recorded charge 2611 million corporate 2582 million related impairment tgn 29 million related impairment certain corporate properties associated consolidation corporate headquarters discussed note 2 2002 fiber optic capacity available market significantly exceeded overall market demand created sharply declining prices reduced anticipated future cash flows tgn result company assessed carrying value tgn assuming held used model applying analysis employed estimates current future market pricing demand network completion costs analysis highly sensitive changes estimates based upon estimates company concluded value fiber optic network partially impaired consequently recorded impairment charge quarter ended march 31 2002 amount impairment based upon difference carrying value asset group estimated fair value assets groups march 31 2002 estimated fair value asset group determined using income discounted cash flow approach cash flow forecasts prepared using 15year estimated weightedaverage useful life tgn asset groups probability factors applied various scenarios weighting likelihood possible outcome cash flow forecast discounted using weightedaverage cost capital 15 based upon analyses sum expected future discounted cash flows subtracted carrying values asset groups resulting impairment loss tgn entire tgn placed service march 31 2002 writtenoff time well portion tgn construction progress company reconsidered factors noted projected operating results business plans estimate discounted future cash flows order retest carrying value tgn impairment june 30 2002 september 30 2002 company determined impairment charge necessary june 30 2002 however decline telecommunications industry necessitated additional impairment charge therefore charge recorded september 30 2002 engineered products services plastics adhesives healthcare recorded charges 10 million 3 million 2 million respectively related impairment property plant equipment associated closure facilities discussed note 2 4 divestitures discontinued operations 2004 activity 2004 company recorded net losses impairments divestitures 116 million continuing operations connection divestiture writedown fair value certain held sale businesses addition company also recorded losses sale discontinued operations 132 million 123 million tax write carrying value assets estimated fair value 2003 company conducted comprehensive review core businesses result implemented divestiture program early 2004 connection program company divested twentyone liquidated four noncore businesses across business segments except plastics adhesives primarily within fire security aggregate proceeds 252 million cash 16 million proceeds currently held escrow total assets total liabilities divested businesses 445 million 115 million respectively total assets include cash retained businesses sold 13 million net revenue net loss 2004 date disposition 460 million 43 million respectively divested companies meet criteria discontinued operations net revenue net income year ended september 30 2003 587 million 24 million respectively divested companies meet criteria discontinued operations net revenue 2004 discontinued operations years ended september 30 2004 2003 2002 889 million 815 million 766 million respectively pretax loss income discontinued operations years ended september 30 2004 2003 2002 135 million 7 million 19 million respectively following table presents balance sheet information discontinued operations businesses held sale september 30 2004 2003 millions 2003 activity 2003 tyco recorded income discontinued operations 20 million restitution payment made frank e walsh jr former director see note 14 2002 activity 2002 company sold certain businesses net proceeds 139 million cash consisted primarily businesses within healthcare fire security connection dispositions company recorded net gain 24 million included expense net consolidated statement operations july 8 2002 company divested tyco capital cit group inc sale 100 common shares cit group inc cit principal operating subsidiary initial public offering ipo accordingly results tyco capital presented discontinued operations operating results discontinued operations tyco capital october 1 2001 july 8 2002 33 billion finance income 60 billion pretax loss 63 billion net loss net loss includes goodwill impairment charge 6638 million quarter ended march 31 2002 tyco experienced disruptions business surrounding announced breakup plan downgrade credit ratings significant decline market capitalization time period cit also experienced credit downgrades disruption historical funding base marketbased information developed connection companys preliminary consideration proposed ipo cit indicated cits book value exceeded estimated fair value march 31 2002 result company performed sfas 142 first step goodwill impairment analysis march 31 2002 concluded impairment charge warranted time managements objective performing first step goodwill impairment analysis obtain relevant marketbased data calculate estimated fair value cit march 31 2002 based projected earnings market factors expected used market participants ascribing value cit planned separation cit tyco management obtained relevant market data financial advisors regarding range price earnings multiples market condition discounts applicable cit march 31 2002 applied market data cits projected annual earnings march 31 2002 calculate estimated fair value resulting goodwill impairment estimated fair value compared corresponding carrying value cit march 31 2002 result company recorded 4513 million impairment charge march 31 2002 included discontinued operations second step goodwill impairment analysis required whenever reporting units book value exceeds estimated fair value analysis required company estimate fair value reporting units individual assets liabilities complete analysis goodwill march 31 2002 company completed second step analysis cit quarter ended june 30 2002 result recorded additional goodwill impairment charge 132 million june 30 2002 quarter cit experienced credit downgrades business environment factors continued negatively impact likely proceeds ipo result company performed another first step second step analysis june 30 2002 manner consistent march 2002 process described analyses based upon updated market data june 30 2002 period immediately following ipo including ipo proceeds analyses resulted goodwill impairment 1867 million tyco also recorded additional impairment charge 126 million order writedown investment cit fair value total cit goodwill impairment 2125 million writedown based upon net ipo proceeds approximately 44 billion deducting estimated outofpocket expenses included 6283 million loss discontinued operations fourth quarter 2002 tyco recorded loss sale tyco capital 59 million 5 acquisitions 2004 company completed acquisition 2 businesses within engineered products services fire security aggregate cost 9 million acquisitions material effect companys financial position results operations cash flows 2003 company purchased seven businesses within healthcare engineered products services fire security electronics aggregate cost 44 million cash net 1 million cash acquired acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates 2002 company purchased approximately 130 businesses aggregate cost 3751 million consisting 1684 million cash net 158 million cash acquired issuance approximately 48 million common shares valued 1919 million plus fair value stock options preexisting put option rights assumed 148 million 103 million put option rights paid cash 2002 acquisitions include among others sbcsmith alarm systems century tube corporation sensormatic electronic corporation sensormatic transpower technologies dsc group dsc water power technology linq industrial fabrics inc paragon trade brands inc paragon communications instruments inc clean air systems purchase remaining minority public interest tycom ltd tycom addition tyco issued approximately 18 million common shares valued 820 million connection amalgamation tycom see tycom ltd discussion fair value debt acquired companies aggregated 799 million acquisitions funded utilizing net proceeds issuance longterm debt results operations acquired companies included tycos consolidated results respective acquisition dates tyco international ltd notes consolidated financial statements following unaudited pro forma data summarize results operations year ended september 30 2002 assuming acquisitions amalgamation tycom completed beginning period pro forma data gives effect actual operating results prior acquisitions adjustments interest expense income taxes effect given cost reductions operating synergies pro forma amounts purport indicative results would actually achieved acquisitions amalgamation occurred beginning period presented may achieved future 1includes impairment longlived assets 3310 million net restructuring charges 1872 million goodwill impairment charges 1344 million loss investments 271 million net gain divestiture 24 million gain retirement debt 30 million loss discontinued operations 6270 million net tax loss sale discontinued operations 59 million net tax excludes charges 18 million writeoff purchased inprocess research development associated acquisitions sensormatic electronics corporation dsc discussed note 6 acquisition liabilities company paid 54 million 172 million 475 million cash fund acquisition liabilities related acquisitions 2004 2003 2002 respectively september 30 2004 acquisition liabilities related 2004 2003 acquisitions reflected consolidated balance sheets activity 2002 acquisition liabilities follows millions 2002 company recorded 195 million acquisition liabilities related plans integrate businesses acquired 2002 2003 company finalized integration plans company began assess formulate date 2002 acquisitions paragon eberle controls gmbh result recorded additional acquisition liabilities 26 million corresponding increase goodwill deferred tax assets additions primarily reflect additional distributor supplier cancellation fees september 30 2004 total 155 million expended related plans september 30 2004 company also completed certain actions acquisition plans costs less originally estimated result reduced acquisition liabilities 38 million goodwill related deferred tax assets reduced equivalent amount termination employees consolidation facilities related 2002 acquisitions essentially complete except cash payments continue related primarily certain longterm noncancellable lease obligations longterm severance arrangements activity 2001 acquisition liabilities follows millions 2001 company recorded 1021 million acquisition liabilities related plans integrate businesses acquired 2001 2002 company finalized integration plans began assess formulate date 2001 acquisitions result recorded additional acquisition liabilities 340 million september 30 2004 total 957 million expended related plans september 30 2004 company completed certain actions acquisition plans costs less originally estimated result reduced 2001 acquisition liabilities 300 million goodwill related deferred tax assets aggregate reduced equivalent amount september 30 2004 company reclassified 29 million fair value adjustments related writedown assets balance sheet accounts actions 2001 acquisition plans essentially complete however cash payments continue related primarily certain longterm noncancellable lease obligations longterm severence arrangements september 30 2004 2003 acquisition liabilities included companys consolidated balance sheets follows millions holdbackearnout liabilities company paid cash approximately 53 million 100 million 150 million relating holdback earnout liabilities related certain prior period acquisitions 2004 2003 2002 respectively company also issued 44139 common shares valued 2 million relating earnout liabilities 2002 value earnout common shares based upon fair value stock time issuance holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet certain acquisitions provisions would require tyco make additional earnout payments sellers acquired company achieves certain milestones subsequent acquisition tyco earnout payments tied certain performance measures revenue gross margin earnings growth generally treated additional purchase price september 30 2004 2003 holdbackearnout liabilities included companys consolidated balance sheets follows millions adt dealer program years ended september 30 2004 2003 2002 tyco paid 254 million 597 million 1138 million cash respectively acquire 03 million 06 million 14 million customer contracts electronic security services adt dealer program tycom ltd december 18 2001 company completed amalgamation tycom approximately 56 million tycom common shares owned tyco converted right receive 03133 tyco common share upon completion amalgamation tycom became whollyowned subsidiary tyco outstanding option purchase tycom common shares became exercisable tyco common shares number tyco shares equal number tycom common shares issuable upon exercise immediately prior consummation multiplied exchange ratio 03133 per share exercise price tyco common shares issuable upon exercise tycom options equals exercise price per tycom common share price options exercisable prior amalgamation divided exchange ratio addition outstanding tycom restricted share converted restricted tyco common share based exchange ratio options restricted shares subject terms conditions applicable immediately prior amalgamation 6 writeoff purchased inprocess research development 2002 connection tycos acquisition sensormatic dsc group company wroteoff fair value purchased inprocess research development iprd various projects development new products technologies amount 18 million management determined value iprd using among factors appraisals 7 expense net 2004 net expense 286 million consisted primarily 284 million loss related repurchase portion outstanding convertible debt prior scheduled maturity see note 15 consolidated financial statements details regarding debt repurchases 2003 net expense 223 million consisted primarily net loss retirement debt 128 million see note 15 details regarding debt repurchases additionally net expense included 87 million loss relating writedown various investments became evident declines fair value investments temporary predominately due continuing depressed economic conditions specifically within telecommunications industry 2002 net expense 217 million consisted primarily 271 million loss various investments mainly related investments flag telecom holdings ltd flag became evident declines fair value flag investments temporary loss partially offset gain 30 million related retirement debt net gain divestiture 24 million see note 4 consolidated financial statements 8 income taxes reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 30 2004 2003 2002 follows millions 1excludes asset impairments nondeductible charges items broken separately table provisions income taxes 2004 2003 2002 includes 577 million 798 million 482 million respectively nonus income taxes provision benefit income taxes 2004 2003 includes 523 million 57 million respectively federal income taxes 40 million 98 million respectively state income taxes income tax benefit provision relating discontinued operations 9 million 7 million 323 million 2004 2003 2002 respectively nonus income loss continuing operations income taxes 3329 million 2827 million 665 million 2004 2003 2002 respectively deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 30 2004 2003 follows millions presentation deferred tax assets liabilities prior years reclassified comparability purposes reflect results detailed analysis deferred tax assets liabilities completed 2004 reclassification included recording additional deferred tax asset related full valuation allowance 1026 million september 30 2003 september 30 2004 company 3644 million net operating loss carryforwards certain nonus jurisdictions 2555 million expiration remaining 1089 million expire future years 2013 us approximately 3608 million federal 3459 million state net operating loss carryforwards september 30 2004 expire future years 2024 valuation allowance deferred tax assets 1992 million 1879 million september 30 2004 2003 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets valuation allowance calculated accordance provisions sfas 109 accounting income taxes requires valuation allowance established maintained likely portion deferred tax assets realized september 30 2004 approximately 424 million valuation allowance ultimately reduce goodwill net operating losses utilized company subsidiaries income tax returns periodically examined various tax authorities connection examinations certain tax authorities including us internal revenue service irs raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable recorded income tax provision calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel issues raised taxing authorities adequacy recorded amounts companys estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities may result income tax benefits recognized period determine liabilities longer necessary substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries american jobs creation act 2004 ajca signed law october 2004 replaces export incentive deduction domestic manufacturing income expected ajca material impact companys income tax provision ajca also allows company repatriate 500 million permanently reinvested foreign earnings 2005 2006 effective tax rate 525 company currently reviewing whether take advantage new provision ajca 9 cumulative effect accounting changevariable interest entities 2003 company adopted fin 46 requires identification companys participation vies entities level invested equity sufficient fund future activities permit operate stand alone basis whose equity holders lack certain characteristics controlling financial interest entities identified vies fin 46 sets forth model evaluate potential consolidation based assessment party vies bears majority risk expected losses stands gain majority expected returns company programs sells machinery equipment investors turn purchase receive ownership security interests assets company may certain investments affiliated companies whereby provides varying degrees financial support investors entitled share results entities company consolidate entities may substantive operating companies evaluated potential consolidation fin 46 company three synthetic lease programs utilized extent companys segments finance capital expenditures manufacturing machinery equipment ships used tyco submarine telecommunications 2003 company adopted fin 46 accordingly restructured one synthetic leases meet requirements fin 46 offbalance sheet accounting company reclassified remaining two leases capital leases consequently recorded 75 million aftertax loss 115 million pretax cumulative effect adjustment addition total debt increased 498 million time consolidation july 1 2003 conjunction adopting fin 46 company also evaluated investments concluded four joint ventures previously accounted equity method accounting within tyco infrastructure services company owns minority interest met consolidation criteria set forth fin 46 accordingly ventures consolidated onto companys balance sheet effective july 1 2003 assets liabilities joint ventures included companys consolidated balance sheets september 30 2003 112 million 96 million respectively subsequently four joint ventures deconsolidated march 31 2004 adoption fin 46r assets liabilities joint ventures included companys balance sheet september 30 2003 96 million 69 million respectively 10 earnings loss per share reconciliations basic diluted earnings loss per share years ended september 30 2004 2003 2002 follows millions except per share data computation diluted earnings per common share 2004 excludes effect potential exercise options purchase approximately 67 million shares effect would antidilutive additionally diluted earnings per common share excludes approximately 5 million 4 million shares related companys zero coupon convertible debentures due 2020 2021 respectively conversion conditions met computation diluted earnings per common share 2003 excludes effect potential exercise options purchase approximately 110 million shares effect would antidilutive diluted earnings per common share 2003 excludes approximately 38 million 4 million shares related companys zero coupon convertible debentures due 2020 2021 respectively conversion conditions met diluted earnings per common share 2003 also excludes approximately 94 million shares 49 million shares related companys convertible senior debentures due 2018 2023 respectively effect would antidilutive computation diluted loss per common share 2002 excludes effect potential exercise options purchase approximately 10 million shares potential exchange convertible debt due 2010 approximately 3 million shares effect would antidilutive diluted loss per common share 2002 also excludes approximately 48 million approximately 25 million shares related companys zerocoupon convertible debentures due 2020 2021 respectively conversion conditions met 11 sale accounts receivable tyco several programs may sell participating interests accounts receivable investors turn purchase receive ownership security interests receivables collections reduce accounts receivable included pool company sells new receivables company retains risk credit loss receivables accordingly full amount reserve retained consolidated balance sheets proceeds sales used repay shortterm longterm borrowings working capital corporate purposes reported operating cash flows consolidated statements cash flows sale proceeds less face amount accounts receivable sold amount approximates cost would incurred commercial paper issued backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative expenses consolidated statements operations discount aggregated 18 million 29 million 17 million 31 35 27 weightedaverage balance receivables outstanding 2004 2003 2002 respectively company retains collection administrative responsibilities participating interests defined pool 2004 company reduced outstanding balances accounts receivable programs 929 million 812 million relates three corporate accounts receivable programs september 30 2004 2003 availability corporate programs 625 million 1025 million respectively september 30 2004 2003 amounts utilized programs zero 803 million respectively remaining reduction related certain companys international businesses selling fewer accounts receivable shortterm financing mechanism transactions qualify true sales aggregate amount outstanding arrangements 99 million 202 million september 30 2004 2003 respectively 12 investments september 30 2004 2003 tyco availableforsale equity investments fair market value 104 million 23 million cost basis 104 million 26 million respectively investments included prepaid expenses current assets within consolidated balance sheets september 30 2004 unrealized losses 2 million unrealized gains 5 million associated investments september 30 2003 unrealized losses 2 million unrealized gains 4 million associated investments unrealized gains losses included separate component shareholders equity see note 7 discussion realized losses equity investments september 30 2004 2003 tyco heldtomaturity investments fair value 19 million 22 million respectively investments included assets within consolidated balance sheets september 30 2004 2003 tyco restricted investments 7 million 470 million respectively majority restricted investments used fund certain pension plans tyco international ltd notes consolidated financial statements 13 goodwill intangible assets goodwill 255 billion 255 billion september 30 2004 2003 respectively changes carrying amount goodwill 2003 2004 follows millions 1the net decrease goodwill includes 480 million associated acquisitions completed prior 2003 primarily related fair value adjustments well finalization deferred taxes related previously recorded acquisition liabilities 2during 2004 company undertook comprehensive project review 2003 deferred income tax accounts results project material consolidated financial statements company reclassified certain prior year balances enhance comparability 3the net decrease goodwill includes 233 million primarily due finalization deferred taxes related previously completed acquisitions 2004 activity 2004 company divested twentyone liquidated four noncore businesses see note 4 provisions sfas 144 accounting impairment disposal longlived assets determined recorded book value businesses would fully recovered 2004 company recorded goodwill impairments 60 million 48 million related divested businesses 12 million related businesses classified held sale respectively 2003 activity 2003 company changed internal reporting structure operations tycos plastics adhesives businesses previously reported within healthcare specialty products comprise plastics adhesives reportable segment result goodwill within healthcare specialty products reassigned based relative fair value new reporting unit impairments resulted reevaluation fourth quarter 2003 company reorganized reporting structure see note 23 part reorganization company finalized plan september 2003 sell tgn major operating asset tyco submarine telecommunications business results tgn business held sale previously included electronics presented within corporate company plans exit tgn business held sale decided invest industry reorganization resulted change composition reporting units result goodwill reassigned new reporting units using relative fair value allocation approach resulting recognition impairment charges 278 million power systems electrical contracting services printed circuit group charge based valuation performed management assistance third party consultant using income approach based present value estimated future cash flows reporting units impairment goodwill remaining power systems printed circuit group reporting units 2002 activity transition provisions sfas 142 companys transitional benchmark analysis concluded goodwill impairment october 1 2001 however quarter ended march 31 2002 electronics recorded charge 2218 million related impairment longlived assets tgn result fiber optic capacity available market significantly exceeding overall market demand thereby creating sharply declining prices reduced cash flows additional information tgn impairment charge see note 3 updated goodwill valuation completed march 31 2002 tyco submarine telecommunications valuation completed using income approach based upon present value future cash flows reporting unit march 31 2002 however first step analysis resulted impairment submarine telecommunications reporting units goodwill date quarter ended june 30 2002 additional circumstances developed indicated potential impairment value goodwill respect companys reporting units tyco experienced disruptions business surrounding termination previously announced breakup plan resignation chief executive officer downgrades credit ratings additional decline market capitalization updated valuations completed reporting units june 30 2002 using income approach based present value future cash flows reporting unit additional discount factor applied reflect decrease reporting unit valuations recent disruptions companys corporate offices negative publicity tyco evidenced decline companys total market capitalization resulted goodwill impairment 845 million including 608 million relating tyco submarine telecommunications 237 million relating tyco infrastructure services reporting unit within engineered products services quarter ended september 30 2002 step two analyses prescribed sfas 142 completed tyco submarine telecommunications tyco infrastructure services reporting units resulted incremental goodwill impairment continuing operations 162 million 80 million relating tyco submarine telecommunications 82 million relating tyco infrastructure services quarter ended september 30 2002 circumstances associated restructuring charges related submarine telecommunications reporting unit indicated potential impairment value goodwill reporting unit updated valuation using income approach based present value future cash flows completed september 30 2002 valuation resulted additional goodwill impairment continuing operations 337 million following impairments recorded 2002 totaling 1344 million goodwill remaining tyco submarine telecommunications tyco infrastructure services reporting units 2002 company curtailed certain markets terminated adt dealer program due decrease projected purchases customer contracts adt dealer program updated valuation using income approach based present value future cash flows september 30 2002 performed security services reporting unit valuation results indicated fair value reporting unit exceeded book value reporting unit resulting impairment security services reporting units goodwill date see note 4 divestitures discontinued operations information regarding impairment goodwill relating tyco capital intangible assets net 5335 million 5779 million september 30 2004 2003 respectively accumulated amortization amounted 3066 million 2489 million september 30 2004 2003 respectively following table sets forth gross carrying amount accumulated amortization companys intangible assets september 30 2004 2003 millions 1intangible assets subject amortization excluded calculation weighted average amortization period 2004 company reassessed useful lives certain intangible assets reassessment resulted immaterial charge amortization expense due shortening amortization periods certain patents reclassifying certain tradenames indefinitelived intangible assets intangible asset classifications conformed current period presentation september 30 2004 2003 company 672 million 678 million intangible assets subject amortization respectively assets september 30 2004 primarily relate tradenames 389 million healthcare intellectual property primarily trademarks 261 million fire security well engineered products services 22 million intangible assets intangible assets subject amortization september 30 2003 primarily relate tradenames 389 million healthcare intellectual property primarily trademarks 261 million fire security well engineered products services 28 million intangibles intangible asset amortization expense years ended september 30 2004 2003 2002 698 million 724 million 619 million respectively estimated aggregate amortization expense intangible assets currently owned company expected approximately 650 million 2005 600 million 2006 500 million 2007 450 million 2008 450 million 2009 see note 3 information regarding impairment intangible assets 14 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average 12 rates effect first day month loans generally repayable ten years except earlier payments required certain circumstances employee terminated addition company issued mortgages certain employees employee relocation programs mortgages generally payable 15 years collateralized underlying property 2004 2003 maximum amount outstanding programs 78 million 82 million respectively loans receivable programs well unsecured advances outstanding 70 79 million september 30 2004 2003 respectively total outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 49 million 48 million september 30 2004 2003 respectively rate interest charged loans 125 interest income remaining interest bearing loans totaled 1 million 1 million 6 million 2004 2003 2002 respectively certain loans totaling 21 million 24 million september 30 2004 2003 respectively noninterest bearing total noninterest bearing loans include loans mark belnick companys former executive vice president chief corporate counsel amount outstanding september 30 2004 2003 15 million 2004 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc brunswick corporation vf corporation sandra wijnberg director executive officer marsh mcclennan companies inc george w buckley director executive officer brunswick corporation mackey j mcdonald director executive officer vf corporation purchases marsh mclennan companies inc 2004 approximately 22 million purchases companies noted 2004 aggregated less 1 percent consolidated net revenue 2003 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc brunswick corporation vf corporation verizon communications inc imperial chemical industries plc microwarehouse inc sandra wijnberg director executive officer marsh mcclennan companies inc george w buckley director executive officer brunswick corporation mackey j mcdonald director executive officer vf corporation bruce gordon director officer verizon communications inc brendan r oneill jerome b york directors executive officers imperial chemical industries plc microwarehouse inc respectively time commercial transactions purchases marsh mclennan companies inc imperial chemical industries plc 2003 approximately 18 million 16 million respectively purchases companies noted 2003 aggregated less 15 million 2001 tyco authorized compensation arrangements l dennis kozlowski mark h swartz companys chief financial officer august 2002 connection arrangements tyco purchased executive split dollar life insurance policies messrs kozlowski swartz entered shared ownership agreement whereby company agreed pay premiums insurance policies 11year period beginning 2001 amended policies executed providing additional companypaid premiums company cobeneficiary policies less amounts owed messrs kozlowski swartz messrs kozlowski swartz beneficiaries cash surrender values policies plus amount unpaid premiums companys obligations arrangements entered recognition services rendered officers contingent upon continuing employment 2001 company deposited 31 million consolidated rabbi trust fund premiums policies consolidated financial statements include charges 27 million related initial awards mr kozlowski 14 million mr swartz 2001 charges 5 million mr kozlowski 2 million mr swartz 2002 policy amended consolidated financial statements include charges 6 million mr kozlowski 2004 2003 event investment options within policies earn specified interest amounts tyco guaranteed supplemental premium payment amount ensure 10 annual return cash surrender value unpaid premiums liability accreted charge earnings throughout period arrangements make specified supplemental premium payments conjunction mr swartzs termination employment lump sum payment 25 million represented present value annual premium amounts termination date remainder contractual period made mr swartz return mr swartz waived tycos obligation continue making premium payments company accrued 58 million 53 million consolidated balance sheets september 30 2004 2003 respectively connection arrangements 24 million held rabbi trust september 30 2004 tycos ability withdraw monies rabbi trust purposes premium payments requires mr kozlowskis approval tyco discontinued making premium payments mr kozlowskis insurance policy october 1 2002 company filed affirmative actions messrs kozlowski swartz seeking disgorgement benefits executive life insurance policies pending resolution action mr kozlowski premium obligations since october 2002 drawn cash surrender value policy avoid termination policys death benefit 2002 mark h swartz companys former chief financial officer outstanding loans tyco rate interest charged loans 211 maximum amount outstanding loans 2002 25 million plus accrued interest loans repaid full prior september 30 2002 richard j meelia president tyco healthcare outstanding loan key employee loan program rate interest charged loan 223 206 2003 2002 respectively maximum amount outstanding loan 2003 2002 significantly less 1 million 2 million respectively loan repaid full prior september 30 2003 2002 robert p mead former president tyco engineered products services outstanding loan key employee loan program rate interest charged loan 203 maximum amount outstanding loan 2002 approximately 1 million loan repaid full prior september 30 2002 jerry r boggess former president tyco fire security outstanding loan key employee loan program rate interest charged loan 203 maximum amount outstanding loan 2002 less 1 million loan repaid full prior september 30 2002 fourth quarter 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified certain former tyco directors executive officers owned tycom ltd shares options converted tyco shares tyco options upon amalgamation subsidiary tyco tycom ltd december 18 2001 exchange ratio applicable holders tycom ltd shares options stephen w foss director tyco march 6 2003 mr foss owner corporate aircraft company leased starting may 2001 seeking competitive bids mr fosss bid considered competitive given anticipated usage tyco paid mr foss company president aggregate 587000 lease payments companys use aircraft pilots 2002 leasing arrangements terminated september 30 2002 joshua berman director tyco december 5 2002 march 1 2000 july 31 2002 company engaged mr berman render legal services period company compensated mr berman annual rate 360000 provided mr berman health benefits secretarial assistance cell phone electronic security services homes company also reimbursed mr berman legal fees expenses incurred connection matters relating tyco pursuant indemnification provisions applicable directors tyco mr berman retired counsel law firm kramer levin naftalis frankel llp provided legal services company 2002 company filed civil complaints messrs kozlowski swartz breach fiduciary duty wrongful conduct relating alleged abuses key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct june 2002 company filed civil complaint frank e walsh jr former director breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought sec united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 claims mr walsh still pending 15 debt september 30 2004 2003 follows1 millions 1debt maturity dates presented calendar basis consistent respective offering documents 2these notes plus 273 million amount shown comprise current portion longterm debt september 30 2004 november 2003 tyco international group sa tigsa issued 10 billion 60 notes due 2013 private placement offering notes fully unconditionally guaranteed tyco net proceeds approximately 988 million used repay portion 20 billion outstanding 5year revolving credit facility due 2006 notes subsequently exchanged registered notes substantially identical terms exchange offer expired may 3 2004 november 2003 holders principal amount maturity 3197 million zero coupon convertible senior debentures due 2020 notified tyco exercised option require tyco repurchase debentures price 77566 per 1000 principal maturity representing accreted value debentures date november 18 2003 tyco repurchased debentures cash 2480 million december 2003 tigsa entered 10 billion 364day revolving bank credit facility includes one year termout option 15 billion 3year revolving bank credit facility facilities variable interest rate based libor margin libor payable tigsa vary based changes credit rating new facilities replaced 15 billion undrawn 364day revolving credit facility due expire january 2004 20 billion drawn 5year revolving credit facility due expire february 2006 september 30 2004 outstanding borrowings either facility 10 billion 364day revolving credit facility expires december 20 2004 company expects facility replaced 10 billion 5year revolving credit facility prior expiration 15 billion 3year revolving credit facility expires december 22 2006 june 2004 tigsa entered 500 million 3year unsecured letter credit facility provides issuance letters credit supported related line credit facility tigsa may borrow line credit agreement reimburse bank obligations respect letters credit issued facility covenants facility substantially similar tigsas bank credit facilities entered december 2003 indenture related tigsas 60 notes due 2013 issued november 2003 tigsa would pay interest outstanding borrowings variable interest rate based banks base rate eurodollar rate defined upon occurrence certain credit events interest rate outstanding borrowings becomes fixed issuance letters credit facility 2004 enabled release approximately 480 million restricted cash investments september 30 2004 outstanding borrowings facility june 2004 company purchased 303 million 82 notes due 2008 cash 341 million resulted 38 million loss including unamortized debt issuance costs retirement debt fourth quarter 2004 company repurchased 517 million outstanding 275 convertible senior debentures 2008 put option total purchase price paid 750 million repurchase resulted 241 million loss retirement debt including writeoff unamortized debt issuance costs companys bank credit agreements contain number financial covenants limit ratio debt earnings interest income taxes depreciation amortization minimum levels net worth covenants limit companys ability pledge assets make substantial payments connection capital shares september 30 2004 company three synthetic lease facilities one since expired december 10 2004 covenants including interest coverage leverage ratios companys outstanding indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants presently considered restrictive companys operations company currently compliance debt covenants fair value debt approximately 19392 million book value 16733 million 21652 million book value 20965 million september 30 2004 2003 respectively based discounted cash flow analyses using current market interest rates aggregate amounts total debt maturing next five years follows millions 2116 2005 2026 2006 764 2007 2608 2008 1648 2009 7571 thereafter weightedaverage rate interest total debt 54 49 september 30 2004 2003 respectively weightedaverage rate interest variable debt 62 59 september 30 2004 2003 respectively impact companys interest rate swap agreements reported interest expense reduction 66 million zero 116 million 2004 2003 2002 respectively 16 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2005 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however company reason believe uncertainties would material adverse effect companys financial position annual results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 18 discussion liabilities company guaranteed fair value certain vessels exceed 235 million september 30 2004 expects obligation 54 million recorded accompanying consolidated balance sheets based estimate fair value vessels see note 18 result exiting certain facilities part restructuring acquisition plans otherwise company continues lease certain properties vacated sublet third parties event third parties vacate premises company would legally obligated master lease arrangements company believes financial risk default sublessors material individually aggregate companys financial position results operations cash flows normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company generally records estimated product warranty costs time sale information estimated product warranty see note 1 following roll forward companys warranty accrual year ended september 30 2004 millions settlements made include spending 78 million engineered products services connection voluntary replacement program vrp associated acquisition central sprinkler vrp initiated 2001 relates recall certain model gb fire sprinkler heads originally manufactured central sprinkler identification investigation problems sprinkler heads commenced prior tycos acquisition affected sprinkler heads replaced 57 year period free charge property owners 17 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable longterm investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable longterm investments accounts payable derivative financial instruments approximated book value september 30 2004 2003 see note 15 fair value estimates debt derivative financial instruments reported consolidated balance sheets fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met interest rate exposures company enters interest rate swap agreements manage exposure interest rate risk agreements company receives fixed rates interest ranging 6 675 pays floating rates interest based six month libor september 30 2004 company interest rate swaps net gain position 53 million designated fair value hedges expiration dates 2011 2013 marktomarket effects interest rate swap agreements underlying debt obligations recorded interest expense directly offsetting extent hedges effective result impact income due ineffectiveness significant foreign currency exposures company hedges net investment certain foreign operations included cumulative translation adjustment component comprehensive income net loss 194 142 tax september 30 2004 company uses forward agreements hedge exposure foreign currency exchange rates raw material purchases forward agreements designated cash flow hedges gains losses resulting hedges amounts material period presented recorded comprehensive income amounts reclassified comprehensive income earnings recorded adjustment cost sales underlying transaction impacts earnings tyco uses various options swaps crosscurrency swaps forwards designated hedging instruments manage foreign currency exposures accounts notes receivable accounts payable intercompany loan balances forecast transactions denominated certain foreign currencies september 30 2004 company recorded net assets 78 million related transactions 18 commitments contingencies company facility vehicle equipment leases expire various dates year 2050 rental expense leases equipment 790 million 848 million 837 million 2004 2003 2002 respectively september 30 2004 minimum lease payment obligations noncancelable operating leases follows 658 million 2005 529 million 2006 377 million 2007 273 million 2008 212 million 2009 aggregate 862 million years 2010 2050 payments include obligations offbalance sheet leasing arrangement five cable laying sea vessels upon expiration lease october 2006 subsidiary company option buy vessels approximately 280 million return vessels lessor residual guarantee pay shortfall sales proceeds lessor third party amount exceed 235 million september 30 2004 company expects obligation 54 million recorded accompanying consolidated balance sheets based estimate fair value vessels performed management assistance thirdparty valuation 2004 2003 2002 company incurred expenses 14 million 11 million 2 million respectively related expected obligation september 30 2004 company contingent liability 80 million related 2001 acquisition comnet electronics represents maximum amount payable former shareholders comnet construction installation communications system state florida finished state approved system based guidelines set forth contract provision made tycos consolidated financial statements outcome contingency cannot reasonably determined normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows class actions result actions taken companys former senior corporate management tyco members companys former senior corporate management former members board directors companys current chief executive officer named defendants number purported class actions alleging violations disclosure provisions federal securities laws tyco certain companys current former employees members companys former senior corporate management former members companys board directors also named defendants several employee retirement income security act erisa class actions addition tyco members companys former senior corporate management subject sec inquiry members companys former senior corporate management named defendants criminal cases prosecuted district attorney new york county findings outcomes prosecutions sec civil action may affect course purported securities class actions erisa class actions pending tyco company generally obligated indemnify directors officers former directors officers named defendants matters extent required bermuda law addition companys insurance carriers may decline coverage companys coverage may insufficient cover expenses liability matters company unable time estimate ultimate liability matters may possible company required pay judgments settlements incur expenses excess insurance coverage aggregate amounts would material adverse effect financial position results operations cash flows time possible estimate amount loss probable losses might result adverse resolution matters investigation company others received subpoenas requests secs division enforcement district attorney new york county department labor others seeking production voluminous documents connection various investigations companys governance management operations accounting related controls certain current former employees fire security received subpoenas secs division enforcement seeking testimony related past accounting practices adt dealer connect fees previously reported companys periodic filings practices discontinued department labor investigating tyco administrators certain companys benefit plans company cannot predict investigations completed company predict results investigations may possible company required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities turn could negatively impact companys business nongovernmental customers suffer penalties could material adverse effect companys business possible estimate amount loss range possible loss might result adverse resolution matters intellectual property litigation mallinckrodt inc mallinckrodt nellcor puritan bennett inc nellcor plaintiffscounterdefendants v masimo corporation masimo et al defendantscounterclaimants consolidated patent infringement action united states district court central district california nellcor alleges masimo infringed one nellcor patent related pulse oximeters medical devices used measure blood oxygen levels patients masimo alleges nellcor infringed four masimo patents related pulse oximeters trial action commenced february 18 2004 march 16 2004 jury returned liability finding nellcor willfully infringed four masimo patents masimo infringe one nellcor patent march 26 2004 jury awarded masimo 1345 million damages nellcors alleged infringement december 31 2003 hearing posttrial motions district court issued order july 14 2004 denied masimos request impose injunction sale pulse oximeters ii reversed jury finding patent infringement one four patents issue iii ruled second patent unenforceable due masimos inequitable conduct seeking patent iv overturned jury finding infringement willful august 6 2004 district court entered final judgment included additional damages 295 million nellcors alleged infringement january 1 2004 may 31 2004 nellcor appealing jurys infringement finding remaining two masimo patents united states court appeals federal circuit briefing appeal scheduled completed february 28 2005 court appeals yet scheduled oral argument appeal tyco assessed status matter concluded likely jurys decision overturned tyco intends vigorously pursue available means achieve reversal accordingly provision made tycos consolidated financial statements respect damage award masimo corporation v tyco healthcare group lp tyco healthcare mallinckrodt inc separate lawsuit also pending united states district court central district california tyco healthcare mallinckrodt subsidiaries tyco lawsuit masimo alleges violations antitrust laws tyco healthcare mallinckrodt markets pulse oximeter products masimo alleges tyco healthcare mallinckrodt used market position prevent hospitals purchasing masimos pulse oximetry products masimo seeks injunctive relief monetary damages including treble damages trial scheduled begin february 22 2005 time tyco cannot predict outcome antitrust case therefore possible estimate amount loss range potential losses might result adverse judgment settlement matter possible tyco required pay award damages antitrust lawsuit applied medical resources corp applied medical v united states surgical us surgical patent infringement action us surgical subsidiary tyco defendant february 2002 united states district court central district california held us surgicals versaseal universal seal system contained certain surgical trocar access devices manufactured us surgical infringed certain plaintiffs patents district court entered permanent injunction us surgical based upon infringement one three patents involved suit united states court appeals federal circuit affirmed district courts permanent injunction ruling september 2003 versaseal product longer market october 2003 district court ruled us surgicals favor holding two patents involved case invalid trial damages earlier infringement ruling district court concluded july 27 2004 jury awarded applied medical 435 million damages returned finding earlier infringement willful giving district court discretion enhance damages treble damages awarded applied medical jury october 1 2004 district court issued posttrial rulings denied us surgicals motion set aside jurys finding willfulness ii granted applied medicals motion enhanced damages enhancing jurys damages award 25 11 million district court also consider post trial proceedings prejudgment interest awarded whether applied medical entitled award attorneys fees proceedings completed district court us surgical appeal damages award willfulness finding court appeals tyco recorded liability related matter expect incur material losses beyond already accrued july 31 2003 applied medical filed another patent infringement suit us surgical united states district court central district california complaint alleges us surgicals versaseal plus trocar product infringes applied medicals us patent 5385533 applied medical seeks injunctive relief unspecified monetary damages including enhanced damages alleged willful infringement applied medical filed motion preliminary injunction district court denied december 23 2003 trial currently scheduled commence march 2005 time tyco cannot predict outcome patent infringement case therefore possible estimate amount loss range potential losses might result adverse judgment settlement matter environmental tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 30 2004 tyco concluded probable would incur remedial costs range approximately 167 million 443 million september 30 2004 tyco concluded best estimate within range approximately 265 million 42 million included accrued current liabilities 223 million included liabilities consolidated balance sheets view companys financial position reserves environmental matters 265 million company believes potential payment estimated amounts material adverse effect financial position results operations cash flows asbestos like many companies tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation company observed increase number lawsuits past several years majority cases filed subsidiaries healthcare engineered products services limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property majority cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore companys experience large percentage claims never substantiated dismissed courts company continue vigorously defend lawsuits company suffered adverse verdict trial court proceeding related asbestos claims tyco international ltd notes consolidated financial statements appropriate company settles claims however total amount paid date settle defend asbestos claims immaterial september 30 2004 approximately 14500 asbestos liability cases pending us subsidiaries company believes subsidiaries substantial indemnification protection insurance coverage subject applicable deductibles respect asbestos claims indemnitors relevant carriers typically honoring duty defend indemnify company believes valid defenses claims intends continue defend vigorously additionally based companys historical experience asbestos litigation analysis companys current cases company believes adequate amounts recorded potential settlements adverse judgments asbestosrelated litigation possible time determine certainty ultimate outcome asbestosrelated proceedings company believes final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect companys financial position results operations cash flows matters company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows new internal controls procedures implemented reported allegations violations companys guide ethical conduct investigated appropriate disciplinary remedial measures taken allegation brought companys attention period 1999 2003 certain improper payments made nonus subsidiary tyco 2004 revenue 40 million assistance outside counsel company conducted internal investigation allegations whether certain payments correctly recorded books records subsidiary company taken remedial steps reported results investigation department justice sec cooperating inquiry company believe matter material adverse effect companys financial position results operations cash flows 19 retirement plans defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation following tables exclude amounts related discontinued operations periods presented company uses september 30 measurement date pension plans net periodic benefit cost us nonus defined benefit pension plans years ended september 30 2004 2003 2002 follows millions following table represents changes benefit obligations plan assets net amount recognized consolidated balance sheets us nonus defined benefit plans september 30 2004 2003 millions determining expected return plan assets company considers relative weighting plan assets class individual asset class performance expectations provided external advisors companys investment strategy pension plans manage plans goingconcern basis current investment policy achieve superior return assets subject prudent level portfolio risk purpose enhancing security benefits participants us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 57 equity securities 32 debt securities 11 asset classes including real estate cash equivalents pension plans following weightedaverage asset allocations september 30 2004 2003 company made significant voluntary contributions september 30 2004 held cash equivalents date increased cash equivalent asset allocation percentage 11 us plans september 30 2004 although company buy sell stock direct investment pension funds due external investment management funds plans may indirectly hold tyco stock aggregate amount shares would considered material relative total fund assets companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates minimum make minimum required contributions pension plans 2005 9 million us plans 185 million nonus plans benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions accumulated benefit obligation us plans september 30 2004 2003 2210 2208 respectively accumulated benefit obligation nonus plans september 30 2004 2003 2361 2046 respectively accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 2201 million 1984 million respectively september 30 2004 2201 million 1496 million respectively september 30 2003 accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 2214 million 1346 million respectively september 30 2004 1936 million 1134 million respectively september 30 2003 company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 13 million 14 million 10 million 2004 2003 2002 respectively executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 30 2004 58 million 30 million respectively companys accrued benefit obligations messrs kozlowski swartz september 30 2003 54 million 28 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era dispute company information see note 14 defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 152 million 184 million 180 million 2004 2003 2002 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 3 million 4 million 16 million 2004 2003 2002 respectively deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation expense 15 million 17 million 16 million 2004 2003 2002 respectively total deferred compensation liabilities 158 million 189 million 182 million september 30 2004 2003 2002 respectively rabbi trustthe company established rabbi trust fund deferred compensation serp liabilities currently funded primarily corporateowned life insurance policies rabbi trust assets consolidated available pay plan benefits subject claims companys creditors event companys insolvency cash surrender value policies net outstanding loans included noncurrent assets consolidated balance sheets 210 million 232 million 316 million september 30 2004 2003 2002 respectively september 30 2004 rabbi trust also held 32 million cash employees general creditors company respect benefits postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits following tables exclude amounts related discontinued operations periods presented company uses september 30 measurement date postretirement benefit plans tyco international ltd notes consolidated financial statements net periodic postretirement benefit cost years ended september 30 2004 2003 2002 follows millions components accrued postretirement benefit obligations substantially unfunded september 30 2004 2003 follows millions company expects make contributions postretirement benefit plans 33 million 2005 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions measurement purposes years ended september 30 2004 2003 1271 1155 composite annual rate increase per capita cost covered health care benefits assumed respectively september 30 2003 rate assumed decrease gradually 500 year 2011 remain level thereafter september 30 2004 composite annual rate increase health care benefit costs assumed decrease gradually 500 year 2013 remain level thereafter onepercentagepoint change assumed healthcare cost trend rates would following effects millions 20 shareholders equity preference sharestyco authorized 125000000 preference shares par value 1 per share september 30 2004 2003 none one share respectively issued outstanding one preference share designated special voting preference share connection purchase cit june 2001 preference share provided mechanism holders outstanding exchangeable shares exercised voting dividend liquidation rights equivalent tyco common shareholders except exchangeable share equivalent 06907 tyco common share connection ipo cit exchangeable shares redeemed effective july 5 2002 issuance 3243322 tyco common shares result one entitled exercise rights attaching preference share rights dividends return capital redemption conversion voting otherwise respect preference shares may determined tycos board directors time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders dividendstyco paid quarterly cash dividend 00125 per common share since july 1997 shares owned subsidiariesshares owned subsidiaries treated treasury shares recorded cost 21 share plans january 1 2004 tyco international ltd 2004 stock incentive plan 2004 plan became effective due affirmative vote majority common shares represented person proxy 2004 annual general meeting 2004 plan replaces tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan well tyco international ltd 1994 restricted stock ownership plan key employees 1994 plan awards effective march 25 2004 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted stock deferred stock units promissory stock stockbased awards collectively awards 2004 plan provides maximum 160 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance 1994 plan ltip plans awarded thereunder january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason including termination 1994 plan ltip plans also available issuance 2004 plan common shares issued pursuant grant restricted stock restricted units deferred stock units promissory stock performance units payment annual performance bonus stockbased award total number common shares remaining available grant decreased margin least 18 per common share issued september 30 2004 approximately 185 million shares available future grant 2004 plan including shares available ltip ii plans assumable 2004 plan 1994 plan provided issuance restricted stock grants officers nonofficer employees number shares available issuance 1994 plan reduced 999524 october 2002 automatically increased 10 million shares 05 total common shares outstanding october 1 2003 accordance terms plan however upon effectiveness 2004 plan automatic increase shares available issuance 1994 plan occur october 1 2004 occur future ltip plan reserved common shares issuance tycos directors executives managers share options plan administered compensation committee board directors company consists exclusively independent directors company tyco reserved 140 million common shares issuance ltip plan september 30 2004 approximately 28 million shares originally reserved issuance plan available future grant 2004 plan ltip ii plan broadbased option plan nonofficer employees tyco reserved 100 million common shares issuance ltip ii plan terms conditions plan similar ltip plan september 30 2004 approximately 18 million shares originally reserved issuance plan available future grant 2004 plan restricted sharescommon shares awarded subject certain restrictions conditions vesting determined time grant 2004 plan indicates unless otherwise stated stock vest equal annual installments period four years however majority tycos restricted share grants cliff vest three years restrictions stock lapse upon normal retirement death disability employee grants vest based certain specified performance criteria fair market value shares date vesting expensed period performance achievement criteria deemed probable grants vest passage time fair market value shares time grant amortized net income tax benefit expense period vesting unamortized compensation expense recorded reduction shareholders equity recipients restricted shares right vote shares receive dividends income tax benefits resulting vesting restricted shares including deduction excess fair market value restricted shares time vesting fair market value time grants payment dividends unvested shares credited contributed surplus september 30 2004 19 million shares granted 3 million granted 2004 plan 16 million granted 1994 plan share optionsoptions granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant 2004 plan indicates unless otherwise stated options become exercisable equal annual installments period four years generally expire 10 years date grant however majority tycos stock option grants vest equal annual installments three years options assumed part business combination transactions administered tycos plan reduce available shares retain rights terms conditions respective plans originally granted september 30 2004 approximately 372 million share options granted 230 million 124 million 18 million granted ltip ii 2004 plans respectively share option activity tyco plans september 30 2001 september 30 2004 follows following table summarizes information outstanding exercisable tyco options september 30 2004 dates grant using blackscholes optionpricing model assumptions set forth estimated weightedaverage fair value tyco options granted 2004 2003 2002 1069 634 1431 respectively following weightedaverage assumptions used years ended september 30 2004 2003 2002 deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment distribution made form actual shares similar restricted share grants vest passage time fair market value dsus time grant amortized expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients dsus right vote shares right receive cash dividends however right receive dividends form additional dsus conditions vesting determined time grant 2004 plan indicates unless otherwise stated dsus vest equal annual installments four years however majority tycos dsu grants vest equal annual installments three years company granted 2 million dsus outstanding september 30 2004 employee stock purchase planssubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker company also maintains two employee stock purchase plans benefit employees certain qualified nonus subsidiaries one plan eligible employees granted options purchase shares end three years service 85 market price time grant september 30 2004 approximately 3 million options outstanding 7 million shares available future issuance plan shares purchased plan purchased open market total compensation cost stockbased compensation awards 42 million 43 million 90 million 2004 2003 2002 respectively additionally contributed surplus includes 115 46 million unamortized compensation expense 2004 2003 respectively 22 comprehensive income loss components accumulated comprehensive loss income follows millions 1the years ended september 30 2004 2002 include reclassification unrealized losses 4 million tax impact 113 million 101 million aftertax respectively related temporary impairment investments 23 consolidated segment geographic data companys segments strategic business units operate different industries managed separately certain corporate expenses allocated operating segments operating income based generally net revenues company operates following business segments •fire security designs manufactures installs monitors services electronic security fire protection systems •electronics designs manufactures distributes electrical electronic components •healthcare designs manufactures distributes medical devices supplies imaging agents pharmaceuticals adult incontinence infant care products •engineered products services designs manufactures distributes services engineered products including industrial valves controls well steel tubular goods provides environmental industrial consulting services •plastics adhesives designs manufactures distributes plastic products adhesives films 2004 tycos precision interconnect business transferred healthcare electronics 2003 company finalized plan sell tgn result reorganized reporting structure results tgn business held sale presented within corporate also 2003 company changed internal reporting structure operations tycos plastics adhesives businesses previously reported within healthcare specialty products comprise plastics adhesives reportable segment company conformed segment reporting accordingly reclassified comparative prior period information reflect changes additionally segment geographic data reclassified exclude results discontinued operations selected information business segment presented following tables years ended september 30 2004 2003 2002 millions 1includes 739 million 2004 reflect subcontract costs net revenue cost revenue infrastructure services adjustments impact operating income see note 1 2revenue relates tgn business held sale tyco international ltd notes consolidated financial statements 1includes operating loss 73 million 760 million 3090 million 2004 2003 2002 respectively related tgn business held sale revenue groups products within tycos segments years ended september 30 2004 2003 2002 follows millions 1includes 739 million 2004 reflect subcontract costs net revenue cost revenue infrastructure services adjustments impact operating income see note 1 2revenue relates tgn business held sale total assets segment september 30 2004 2003 2002 follows millions 1includes total assets excluding cash held sale tgn business held sale 48 million 642 million september 30 2003 2002 respectively depreciation amortization capital expenditures net segment years ended september 30 2004 2003 2002 follows millions 1includes depreciation tgn business held sale totaling zero 37 million 29 million 2004 2003 2002 respectively 1includes capital expenditures zero 113 million 1146 million related tgn business held sale 2004 2003 2002 respectively net revenue geographic area years ended september 30 2004 2003 2002 follows millions 1revenue external customers attributed individual countries based reporting entity records transaction longlived assets geographic area september 30 2004 2003 2002 follows millions 1longlived assets comprised primarily property plant equipment exclude goodwill intangible assets 2includes longlived assets tgn business held sale 24 million 11 million 586 million september 30 2004 2003 2002 respectively 24 supplementary income statement information selected supplementary income statement information years ended september 30 2004 2003 2002 follows millions 25 supplementary balance sheet information selected supplementary balance sheet information september 30 2004 2003 follows millions 26 summarized quarterly financial data unaudited summarized quarterly financial data years ended september 30 2004 2003 follows millions except per share data 1net revenue excludes 214 million revenue related discontinued operations income continuing operations includes net restructuring charges 5 million impairment charges 23 million loss 5 million related retirement debt 2effective january 1 2004 retroactive october 1 2003 company began reflecting subcontract costs net revenue cost revenue infrastructure services business unit within engineered products services adjustments impact net income see note 1 3net revenue excludes 221 million revenue related discontinued operations income continuing operations includes losses impairments divestitures 85 million net restructuring charges 36 million charges 1 million included cost sales charges impairment longlived assets 16 million 4net revenue excludes 226 million revenue related discontinued operations income continuing operations includes net restructuring charges 42 million charges 2 million included cost sales charges impairment longlived assets 14 million net gains divestitures 3 million loss 38 million related retirement debt 5net revenue excludes 228 million revenue related discontinued operations income continuing operations includes net restructuring charges 173 million charges 4 million included cost sales charges impairment longlived assets 46 million net losses impairments divestitures 34 million loss 241 million related retirement debt 1net revenue excludes 199 million revenue related discontinued operations income continuing operations includes net restructuring credits 4 million 1 million gain retirement debt 2net revenue excludes 199 million revenue related discontinued operations income continuing operations includes charges recorded changes estimates 389 million arose companys intensified internal audits detailed controls operating reviews see changes estimates recorded quarter ended march 31 2003 charge impairment intangible assets 77 million also includes charge 91 million retroactive incremental premium prior period directors officers insurance 23 million gain retirement debt 3net revenue excludes 216 revenue related discontinued operations income continuing operations includes net restructuring impairment credits 35 million charges 62 million addition includes 152 million loss retirement debt 19 million interest income 4net revenue excludes 200 million revenue related discontinued operations loss continuing operations includes net restructuring charges 8 million charges impairment longlived assets 738 million charges impairment goodwill 278 million charges totaling 50 million primarily related uncollectible receivables dismantlement customers adt security systems severance corporate employees loss continuing operations also includes charges 12 million writedown investments charge 2 million included interest expense net income also includes loss 75 million net income taxes cumulative effect accounting change changes estimates recorded quarter ended march 31 2003during quarter ended march 31 2003 company intensified process whereby internal audits detailed controls operating reviews conducted result process company recorded 389 million pretax charges relating new information changes facts circumstances occurring quarter process included assessing continued recoverability assets including accounts receivable inventory installed security systems equity investments estimated costs settling legal environmental insurance obligations assessments based analysis impact circumstances occurred quarter assessment recoverability certain assets costs settle certain liabilities assessments include changes judgments relative adequacy reserves contingent liabilities concurrent review process resulting assessments management quarter company decided discontinue existing product lines terminate information technology systems implementation project result decisions inventory asset balances written net realizable value impact net charges recorded second quarter included consolidated statement operations 2003 follows millions net charges include 140 million related asset reserve valuations 95 million increased cost estimates insurance liabilities 49 million workers compensation accruals 46 million product general liability insurance liabilities 84 million related temporary decline value investments 62 million accounting estimate changes described environmental liabilities 18 million legal accruals 20 million various accruals 15 million 17 million account writeoffs included primarily selling general administrative expenses company concluded recoverability various asset balances become doubtful 10 million writeoff capitalized external costs european financial computer system based companys decision second quarter discontinue new system development continue use existing system charges partially offset credits 72 million 12 million included cost sales related restructuring charge reversals see note 2 arose second quarter 2003 adjustments asset valuations include 77 million writedown inventories 52 million increase allowance doubtful accounts 11 million writeoff subscriber systems inventory charge 77 million primarily due finalization plans regarding disposition inventory connection curtailed programs product lines companys decision second quarter exit certain product lines fire security business increases allowance doubtful accounts writeoff subscriber systems primarily due deterioration accounts receivable aging increased customer cancellations certain nonstrategic european security businesses second quarter inventory charge subscriber systems writeoffs included cost sales allowance doubtful accounts revision included selling general administrative expenses workers compensation product general liability changes estimate based management estimates assistance thirdparty actuarial valuations insurance liabilities charge included selling general administrative expenses 65 million cost product sales 30 million adjustments related changes facts circumstances occurring quarter ended march 31 2003 necessitated change assumptions estimates particular company identified trend data required company revise assumptions result unanticipated increase number changes nature claims incurred rate increase medical costs well emergence previously unanticipated new claims addition company experienced increase workers compensation expense particularly california result adverse legal developments toward employers investment writedown included expense income net primarily consists 76 million loss various equity investments became evident quarter ended march 31 2003 declines fair values investments temporary primarily due depressed economic conditions factors management considered making assessment included investees inability raise funds quarter bankruptcy continued losses investees lack sufficient future expected cash flows lower entity valuations based recent private financing activity quarter ended march 31 2003 company also recognized expense 8 million connection bank guarantee behalf equity investee accounting estimates includes charge selling general administrative expenses 17 million resulting companys revision second quarter deferred commissions related longterm contracts 12 million writedown companyowned properties based real estate assessments purchase offers received second quarter assets held sale 12 million additional severance related terminated executives 21 million accounting estimate changes none individually significant included primarily selling general administrative expenses increased environmental reserves resulted finalization companys plan remediate one manufacturing sites second quarter 20 million establish reserve related estimated settlement amount contractual disputes legal matters based determination amounts became probable estimable second quarter 15 million miscellaneous increased accrual estimates primarily included selling general administrative expenses tyco international ltd notes consolidated financial statements 27 tyco international group sa tigsa whollyowned subsidiary company public debt securities outstanding see note 15 fully unconditionally guaranteed tyco following tables present condensed consolidating financial information tyco tigsa subsidiaries condensed financial information tyco tigsa standalone basis presented using equity method accounting subsidiaries control twenty percent voting shares consolidating statement operations year ended september 30 2004 millions consolidating statement operations year ended september 30 2003 millions consolidating statement operations year ended september 30 2002 millions tyco international ltd notes consolidated financial statements consolidating balance sheet september 30 2004 millions consolidating balance sheet september 30 2003 millions tyco international ltd notes consolidated financial statements consolidating statement cash flows year ended september 30 2004 millions consolidating statement cash flows year ended september 30 2003 millions tyco international ltd notes consolidated financial statements consolidating statement cash flows year ended september 30 2002 millions 28 subsequent event november 2004 tyco agreed sell tgn one indias telephone internet service providers 130 million sale consummated company would expect record gain sale subject governmental approval united states india countries company presented operations tgn continuing operations criteria discontinued operations met september 30 2004 finalization proposed transaction progresses company continue assess criteria discontinued operations treatment december 9 2004 board directors approved increase quarterly dividend companys common shares 00125 010 per share dividend payable february 1 2005 shareholders record january 3 2005 tyco international ltd schedule iivaluation qualifying accounts millions part item 1 business part ii critical accounting policies liquidity capital resources commitments contingencies offbalance sheet arrangements accounting pronouncements risk factors forwardlooking information item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions item 14 principal accountant fees services part iv signatures tyco international ltd index consolidated financial information managements responsibility financial statements report independent registered public accounting firm report independent registered public accounting firm tyco international ltd consolidated statements operations years ended september 30 2004 2003 2002 millions except per share data tyco international ltd consolidated balance sheets september 30 2004 2003 millions except share data tyco international ltd consolidated statements shareholders equity years ended september 30 2004 2003 2002 millions tyco international ltd consolidated statements cash flows years ended september 30 2004 2003 2002 millions tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements consolidating statement operations year ended september 30 2004 millions consolidating statement operations year ended september 30 2003 millions consolidating statement operations year ended september 30 2002 millions tyco international ltd notes consolidated financial statements consolidating balance sheet september 30 2004 millions consolidating balance sheet september 30 2003 millions tyco international ltd notes consolidated financial statements consolidating statement cash flows year ended september 30 2004 millions consolidating statement cash flows year ended september 30 2003 millions tyco international ltd notes consolidated financial statements consolidating statement cash flows year ended september 30 2002 millions tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules a1 2 financial statements supplementary datasee item 8 3exhibit index exhibit number exhibit 31 memorandum association altered incorporating amendments july 2 1997 incorporated reference exhibit 31 registrants quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 32 certificate incorporation incorporating amendments july 2 1997 incorporated reference exhibit 32 registrants quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 33 amended restated byelaws tyco international ltd incorporating amendments march 25 2004 incorporated reference appendix registrants definitive proxy statement schedule 14a annual general meeting shareholders march 25 2004 filed january 28 2004 41 form indenture dated june 9 1998 among tyco international group sa tigsa tyco bank new york trustee incorporated reference exhibit 41 posteffective amendment 1 registrants tigsas coregistration statement form s3 33350855 filed june 9 1998 42 indenture among tigsa tyco state street bank trust company trustee dated february 12 2001 relating zero coupon convertible debentures due 2021 incorporated reference exhibit 41 registrants tigsas coregistration statement form s3 33357180 filed march 16 2001 43 indenture tyco state street bank trust company trustee dated november 17 2000 relating zero coupon convertible debentures due 2020 incorporated reference exhibit 41 registrants registration statement form s3 33351548 filed december 8 2000 44 indenture among tigsa us bank na trustee dated january 13 2003 relating series 275 convertible senior debentures due 2018 series b 3125 convertible senior debentures due 2023 incorporated reference exhibit 41 registrants quarterly report form 10q quarterly period ended december 31 2002 filed february 14 2003 45 supplemental indenture 1 dated january 10 2003 among tigsa tyco international ltd us bank na incorporated reference exhibit 99d2 registrants tigsas schedule filed january 14 2003 46 indenture dated november 12 2003 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 41 registrants quarterly report form 10q quarterly period ended december 31 2003 filed february 17 2004 47 first supplemental indenture dated november 12 2003 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 42 registrants quarterly report form 10q quarterly period ended december 31 2003 filed february 17 2004 48 supplemental indenture 3 dated january 9 1998 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 44 registrants posteffective amendment 1 registration statement form s3 33350855 filed june 9 1998 49 supplemental indenture 6 dated november 2 1998 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 43 registrants registration statement form s4 33371493 filed january 29 1999 410 supplemental indenture 7 dated january 12 1999 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 47 registrants posteffective amendment 2 registration statement form s3 33350855 filed january 26 1999 411 supplemental indenture 8 dated january 12 1999 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 47 registrants posteffective amendment 2 registration statement form s3 33350855 filed january 26 1999 412 supplemental indenture 13 dated april 4 2000 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 42 registrants registration statement form s4 33342128 filed july 24 2000 413 supplemental indenture 15 dated february 21 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 42 tyco international group sas posteffective amendment 1 form s3 33344100 filed february 28 2001 414 supplemental indenture 16 dated february 21 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 43 tyco international group sas posteffective amendment 1 form s3 33344100 filed february 28 2001 415 supplemental indenture 18 dated july 30 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 45 tyco international group sas post effective amendment 2 form s3 33344100 filed august 3 2001 416 form supplemental indenture 19 dated july 30 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference tyco international group sas post effective amendment 2 form s3 33344100 filed august 3 2001 417 supplemental indenture 20 dated october 26 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 44 registrants posteffective amendment 1 form s3 33368508 filed november 2 2001 418 certain instruments defining rights holders companys consolidated subsidiaries tyco international group sas longterm debt none authorize total amount indebtedness excess 10 total assets company subsidiaries consolidated basis filed exhibits company agrees furnish copy agreements commission upon request 101 tyco international ltd long term incentive plan formerly known adt 1993 longterm incentive plan amended may 12 1999 incorporated reference exhibit 101 registrants form s8 33380391 filed june 10 19991 102 1994 restricted stock ownership plan key employees incorporated reference exhibit 101 registrants registration statement form s8 33393261 filed december 21 19991 103 tyco international us inc supplemental executive retirement plan amended restated october 1 2000 dated december 30 2000 incorporated reference exhibit 103 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 104 second amendment tyco international us inc supplemental executive retirement plan dated february 14 2002 incorporated reference exhibit 104 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 105 third amendment tyco international us inc supplemental executive retirement plan dated july 30 2002 incorporated reference exhibit 105 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 106 amendments tyco international ltd supplemental executive retirement plan dated december 24 2003 incorporated reference exhibit 106 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 200412 107 december 2003 amendment tyco international us inc supplemental executive retirement plan dated december 24 2003 incorporated reference exhibit 107 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 108 amendment 20041 tyco international us inc supplemental executive retirement plan dated april 30 2004 incorporated reference exhibit 108 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 109 amended restated tyco international ltd deferred compensation plan directors effective january 1 2005 filed herewith1 1010 tyco international ltd long term incentive plan ii incorporated reference exhibit 101 registrants registration statement form s8 33375037 filed march 25 19991 1011 change control severance plan certain us officers executives dated january 1 2005 incorporated reference exhibit 101 registrants current report form 8k filed march 16 20051 1012 retention agreement l dennis kozlowski dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit 108 registrants annual report form 10k fiscal year ended september 30 2001 filed december 28 20011 1013 retention agreement mark h swartz dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit 109 registrants annual report form 10k fiscal year ended september 30 2001 filed december 28 20011 1014 retention agreement richard j meelia dated february 14 2002 incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended december 31 2001 filed february 14 20021 1015 amendment retention agreement dated december 9 2004 tyco international ltd richard j meelia incorporated reference exhibit 101 registrants current report form 8k filed december 17 20041 1016 amendment retention agreement dated december 9 2005 tyco international ltd richard j meelia filed herewith1 1017 edward breen employment contract dated july 25 2002 incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended june 30 2002 filed august 14 20021 1018 david j fitzpatrick employment contract dated september 18 2002 incorporated reference exhibit 1016 registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1019 first amendment executive employment agreement dated september 18 2004 david j fitzpatrick tyco international ltd incorporated reference exhibit 1017 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1020 resignation agreement general release tyco international ltd david j fitzpatrick incorporated reference exhibit 102 registrants current report form 8k filed march 30 20051 1021 william b lytton employment contract dated september 30 2002 incorporated reference exhibit 1017 registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1022 first amendment executive employment agreement dated september 30 2004 william b lytton tyco international ltd incorporated reference exhibit 1019 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1023 employment offer letter dated february 14 2005 tyco international ltd christopher j coughlin incorporated reference exhibit 101 registrants current report form 8k filed february 15 20051 1024 tyco international ltd uk savings related share option plan incorporated reference exhibit 1018 registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1025 tyco employee stock purchase plan amended may 2003 incorporated reference exhibit 101 registrants registration statement form s8 dated july 30 20031 1026 tyco international ireland employee share scheme incorporated reference exhibit 1020 registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1027 tyco supplemental savings retirement plan amended restated effective january 1 2005 filed herewith1 1028 juergen gromer employment contract effective october 1 1999 executed june 19 2000 incorporated reference exhibit 1023 registrants annual report form 10k fiscal year ended september 30 2003 filed december 17 20031 1029 tyco international ltd 2004 stock incentive plan incorporated reference appendix b registrants proxy statement fiscal year ended september 30 2003 filed january 28 20041 1030 amendment tyco international ltd 2004 stock incentive plan effective october 1 2004 incorporated reference exhibit 1026 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1031 amendment tyco international ltd 2004 stock incentive plan effective september 22 2005 filed herewith1 1032 terms conditions option award restricted stock award restricted unit award form director deferred stock unit award letter 2004 stock incentive plan incorporated reference exhibit 1027 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1033 tyco international us inc severance plan us officers executives incorporated reference exhibit 1028 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1034 amended severance plan us officers executives incorporated reference exhibit 104 registrants quarterly report form 10q quarterly period ended april 1 2005 filed may 11 20051 1035 threeyear credit agreement dated december 22 2003 among tyco international group sa tyco international ltd bank america na paying agent banks named therein bank america na citicorp north america co administrative agents incorporated reference exhibit 43 registrants quarterly report form 10q quarterly period ended december 31 2003 1036 fiveyear credit agreement dated december 16 2004 among tyco international group sa tyco international ltd lender time party thereto bank america na citigroup usa inc coadministrative agents incorporated reference exhibit 101 registrants current report form 8k filed december 22 2004 1037 amendment dated december 16 2004 among tyco international group sa tyco international ltd required lender time party thereto bank america na paying agent threeyear credit agreement dated december 22 2003 among tyco international group sa tyco international ltd banks named therein bank america na citigroup north america coadministrative agents incorporated reference exhibit 102 registrants current report form 8k filed december 22 2004 1038 amendment 1 dated april 15 2005 fiveyear credit agreement dated december 16 2004 among tyco international group sa tyco international ltd lender time thereto bank america na citigroup usa inc coadministrative agents incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended april 1 2005 filed may 11 2005 1039 amendment 2 dated april 15 2005 among tyco international group sa tyco international ltd required lender time party thereto bank america na paying agent threeyear credit agreement dated december 22 2003 among tyco international group sa tyco international ltd banks named therein bank america na citigroup north america coadministrative agents incorporated reference exhibit 102 registrants quarterly report form 10q quarterly period ended april 1 2005 filed may 11 2005 181 letter deloitte touche llp regarding preferability change measurement date pension postretirement benefits filed herewith 211 subsidiaries registrant filed herewith 231 consent deloitte touche llp filed herewith 232 consent pricewaterhousecoopers llp filed herewith 241 power attorney filed herewith 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 filed herewith 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 1management contract compensatory plan 2in july 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd massachusetts corporation time former tyco upon consummation merger adt continuing public company changed name tyco international ltd tyco former tyco became whollyowned subsidiary tyco changed name tyco international us inc bsee item 15a3 csee item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer date december 9 2005 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant december 9 2005 capacities indicated name title edward breen edward breen chairman chief executive officer director principal executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer carol anthony davidson carol anthony davidson senior vice president controller principal accounting officer adm dennis c blair director brian duperreault director bruce gordon director rajiv l gupta director john krol director h carl mccall director mackey j mcdonald director dr brendan r oneill director sandra wijnberg director jerome b york director william b lytton signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report william b lytton william b lytton attorneyinfact tyco international ltd index consolidated financial information managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior team leading example includes every one tycos 247900 global employees well customers suppliers business partners one crucial objectives continuing restore public employee shareholder confidence tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective adopting appropriate accounting standards designing maintaining adequate systems internal disclosure controls devoting full commitment necessary resources items dedication governance controls financial reporting throughout 2005 continued make significant progress designing maintaining monitoring internal controls financial reporting disclosures improving corporate governance practices many discussed annual report form 10k believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls edward breen edward breen chairman chief executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 30 2005 2004 related consolidated statements income shareholders equity cash flows years ended audit also included financial statement schedule years ended september 30 2005 2004 listed index item 15a financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company september 30 2005 2004 results operations cash flows years ended conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed notes 8 18 consolidated financial statements 2005 company changed measurement date pension post retirement plans september 30 august 31 also audited accordance standards public company accounting oversight board united states effectiveness companys internal control financial reporting september 30 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated december 9 2005 expressed unqualified opinion managements assessment effectiveness companys internal control financial reporting unqualified opinion effectiveness companys internal control financial reporting deloitte touche llp deloitte touche llp new york new york december 9 2005 report independent registered public accounting firm board directors stockholders tyco international ltd audited managements assessment included accompanying managements report internal control financial reporting tyco international ltd subsidiaries company maintained effective internal control financial reporting september 30 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission tycos management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion managements assessment opinion effectiveness companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion managements assessment company maintained effective internal control financial reporting september 30 2005 fairly stated material respects based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also opinion company maintained material respects effective internal control financial reporting september 30 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements financial statement schedule year ended september 30 2005 company report dated december 9 2005 expressed unqualified opinion financial statements financial statement schedule included explanatory paragraph relating companys change measurement date pension post retirement plans september 30 august 31 deloitte touche llp deloitte touche llp new york new york december 9 2005 report independent registered public accounting firm board directors shareholders tyco international ltd opinion accompanying consolidated statement operations shareholders equity cash flows present fairly material respects results operations cash flows tyco international ltd subsidiaries year ended september 30 2003 conformity accounting principles generally accepted united states america addition opinion financial statement schedule year ended september 30 2003 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audit conducted audit statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audit provides reasonable basis opinion discussed note 8 company adopted provisions financial accounting standards board interpretation 46 consolidation variable interest entities fiscal year 2003 pricewaterhousecoopers llp pricewaterhousecoopers llp new york new york november 4 2003 except impact discontinued operations disclosed note 4 date december 9 2005 public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free tyco international ltd consolidated statements income years ended september 30 2005 2004 2003 millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets september 30 2005 2004 millions except share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 30 2005 2004 2003 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 30 2005 2004 2003 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd company organized laws bermuda subsidiaries tyco subsidiaries hereinafter collectively referred company tyco prepared united states dollars accordance generally accepted accounting principles united states gaap unless otherwise indicated references consolidated financial statements 2005 2004 2003 tycos fiscal year ended september 30 2005 2004 2003 respectively principles consolidationtyco holding company conducts business operating subsidiaries company global diversified company provides products services four business segments fire security electronics healthcare engineered products services see note 22 company consolidates companies owns controls fifty percent voting shares also company consolidates variable interest entities company bears majority risk entities potential losses stands gain majority entities expected returns significant intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal september 30 2005 plastics adhesives business segment met held sale criteria results operations included discontinued operations periods presented change fiscal year reporting calendar alignmenteffective october 1 2004 tyco changed fiscal year end calendar fiscal year ending september 30 5253 week year ending last friday september quarterly period 13 weeks length fiscal years 53 weeks fourth quarter reporting period 14 weeks first occurrence taking place fiscal 2011 addition certain companys subsidiaries consistently closed books one month prior companys fiscal period end subsidiaries report results period reported results consolidated company impact change material consolidated financial statements change also consistent companys ongoing efforts enhance controls improve transparency reporting change better aligns companys external reporting companys internal operational processes net income transition period related change 26 million reported within shareholders equity revenue recognitionthe company recognizes revenue principally four types transactionssales products sales security systems subscriber billings monitoring services contract sales revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions coupons product returns discounts customers accounted reductions determining sales period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems include multiple elements including equipment installation monitoring services maintenance agreements amounts assigned component based components objectively determined fair value fair value cannot objectively determined sale involving multiple elements company recognizes revenue installation services along associated direct incremental costs contract life revenue sale services recognized services rendered subscriber billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems undersea fiber optic cable systems construction related projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion cost completion measured based ratio actual cost incurred total estimated cost revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable certain companys longterm contracts warranty obligations estimated warranty costs contract determined based contract terms technology specific issues costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting providing services certain contracts infrastructure services business unit within engineered products services incurs subcontract costs paid infrastructure services rebilled customers prior january 1 2004 costs treated pass therefore included reported revenue cost revenue infrastructure services effective january 1 2004 retroactive october 1 2003 company began reflecting subcontract costs revenue cost revenue infrastructure services resulting incremental revenue cost revenue 649 million 739 million 2005 2004 respectively company adjusted revenue cost revenue year ended september 30 2003 change material adjustment would impact previously reported operating income net income cash flow september 30 2005 2004 accounts receivable longterm receivables included retainage provisions 91 million 86 million respectively 31 million 34 million unbilled respectively retainage provisions consist primarily electronics contracts fire protection contracts well transportation water environmentalrelated contracts become due upon contract completion acceptance september 30 2005 retainage provision included 57 million expected collected 2006 addition september 30 2005 2004 28 million 48 million respectively accounts receivable unbilled related longterm contracts research developmentresearch development expenditures expensed incurred included cost product sales customerfunded research development costs incurred tyco reimbursed customers net impact research development expense consolidated statements income customerfunded research development research development expense consolidated statements income reflects companysponsored research development see note 23 advertisingadvertising costs expensed incurred included selling general administrative expenses see note 23 employee share option planstyco measures compensation cost connection employee share option plans using intrinsic value method accordingly recognize compensation expense issuance options exercise price equal greater market price date grant fair value based method applied tyco using blackscholes option pricing model assumptions set forth note 20 effect net income earnings per share 2005 2004 2003 would follows millions except per share data connection adoption statement financial accounting standards 123 revised 2004 sharebased payment sfas 123r tyco begin expensing stock options 2006 based fair values translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars operate highly inflationary environments assets liabilities translated us dollars using yearend exchange rates revenue expenses translated average exchange rates effect year foreign currency translation gains losses included component accumulated comprehensive income loss within shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments assets liabilities subsidiaries included net income gains losses resulting foreign currency transactions amounts material period presented included net income cash equivalentsall highly liquid investments purchased maturity three months less time purchase considered cash equivalents occasion company required post cash collateral secure reimbursements indemnity obligations letters credit performance guarantees respect various construction projects amount restricted cash collateral 86 million 44 million included current assets 42 million included longterm assets 84 million 30 million included current assets 54 million included longterm assets september 30 2005 2004 respectively allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense 2005 2004 2003 1447 million 1428 million 1420 million respectively maintenance repair expenditures charged expense incurred depreciation calculated using straightline method estimated useful lives related assets follows company generally considers electronic security assets three asset pools internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program subscriber systems represent internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program recorded intangible assets internal purposes company considers internally generated commercial accounts three smaller groups consisting small business core commercial national commercial accounts internally generated residential commercial account pools generally amortized using straightline method tenyear period fourteenyear period used national commercial accounts fourteenyear period writeoff specific accounts upon discontinuance used residential commercial accounts certain nonus locations longlived assetsthe company periodically evaluates net realizable value longlived assets including property plant equipment amortizable intangible assets relying number factors including operating results business plans economic projections anticipated future cash flows indicators potential impairment present carrying values assets evaluated relation operating performance estimated future undiscounted cash flows underlying business impairment carrying value asset recognized whenever anticipated future cash flows undiscounted asset estimated less carrying value net book value asset adjusted fair value expected future undiscounted cash flows less book value amount impairment recognized difference carrying value asset fair value fair values based assumptions concerning amount timing estimated future cash flows assumed discount rates reflecting varying degrees perceived risk goodwillgoodwill assessed impairment least annually triggering events occur making assessment management relies number factors including operating results business plans economic projections anticipated future cash flows transactions market place data inherent uncertainties related factors managements judgment applying analysis goodwill impairment company elected make first day fourth quarter annual impairment assessment date reporting units statement financial accounting standards 142 defines reporting unit operating segment one level operating segment reporting units september 30 2005 follows electronic security services fire protection contracting services electronic components wireless power systems printed circuit group submarine telecommunications medical devices supplies retail pharmaceuticals flow control fire building products electrical metal products infrastructure services changes occur composition one segments reporting units goodwill reassigned segments reporting units affected based relative fair value goodwill valuations calculated using income approach based present value future cash flows reporting unit approach incorporates many assumptions including future growth rates discount factors income tax rates changes economic operating conditions impacting assumptions could result goodwill impairment future periods disruptions business end market conditions protracted economic weakness unexpected significant declines operating results reporting units divestiture significant component reporting unit market capitalization declines may result perform goodwill impairment first step valuation analysis tycos reporting units prior required annual assessment types events resulting analysis could result additional charges goodwill asset impairments future intangible assets netintangible assets primarily include contracts related customer relationships intellectual property certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program acquired contracts related customer relationships recorded contractually determined purchase price company incurs costs associated maintaining operating adt dealer program including brand advertising due diligence expensed incurred certain programs dealers pay company nonrefundable amount contracts sold company nonrefundable charge represents dealer reimbursement company costs incurred company associated maintaining operating adt dealer program accordingly acquired contract related customer relationship recorded contractually determined purchase price net nonrefundable amount charged dealers time contract accepted purchase first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price nonrefundable charge dealer retained company even event customer cancellation company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship based upon analyses period pattern economic benefit associated intangibles utilize information contained attrition studies adt dealer program customer base conducted third party appraiser company believes accelerated method presently best achieves matching objective doubledeclining balance method based tenyear life first eight years estimated life customer relationship converting straightline method amortization remaining four years estimated relationship period actual attrition data regularly reviewed order assess continued appropriateness accelerated method amortization described contracts related customer relationships well intellectual property consisting primarily patents trademarks unpatented technology amortized straightline basis five forty years company evaluates remaining useful life intangible assets periodic basis determine whether events circumstances warrant revision remaining useful life addition intangible assets subject amortization tested impairment annually frequently events changes circumstances indicate asset might impaired investmentsthe company invests equity debt securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged comprehensive income within shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments determined specific identification basis included consolidated statements income equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting company periodically evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies equity method accounting used companys share net income losses equity investments included consolidated statements income material period presented product warrantythe company generally records estimated product warranty costs time sale manufactured products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty manufactured equipment also warranted manner product warranties however instances warranty either negotiated contract sold separate component warranty period terms range 90 days eg consumable products 20 years eg power system batteries warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage environmental coststyco subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated company discounts environmental liabilities using riskfree rate return obligation fixed reliably determinable impact discount consolidated balance sheets september 30 2005 2004 reduce obligation 14 million 20 million respectively income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence likely deferred tax assets realized insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return obligation reliably determinable impact discount consolidated balance sheets september 30 2005 2004 reduce obligation 31 million 44 million respectively company maintains captive insurance companies manage certain insurable liabilities additionally company records receivables third party insurers recovery determined probable financial instrumentsall derivative financial instruments reported consolidated balance sheets fair value changes derivative financial instruments fair value recognized currently earnings unless specific hedge criteria met inception derivative financial instrument designated fair value hedge changes fair value derivative financial instrument hedged item attributable hedged risk recognized charge credit earnings share premium contributed surplusin accordance bermuda companies act 1981 tyco issues shares cash premium par value resulting premium credited share premium account nondistributable reserve tyco issues shares exchange shares another company excess fair value shares acquired par value shares issued tyco credited applicable contributed surplus subject certain conditions distributable reserve use estimatesthe preparation consolidated financial statements conformity gaap requires management make extensive use estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges credits acquisition liabilities allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenue related costs environmental legal liabilities income taxes tax valuation reserves determination discount rate assumptions pension postretirement employee benefit expenses actual results could differ materially estimates changes estimates recorded results operations period event circumstances giving rise changes occur reclassificationscertain prior year amounts reclassified conform current year presentation accounting pronouncementsin september 2004 emerging issues task force eitf financial accounting standards board fasb reached consensus eitf 048 effect contingently convertible instruments diluted earnings per share eitf requires contingently convertible debt securities market price trigger included diluted earnings per share regardless whether market price trigger met eitf 048 became effective tyco october 1 2004 required retroactive restatement previously reported earnings per share adoption eitf impact diluted earnings per share period presented november 2004 fasb issued statement financial accounting standards sfas 151 inventory costs amendment arb 43 chapter 4 sfas 151 amends accounting research bulletin arb 43 chapter 4 clarify abnormal amounts idle facility expense freight handling costs wasted materials spoilage recognized currentperiod charges addition sfas 151 requires allocation fixed production overhead inventory based normal capacity production facilities sfas 151 effective first quarter fiscal 2006 tyco adoption sfas 151 expected significant impact companys results operations financial position cash flows december 2004 fasb issued sfas 123r requires sharebased payments employees recognized financial statements based fair values sfas 123r replaces sfas 123 accounting stockbased compensation supersedes accounting principles board opinion 25 apb opinion 25 accounting stock issued employees effective october 1 2005 tyco adopted provisions sfas 123r using modified prospective method compensation expense recorded unvested options related vesting period beginning quarter adoption company previously applied intrinsic value based method prescribed apb opinion 25 accounting employee stockbased compensation upon adoption sfas 123r company recognize stockbased compensation costs ratably service period earlier retirement eligibility date grant contains provisions award becomes fully vested upon retirement stated vesting period grants issued retirement eligible employees prior adoption sfas 123r company recognize compensation cost stated vesting period acceleration unrecognized compensation cost employee elects retire statement also amends sfas 95 statement cash flows require excess tax benefits reflected financing cash inflows rather operating cash inflows impact adoption sfas 123r estimated result compensation charge fiscal year 2006 range approximately 006 007 per diluted share march 2005 sec issued staff accounting bulletin sab 107 regarding staffs interpretation sfas 123r interpretation provides staffs views regarding interactions sfas 123r certain sec rules regulations provides interpretations valuation sharebased payments public companies interpretive guidance intended assist companies applying provisions sfas 123r investors users financial statements analyzing information provided company follow guidance prescribed sab 107 connection adoption sfas 123r march 2005 fasb issued interpretation fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 interpretation clarifies timing liability recognition legal obligations associated asset retirement timing method settling obligation conditional future event may within control entity fin 47 effective later end fiscal years ending december 15 2005 company currently assessing impact fin 47 results operations financial position cash flows june 2005 fasb issued staff position fsp 1431 accounting electronic equipment waste obligations provides guidance accounting historical waste obligations associated european union waste electrical electronic equipment directive weee directive fsp 1431 effective first reporting period ending june 8 2005 date adoption weee directive law applicable european union member country european union member countries yet among steps fully enacted national laws relating weee ii completed implementation administrative measures programs iii clarified scope products considered weee andor iv established pricing recycling weee company time reasonably estimate effect applying guidance future periods company continues monitor weee developments respective eu countries effort reflect impact directive 2 restructuring charges credits net restructuring charges credits net years ended september 30 2005 2004 2003 follows millions 1includes net restructuring credits tgn business 2005 2004 2003 4 million 0 million 19 million respectively 2005 charges credits 2005 company recorded restructuring charges 53 million including 1 million reflected cost sales noncash write carrying value inventory 26 million 15 million 11 million related employee severance benefits facilities exit costs respectively charges related several restructuring actions facility exit plans initiated 2005 well incremental costs incurred 2005 related actions initiated 2004 charges 25 million related actions initiated completed 2005 remaining 28 million related actions commenced prior 2005 company completed restructuring activities announced prior years amounts less originally estimated accordingly reversed 22 million restructuring reserves restructuring credit addition company also sold assets previously written net realizable value prior years amounts greater originally estimated recorded related gains restructuring credits 20 million restructuring credits mainly incurred electronics 25 million charges 2005 restructuring initiatives largely result actions taken electronics fire security segments incurred severance 11 million 6 million respectively 2005 company paid 17 million related actions 8 million accrued september 30 2005 addition company transferred 4 million severance liabilities held sale resulted sale tgn 2004 charges credits activity companys 2004 restructuring reserves summarized follows millions 2004 company approved announced employees various plans exit 181 facilities primarily united states plans included termination approximately 8670 employees resulting restructuring charges totaling 285 million including 6 million reflected cost sales noncash writedown carrying value inventory 197 million employee severance benefits 60 million facility exit costs 22 million related cost september 30 2005 total 166 million 36 million 26 million related employee severance benefits facilities exit costs respectively expended related plans 2005 company completed certain activities related plans amounts less originally estimated accordingly company reversed 13 million restructuring reserves restructuring credit 2004 company also sold certain cablelaying sea vessels assets written expected net realizable value prior years amounts greater originally estimated recorded related gains restructuring credits 40 million 2004 company also completed certain restructuring activities announced prior years amounts less originally estimated accordingly company reversed 33 million restructuring reserves restructuring credit restructuring charges credits net recorded segment follows 2004 fire security recorded restructuring charges 184 million related 2004 restructuring plans including 4 million reflected cost sales noncash write carrying value inventory additionally fire security completed certain restructuring activities announced prior years amounts less originally estimated accordingly reversed 9 million restructuring reserves restructuring credit 2004 electronics recorded restructuring charges 16 million related 2004 restructuring plans including 1 million reflected cost sales noncash writedown carrying value inventory additionally 2004 electronics sold certain cablelaying sea vessels assets impaired prior years amounts greater originally anticipated recorded related gain restructuring credit 34 million electronics also completed certain restructuring activities amounts less originally estimated accordingly reversed 15 million restructuring reserves restructuring credit 2004 healthcare recorded restructuring charges 13 million related 2004 restructuring plans additionally healthcare completed restructuring activities announced prior years amounts less originally anticipated accordingly reversed 2 million restructuring reserves credit 2004 engineered products services recorded restructuring charges 55 million related 2004 restructuring plans including 1 million reflected cost sales noncash writedown carrying value inventory additionally engineered products services completed certain restructuring activities amounts less originally anticipated accordingly reflected 2 million restructuring credit 2004 corporate recorded restructuring charges 17 million related 2004 restructuring plans addition corporate completed certain restructuring activities announced prior years amounts less originally anticipated accordingly reversed 7 million restructuring reserves restructuring credit addition 2004 corporate sold certain tgn assets written expected net realizable value prior years amounts greater originally anticipated recorded related gain restructuring credit 4 million 2003 charges credits 2003 company approved announced employees various plans exit 22 facilities primarily united states germany plans included termination approximately 1500 employees related exit costs decisions resulted restructuring charges totaling 61 million including 10 million reflected cost sales noncash writedown carrying value inventory 11 million noncash charges 30 million employee severance benefits 8 million facility exit costs 2 million costs september 30 2005 actions plans completed reserves outstanding companys consolidated balance sheet 2003 company also recorded 144 million restructuring credits includes reversal restructuring reserves related completing certain restructuring activities announced prior years amounts less originally estimated restructuring charges credits net recorded segment follows 2003 fire security recorded restructuring charges 26 million related 2003 restructuring plans including 4 million reflected cost sales noncash writedown carrying value inventory 3 million noncash restructuring charges additionally fire security completed certain restructuring activities announced prior years amounts less originally estimated accordingly reversed 16 million restructuring reserves restructuring credit 2003 electronics recorded restructuring credits 72 million including 20 million credits reflected cost sales relating sales certain inventory impaired prior years amounts greater originally anticipated restructuring credits primarily related severance costs less originally anticipated due employee attrition redeployment termination fees less anticipated due negotiated settlements 2003 healthcare recorded restructuring credits 8 million related completion restructuring activities announced prior years amounts less originally anticipated 2003 engineered products services recorded restructuring charges 18 million related 2003 restructuring plans including 6 million reflected cost sales noncash writedown carrying value inventory additionally engineered products services recorded 10 million restructuring credits includes reversal restructuring reserves related completing certain restructuring activities announced prior years amounts less originally estimated 2003 corporate recorded restructuring charges 17 million related 2003 restructuring plans include 8 million noncash charges addition corporate recorded 38 million restructuring credits includes reversal restructuring reserves related completing certain restructuring activities announced prior years amounts less originally estimated 2002 charges credits activity companys 2002 restructuring reserves summarized follows millions 2002 company approved announced employees various plans exit 193 facilities primarily united states europe latin america includes restructuring certain operations within tyco submarine telecommunications business plans included termination approximately 13800 employees related exit costs decisions resulted restructuring charges totaling 1911 million including 635 million cost sales noncash writedown carrying value inventory 115 million recorded selling general administrative expenses increase bad debt provision balance charges includes 377 million employee severance benefits 274 million facility exit costs 511 million related costs september 30 2005 total 284 million 198 million 445 million related employee severance benefits facilities exit costs respectively expended related plans september 30 2005 companys remaining obligations 2002 actions primarily related longterm noncancelable lease obligations facilities within electronics segment totaling 79 million total restructuring reserves companys restructuring reserves segment september 30 2005 2004 follows millions september 30 2005 2004 restructuring reserves included companys consolidated balance sheets follows millions 3 charges impairment longlived assets 2005 charges 2005 material charges continuing operations related impairment longlived assets 2004 charges 2004 company recorded total charges continuing operations impairment longlived assets held use 52 million fire security recorded charges 34 million primarily related writedown united states facility estimated fair value lesser extent writeoff cash management software addition corporate engineered products services electronics healthcare recorded combined charges 18 million related impairment property plant equipment 2003 charges 2003 company recorded total charges impairment longlived assets 825 million fire security recorded charges impairment intangible assets 101 million resulting deterioration future estimated cash flows anticipated customers primarily mexico certain latin american countries following curtailment instances termination adt dealer program countries addition 11 million impairment charges recorded related discontinuance two brand names fire security also recorded charges impairment property plant equipment 21 million related primarily subscriber systems fixed assets well 10 million associated termination software development project company recorded charges impairment property plant equipment 679 million corporate 664 million related writedown tgn classified held sale estimated fair value less costs dispose tgn sold 2005 remaining 15 million charge primarily related closure relocation corporate offices addition impairment charges 2 million 1 million recorded engineered products services electronics respectively 4 discontinued operations divestitures discontinued operations may 2005 tyco announced intent explore divesture plastics adhesives business segment global manufacturer plastic film specialty tapes adhesives coated products garment hangers 2005 result consideration potential sale deteriorating operating results ae products business company performed interim assessment recoverability goodwill longlived assets plastics adhesives segment estimated fair values reporting units longlived assets plastics adhesives developed based probabilityweighted expected future cash flows assets result assessment company determined book value certain longlived assets ae products reporting unit plastics adhesives greater estimated fair value consequently recorded longlived asset impairment 40 million company also determined book value ae products reporting unit excess estimated fair value resulted goodwill impairment charge 162 million september 30 2005 plastics adhesives segment met held sale criteria results operations included discontinued operations periods presented company negotiating sales agreement potential buyers expects complete sale transaction 2006 company assessed recoverability segments carrying value september 30 2005 continue assess recoverability based current fair values less cost sell businesses sold depending outcome sale negotiations company may incur additional impairment charges 2005 company divested eight businesses reported discontinued operations within fire security plastics adhesives engineered products services company reported losses sale additional impairments write carrying value assets estimated fair value 56 million 2005 2004 company reported losses sale discontinued operations 132 million 36 million related goodwill impairments write carrying value assets fair value less cost sell 2003 tyco recorded income discontinued operations 20 million restitution payment made frank e walsh jr former director following table reflects net revenue pretax income discontinued operations pretax loss sale discontinued operations including impairments costs sell income taxes 2005 2004 2003 millions gains losses impairments divestitures net 2003 company conducted comprehensive review core businesses result implemented divestiture program early 2004 connection program company divested 21 liquidated four noncore businesses across business segments primarily within fire security 2004 company recorded net losses impairments divestitures 116 million including 60 million goodwill impairment charges continuing operations connection divestiture writedown fair value certain held sale businesses november 2004 tyco agreed sell tgn undersea fiber optic telecommunication network sale consummated june 30 2005 part sale transaction tyco received gross cash proceeds 130 million purchaser assumed certain liabilities connection sale tyco recorded 303 million pretax gain reflected gains losses impairments divestitures consolidated statement income 2005 company presented operations tgn continuing operations criteria discontinued operations met 2005 company divested ten businesses reported continuing operations fire security healthcare engineered products services company recorded net losses impairments divestitures 32 million including 3 million charge reflected cost sales connection divestiture liquidation businesses well writedown estimated fair value certain held sale businesses held sale following table presents balance sheet information discontinued operations businesses held sale september 30 2005 2004 millions 5 acquisitions july 2005 surgical division tycos healthcare segment acquired vivant medical inc vivant developer microwave ablation medical technology transaction valued approximately 66 million cash approximately 35 million additional cash paid future based achieving certain milestones cash paid net cash acquired various acquisitions totaled 16 million 2004 company completed acquisition two businesses within engineered products services fire security aggregate cost 9 million 2003 company purchased seven businesses within healthcare engineered products services fire security electronics aggregate cost 44 million cash net 1 million cash acquired acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows acquisition liabilities september 30 2005 2004 acquisition liabilities included companys consolidated balance sheets follows millions acquisition liabilities established connection acquisitions 2002 prior relate primarily longterm noncancelable lease obligations company paid 29 million 53 million 169 million fund acquisition liabilities 2005 2004 2003 respectively holdbackearnout liabilities company paid cash approximately 18 million 52 million 98 million 2005 2004 2003 respectively relating holdback earnout liabilities related certain prior period acquisitions holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet certain acquisitions provisions would require tyco make additional earnout payments sellers acquired company achieves certain milestones subsequent acquisition tyco earnout payments tied certain performance measures revenue gross margin earnings growth generally treated additional purchase price september 30 2005 2004 holdbackearnout liabilities included companys consolidated balance sheets follows millions adt dealer program 2005 2004 2003 tyco paid 328 million 254 million 597 million cash respectively acquire 04 million 03 million 06 million customer contracts electronic security services adt dealer program 6 expense net september 12 2002 indictments filed supreme court state new york mr l dennis kozlowski former chairman chief executive officer mr mark h swartz former chief financial officer director together defendants alleging enterprise corruption fraud conspiracy grand larceny falsifying certain business records crimes june 17 2005 jury convicted defendants 22 23 counts indictment september 19 2005 defendants sentenced new york state supreme court serve eight one third years twenty five years prison make joint restitution company amount 134 million resulting larceny convictions court ordered restitution payment made later one year date sentencing restitution award comprised 109 million previously expensed compensation made defendants reported expense net prior years 25 million related loan receivable one defendants remains reflected companys consolidated financial statements receivable fourth quarter 2005 company recognized 109 million income included expense net accompanying consolidated statements income defendants filed notice appeal convictions company considered collectibility restitution award assessed likelihood defendants success upon appeal larceny convictions successful could result change restitution order concluded receipt restitution award probable 2005 expense net also included losses related repurchase outstanding convertible debt prior scheduled maturity 1013 million see note 14 consolidated financial statements details regarding debt repurchases 2004 expense net consisted primarily net loss retirement debt company repurchased 303 million 72 notes due 2008 cash 341 million resulted 38 million loss including unamortized debt issuance costs retirement debt additionally company repurchased 517 million outstanding 275 convertible senior debentures 2008 put option total purchase price paid 750 million repurchase resulted 241 million loss retirement debt including writeoff unamortized debt issuance costs 2003 expense net consisted primarily net loss retirement debt 128 million loss relating writedown various investments 87 million value investments reduced became evident declines fair value investments temporary predominately due continuing depressed economic conditions specifically within telecommunications industry 7 income taxes significant components income tax provision year follows millions nonus income continuing operations income taxes 2516 million 3340 million 2807 million 2005 2004 2003 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 30 2005 2004 2003 follows millions 1excludes asset impairments nondeductible charges items broken separately table deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 30 2005 2004 follows millions september 30 2005 company 3967 million net operating loss carryforwards certain nonus jurisdictions 2890 million expiration remaining 1077 million expire future years 2015 us approximately 4162 million federal 5128 million state net operating loss carryforwards september 30 2005 expire future years 2025 valuation allowance deferred tax assets 1867 million 1967 million september 30 2005 2004 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets valuation allowance calculated accordance provisions sfas 109 accounting income taxes requires valuation allowance established maintained likely portion deferred tax assets realized september 30 2005 approximately 162 million valuation allowance ultimately reduce goodwill net operating losses utilized company subsidiaries income tax returns periodically examined various tax authorities connection examinations certain tax authorities including us internal revenue service irs raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable recorded income tax provision calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel issues raised taxing authorities adequacy recorded amounts companys estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities may result income tax benefits recognized period determine liabilities longer necessary substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related basis differences investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries american jobs creation act 2004 ajca signed law october 2004 replaces export incentive deduction domestic manufacturing income expected ajca material impact companys income tax provision ajca also allows company repatriate 500 million permanently reinvested foreign earnings 2006 effective tax rate 525 company continues review whether take advantage provision ajca 8 cumulative effect accounting change 2005 company changed measurement date pension postretirement benefit plans september 30th august 31st company believes onemonth change measurement date preferable change allows management adequate time evaluate report actuarial information companys consolidated financial statements accelerated reporting deadlines result change company recorded 21 million aftertax gain 28 million pretax cumulative effect adjustment refer note 18 additional information retirement plans 2003 company adopted financial accounting standards board interpretation fin 46 consolidation variable interest entities requires identification companys participation variable interest entities vies entities level invested equity sufficient fund future activities permit operate stand alone basis whose equity holders lack certain characteristics controlling financial interest entities identified vies fin 46 sets forth model evaluate potential consolidation based assessment party vies bears majority risk expected losses stands gain majority expected returns company programs sells machinery equipment investors turn purchase receive ownership security interests assets company may certain investments affiliated companies whereby provides varying degrees financial support investors entitled share results entities company consolidate entities may substantive operating companies evaluated potential consolidation fin 46 company three synthetic lease programs utilized extent companys segments finance capital expenditures manufacturing machinery equipment ships used tyco submarine telecommunications 2003 company adopted fin 46 accordingly restructured one synthetic leases meet requirements fin 46 offbalance sheet accounting company reclassified remaining two leases capital leases consequently recorded 75 million aftertax loss 115 million pretax cumulative effect adjustment one capital leases expired december 2004 scheduled expire july 2006 9 earnings per share reconciliations basic diluted earnings per share 2005 2004 2003 follows millions except per share data computation diluted earnings per share 2005 2004 2003 excludes effect potential exercise options purchase approximately 72 million 67 million 110 million shares respectively effect would antidilutive diluted earnings per share 2003 also excludes approximately 94 million shares 49 million shares related companys convertible senior debentures due 2018 2023 respectively effect would antidilutive 10 sale accounts receivable tyco utilized several programs sold participating interests accounts receivable investors turn purchased received ownership security interests receivables collections reduced accounts receivable included pool company sold new receivables company retained risk credit loss receivables accordingly full amount reserve retained consolidated balance sheets proceeds sales used repay shortterm longterm borrowings working capital corporate purposes reported operating cash flows consolidated statements cash flows sale proceeds less face amount accounts receivable sold amount approximated cost would incurred commercial paper issued backed accounts receivable discount face amount accounted loss sale receivables included selling general administrative expenses consolidated statements income discount aggregated 18 million 29 million 31 35 weightedaverage balance receivables outstanding 2004 2003 respectively company retained collection administrative responsibilities participating interests defined pool 2004 company reduced outstanding balances accounts receivable programs 929 million 812 million related three corporate accounts receivable programs terminated 2005 amounts utilized programs september 30 2004 date termination remaining reduction 117 million related certain companys international businesses selling fewer accounts receivable shortterm financing mechanism transactions qualify true sales aggregate amount outstanding international accounts receivable programs 80 million 99 million september 30 2005 2004 respectively 11 investments september 30 2005 2004 tyco availableforsale investments fair market value 265 million 62 million cost basis 268 million 65 million respectively investments consist primarily debt securities included prepaid expenses current assets within consolidated balance sheets september 30 2005 unrealized losses 9 million unrealized gains 6 million associated investments september 30 2004 unrealized losses 2 million unrealized gains 5 million associated investments unrealized gains losses included separate component shareholders equity september 30 2005 2004 tyco heldtomaturity investments fair value 4 million 19 million respectively investments included assets within consolidated balance sheets 12 goodwill intangible assets changes carrying amount goodwill 2004 2005 follows millions 1adjustments previously completed acquisitions primarily related income tax matters 2005 activity 2005 goodwill impairments related continuing operations 2004 activity 2004 company recorded goodwill impairments 60 million 48 million related divested businesses 12 million related businesses classified held sale impairments included within gains losses impairments divestitures net consolidated statements income 2003 activity 2003 company reorganized reporting structure part reorganization company finalized plan sell tgn major operating asset tyco submarine telecommunications business results tgn business previously included electronics presented within corporate since september 2003 date disposition 2005 reorganization resulted change composition reporting units result goodwill reassigned new reporting units using relative fair value allocation approach resulting recognition impairment charges 278 million power systems electrical contracting services printed circuit group charge based valuation performed management assistance third party consultant using income approach based present value estimated future cash flows reporting units impairment goodwill remaining power systems printed circuit group reporting units intangible assets net 5085 million 5311 million september 30 2005 2004 respectively accumulated amortization amounted 3700 million 3048 million september 30 2005 2004 respectively following table sets forth gross carrying amount accumulated amortization companys intangible assets september 30 2005 2004 millions 1intangible assets subject amortization excluded calculation weighted average amortization period intangible asset amortization expense 2005 2004 2003 653 million 691 million 722 million respectively estimated aggregate amortization expense intangible assets currently owned company expected approximately 600 million 2006 550 million 2007 500 million 2008 450 million 2009 350 million 2010 see note 3 information regarding impairment intangible assets 13 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average 12 rates effect first day month loans generally repayable ten years except earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property 2005 2004 maximum amount outstanding programs 70 million 78 million respectively loans receivable programs well unsecured advances outstanding 68 million 70 million september 30 2005 2004 total outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 49 million september 30 2005 2004 rate interest charged loans 344 173 2005 2004 respectively interest income remaining interest bearing loans totaled 2 million 1 million 1 million 2005 2004 2003 respectively certain loans totaling 20 million 21 million september 30 2005 2004 respectively noninterest bearing total noninterest bearing loans include loans mark belnick companys former executive vice president chief corporate counsel amount outstanding loans september 30 2005 2004 15 million expected repaid 2006 richard j meelia president tyco healthcare outstanding loan key employee loan program rate interest charged loan 223 2003 maximum amount outstanding loan 2003 significantly less 1 million loan repaid full prior september 30 2003 fourth quarter 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified 2005 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc brunswick corporation vf corporation rohm haas company sandra wijnberg director executive officer marsh mclennan companies inc george w buckley director period executive officer brunswick corporation mackey j mcdonald director executive officer vf corporation rajiv l gupta director executive officer rohm haas company purchases marsh mclennan companies inc 2005 approximately 23 million purchases companies noted 2005 aggregated less 1 percent consolidated net revenue 2004 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc brunswick corporation vf corporation sandra wijnberg director executive officer marsh mcclennan companies inc george w buckley director period executive officer brunswick corporation mackey j mcdonald director executive officer vf corporation purchases marsh mclennan companies inc 2004 approximately 22 million purchases companies noted 2004 aggregated less 1 percent consolidated net revenue 2003 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc brunswick corporation vf corporation verizon communications inc imperial chemical industries plc microwarehouse inc sandra wijnberg director executive officer marsh mcclennan companies inc george w buckley director period executive officer brunswick corporation mackey j mcdonald director executive officer vf corporation bruce gordon director officer verizon communications inc brendan r oneill jerome b york directors executive officers imperial chemical industries plc microwarehouse inc respectively time commercial transactions purchases marsh mclennan companies inc imperial chemical industries plc 2003 approximately 18 million 16 million respectively purchases companies noted 2003 aggregated less 15 million 2001 tyco authorized compensation arrangements l dennis kozlowski mark h swartz companys chief financial officer director august 2002 connection arrangements tyco purchased executive split dollar life insurance policies messrs kozlowski swartz entered shared ownership agreement whereby company agreed pay premiums insurance policies 11year period beginning 2001 amended policies executed providing additional companypaid premiums company cobeneficiary policies less amounts owed messrs kozlowski swartz messrs kozlowski swartz beneficiaries cash surrender values policies plus amount unpaid premiums companys obligations arrangements entered recognition services rendered officers contingent upon continuing employment 2001 company deposited 31 million consolidated rabbi trust fund premiums policies consolidated financial statements include charges 27 million related initial awards mr kozlowski 14 million mr swartz 2001 charges 5 million mr kozlowski 2 million mr swartz 2002 policy amended consolidated financial statements include charges 7 million 6 million mr kozlowski 2005 2004 respectively event investment options within policies earn specified interest amounts tyco guaranteed supplemental premium payment amount ensure 10 annual return cash surrender value unpaid premiums liability accreted charge earnings throughout period arrangements make specified supplemental premium payments conjunction mr swartzs termination employment lump sum payment 25 million represented present value annual premium amounts termination date remainder contractual period made mr swartz return mr swartz waived tycos obligation continue making premium payments company accrued 65 million 58 million consolidated balance sheets september 30 2005 2004 respectively connection arrangements 24 million held rabbi trust september 30 2005 tycos ability withdraw monies rabbi trust purposes premium payments requires mr kozlowskis approval tyco discontinued making premium payments mr kozlowskis insurance policy october 1 2002 company filed affirmative actions messrs kozlowski swartz seeking disgorgement benefits executive life insurance policies pending resolution action mr kozlowski premium obligations since october 2002 drawn cash surrender value policy avoid termination policys death benefit company filed civil complaints messrs kozlowski swartz breach fiduciary duty wrongful conduct relating alleged abuses key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct june 2002 company filed civil complaint frank e walsh jr former director breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought sec united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit group acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 claims mr walsh still pending 14 debt september 30 2005 2004 follows millions 1these instruments plus 254 million amount shown comprise current portion longterm debt september 30 2005 2these instruments plus 194 million amount shown comprise current portion longterm debt september 30 2004 2005 company repurchased 1241 million principal amount outstanding 275 convertible senior debentures due 2018 2008 put option 1823 million 750 million principal amount outstanding 3125 convertible senior debentures due 2023 2015 put option 1147 million repurchases resulted 1013 million loss retirement debt including writeoff unamortized debt issuance costs reflected expense net consolidated statements income december 16 2004 tyco international group sa whollyowned subsidiary company organized laws luxembourg tigsa entered 10 billion 5year revolving credit facility expiring december 16 2009 facility replaced tigsas 10 billion 364day revolving credit facility entered december 2003 terminated prior scheduled expiration date december 20 2004 amounts outstanding 364day revolving credit facility date termination september 30 2005 amounts borrowed facility june 2004 tigsa entered 500 million 3year unsecured letter credit facility expiring june 15 2007 facility provides issuance letters credit supported related line credit facility tigsa may borrow line credit agreement reimburse bank obligations respect letters credit issued facility tigsa would pay interest outstanding borrowings variable interest rate based banks base rate eurodollar rate defined upon occurrence certain credit events interest rate outstanding borrowings becomes fixed issuance letters credit facility 2004 enabled release approximately 480 million restricted cash investments september 30 2005 letters credit amount 488 million issued facility remaining 12 million available issuance amounts borrowed facility september 30 2005 2004 december 2003 tigsa entered 15 billion 3year revolving bank credit facility variable interest rate based libor margin libor payable tigsa vary based changes credit rating september 30 2005 2004 amounts borrowed facility companys bank credit agreements contain number financial covenants limit ratio debt earnings interest income taxes depreciation amortization minimum levels net worth limits incurrence liens september 30 2005 company two remaining synthetic lease facilities covenants including interest coverage leverage ratios companys outstanding indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants presently considered restrictive companys operations company currently compliance debt covenants fair value debt approximately 135 billion book value 126 billion 192 billion book value 166 billion september 30 2005 2004 respectively based discounted cash flow analyses using current market interest rates aggregate amounts total debt maturing next five years thereafter follows millions 1954 2006 759 2007 1383 2008 1734 2009 19 2010 6705 thereafter weightedaverage rate interest total debt 56 52 year ended september 30 2005 2004 respectively excluding impact interest rate swaps weightedaverage rate interest variable debt 72 62 september 30 2005 2004 respectively impact companys interest rate swap agreements reported interest expense reduction 40 million 66 million zero 2005 2004 2003 respectively 15 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2006 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however company reason believe uncertainties would material adverse effect companys financial position annual results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 17 discussion liabilities company guaranteed fair value certain vessels exceed 235 million september 30 2005 expects obligation 54 million recorded accompanying consolidated balance sheet based estimate fair value vessels see note 17 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company generally records estimated product warranty costs time sale information estimated product warranty see note 1 following roll forward companys warranty liability 2005 millions settlements include spending 63 million engineered products services connection voluntary replacement program vrp associated acquisition central sprinkler vrp initiated 2001 relates recall certain model gb fire sprinkler heads originally manufactured central sprinkler identification investigation problems sprinkler heads commenced prior tycos acquisition affected sprinkler heads replaced 57 year period free charge property owners 16 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable investments accounts payable derivative financial instruments approximated book value september 30 2005 2004 see note 14 fair value estimates debt derivative financial instruments reported consolidated balance sheets fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met fair value estimates based relevant market information including current market rates prices assuming adequate market liquidity fair value estimates interest rate crosscurrency swaps calculated company provided company highquality thirdparty financial institutions known high volume participants market company uses derivative financial instruments manage exposures foreign currency interest rate risks companys objective utilizing derivatives manage risks using effective methods eliminate reduce impacts exposures transactions designated hedges company documents relationships hedging instruments hedged items links derivatives designated fair value cash flow foreign currency hedges specific assets liabilities consolidated balance sheets specific firm commitments forecasted transactions designated hedges company also assesses documents hedges inception ongoing basis whether derivatives used hedging transactions effective offsetting changes fair values cash flows associated hedged items part managing exposure changes market interest rates company enters various interest rate swap transactions financial institutions acting principal counterparties ensure appropriate use hedge accounting treatment derivatives entered designated according hedge objective specified forecasted interest payments specifically underwritten debt issuances companys primary hedge objectives include conversion fixedrate liabilities variable rates derivative financial instruments associated objectives designated accounted fair value hedges part managing exposure changes foreign currency exchange rates company utilizes forward option contracts financial institutions acting principal counterparties objective hedging contracts minimize impacts cash flows due changes foreign currency exchange rates intercompany loans booked accounts notes receivable accounts payable forecasted transactions limited circumstances hedge accounting designated remaining hedges marked market changes derivatives fair value recognized currently earnings companys derivative financial instruments present certain market counterparty risks however concentration counterparty risk mitigated tyco deals variety major banks worldwide longterm standard poors moodys credit ratings aa2 higher addition conventional derivative financial instruments utilized thereby affording optimum clarity market risk none companys derivative financial instruments outstanding year end would result significant loss company counterparty failed perform according terms agreement time company require collateral security furnished counterparties derivative financial instruments interest rate exposures company enters interest rate swap agreements manage exposure interest rate risk agreements company receives fixed rates interest ranging 6 675 pays floating rates interest based six month libor september 30 2005 company interest rate swaps net gain position 20 million designated fair value hedges expiration dates 2011 2013 marktomarket effects interest rate swap agreements underlying debt obligations recorded interest expense directly offsetting extent hedges effective addition company enters interest rate foreign currency swap agreements cross currency swaps manage exposure interest rate risk foreign currency exposure loans denominated foreign currency agreements company receives fixed rate interest 65 pays floating rates interest based six month libor september 30 2005 company interest rate foreign currency swap agreements net gain position 70 million designated fair value hedge expiration date 2011 marktomarket effects interest rate foreign currency swaps recorded interest expense selling general administrative expense respectively directly offsetting extent hedges effective foreign currency exposures company hedges net investment certain foreign operations included cumulative translation adjustment component comprehensive income net gain 31 million 24 million tax net loss 194 million 142 million tax september 30 2005 2004 respectively company uses forward agreements hedge exposure foreign currency exchange rates raw material purchases forward agreements designated cash flow hedges gains losses resulting hedges amounts material period presented recorded comprehensive income amounts reclassified comprehensive income earnings recorded adjustment cost sales underlying transaction impacts earnings tyco uses various options swaps forwards designated hedging instruments manage foreign currency exposures accounts notes receivable accounts payable intercompany loan balances forecasted transactions denominated certain foreign currencies september 30 2005 company recorded net liabilities 134 million related transactions carrying value financial instruments september 30 2005 approximates fair value 17 commitments contingencies company facility vehicle equipment leases expire various dates year 2050 rental expense leases equipment 769 million 772 million 813 million 2005 2004 2003 respectively september 30 2005 minimum lease payment obligations noncancelable operating leases follows 583 million 2006 449 million 2007 344 million 2008 248 million 2009 165 million 2010 aggregate 548 million years 2011 2050 payments include obligations offbalance sheet leasing arrangement five cable laying sea vessels upon expiration lease october 2006 subsidiary company option buy vessels approximately 280 million return vessels lessor residual guarantee pay shortfall sales proceeds lessor third party amount exceed 235 million september 30 2005 company expects obligation 54 million recorded accompanying consolidated balance sheet based estimate fair value vessels performed management assistance thirdparty valuation 2005 2004 2003 company incurred expenses 14 million 14 million 11 million respectively related expected obligation company also purchase obligations related commitments purchase certain goods services september 30 2005 obligations follows 183 million 2006 29 million 2007 20 million 2008 9 million 2009 9 million 2010 aggregate 28 million 2011 thereafter september 30 2005 company contingent purchase price liability 80 million related 2001 acquisition comnet electronics represents maximum amount payable former shareholders comnet construction installation communications system state florida finished state approved system based guidelines set forth contract liability contingency recorded tycos consolidated financial statements outcome contingency cannot reasonably determined normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows class actions result actions taken companys former senior corporate management tyco members companys former senior corporate management former members board directors companys current chief executive officer named defendants number purported class actions alleging violations disclosure provisions federal securities laws tyco certain companys current former employees members companys former senior corporate management former members companys board directors also named defendants several employee retirement income security act erisa class actions addition tyco members companys former senior corporate management subject sec inquiry members companys former senior corporate management named defendants criminal cases prosecuted district attorney new york county findings outcomes prosecutions sec civil action may affect course purported securities class actions erisa class actions pending tyco company generally obligated indemnify directors officers former directors officers named defendants matters extent required bermuda law addition companys insurance carriers may decline coverage companys coverage may insufficient cover expenses liability matters company unable time estimate ultimate liability matters may possible company required pay judgments settlements incur expenses excess insurance coverage aggregate amounts would material adverse effect financial position results operations cash flows time possible estimate amount loss probable losses might result adverse resolution matters investigation company others received various subpoenas requests secs division enforcement district attorney new york county united states department labor general service administration others seeking production voluminous documents connection various investigations companys governance management operations accounting related controls certain current former employees fire security received subpoenas secs division enforcement seeking testimony related past accounting practices regarding adt dealer connect fees previously reported companys periodic filings practices discontinued department labor investigating tyco administrators certain benefit plans company cannot predict investigations completed company predict results investigations may possible company required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities turn could negatively impact companys business nongovernmental customers suffer penalties could material adverse effect companys business possible estimate amount loss range possible loss might result adverse resolution matters raised investigations district attorney department labor 2005 company recorded charge 50 million represents companys best estimate amount fines penalties management believes company likely pay resolve matters raised secs investigation company engaged discussions secs division enforcement resolve matters raised secs investigation final resolution matters subject number uncertainties including finalizing terms settlement enforcement staff agree recommend commission companys submission offer settlement approved tyco board directors commissions approval settlement offer events occurred charge subject change intellectual property antitrust litigation company party number patent infringement antitrust actions may require company pay damage awards tyco assessed status matters recorded liabilities related certain matters appropriate mallinckrodt inc mallinckrodt nellcor puritan bennett inc nellcor plaintiffscounterdefendants v masimo corporation masimo et al defendantscounterclaimants consolidated patent infringement action filed june 19 2000 united states district court central district california nellcor subsidiary tyco nellcor alleges masimo infringed one nellcor patent related pulse oximeters medical devices used measure blood oxygen levels patients masimo alleges nellcor infringed four masimo patents related pulse oximeters trial action commenced february 18 2004 march 16 2004 jury returned liability finding nellcor willfully infringed four masimo patents masimo infringe one nellcor patent march 26 2004 jury awarded masimo 135 million damages nellcors alleged infringement december 31 2003 hearing posttrial motions district court issued order july 14 2004 denied masimos request impose injunction sale pulse oximeters ii reversed jury finding patent infringement one four patents issue iii ruled second patent unenforceable due masimos inequitable conduct seeking patent iv overturned jury finding infringement willful august 6 2004 district court entered final judgment included additional damages 30 million nellcors alleged infringement january 1 2004 may 31 2004 nellcor asserts masimo infringes second nellcor patent us patent 4934372the 372 patent april 8 2005 united states court appeals federal circuit issued decision nellcors favor reversed district courts summary judgment finding infringement regarding 372 patent claim masimo court appeals remanded nellcors 372 patent claim district court proceedings district court yet scheduled trial 372 case nellcor appealed jurys infringement finding remaining two masimo patents united states court appeals federal circuit september 7 2005 court appeals issued decision appeal adverse nellcor particular court appeals 1 affirmed infringement finding nellcor two patents 2 reversed district courts ruling noninfringement third patent 3 reversed district courts ruling enter injunction directed district court issue injunction court appeals also 1 affirmed district courts ruling nellcors infringement willful precluded masimo seeking treble damages 2 affirmed district courts ruling one masimos patents unenforceable due masimos inequitable conduct seeking patent company assessed amount potential additional damages interest accruing date entry final judgment present accordingly fiscal quarter ending september 30 2005 tyco recorded pretax charge 277 million related matter expect incur material losses beyond accrued masimo corporation v tyco healthcare group lp tyco healthcare mallinckrodt inc separate lawsuit filed may 22 2002 also pending united states district court central district california tyco healthcare mallinckrodt subsidiaries tyco lawsuit masimo alleges violations antitrust laws tyco healthcare mallinckrodt markets pulse oximeter products masimo alleges tyco healthcare mallinckrodt used market position prevent hospitals purchasing masimos pulse oximetry products masimo seeks injunctive relief monetary damages including treble damages trial case began february 22 2005 jury returned verdict march 21 2005 awarded masimo 140 million damages automatically trebled antitrust statute award 420 million masimos attorneys entitled award reasonable fees costs addition verdict amount district court held hearing june 28 2005 regarding posttrial motions parties awaiting decision posttrial motions tyco assessed status matter concluded likely jurys decision overturned tyco intends vigorously pursue available means achieve reversal accordingly provision made consolidated financial statements respect damage award beginning august 29 2005 natchitoches parish hospital service district v tyco international ltd ten consumer class actions filed nellcor united states district court central district california remaining nine actions allied orthopedic appliances inc v tyco healthcare group lp mallinckrodt inc filed august 29 2005 scott valley respiratory home care v tyco healthcare group lp mallinckrodt inc filed october 27 2005 brooks memorial hospital et al v tyco healthcare group lp filed october 18 2005 star oxygen services inc et al v tyco healthcare group et al filed october 25 2005 niagara falls memorial medical center et al v tyco healthcare group lp filed october 28 2005 nicholas h noyes memorial hospital v tyco healthcare mallinckrodt filed november 4 2005 north bay hospital inc v tyco healthcare group et al filed november 15 2005 stephen skoronski v tyco international ltd et al filed november 21 2005 abington memorial hospital v tyco intl ltd tyco intl us inc mallinckrodt inc tyco healthcare group lp filed november 22 2005 nine complaints putative class representatives behalf others seek recover overcharges allege paid pulse oximetry products result anticompetitive conduct nellcor violation federal antitrust laws time possible estimate amount loss probable losses might result adverse resolution matters company respond complaints intends vigorously defend actions previously reported companys periodic filings applied medical resources corp applied medical v united states surgical us surgical patent infringement action filed april 1999 us surgical subsidiary tyco defendant february 2002 united states district court central district california held us surgicals versaseal universal seal system contained certain surgical trocar access devices manufactured us surgical infringed certain plaintiffs patents district court entered permanent injunction us surgical based upon infringement one three patents involved suit united states court appeals federal circuit affirmed district courts permanent injunction ruling september 2003 versaseal product longer market october 2003 district court ruled us surgicals favor holding two patents involved case invalid trial damages earlier infringement ruling district court concluded july 27 2004 jury awarded applied medical 44 million damages returned finding earlier infringement willful giving district court discretion enhance damages treble damages awarded applied medical jury october 1 2004 district court issued posttrial rulings denied us surgicals motion set aside jurys finding willfulness ii granted applied medicals motion enhanced damages enhancing jurys damages award 25 11 million january 27 2005 district court awarded applied medical 10 million costs prejudgment interest attorneys fees thus applied medicals total award 65 million us surgical appealed damages award willfulness finding court appeals federal circuit briefing appeal concluded oral argument yet scheduled tyco recorded liability related matter expect incur material losses beyond already accrued july 31 2003 applied medical filed another patent infringement suit us surgical united states district court central district california complaint alleges us surgicals versaseal plus trocar product infringes applied medicals us patent 5385533 applied medical seeks injunctive relief unspecified monetary damages including enhanced damages alleged willful infringement applied medical filed motion preliminary injunction district court denied december 23 2003 february 7 2005 district court granted us surgicals motion summary judgment applied medical appealing summary judgment ruling briefing applied medicals appeal concluded oral argument yet scheduled environmental tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 30 2005 tyco concluded probable would incur remedial costs range approximately 143 million 420 million september 30 2005 tyco concluded best estimate within range approximately 215 million 33 million included accrued current liabilities 182 million included liabilities consolidated balance sheets view companys financial position reserves environmental matters 215 million company believes potential payment estimated amounts material adverse effect financial position results operations cash flows tyco recorded asset retirement obligations aro according provisions sfas 143 accounting asset retirement obligations future decommissioning costs based upon cost estimates associated legal obligation decommission two nuclear facilities september 30 2005 2004 companys aro obligations 69 million 46 million respectively increase reserve year primarily due accretion 7 million revisions cost estimate 16 million company believes potential payment estimated amounts material adverse effect financial position results operations cash flows asbestos tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation company observed increase number lawsuits past several years majority cases filed subsidiaries healthcare engineered products services limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property majority cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore companys experience large percentage claims never substantiated dismissed courts company continue vigorously defend lawsuits company suffered adverse verdict trial court proceeding related asbestos claims appropriate company settles claims however total amount paid date settle defend asbestos claims immaterial september 30 2005 approximately 14000 asbestos liability cases pending company subsidiaries 2005 company undertook detailed study pending asbestos claims also developed estimate asbestos claims incurred reported well related insurance indemnification recoveries impact study material companys financial position results operations cash flows companys estimate liability pending future claims based claim experience past five years covers claims expected filed year 2012 company believes adequate amounts recorded related matters possible time determine certainty ultimate outcome asbestosrelated proceedings company believes final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect companys financial position results operations cash flows income taxes company subsidiaries income tax returns periodically examined various regulatory tax authorities connection examinations tax authorities including united states internal revenue service raised issues proposed tax deficiencies company reviewing issues raised tax authorities contesting certain proposed tax deficiencies amounts related tax deficiencies tax contingencies management assessed probable estimable recorded income tax provision equity goodwill appropriate compliance matters 2003 allegation brought attention period 1999 2003 certain improper payments made nonus subsidiary tyco assistance outside counsel conducted internal investigation allegation determine whether certain payments correctly recorded books records subsidiary taken remedial steps reported results investigation us department justice doj sec cooperating inquiries march 29 2005 august 9 2005 tyco reported doj sec investigative steps remedial measures taken response number recent allegations improper payments tyco also informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance foreign corrupt practices act would continue make periodic progress reports would present factual findings upon conclusion baseline review tyco agreed make additional progress reports present factual findings upon conclusion baseline review time tyco cannot predict outcome matters reported regulatory law enforcement authorities therefore cannot estimate range potential loss extent risk may result adverse resolution matters company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows 18 retirement plans measurement datein 2005 company changed measurement date pension post retirement benefit plans september 30th august 31st company believes onemonth change measurement date preferable change allows management adequate time evaluate report actuarial information companys consolidated financial statements accelerated reporting deadlines accordingly amounts presented year ended september 30 2005 reflect august 31 measurement date prior years reflect september 30 measurement date company accounted change measurement date change accounting principle cumulative effect accounting principle change beginning 2005 21 million tax gain 28 million pretax current year effects change measurement date material effect net periodic benefit costs defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements income systematic basis expected average remaining service lives current participants contribution amounts determined based advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation following tables exclude amounts related discontinued operations periods presented net periodic benefit cost us nonus defined benefit pension plans 2005 2004 2003 follows millions following table represents changes benefit obligations plan assets net amount recognized consolidated balance sheets us nonus defined benefit plans september 30 2005 2004 millions determining expected return plan assets company considers relative weighting plan assets class individual asset class performance expectations provided external advisors companys investment strategy pension plans manage plans goingconcern basis current investment policy achieve superior return assets subject prudent level portfolio risk purpose enhancing security benefits participants us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 54 equity securities 40 debt securities 6 asset classes including real estate cash equivalents pension plans following weightedaverage asset allocations september 30 2005 2004 company made significant voluntary contributions september 30 2004 held cash equivalents date increased cash equivalent asset allocation percentage 11 us plans september 30 2004 although company buy sell stock direct investment pension funds due external investment management funds plans may indirectly hold tyco stock aggregate amount shares would considered material relative total fund assets companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates minimum make minimum required contributions pension plans 2006 12 million us plans 107 million nonus plans benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions accumulated benefit obligation us plans september 30 2005 2004 2429 million 2175 million respectively accumulated benefit obligation nonus plans september 30 2005 2004 2865 million 2356 million respectively accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 2429 million 2101 million respectively september 30 2005 2167 million 1957 million respectively september 30 2004 accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 2733 million 1792 million respectively september 30 2005 2209 million 1342 million respectively september 30 2004 company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 15 million 13 million 14 million 2005 2004 2003 respectively executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 30 2005 62 million 32 million respectively companys accrued benefit obligations messrs kozlowski swartz september 30 2004 58 million 30 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era dispute company information see note 13 defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 180 million 168 million 179 million 2005 2004 2003 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 3 million 2005 2004 4 million 2003 deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation expense 4 million 15 million 17 million 2005 2004 2003 respectively total deferred compensation liabilities 172 million 156 million september 30 2005 2004 respectively rabbi trustthe company established rabbi trust assets may used pay nonqualified plan benefits trust primarily holds corporateowned life insurance policies rabbi trust assets consolidated subject claims companys creditors event companys insolvency cash surrender value policies net outstanding loans included noncurrent assets consolidated balance sheets 218 million 210 million september 30 2005 2004 respectively september 30 2005 rabbi trust also held 37 million cash plan participants general creditors company respect benefits postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits following tables exclude amounts related discontinued operations periods presented net periodic postretirement benefit cost 2005 2004 2003 follows millions components accrued postretirement benefit obligations substantially unfunded september 30 2005 2004 follows millions company expects make contributions postretirement benefit plans 29 million 2006 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions measurement purposes 2005 2004 1145 1141 composite annual rate increase per capita cost covered health care benefits assumed respectively september 30 2005 2004 composite annual rate increase health care benefit costs assumed decrease gradually 500 year 2013 remain level thereafter onepercentagepoint change assumed healthcare cost trend rates would following effects millions december 2003 us enacted law medicare prescription drug improvement modernization act 2003 act introduces prescription drug benefit medicare part well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part certain companys retiree medical programs already provided prescription drug coverage retirees age 65 least generous benefits provided medicare act reduces companys obligation instances company included effects act consolidated financial statements reducing net periodic benefit cost 12 million 2005 reflecting actuarial gain reduced accumulated post retirement benefit obligation approximately 61 million september 30 2005 19 shareholders equity preference sharestyco authorized 125000000 preference shares par value 1 per share none issued outstanding september 30 2005 2004 rights dividends return capital redemption conversion voting otherwise respect preference shares may determined tycos board directors time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders dividendson december 9 2004 board directors approved increase quarterly dividend companys common shares 00125 010 per share tyco paid quarterly cash dividend 00125 first quarter 2005 010 thereafter prior tyco paid quarterly cash dividend 00125 per common share shares owned subsidiariesshares owned subsidiaries treated treasury shares recorded cost share repurchase programin july 2005 tycos board directors approved 15 billion share repurchase program september 30 2005 company repurchased 105 million common shares 300 million 20 share plans 2004 tyco international ltd 2004 stock incentive plan 2004 plan effectively replaced tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan well tyco international ltd 1994 restricted stock ownership plan key employees 1994 plan awards effective march 25 2004 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted stock deferred stock units promissory stock stockbased awards collectively awards 2004 plan provides maximum 160 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance 1994 plan ltip plans awarded thereunder january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 march 25 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason including termination 1994 plan ltip plans also available issuance 2004 plan common shares issued pursuant grant restricted stock restricted units deferred stock units promissory stock performance units payment annual performance bonus stockbased award total number common shares remaining available grant decreased margin least 18 per common share issued september 30 2005 approximately 172 million shares available future grant 2004 plan including shares available ltip ii plans assumable 2004 plan 1994 plan provided issuance restricted stock grants officers nonofficer employees november 2004 upon expiration 1994 plan 20 million shares available future issuance 1994 plan assumed 2004 plan september 30 2005 21 million shares granted 5 million granted 2004 plan 16 million granted former 1994 plan ltip plan reserved common shares issuance tycos directors executives managers share options plan administered compensation human resources committee board directors company consists exclusively independent directors company tyco reserved 140 million common shares issuance ltip plan september 30 2005 approximately 28 million shares originally reserved issuance plan available future grant 2004 plan ltip ii plan broadbased option plan nonofficer employees tyco reserved 100 million common shares issuance ltip ii plan terms conditions plan similar ltip plan september 30 2005 approximately 24 million shares originally reserved issuance plan available future grant 2004 plan restricted sharescommon shares awarded subject certain restrictions conditions vesting determined time grant 2004 plan unless otherwise stated stock vests equal annual installments period four years however majority tycos restricted share grants cliff vest three years restrictions stock lapse upon normal retirement death disability employee grants vest based certain specified performance criteria fair market value shares expensed period performance achievement criteria deemed probable grants vest passage time fair market value shares time grant amortized expense period vesting unamortized compensation expense recorded reduction shareholders equity recipients restricted shares right vote shares receive dividends income tax benefits resulting vesting restricted shares including deduction excess fair market value restricted shares time vesting fair market value time grants payment dividends unvested shares credited contributed surplus share optionsoptions granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant 2004 plan unless otherwise stated options become exercisable equal annual installments period four years generally expire 10 years date grant however majority tycos stock option grants vest equal annual installments three years options assumed part business combination transactions administered tycos plan reduce available shares retain rights terms conditions respective plans originally granted september 30 2005 approximately 390 million share options granted 230 million 124 million 36 million granted ltip ii 2004 plans respectively share option activity tyco plans september 30 2002 september 30 2005 follows following table summarizes information outstanding exercisable tyco options september 30 2005 dates grant using blackscholes optionpricing model assumptions set forth estimated weightedaverage fair value tyco options granted 2005 2004 2003 1057 1069 634 respectively following weightedaverage assumptions used 2005 2004 2003 deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment distribution made form actual shares similar restricted share grants vest passage time fair market value dsus time grant amortized expense period vesting unamortized portion deferred compensation expense recorded reduction shareholders equity recipients dsus right vote shares right receive cash dividends however right receive dividends form additional dsus conditions vesting determined time grant 2004 plan unless otherwise stated dsus vest equal annual installments four years however majority tycos dsu grants vest equal annual installments three years company granted 2 million dsus outstanding september 30 2005 employee stock purchase planssubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker company also maintains two employee stock purchase plans benefit employees certain qualified nonus subsidiaries one plan eligible employees granted options purchase shares end three years service 85 market price time grant september 30 2005 approximately 2 million options outstanding 7 million shares available future issuance plan shares purchased plan purchased open market total compensation cost stockbased compensation awards 84 million 42 million 43 million 2005 2004 2003 respectively additionally contributed surplus includes 142 115 million unamortized compensation expense 2005 2004 respectively 21 comprehensive income components accumulated comprehensive loss income follows millions 1during year ended september 30 2005 48 million transferred currency translation adjustments included net income result sale foreign entities 48 million gain 30 million related tgn included gains losses impairments divestitures net 18 million included loss income discontinued operations 2the year ended september 30 2005 includes reclassification unrealized gains 2 million related sale certain investments year ended september 30 2004 includes unrealized losses 4 million related temporary impairment investments 22 consolidated segment geographic data companys segments strategic business units operate different industries managed separately certain corporate expenses allocated operating segments operating income based generally net revenues company operates following business segments •fire security designs manufactures installs monitors services electronic security fire protection systems •electronics designs manufactures distributes electrical electronic components •healthcare designs manufactures distributes medical devices supplies imaging agents pharmaceuticals adult incontinence infant care products •engineered products services designs manufactures distributes services engineered products including industrial valves controls well steel tubular goods provides consulting engineering construction management operating services 2005 company committed plan sell plastics adhesives segment reported results discontinued operations segment geographic data presented reclassified exclude results discontinued operations reflect transfer precision interconnect business healthcare electronics 2004 also operating results tgn business presented within corporate sale third quarter 2005 selected information business segment presented following tables 2005 2004 2003 millions 1includes 649 million 739 million 2005 2004 respectively reflect subcontract costs net revenue cost revenue infrastructure services adjustments impact operating income see note 1 2relates tgn business 1includes gain sale tgn 303 million 2005 addition includes tgn operating loss 54 million 73 million 760 million 2005 2004 2003 respectively prior disposition also includes general overhead expenses previously allocated plastics adhesives segment 12 million 2005 2004 11 million 2003 net revenue groups products within tycos segments 2005 2004 2003 follows millions 1includes 649 million 739 million 2005 2004 respectively reflect subcontract costs net revenue cost revenue infrastructure services adjustments impact operating income see note 1 2net revenue relates tgn business total assets segment september 30 2005 2004 2003 follows millions 1includes total assets tgn business 48 million 642 million september 30 2004 2003 respectively depreciation amortization capital expenditures net segment years ended september 30 2005 2004 2003 follows millions 1includes depreciation tgn business 37 million 2003 1includes capital expenditures 113 million related tgn business 2003 net revenue geographic area years ended september 30 2005 2004 2003 follows millions 1revenue external customers attributed individual countries based reporting entity records transaction longlived assets geographic area september 30 2005 2004 2003 follows millions 1longlived assets comprised primarily property plant equipment exclude goodwill intangible assets 2includes longlived assets tgn business 24 million 11 million september 30 2004 2003 respectively 23 supplementary income statement information selected supplementary income statement information years ended september 30 2005 2004 2003 follows millions 24 supplementary balance sheet information selected supplementary balance sheet information september 30 2005 2004 follows millions 25 summarized quarterly financial data unaudited summarized quarterly financial data years ended september 30 2005 2004 follows millions except per share data 1net revenue excludes 464 million revenue related discontinued operations income continuing operations includes net restructuring charges 7 million divestiturerelated charges 18 million including 3 million cost sales loss 156 million related retirement debt charge 4 million related writedown investment 2net revenue excludes 463 million revenue related discontinued operations income continuing operations includes losses impairments divestitures 2 million net restructuring charges 5 million 50 million charge related sec enforcement action 573 million related retirement debt loss discontinued operations net tax includes 202 million 181 million tax longlived asset goodwill impairments 3net revenue excludes 459 million revenue related discontinued operations income continuing operations includes net restructuring credit 1 million charges impairment longlived assets 3 million net gain sale tgn 307 million along 6 million divestiturerelated charges loss 179 million related retirement debt 4net revenue excludes 465 million revenue related discontinued operations income continuing operations includes longlived asset impairment charges 3 million net losses impairments divestitures 10 million 277 million charge related patent dispute healthcare segment 70 million charge related certain former executives employment loss 105 million related retirement debt 109 million courtordered restitution award 1net revenue excludes 638 million revenue related discontinued operations income continuing operations includes net restructuring credits 3 million impairment charges 1 million loss 5 million related retirement debt 2effective january 1 2004 retroactive october 1 2003 company began reflecting subcontract costs net revenue cost revenue infrastructure services business unit within engineered products services adjustments impact net income see note 1 3net revenue excludes 651 million revenue related discontinued operations income continuing operations includes losses impairments divestitures 85 million net restructuring charges 24 million charges 1 million included cost sales charges impairment longlived assets 1 million 4net revenue excludes 661 million revenue related discontinued operations income continuing operations includes net restructuring charges 36 million charges 2 million included cost sales charges impairment longlived assets 13 million net gains divestitures 3 million loss 38 million related retirement debt 5net revenue excludes 681 million revenue related discontinued operations income continuing operations includes net restructuring charges 155 million charges 3 million included cost sales charges impairment longlived assets 37 million net losses impairments divestitures 34 million loss 241 million related retirement debt 26 tyco international group sa tigsa wholly owned subsidiary company public debt securities outstanding see note 14 fully unconditionally guaranteed tyco following tables present condensed consolidated financial information tyco tigsa subsidiaries condensed financial information tyco tigsa standalone basis presented using equity method accounting subsidiaries fourth quarter 2005 tigsa completed taxfree restructuring involving issuance multiple classes shares distribution certain investments intercompany loans intercompany receivables tyco international ltd since transactions entirely among wholly owned subsidiaries tyco impact consolidated statements financial position operations cash flows company transactions however result decrease tigsas investment subsidiaries intercompany receivables combined 184 billion effect transactions reflected occurred beginning earliest period presented consolidating statement income year ended september 30 2005 millions consolidating statement income year ended september 30 2004 millions consolidating statement income year ended september 30 2003 millions consolidating balance sheet september 30 2005 millions consolidating balance sheet september 30 2004 millions consolidating statement cash flows year ended september 30 2005 millions consolidating statement cash flows year ended september 30 2004 millions consolidating statement cash flows year ended september 30 2003 millions 27 subsequent events two weeks following end fourth quarter 2005 tyco repurchased 79 million common shares 216 million november 2005 tycos healthcare segment acquired controlling interest floreane medical implants sa floreane approximately 89 million cash floreane innovator development surgical support implants parietal urological gynecological surgery acquisition total value approximately 142 million remaining outstanding shares floreane expected acquired fiscal 2006 tyco international ltd schedule iivaluation qualifying accounts millions part ii critical accounting policies estimates liquidity capital resources offbalance sheet arrangements accounting pronouncements forwardlooking information part iii part iv signatures tyco international ltd index consolidated financial information managements responsibility financial statements report independent registered public accounting firm report independent registered public accounting firm report independent registered public accounting firm tyco international ltd consolidated statements income years ended september 30 2005 2004 2003 millions except per share data tyco international ltd consolidated balance sheets september 30 2005 2004 millions except share data tyco international ltd consolidated statements shareholders equity years ended september 30 2005 2004 2003 millions tyco international ltd consolidated statements cash flows years ended september 30 2005 2004 2003 millions tyco international ltd notes consolidated financial statements consolidating statement income year ended september 30 2005 millions consolidating statement income year ended september 30 2004 millions consolidating statement income year ended september 30 2003 millions consolidating balance sheet september 30 2005 millions consolidating balance sheet september 30 2004 millions consolidating statement cash flows year ended september 30 2005 millions consolidating statement cash flows year ended september 30 2004 millions consolidating statement cash flows year ended september 30 2003 millions tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules a1 2 financial statements supplementary datasee item 8 3exhibit index exhibit number exhibit 21 stock asset purchase agreement dated december 20 2005 among tyco group sarl tpa acquisition corporation limited purpose tyco international group sa incorporated reference exhibit 21 registrants quarterly report form 10q quarterly period ended december 30 2005 filed february 7 2006 31 memorandum association altered incorporating amendments july 2 1997 incorporated reference exhibit 31 registrants quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 32 certificate incorporation incorporating amendments july 2 1997 incorporated reference exhibit 32 registrants quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 33 amended restated byelaws tyco international ltd incorporating amendments march 25 2004 incorporated reference appendix registrants definitive proxy statement schedule 14a annual general meeting shareholders march 25 2004 filed january 28 2004 41 form indenture dated june 9 1998 among tyco international group sa tigsa tyco bank new york trustee incorporated reference exhibit 41 posteffective amendment 1 registrants tigsas coregistration statement form s3 33350855 filed june 9 1998 42 indenture among tigsa tyco state street bank trust company trustee dated february 12 2001 relating zero coupon convertible debentures due 2021 incorporated reference exhibit 41 registrants tigsas coregistration statement form s3 33357180 filed march 16 2001 43 indenture tyco state street bank trust company trustee dated november 17 2000 relating zero coupon convertible debentures due 2020 incorporated reference exhibit 41 registrants registration statement form s3 33351548 filed december 8 2000 44 indenture among tigsa us bank na trustee dated january 13 2003 relating series 275 convertible senior debentures due 2018 series b 3125 convertible senior debentures due 2023 incorporated reference exhibit 41 registrants quarterly report form 10q quarterly period ended december 31 2002 filed february 14 2003 45 supplemental indenture 1 dated january 10 2003 among tigsa tyco international ltd us bank na incorporated reference exhibit 99d2 registrants tigsas schedule filed january 14 2003 46 indenture dated november 12 2003 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 41 registrants quarterly report form 10q quarterly period ended december 31 2003 filed february 17 2004 47 first supplemental indenture dated november 12 2003 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 42 registrants quarterly report form 10q quarterly period ended december 31 2003 filed february 17 2004 48 supplemental indenture 3 dated january 9 1998 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 44 registrants posteffective amendment 1 registration statement form s3 33350855 filed june 9 1998 49 supplemental indenture 6 dated november 2 1998 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 43 registrants registration statement form s4 33371493 filed january 29 1999 410 supplemental indenture 7 dated january 12 1999 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 47 registrants posteffective amendment 2 registration statement form s3 33350855 filed january 26 1999 411 supplemental indenture 8 dated january 12 1999 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 47 registrants posteffective amendment 2 registration statement form s3 33350855 filed january 26 1999 412 supplemental indenture 13 dated april 4 2000 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 42 registrants registration statement form s4 33342128 filed july 24 2000 413 supplemental indenture 15 dated february 21 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 42 tyco international group sas posteffective amendment 1 form s3 33344100 filed february 28 2001 414 supplemental indenture 16 dated february 21 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 43 tyco international group sas posteffective amendment 1 form s3 33344100 filed february 28 2001 415 supplemental indenture 18 dated july 30 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 45 tyco international group sas post effective amendment 2 form s3 33344100 filed august 3 2001 416 form supplemental indenture 19 dated july 30 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference tyco international group sas post effective amendment 2 form s3 33344100 filed august 3 2001 417 supplemental indenture 20 dated october 26 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 44 registrants posteffective amendment 1 form s3 33368508 filed november 2 2001 418 certain instruments defining rights holders companys consolidated subsidiaries tyco international group sacs longterm debt none authorize total amount indebtedness excess 10 total assets company subsidiaries consolidated basis filed exhibits company agrees furnish copy agreements commission upon request 101 tyco international ltd long term incentive plan formerly known adt 1993 longterm incentive plan amended may 12 1999 incorporated reference exhibit 101 registrants form s8 33380391 filed june 10 19991 102 1994 restricted stock ownership plan key employees incorporated reference exhibit 101 registrants registration statement form s8 33393261 filed december 21 19991 103 tyco international us inc supplemental executive retirement plan amended restated october 1 2000 dated december 30 2000 incorporated reference exhibit 103 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 104 second amendment tyco international us inc supplemental executive retirement plan dated february 14 2002 incorporated reference exhibit 104 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 105 third amendment tyco international us inc supplemental executive retirement plan dated july 30 2002 incorporated reference exhibit 105 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 106 amendments tyco international ltd supplemental executive retirement plan dated december 24 2003 incorporated reference exhibit 106 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 200412 107 december 2003 amendment tyco international us inc supplemental executive retirement plan dated december 24 2003 incorporated reference exhibit 107 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 108 amendment 20041 tyco international us inc supplemental executive retirement plan dated april 30 2004 incorporated reference exhibit 108 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 109 amended restated tyco international ltd deferred compensation plan directors effective january 1 2005 incorporated reference exhibit 109 registrants annual report form 10k year ended september 30 2005 filed december 9 20051 1010 tyco international ltd long term incentive plan ii incorporated reference exhibit 101 registrants registration statement form s8 33375037 filed march 25 19991 1011 change control severance plan certain us officers executives dated january 1 2005 incorporated reference exhibit 101 registrants current report form 8k filed march 16 20051 1012 retention agreement l dennis kozlowski dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit 108 registrants annual report form 10k fiscal year ended september 30 2001 filed december 28 20011 1013 retention agreement mark h swartz dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit 109 registrants annual report form 10k fiscal year ended september 30 2001 filed december 28 20011 1014 retention agreement richard j meelia dated february 14 2002 incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended december 31 2001 filed february 14 20021 1015 amendment retention agreement dated december 9 2004 tyco international ltd richard j meelia incorporated reference exhibit 101 registrants current report form 8k filed december 17 20041 1016 amendment retention agreement dated december 9 2005 tyco international ltd richard j meelia incorporated reference exhibit 1016 registrants annual report form 10k year ended september 30 2005 filed december 9 20051 1017 edward breen employment contract dated july 25 2002 incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended june 30 2002 filed august 14 20021 1018 david j fitzpatrick employment contract dated september 18 2002 incorporated reference exhibit 1016 registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1019 first amendment executive employment agreement dated september 18 2004 david j fitzpatrick tyco international ltd incorporated reference exhibit 1017 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1020 resignation agreement general release tyco international ltd david j fitzpatrick incorporated reference exhibit 102 registrants current report form 8k filed march 30 20051 1021 william b lytton employment contract dated september 30 2002 incorporated reference exhibit 1017 registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1022 first amendment executive employment agreement dated september 30 2004 william b lytton tyco international ltd incorporated reference exhibit 1019 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1023 employment offer letter dated february 14 2005 tyco international ltd christopher j coughlin incorporated reference exhibit 101 registrants current report form 8k filed february 15 20051 1024 tyco international ltd uk savings related share option plan incorporated reference exhibit 1018 registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1025 tyco employee stock purchase plan amended may 2003 incorporated reference exhibit 101 registrants registration statement form s8 dated july 30 20031 1026 tyco international ireland employee share scheme incorporated reference exhibit 1020 registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1027 tyco supplemental savings retirement plan amended restated effective january 1 2005 incorporated reference exhibit 1027 registrants annual report form 10k year ended september 30 2005 filed december 9 20051 1028 juergen gromer employment contract effective october 1 1999 executed june 19 2000 incorporated reference exhibit 1023 registrants annual report form 10k fiscal year ended september 30 2003 filed december 17 20031 1029 tyco international ltd 2004 stock incentive plan incorporated reference appendix b registrants proxy statement fiscal year ended september 30 2003 filed january 28 20041 1030 amendment tyco international ltd 2004 stock incentive plan effective october 1 2004 incorporated reference exhibit 1026 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1031 amendment tyco international ltd 2004 stock incentive plan effective september 22 2005 incorporated reference exhibit 1031 registrants annual report form 10k year ended september 30 2005 filed december 9 20051 1032 terms conditions option award restricted stock award restricted unit award form director deferred stock unit award letter 2004 stock incentive plan incorporated reference exhibit 1027 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1033 tyco international us inc severance plan us officers executives incorporated reference exhibit 1028 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1034 amended severance plan us officers executives incorporated reference exhibit 104 registrants quarterly report form 10q quarterly period ended april 1 2005 filed may 11 20051 1035 retention agreement dr juergen w gromer president vice chairman tyco electronics tyco international ltd dated march 22 2006 incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended march 31 2006 filed may 9 2006 1036 threeyear credit agreement dated december 22 2003 among tyco international group sa tyco international ltd bank america na paying agent banks named therein bank america na citicorp north america coadministrative agents incorporated reference exhibit 43 registrants quarterly report form 10q quarterly period ended december 31 2003 1037 fiveyear credit agreement dated december 16 2004 among tyco international group sa tyco international ltd lender time party thereto bank america na citigroup usa inc coadministrative agents incorporated reference exhibit 101 registrants current report form 8k filed december 22 2004 1038 amendment dated december 16 2004 among tyco international group sa tyco international ltd required lender time party thereto bank america na paying agent threeyear credit agreement dated december 22 2003 among tyco international group sa tyco international ltd banks named therein bank america na citigroup north america coadministrative agents incorporated reference exhibit 102 registrants current report form 8k filed december 22 2004 1039 amendment 1 dated april 15 2005 fiveyear credit agreement dated december 16 2004 among tyco international group sa tyco international ltd lender time thereto bank america na citigroup usa inc coadministrative agents incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended april 1 2005 filed may 11 2005 1040 amendment 2 dated april 15 2005 among tyco international group sa tyco international ltd required lender time party thereto bank america na paying agent threeyear credit agreement dated december 22 2003 among tyco international group sa tyco international ltd banks named therein bank america na citigroup north america coadministrative agents incorporated reference exhibit 102 registrants quarterly report form 10q quarterly period ended april 1 2005 filed may 11 2005 1041 amendment 3 dated june 28 2006 among tyco international group sa tyco international ltd required lender time party thereto bank america na paying agent threeyear credit agreement dated december 22 2003 among tyco international group sa tyco international ltd banks named therein bank america na citigroup north america coadministrative agents incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended march 31 2006 filed may 9 2006 211 subsidiaries registrant filed herewith 231 consent deloitte touche llp filed herewith 241 power attorney filed herewith 311 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 302 sarbanesoxley act 2002 filed herewith 312 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 302 sarbanesoxley act 2002 filed herewith 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 1management contract compensatory plan 2in july 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd massachusetts corporation time former tyco upon consummation merger adt continuing public company changed name tyco international ltd tyco former tyco became whollyowned subsidiary tyco changed name tyco international us inc bsee item 15a3 csee item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer date december 8 2006 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant december 8 2006 capacities indicated name title edward breen edward breen chairman chief executive officer director principal executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer carol anthony davidson carol anthony davidson senior vice president controller chief accounting officer principal accounting officer adm dennis c blair director brian duperreault director bruce gordon director rajiv l gupta director john krol director h carl mccall director mackey j mcdonald director dr brendan r oneill director sandra wijnberg director jerome b york director william b lytton signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report william b lytton william b lytton attorneyinfact tyco international ltd index consolidated financial information managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior team leading example includes every one tycos 238200 global employees well customers suppliers business partners one crucial objectives continuing restore public employee shareholder confidence tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2006 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls edward breen christopher j coughlin edward breen chairman chief executive officer christopher j coughlin executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 29 2006 september 30 2005 related consolidated statements income shareholders equity cash flows three years period ended september 29 2006 audits also included financial statement schedule years ended september 29 2006 september 30 2005 2004 listed index item 15a financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company september 29 2006 september 30 2005 results operations cash flows three years period ended september 29 2006 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed notes 1 9 consolidated financial statements company adopted statement financial accounting standards sfas 123r sharebased payment october 1 2005 financial accounting standards board fasb interpretation 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fourth quarter 2006 discussed notes 9 19 consolidated financial statements 2005 company changed measurement date pension post retirement plans september 30 august 31 discussed note 1 accompanying 2005 2004 consolidated financial statements restated also audited accordance standards public company accounting oversight board united states effectiveness companys internal control financial reporting september 29 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated december 8 2006 expressed unqualified opinion managements assessment effectiveness companys internal control financial reporting unqualified opinion effectiveness companys internal control financial reporting deloitte touche llp deloitte touche llp new york new york december 8 2006 report independent registered public accounting firm board directors shareholders tyco international ltd audited managements assessment included accompanying managements report internal control financial reporting tyco international ltd subsidiaries company maintained effective internal control financial reporting september 29 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion managements assessment opinion effectiveness companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion managements assessment company maintained effective internal control financial reporting september 29 2006 fairly stated material respects based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also opinion company maintained material respects effective internal control financial reporting september 29 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements financial statement schedule year ended september 29 2006 company report dated december 8 2006 expressed unqualified opinion financial statements financial statement schedule included explanatory paragraphs regarding companys adoption statement financial accounting standards 123r sharebased payment october 1 2005 financial accounting standards board fasb interpretation 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fourth quarter 2006 deloitte touche llp deloitte touche llp new york new york december 8 2006 tyco international ltd consolidated statements income years ended september 29 2006 september 30 2005 2004 millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets september 29 2006 september 30 2005 millions except share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 29 2006 september 30 2005 2004 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 29 2006 september 30 2005 2004 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation restatement summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd company organized laws bermuda subsidiaries tyco subsidiaries hereinafter collectively referred company tyco prepared accordance generally accepted accounting principles united states gaap unless otherwise indicated references consolidated financial statements 2006 2005 2004 tycos fiscal year ended september 29 2006 september 30 2005 september 30 2004 respectively restatementreviews prior period stock option grant practices equity plan compliance review prior period stock option grant practices following publicity 2006 regarding granting stock options number companies company initiated internal review historical stock option grant practices determine whether companys stock option award actions appropriately governed accurately reflected companys financial statements companys internal audit staff reports directly audit committee board directors began review companys equity incentive plan practices associated approvals period october 1999 june 2006 addition review plan administration internal audit staff performed detailed audit procedures 95 share options granted regular offcycle grants period audit procedures covered 100 named executive officers section 16 officers directors companys review included evaluation grant authorizations assessment appropriate measurement dates accounting principles board apb opinion 25 accounting stock issued employees application appropriate equity pricing methodology company determined october 1999 2002 several grants complete documentation available validation appropriate measurement date apb opinion 25 difficult determine precision grants company determined appropriate measurement date reliance upon available evidence consideration alternatives including communication date grantees grants establish reasonable date upon equity recipients share awards known fixed ready communicated employees extent company able conclude grant date lists fixed ready communicated employees measurement date considered grant date however many instances measurement date company used date equity award communicated recipient company concluded errors relating companys stock option accounting primarily resulted incomplete documentation enable application accounting principles apb opinion 25 b unintentional misapplication generally accepted accounting principles c absence adequate control procedures 1999 early 2002 designed ensure equity recipients share awards fixed certain prior legal grant date amount aggregate compensation expense related item company recorded prior periods 252 million pretax 173 million aftertax relating grants awarded prior end 2002 none amount relates 2006 17 million pretax 8 million aftertax relates 2005 66 million pretax 46 million aftertax relates 2004 awards vested relevant vesting periods company used communication date measurement date instances difference amount recorded would material period aggregate review equity plan compliance separately company identified error related recognition compensation expense companys employee stock purchase program united kingdom aggregate compensation expense related item company recorded 20022005 29 million pretax 20 million aftertax none amount relates 2006 7 million pretax 5 million aftertax relates 2005 19 million pretax 13 million aftertax relates 2004 effect restatement taken together prior period errors result aggregate understatement compensation expense 281 million pretax 193 million aftertax based findings items discussed company restated reported results prior periods reflect impact additional stockbased compensation expense corporate see note 23 impact consolidated statements income years ended september 30 2005 2004 consolidated balance sheet september 30 2005 result restatement summarized tables impact total cash flows operating investing financing activities within consolidated statements cash flows years ended september 30 2005 2004 amounts previously reported derived form 10k year ended september 30 2005 filed december 9 2005 reclassified effects discontinued operations 1the impact restatement described accumulated earnings 59 million 53 million 9 million 2003 2002 2001 prior respectively 1the impact restatement described accumulated earnings september 30 2004 october 1 2003 decrease 180 million 121 million respectively principles consolidationtyco holding company conducts business operating subsidiaries company global diversified company provides products services four business segments electronics fire security healthcare engineered products services see note 23 company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities company bears majority risk entities expected losses stands gain majority entities expected returns intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal 2006 tyco completed sale plastics adhesives segment entered definitive agreement sell printed circuit group pcg business electronics segment held sale discontinued operations criteria met operations plastics adhesives segment pcg reflected discontinued operations periods presented use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges credits acquisition liabilities allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenue related costs environmental legal liabilities income taxes tax valuation allowances pension postretirement employee benefit expenses actual results could differ materially estimates change fiscal year reporting calendar alignmenteffective october 1 2004 tyco changed fiscal year end calendar fiscal year ending september 30 5253 week year ending last friday september quarterly period 13 weeks length addition certain companys subsidiaries consistently closed books one month prior companys fiscal period end subsidiaries report results period reported results consolidated company impact change material consolidated financial statements net income transition period related change 26 million reported within shareholders equity 2005 references 2006 2005 2004 tycos fiscal year ending september unless otherwise indicated revenue recognitionthe company recognizes revenue principally four types transactionssales products sales security systems subscriber billings monitoring services contract sales revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions coupons product returns discounts customers accounted reductions determining sales period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems include multiple elements including equipment installation monitoring services maintenance agreements amounts assigned component based components objectively determined fair value fair value cannot objectively determined sale involving multiple elements company recognizes revenue installation services along associated direct incremental costs contract life revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems undersea fiber optic cable systems construction related projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related cost completion cost completion generally measured based ratio actual cost incurred total estimated cost revisions cost estimates contracts progress effect increasing decreasing profits current period provisions anticipated losses made period first become determinable certain companys longterm contracts warranty obligations estimated warranty costs contract determined based contract terms technology specific issues costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting september 29 2006 september 30 2005 accounts receivable longterm receivables included retainage provisions 91 million years 36 million 31 million unbilled respectively retainage provisions consist primarily electronics contracts fire protection contracts well transportation water environmentalrelated contracts become due upon contract completion acceptance september 29 2006 retainage provision included 58 million expected collected 2007 addition september 29 2006 september 30 2005 56 million 28 million respectively accounts receivable unbilled related longterm contracts research developmentresearch development expenditures expensed incurred included cost product sales research development expenses include salaries direct costs incurred building overhead expenses customerfunded research development costs incurred tyco reimbursed customers net impact research development expense consolidated statements income customerfunded research development research development expense consolidated statements income reflects companysponsored research development see note 24 advertisingadvertising costs expensed incurred included selling general administrative expenses see note 24 translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars operate highly inflationary environments assets liabilities translated us dollars using yearend exchange rates revenue expenses translated average exchange rates effect year foreign currency translation gains losses included component accumulated comprehensive income loss within shareholders equity subsidiaries operating highly inflationary environments inventories property plant equipment including related expenses translated rate exchange effect date assets acquired assets liabilities translated yearend exchange rates translation adjustments assets liabilities subsidiaries included net income gains losses resulting foreign currency transactions included net income 105 million 52 million 66 million 2006 2005 2004 respectively cash equivalentsall highly liquid investments purchased maturity three months less time purchase considered cash equivalents occasion company required post cash collateral secure obligations respect various construction projects contractual obligations related acquisitions divestitures legal obligations amount restricted cash collateral 77 million 39 million included current assets 38 million included longterm assets 86 million 44 million included current assets 42 million included longterm assets september 29 2006 september 30 2005 respectively allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense 2006 2005 2004 1415 million 1431 million 1407 million respectively maintenance repair expenditures charged expense incurred depreciation calculated using straightline method estimated useful lives related assets follows company generally considers electronic security assets three asset pools internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program subscriber systems represent internally generated residential systems internally generated commercial systems customer accounts acquired adt dealer program recorded intangible assets internally generated residential commercial account pools generally amortized using straightline method tenyear period fourteenyear period used national commercial accounts fourteenyear period writeoff specific accounts upon discontinuance used residential commercial accounts certain nonus locations longlived assetstyco reviews longlived assets including amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill intangible assetsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering event occurs making assessment management relies number factors including operating results business plans economic projections anticipated future cash flows transactions market place data inherent uncertainties related factors judgment applying analysis goodwill impairment company performed annual impairment test fourth quarter 2006 impairment occurred testing goodwill impairment first company performs step goodwill impairment test identify potential impairment company compares fair value reporting unit carrying amount carrying amount reporting unit exceeds fair value goodwill considered impaired step ii goodwill impairment test performed measure amount impairment loss step ii goodwill impairment test company compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess value reporting unit amounts assigned assets liabilities implied fair value goodwill amortizable intangible assets netintangible assets primarily include contracts related customer relationships intellectual property certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program acquired contracts related customer relationships recorded contractually determined purchase price company incurs costs associated maintaining operating adt dealer program including brand advertising due diligence expensed incurred first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship based upon analyses period pattern economic benefit associated intangibles utilize information contained attrition studies adt dealer program customer base conducted third party appraiser company believes accelerated method presently best achieves matching objective doubledeclining balance method based tenyear life first eight years estimated life customer relationship converting straightline method amortization remaining four years estimated relationship period actual attrition data regularly reviewed order assess continued appropriateness accelerated method amortization described contracts related customer relationships well intellectual property consisting primarily patents trademarks unpatented technology amortized straightline basis five forty years company evaluates remaining useful life intangible assets periodic basis determine whether events circumstances warrant revision remaining useful life investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged comprehensive income within shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments included consolidated statements income equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting company periodically evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included consolidated statements income material period presented product warrantythe company records estimated product warranty costs time sale manufactured products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty manufactured equipment also warranted manner product warranties however instances warranty either negotiated contract sold separate component warranty period terms range 90 days eg consumable products 20 years eg power system batteries warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage environmental coststyco subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated company discounts environmental liabilities using riskfree rate return obligation fixed reliably determinable impact discount consolidated balance sheets september 29 2006 september 30 2005 reduce obligation approximately 14 million tyco international ltd notes consolidated financial statements income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence likely deferred tax assets realized insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return obligation reliably determinable impact discount consolidated balance sheets september 29 2006 september 30 2005 reduce obligation 47 million 31 million respectively company maintains captive insurance companies manage certain insurable liabilities additionally company records receivables third party insurers recovery determined probable financial instrumentsthe company uses interest rate swaps currency swaps forward option contracts manage risks generally associated foreign exchange rate interest rate risk derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly correlated changes fair value underlying hedged item inception hedge life hedge contract derivative financial instruments reported consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items reported directly earnings along offsetting transaction gains losses items hedged gains losses net investment hedges included cumulative translation adjustment component comprehensive income extent effective gains losses derivatives designated cash flow hedges recorded comprehensive income reclassified earnings manner matches timing earnings impact hedged transactions ineffective portion hedges recognized currently earnings instruments qualify hedge accounting marked market changes recognized current earnings share premium contributed surplusin accordance bermuda companies act 1981 tyco issues shares cash premium par value resulting premium credited share premium account nondistributable reserve tyco issues shares exchange shares another company excess fair value shares acquired par value shares issued tyco credited applicable contributed surplus subject certain conditions distributable reserve reclassificationscertain prior year amounts reclassified conform current year presentation recently adopted accounting pronouncementseffective october 1 2005 tyco adopted statement financial accounting standards sfas 123r sharebased payment requires compensation costs related sharebased transactions including employee stock options recognized financial statements based fair value sfas 123r revises sfas 123 amended accounting stockbased compensation supersedes accounting principles board apb opinion 25 accounting stock issued employees tyco adopted sfas 123r using modified prospective application transition method compensation cost recognized unvested portion sharebased payments granted prior october 1 2005 sharebased payments granted subsequent september 30 2005 related vesting period prior october 1 2005 company applied intrinsic value based method prescribed apb opinion 25 accounting employee stockbased compensation prior period results restated upon adoption sfas 123r due adoption sfas 123r companys results continuing operations 2006 include incremental sharebased compensation expense totaling 161 million basic diluted earnings per share continuing operations impacted 006 005 respectively 2006 november 10 2005 financial accounting standards board fasb issued fasb staff position fas 123r3 transition election related accounting tax effects sharebased payment awards company elected adopt alternative transition method provided fasb staff position calculating tax effects stockbased compensation pursuant sfas 123r fourth quarter fiscal 2006 alternative transition method includes simplified methods establish beginning balance additional paidin capital pool apic pool related tax effects employee stockbased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee stockbased compensation awards fully vested outstanding upon adoption sfas 123r adoption material impact results operations financial condition company adopted fasb interpretation fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fourth quarter 2006 interpretation clarifies timing liability recognition legal obligations associated asset retirement timing method settling obligation conditional future event may within control entity fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation interpretation requires conditional asset retirement obligations along associated capitalized asset retirement costs reported fair values upon adoption company recognized liability 32 million asset retirement obligations increase 10 million carrying amount related assets initial recognition resulted cumulative effect accounting change 22 million pretax reflecting accumulated depreciation accretion would recognized prior periods provisions fin 47 effect time certain obligations relating handling disposal asbestos recorded due fact fair value cannot reasonably estimated company sufficient information range time obligation may settled undiscounted cash flows relating asset retirement obligations recognized financial statements approximately 8 million company continue monitor legal asset retirement obligations recognize liability period sufficient information becomes available reasonably estimate fair value june 2005 fasb issued staff position fsp 1431 accounting electronic equipment waste obligations provides guidance accounting historical waste obligations associated european union waste electrical electronic equipment directive weee directive waste management obligation historical equipment products put market prior august 13 2005 remains commercial user equipment replaced time waste management obligation may transferred producer replacement equipment fsp 1431 effective first reporting period ending june 8 2005 date adoption weee directive law applicable european union member country financial statement impact depends heavily respective laws regulations adopted eu member countries implementation guidance type recycling programs systems established company evaluated effects fsp 1431 determined material impact companys results operations financial position cash flows recently issued accounting pronouncementsin september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r sfas 158 requires employers recognize funded status defined benefit pension postretirement benefit plans net asset liability balance sheet recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized component net periodic benefit cost sfas 158 companies required measure plan assets benefit obligations fiscal year end company presently uses measurement date august 31st sfas 158 also requires additional disclosure notes financial statements recognition provisions sfas 158 effective fiscal 2007 measurement date provisions become effective fiscal 2009 company currently assessing impact sfas 158 consolidated financial statements based funded status defined benefit postretirement plans september 29 2006 company estimates would recognize net 356 million liability reduction shareholders equity ultimate amounts recorded highly dependent various estimates assumptions including among things discount rate selected future compensation levels performance plan assets changes assumptions could increase decrease estimated impact implementing sfas 158 september 2006 fasb issued sfas 157 fair value measurements enhances existing guidance measuring assets liabilities fair value sfas 157 defines fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective tyco beginning september 29 2008 company currently assessing impact sfas 157 results operations financial position cash flows september 2006 sec issued staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements sab 108 requires companies utilize dualapproach assessing quantitative effects financial statement misstatements dual approach includes income statement focused balance sheet focused assessment sab 108 applicable tycos fiscal year ending september 28 2007 company currently assessing impact adoption sab 108 expect significant impact financial position results operations june 2006 fasb issued fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns fin 48 effective tyco first quarter fiscal 2008 company currently assessing impact fin 48 results operations financial position cash flows 2 separation transaction january 13 2006 company announced board directors approved plan separate company three separate publicly traded companiestyco healthcare tyco electronics combination tyco fire security engineered products services proposed separation company intends accomplish proposed separation taxfree stock dividends tyco shareholders following proposed separation tycos shareholders 100 equity three companies tyco expects file registration statements connection proposed separation second quarter 2007 connection proposed separation company expects incur cost related primarily tax restructuring debt refinancing professional services employeerelated costs 2006 company incurred 169 million costs related proposed separation primarily related legal accounting consulting work associated executing transaction consummation proposed separation subject certain conditions including final approval tyco board directors receipt certain tax rulings necessary opinions counsel filing effectiveness registration statements securities exchange commission sec completion necessary debt refinancings approval companys shareholders required condition consummation proposed separation tyco received initial private letter ruling irs regarding us federal income tax consequences proposed separation noting qualify favorable tax treatment 3 discontinued operations divestitures discontinued operations 2006 company consummated sale plastics adhesives ludlow coated products businesses well ae products business 975 million 6 million gross cash proceeds respectively working capital adjustments resulted net proceeds 882 million sale plastics adhesives ludlow coated products businesses 2006 company also recorded 30 million receivable due purchaser plastics adhesives ludlow coated products businesses based decline average resin prices fiscal year 2006 contemplated definitive sale agreement amount payable tyco later january 2007 net cash proceeds received sale ae products business 2 million include working capital provisions expected settled prior end calendar year 2006 businesses met held sale discontinued operations criteria included discontinued operations periods presented 2006 company recorded 261 million 26 million pretax loss sale discontinued operations related plastics adhesives ludlow coated products businesses ae products business respectively include 275 million 22 million respectively pretax impairment charges write businesses fair values less costs sell fair values used respective impairment assessments based existing market conditions terms conditions included expected included respective sale agreements 2006 company approved plan divest printed circuit group pcg business component electronics segment also entered definitive sale agreement sell pcg 226 million cash 2006 company recorded 4 million pretax loss sale discontinued operations pcg related divestiture pcg spain business well certain costs sell sale pcg completed october 2006 see note 28subsequent events pcg business met held sale discontinued operations criteria included discontinued operations periods presented 2005 tyco announced intent explore divesture plastics adhesives ludlow coated products businesses well ae products business global manufacturer plastic film specialty tapes adhesives coated products garment hangers result consideration potential sale deteriorating operating results ae products business company performed interim assessment recoverability goodwill longlived assets determined book value certain longlived assets ae products business greater estimated fair value consequently recorded longlived asset impairment 40 million goodwill impairment charge 162 million fair value used impairment assessment based probabilityweighted expected future cash flow assets 2005 company divested 8 businesses reported discontinued operations within fire security engineered products services plastics adhesives business segment company reported losses sale additional impairments write carrying value assets estimated fair value less costs sell 60 million 2005 2004 company reported losses sale discontinued operations 132 million write carrying value assets fair value less cost sell additional 8 businesses 2005 divested businesses 2004 fair value used impairment assessment primarily based terms conditions included expected included sales agreements net revenue income operations loss sale income taxes discontinued operations 2006 2005 2004 follows millions gains losses divestitures 2004 company divested twentyone liquidated four noncore businesses across business segments primarily within fire security 2004 company recorded net losses impairments divestitures 116 million continuing operations connection divestiture writedown fair value certain held sale businesses 2005 tyco agreed sell tgn undersea fiber optic telecommunication network sale consummated june 30 2005 part sale transaction tyco received gross cash proceeds 130 million purchaser assumed certain liabilities connection sale tyco recorded 301 million gain reflected gains losses divestitures consolidated statement income 2005 company presented operations tgn continuing operations criteria discontinued operations met 2005 company divested 10 businesses reported continuing operations fire security healthcare engineered products services company recorded net losses impairments divestitures 32 million including 3 million charge reflected cost sales connection divestiture liquidation businesses well writedown estimated fair value certain held sale businesses 2006 company divested 6 businesses reported continuing operations fire security healthcare company recorded net gains divestitures 46 million connection divestiture businesses less 2 million divestiture charges related writedown estimated fair value costs sell certain held sale businesses divested businesses 2006 2005 2004 fair value used impairment assessment primarily based terms conditions included expected included sales agreements businesses held sale balance sheet information discontinued operations businesses held sale september 29 2006 september 30 2005 follows millions 4 restructuring charges credits net restructuring charges credits net years ended september 29 2006 september 30 2005 2004 follows millions 2006 charges credits 2006 company recorded net restructuring charges 26 million including 6 million reflected cost sales noncash write carrying value inventory restructuring charges 2006 39 million includes 27 million severance 12 million facility exit costs charges related several restructuring actions facility exit plans initiated 2006 30 million well costs incurred 2006 related actions initiated prior 2006 9 million 2006 company completed restructuring activities announced prior years amounts less originally estimated accordingly reversed 15 million restructuring reserves company also recorded noncash credits 4 million related electronics segment restructuring initiatives undertaken 2006 well actions taken prior periods impact restructuring charges incurred 2006 relate electronics fire security segments 2006 company paid 21 million related actions 9 million accrued september 29 2006 2005 charges credits 2005 company recorded restructuring charges 6 million including 1 million reflected cost sales noncash write carrying value inventory restructuring charges 2005 48 million includes 22 million employee severance benefits 15 million facility exit costs 11 million costs charges related several restructuring actions facility exit plans initiated 2005 well incremental costs incurred 2005 related actions initiated 2004 charges 22 million related actions initiated completed 2005 remaining 27 million related actions commenced prior 2005 company completed restructuring activities announced prior years amounts less originally estimated accordingly reversed 23 million restructuring reserves restructuring credit addition company also sold assets previously written net realizable value prior years amounts greater originally estimated recorded related gains restructuring credits 20 million restructuring credits mainly incurred electronics 22 million charges 2005 restructuring initiatives largely result actions taken electronics fire security segments incurred severance 9 million 6 million respectively 2006 company substantially paid obligations company 1 million accrued september 29 2006 addition 2005 company transferred 4 million severance liabilities held sale resulted sale tgn also substantially paid september 29 2006 2004 charges credits activity companys 2004 restructuring reserves summarized follows millions 2004 company approved announced employees various plans exit 181 facilities primarily united states plans included termination approximately 8616 employees resulting restructuring charges totaling 284 million including 6 million reflected cost sales noncash writedown carrying value inventory 196 million employee severance benefits 60 million facility exit costs 22 million related cost september 29 2006 total 176 million 43 million 27 million related employee severance benefits facilities exit costs respectively expended related plans september 29 2006 company completed certain activities related plans amounts less originally estimated accordingly company reversed 25 million restructuring reserves restructuring credit 2004 company also sold certain cablelaying sea vessels assets written expected net realizable value prior years amounts greater originally estimated recorded related gains restructuring credits 40 million 2004 company also completed certain restructuring activities announced prior years amounts less originally estimated accordingly company reversed 34 million restructuring reserves restructuring credit restructuring charges credits net recorded segment follows 2004 fire security recorded restructuring charges 184 million related 2004 restructuring plans including 4 million reflected cost sales noncash write carrying value inventory additionally fire security completed certain restructuring activities announced prior years amounts less originally estimated accordingly reversed 9 million restructuring reserves restructuring credit 2004 electronics recorded restructuring charges 15 million related 2004 restructuring plans including 1 million reflected cost sales noncash writedown carrying value inventory additionally 2004 electronics sold certain cablelaying sea vessels assets impaired prior years amounts greater originally anticipated recorded related gain restructuring credit 34 million electronics also completed certain restructuring activities amounts less originally estimated accordingly reversed 16 million restructuring reserves restructuring credit 2004 healthcare recorded restructuring charges 13 million related 2004 restructuring plans additionally healthcare completed restructuring activities announced prior years amounts less originally anticipated accordingly reversed 2 million restructuring reserves credit 2004 engineered products services recorded restructuring charges 55 million related 2004 restructuring plans including 1 million reflected cost sales noncash writedown carrying value inventory additionally engineered products services completed certain restructuring activities amounts less originally anticipated accordingly reflected 2 million restructuring credit 2004 corporate recorded restructuring charges 17 million related 2004 restructuring plans addition corporate completed certain restructuring activities announced prior years amounts less originally anticipated accordingly reversed 7 million restructuring reserves restructuring credit addition 2004 corporate sold certain tgn assets written expected net realizable value prior years amounts greater originally anticipated recorded related gain restructuring credit 4 million 2003 prior charges credits company continues maintain restructuring reserves related actions initiated prior 2004 total amount reserves 69 million 82 million september 29 2006 september 30 2005 respectively balances primarily include facility exit costs longterm noncancelable lease obligations within electronics segment expiration dates range 2008 2022 total restructuring reserves restructuring reserves segment september 29 2006 september 30 2005 follows millions september 29 2006 september 30 2005 restructuring reserves included companys consolidated balance sheets follows millions 5 impairment longlived assets 2006 2005 significant charges continuing operations related impairment longlived assets 2004 company recorded total charges continuing operations impairment longlived assets 52 million fire security recorded charges 34 million primarily related writedown united states facility estimated fair value lesser extent writeoff cash management software addition corporate engineered products services electronics healthcare recorded combined charges 18 million related impairment property plant equipment 6 acquisitions 2006 tycos healthcare segment acquired 90 ownership floreane medical implants sa floreane approximately 123 million cash net cash acquired 3 million floreane innovator development surgical support implants parietal urological gynecological surgery remaining outstanding shares would acquired become available company recorded 3 million inprocess research development charge conjunction acquisition 2006 tycos healthcare segment also acquired 50 ownership airox sa airox approximately 59 million net cash acquired 4 million airox leading european company home respiratory ventilation systems business tyco expects acquire remaining airox shares mandatory tender offer initial share purchase subsequent tender offer combined expected total approximately 108 million company also recorded 11 million inprocess research development charge conjunction acquisition charge relates development second generation technology yet obtained regulatory approval acquisition date inprocess research development considered technologically feasible alternative future use 2006 tycos healthcare segment also acquired confluent surgical inc confluent total purchase price expected 246 million september 29 2006 company paid approximately 200 million cash net cash acquired 12 million company also deposited approximately 34 million total purchase price escrow account related closing balance sheet adjustments certain indemnifications resolved fiscal 2008 company recorded 49 million inprocess research development charge conjunction acquisition related technology confluent developing numerous applications across several surgical disciplines yet received regulatory approval acquisition date inprocess research development considered technologically feasible alternative future use cash paid acquisitions 2006 totaled 31 million net 8 million cash acquired july 2005 tycos healthcare segment acquired vivant medical inc vivant developer microwave ablation medical technology transaction valued approximately 66 million cash approximately 35 million additional cash paid future based achieving certain milestones cash paid net cash acquired various acquisitions totaled 16 million 2004 company completed acquisition two businesses within engineered products services fire security aggregate cost 9 million acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows acquisition liabilities september 29 2006 september 30 2005 acquisition liabilities included companys consolidated balance sheets follows millions acquisition liabilities established connection acquisitions 2002 prior relate primarily longterm noncancelable lease obligations company paid 17 million 30 million 54 million fund acquisition liabilities 2006 2005 2004 respectively total cash paid 1 million 2 million reported discontinued operations 2005 2004 respectively holdback liabilities company paid cash approximately 84 million 18 million 53 million 2006 2005 2004 respectively relating holdback liabilities related certain prior period acquisitions total cash paid 82 million 0 1 million respectively reported discontinued operations holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet contingencies certain acquisitions provisions would require tyco make additional payments sellers acquired company achieves certain milestones subsequent acquisition tyco payments tied certain performance measures revenue gross margin earnings growth generally treated additional purchase price september 29 2006 september 30 2005 holdback liabilities included companys consolidated balance sheets follows millions approximately 53 million 134 million total holdback liabilities september 29 2006 september 30 2005 respectively retained liabilities discontinued operations adt dealer program 2006 2005 2004 tyco paid 373 million 328 million 254 million cash respectively acquire approximately 401000 364000 302000 customer contracts electronic security services adt dealer program 7 expense net 2006 expense net consisted primarily loss relating writedown certain investments net realizable value 2005 expense net included loss retirement debt company repurchased 1241 million principal amount outstanding 275 convertible senior debentures 1823 million 750 million principal amount outstanding 3125 convertible senior debentures 1147 million repurchases resulted 1013 million loss retirement debt including writeoff unamortized debt issuance costs also 2005 expense net included income 109 million related courtordered restitution award september 12 2002 indictments filed supreme court state new york mr l dennis kozlowski former chairman chief executive officer mr mark h swartz former chief financial officer director together defendants alleging enterprise corruption fraud conspiracy grand larceny falsifying certain business records crimes june 17 2005 jury convicted defendants 22 23 counts indictment september 19 2005 defendants sentenced new york state supreme court serve eight one third years twenty five years prison make joint restitution company amount 134 million resulting larceny convictions restitution award comprised 109 million previously expensed compensation made defendants reported expense net prior years 25 million related loan receivable one defendants remains reflected companys consolidated financial statements receivable defendants filed notice appeal convictions company considered collectibility restitution award assessed likelihood defendants success upon appeal larceny convictions successful could result change restitution order concluded receipt restitution award probable court ordered restitution payment made later one year date sentencing tyco initiated process collecting restitution payment owed subject pending appeal see note 28subsequent events 2004 expense net consisted primarily loss retirement debt company repurchased 303 million 72 notes due 2008 cash 341 million resulted 38 million loss including writeoff unamortized debt issuance costs additionally company repurchased 517 million outstanding 275 convertible senior debentures 2008 put option total purchase price paid 750 million repurchase resulted 241 million loss retirement debt including writeoff unamortized debt issuance costs 8 income taxes significant components income tax provision year follows millions nonus income continuing operations income taxes 3560 million 2516 million 3340 million 2006 2005 2004 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 29 2006 september 30 2005 2004 follows millions 1excludes asset impairments nondeductible charges items broken separately table included nondeductible charges 2006 127 million favorable adjustment related correction 2005 tax reserves legacy tax matters 31 million unfavorable adjustment associated proposed corrections prior period income tax returns included loss retirement debt 2006 cumulative onetime benefit 243 million associated receipt favorable tax ruling fourth quarter 2006 permitting deduction debt retirement costs benefit partially offset increased valuation allowance 173 million relating deferred tax asset associated net operating losses created debt retirement deductions 173 million reflected valuation allowance line table deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 29 2006 september 30 2005 restated follows millions september 29 2006 company 5673 million net operating loss carryforwards certain nonus jurisdictions 3747 million expiration remaining 1926 million expire future years 2016 due favorable tax ruling fourth quarter 2006 company able recognize 1157 million net operating loss carryforwards associated deduction debt retirement costs us approximately 5133 million federal 4675 million state net operating loss carryforwards september 29 2006 expire future years 2026 valuation allowance deferred tax assets 1731 million 1871 million september 29 2006 september 30 2005 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets valuation allowance calculated accordance provisions sfas 109 accounting income taxes requires valuation allowance established maintained likely portion deferred tax assets realized september 29 2006 approximately 153 million valuation allowance ultimately reduce goodwill net operating losses utilized company subsidiaries income tax returns periodically examined various tax authorities see income taxes note 18 calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel issues raised taxing authorities adequacy recorded amounts companys estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities may result income tax benefits recognized period determine liabilities longer necessary substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year except earnings currently distributed additional provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries 9 cumulative effect accounting change 2006 company adopted fin 47 accordingly company recognized asset retirement obligations 32 million property plant equipment net 10 million consolidated balance sheet september 29 2006 addition company recorded cumulative effect accounting change resulted 14 million aftertax loss 22 million pretax refer note 1 additional information fin 47 2005 company changed measurement date pension postretirement benefit plans september 30th august 31st effective october 1 2004 company believes onemonth change measurement date preferable change allows management adequate time evaluate report actuarial information companys consolidated financial statements accelerated reporting deadlines result change company recorded 21 million aftertax gain 28 million pretax cumulative effect accounting change refer note 19 additional information retirement plans 10 earnings per share reconciliations basic diluted earnings per share 2006 2005 2004 restated follows millions except per share data computation diluted earnings per share 2006 2005 2004 excludes effect potential exercise options purchase approximately 85 million 72 million 67 million shares respectively effect would antidilutive computation diluted earnings per share 2006 2005 excludes restricted share awards approximately 6 million 2 million respectively effect would antidilutive 11 sale accounts receivable historically tyco utilized several programs sold participating interests accounts receivable investors turn purchased received ownership security interests receivables transactions qualified true sales sale proceeds less face amount accounts receivable sold discount face amount included selling general administrative expenses consolidated statements income discount aggregated 18 million 31 weightedaverage balance receivables outstanding 2004 company reduced outstanding balances accounts receivable programs 929 million 812 million related corporate accounts receivable programs terminated 2005 amounts utilized programs september 30 2004 date termination remaining reduction 117 million related certain companys international businesses selling fewer accounts receivable shortterm financing mechanism aggregate amount outstanding remaining international accounts receivable programs 75 million 80 million september 29 2006 september 30 2005 respectively 12 investments september 29 2006 september 30 2005 tyco availableforsale investments fair market value 318 million 265 million cost basis 323 million 268 million respectively investments consist primarily debt securities included prepaid expenses current assets within consolidated balance sheets september 29 2006 61 million debt securities due mature within one year remainder substantially due one five years unrealized gains losses related investments immaterial included separate component shareholders equity 13 goodwill intangible assets changes carrying amount goodwill 2006 2005 follows millions 1adjustments previously completed acquisitions primarily related income tax matters goodwill impairments related continuing operations 2006 2005 2004 intangible assets net 5128 million 5085 million september 29 2006 september 30 2005 respectively following table sets forth gross carrying amount accumulated amortization companys intangible assets september 29 2006 september 30 2005 millions intangible asset amortization expense 2006 2005 2004 650 million 653 million 691 million respectively estimated aggregate amortization expense intangible assets currently owned company expected approximately 650 million 2007 550 million 2008 500 million 2009 400 million 2010 350 million 2011 14 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average 12 rates effect first day month loans generally repayable ten years however earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property 2006 2005 maximum amount outstanding programs 69 million 70 million respectively loans receivable programs well unsecured advances outstanding 52 million 68 million september 29 2006 september 30 2005 total outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 52 million 49 million september 29 2006 september 30 2005 respectively rate interest charged loans 50 32 2006 2005 respectively interest income interest bearing loans totaled 2 million 2 million 1 million 2006 2005 2004 respectively certain loans totaling 30 million 20 million september 29 2006 september 30 2005 respectively noninterest bearing total noninterest bearing loans 2005 include loans mark belnick companys former executive vice president chief corporate counsel amount outstanding loans september 30 2005 15 million repaid 2006 fourth quarter 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified 2006 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc vf corporation rohm haas company sandra wijnberg director executive officer marsh mclennan companies inc prior resignation company march 31 2006 mackey j mcdonald director executive officer vf corporation rajiv l gupta director executive officer rohm haas company purchases marsh mclennan companies inc 2006 approximately 16 million purchases companies noted 2006 aggregated less 1 percent consolidated net revenue 2005 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc brunswick corporation vf corporation rohm haas company sandra wijnberg director period executive officer marsh mclennan companies inc george w buckley director period executive officer brunswick corporation mackey j mcdonald director executive officer vf corporation rajiv l gupta director executive officer rohm haas company purchases marsh mclennan companies inc 2005 approximately 23 million purchases companies noted 2005 aggregated less 1 percent consolidated net revenue 2004 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc brunswick corporation vf corporation sandra wijnberg director period executive officer marsh mcclennan companies inc george w buckley director period executive officer brunswick corporation mackey j mcdonald director executive officer vf corporation purchases marsh mclennan companies inc 2004 approximately 22 million purchases companies noted 2004 aggregated less 1 percent consolidated net revenue 2001 tyco authorized compensation arrangements l dennis kozlowski mark h swartz companys chief financial officer director august 2002 connection arrangements tyco purchased executive split dollar life insurance policies messrs kozlowski swartz entered shared ownership agreement whereby company agreed pay premiums insurance policies 11year period beginning 2001 amended policies executed providing additional companypaid premiums company cobeneficiary policies less amounts owed messrs kozlowski swartz messrs kozlowski swartz beneficiaries cash surrender values policies plus amount unpaid premiums companys obligations arrangements entered recognition services rendered officers contingent upon continuing employment time company deposited 31 million rabbi trust fund premiums policies event investment options within policies earn specified interest amounts tyco guaranteed supplemental premium payment amount ensure 10 annual return cash surrender value unpaid premiums liability accreted charge earnings throughout period arrangements make specified supplemental premium payments conjunction mr swartzs termination employment lump sum payment 25 million represented present value annual premium amounts termination date remainder contractual period made mr swartz return mr swartz waived tycos obligation continue making premium payments tyco discontinued making premium payments mr kozlowskis insurance policy october 1 2002 company filed affirmative actions mr kozlowski seeking disgorgement benefits executive life insurance policy pending resolution action mr kozlowski premium obligations since october 2002 drawn cash surrender value policy avoid termination policys death benefit september 27 2006 company mr kozlowski entered general release agreement terminated mr kozlowskis shared ownership agreement split dollar life insurance policy rabbi trust company continuing obligation make payment contributions respect split dollar insurance policy rabbi trust company recorded credit 72 million related liability 2006 within selling general administrative expenses consolidated statements income consolidated financial statements include charges 7 million 7 million 6 million mr kozlowski 2006 2005 2004 respectively company accrued 65 million consolidated balance sheet september 30 2005 connection arrangement september 29 2006 25 million remains rabbi trust company filed civil complaints messrs kozlowski swartz breach fiduciary duty wrongful conduct relating alleged abuses key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct june 2002 company filed civil complaint frank e walsh jr former director breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought sec united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit group acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 claims mr walsh still pending 15 debt september 29 2006 september 30 2005 follows millions 1these instruments plus 46 million amount shown comprise current portion longterm debt september 29 2006 2these instruments plus 230 million amount shown comprise current portion longterm debt september 29 2005 tyco international group sa whollyowned subsidiary company organized laws luxembourg tigsa holds 10 billion 5year revolving credit facility expiring december 16 2009 tigsa also holds 15 billion 3year revolving bank credit facility amended june 28 2006 extend maturity date december 22 2006 december 21 2007 additionally tigsa holds 500 million 3year unsecured letter credit facility expiring june 15 2007 september 29 2006 letters credit 475 million issued 500 million facility 25 million remains available issuance september 29 2006 700 million borrowed 15 billion 3year revolving bank credit facility amounts borrowed credit facilities september 29 2006 amounts borrowed credit facilities september 30 2005 2006 company utilized 10 billion cash mentioned 700 million credit facility borrowings scheduled repayments 6375 58 public notes due 2006 respectively january 26 2006 company repaid terminated one synthetic lease facilities used finance capital expenditures manufacturing machinery equipment total cash payment 203 million reducing principal debt minority interest 191 million 10 million respectively february 21 2006 tigsa delivered notice redemption holders series 275 convertible senior debentures due 2018 2008 put option 275 convertible senior debentures exercising right redeem debentures 1011 percent principal amount outstanding plus accrued interest 275 convertible senior debentures convertible 43892 tyco common shares per 1000 principal amount prior march 8 2006 redemption date 12 billion 275 convertible senior debentures converted 544 million tyco common shares march 8 2006 tigsa redeemed remaining 1 million principal amount outstanding cash september 29 2006 tigsa 750 million outstanding 3125 convertible senior debentures due 2023 2015 put option 3125 convertible senior debentures fully unconditionally guaranteed tyco time holders may convert 1000 principal amount debentures 459821 tyco common shares prior stated maturity rate 217476 per share additionally holders 3125 convertible senior debentures may require tigsa purchase portion debentures january 15 2015 option exercised tigsa must repurchase debentures par plus accrued interest may elect repurchase securities cash tyco common shares combination thereof tigsa may redeem cash 3125 convertible senior debentures time january 20 2008 amount equal redemption price companys bank credit agreements contain number financial covenants limit ratio debt earnings interest income taxes depreciation amortization minimum levels net worth limits incurrence liens september 29 2006 company one remaining synthetic lease facility covenants including interest coverage leverage ratios see note 28subsequent events companys outstanding indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants presently considered restrictive companys operations company currently compliance debt covenants fair value debt approximately 109 billion book value 102 billion 135 billion book value 125 billion september 29 2006 september 30 2005 respectively based discounted cash flow analyses using current market interest rates aggregate amounts total debt including capital leases maturing next five years thereafter follows millions 808 2007 847 2008 2577 2009 23 2010 1009 2011 4909 thereafter weightedaverage rate interest total debt 59 56 years ended september 29 2006 september 30 2005 respectively excluding impact interest rate swaps weightedaverage rate interest variable debt 63 72 september 29 2006 september 30 2005 respectively impact companys interest rate swap agreements reported interest expense net increase 10 million 2006 net reduction 40 million 66 million 2005 2004 respectively 16 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2007 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 18 discussion liabilities company guaranteed fair value certain vessels exceed 235 million september 29 2006 expects obligation 54 million recorded accompanying consolidated balance sheets based estimate fair value vessels see notes 18 28 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company records estimated product warranty costs time sale information estimated product warranty see note 1 following roll forward companys warranty accrual 2006 millions 2001 engineered products services initiated voluntary replacement program vrp associated acquisition central sprinkler vrp relates replacement certain model gb fire sprinkler heads originally manufactured central sprinkler prior tycos acquisition program sprinkler heads replaced 57 year period free charge property owners third quarter 2006 company completed comprehensive review reported claims recent claim rates cost trends assessed future program company determined additional liability necessary order satisfy companys obligation vrp result company recorded 100 million charge reflected cost sales settlements 2006 include cash expenditures 37 million related vrp 17 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable investments accounts payable derivative financial instruments approximated book value september 29 2006 september 30 2005 see note 15 fair value estimates debt derivative financial instruments reported consolidated balance sheets fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met fair value estimates based relevant market information including current market rates prices assuming adequate market liquidity fair value estimates interest rate crosscurrency swaps calculated company provided company highquality thirdparty financial institutions known high volume participants market company uses derivative financial instruments manage exposures foreign currency interest rate risks companys objective utilizing derivatives manage risks using effective methods eliminate reduce impacts exposures transactions designated hedges company documents relationships hedging instruments hedged items links derivatives designated fair value cash flow foreign currency hedges specific assets liabilities consolidated balance sheets specific firm commitments forecasted transactions designated hedges company also assesses documents hedges inception ongoing basis whether derivatives used hedging transactions effective offsetting changes fair values cash flows associated hedged items part managing exposure changes market interest rates company enters various interest rate swap transactions financial institutions acting principal counterparties ensure appropriate use hedge accounting treatment derivatives entered designated according hedge objective specified forecasted interest payments specifically underwritten debt issuances companys primary hedge objectives include conversion fixedrate liabilities variable rates derivative financial instruments associated objectives designated accounted fair value hedges part managing exposure changes foreign currency exchange rates company utilizes forward option contracts financial institutions acting principal counterparties objective hedging contracts minimize impacts cash flows due changes foreign currency exchange rates intercompany loans notes receivable accounts payable forecasted transactions company designated certain forward contracts certain foreign currency denominated debt issuances hedge net investments foreign operations remaining hedges marked market changes derivatives fair value recognized income statement companys derivative financial instruments present certain market counterparty risks however concentration counterparty risk mitigated tyco deals variety major banks worldwide longterm standard poors moodys credit ratings aa2 higher addition conventional derivative financial instruments utilized thereby affording optimum clarity market risk none companys derivative financial instruments outstanding year end would result significant loss company counterparty failed perform according terms agreement time company require collateral security furnished counterparties derivative financial instruments assessing current potential future risk attributable interest rate movements fourth quarter 2006 company terminated interest rate swaps cross currency agreements aggregate notional value 25 billion fair value swaps time termination net gain 10 million interest rate swaps designated hedging instruments outstanding debt net deferred loss 26 million recognized earnings remaining term related debt instrument remaining agreements terminated subsequent end 2006 interest rate exposures company enters interest rate swap agreements manage exposure interest rate risk agreements company receives fixed rate interest 64 pays floating rate interest based six month libor september 29 2006 company interest rate swaps net loss position 6 million designated fair value hedges expiration dates 2011 marktomarket effects interest rate swap agreements underlying debt obligations recorded interest expense directly offsetting extent hedges effective addition company enters interest rate foreign currency swap agreements cross currency swaps manage exposure interest rate risk foreign currency exposure loans denominated foreign currency agreements company receives fixed rate interest 65 pays floating rates interest based six month libor september 29 2006 company interest rate foreign currency swap agreements net gain position 52 million designated fair value hedge expiration date 2011 marktomarket effects interest rate foreign currency swaps recorded interest expense selling general administrative expense respectively directly offset corresponding changes fair value hedged items extent hedges effective ineffective portion hedge material foreign currency exposures company hedges net investment certain foreign operations aggregate notional value hedges 71 billion september 29 2006 included cumulative translation adjustment component comprehensive income net loss 91 million net gain 31 million september 29 2006 september 30 2005 respectively changes fair value forward contracts qualifying net investment hedges reported cumulative translation adjustment component accumulated comprehensive income extent hedges effective amounts excluded measure effectiveness net investment hedges totaled 6 million recognized selling general administrative expenses company uses forward agreements hedge exposure foreign currency exchange rates raw material purchases forward agreements designated cash flow hedges gains losses resulting hedges amounts material period presented recorded comprehensive income amounts reclassified comprehensive income earnings recorded adjustment cost sales underlying transaction impacts earnings tyco uses various options swaps forwards designated hedging instruments manage foreign currency exposures accounts notes receivable accounts payable intercompany loans forecasted transactions denominated certain foreign currencies derivatives designated hedging instruments company records changes fair value earnings period change fair value instruments totaled 23 million september 29 2006 18 commitments contingencies company facility vehicle equipment leases expire various dates year 2052 rental expense leases 717 million 764 million 764 million 2006 2005 2004 respectively company also facility equipment commitments capital leases following schedule minimum lease payments noncancelable leases september 29 2006 millions 1excludes impact interest company also purchase obligations related commitments purchase certain goods services september 29 2006 obligations follows 222 million 2007 24 million 2008 10 million 2009 10 million 2010 7 million 2011 aggregate 24 million 2012 thereafter september 29 2006 company offbalance sheet leasing arrangement five cable laying sea vessels upon expiration lease october 2006 subsidiary company option buy vessels approximately 280 million return vessels lessor residual guarantee pay shortfall sales proceeds lessor third party amount exceed 235 million september 29 2006 company expected obligation 54 million recorded accompanying consolidated balance sheets based estimate fair value vessels performed management assistance thirdparty valuation 2006 2005 2004 company incurred expenses 14 million year related expected obligation see note 28subsequent events september 29 2006 company contingent purchase price liability 80 million related 2001 acquisition comnet electronics represents maximum amount payable former shareholders comnet construction installation communications system state florida finished state approved system based guidelines set forth contract liability contingency recorded tycos consolidated financial statements outcome contingency cannot reasonably determined normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows class actions result actions taken companys former senior corporate management tyco members companys former senior corporate management former members board directors companys current chief executive officer general counsel former chief financial officer named defendants number purported class actions alleging violations disclosure provisions federal securities laws tyco certain companys current former employees members companys former senior corporate management former members companys board directors also named defendants several employee retirement income security act erisa class actions addition members companys former senior corporate management subject sec inquiry findings outcomes sec inquiry may affect course purported securities class actions erisa class actions pending tyco company generally obligated indemnify directors officers former directors officers named defendants matters extent required bermuda law addition companys insurance carriers may decline coverage companys coverage may insufficient cover expenses liability matters company may time seek engage plaintiffs counsel settlement discussions company unable time estimate ultimate liability matters may possible company required pay judgments settlements incur expenses excess insurance coverage aggregate amounts would material adverse effect financial position results operations cash flows time possible estimate amount loss probable losses might result adverse resolution matters investigations company others received various subpoenas requests secs division enforcement united states department labor general service administration others seeking production voluminous documents connection various investigations companys governance management operations accounting related controls department labor investigating tyco administrators certain benefit plans company cannot predict investigations completed company predict results investigations may possible company required pay material fines consent injunctions future conduct lose ability conduct business government instrumentalities turn could negatively impact companys business nongovernmental customers suffer penalties could material adverse effect companys business possible estimate amount loss range possible loss might result adverse resolution matters april 17 2006 company reached settlement closes sec enforcement divisions investigation company regarding certain accounting practices actions former tyco officers april 25 2006 united states district court southern district new york entered final judgment company ordered pay 1 disgorgement fine 50 million third quarter 2006 company satisfied judgment accrued 2005 intellectual property antitrust litigation previously discussed periodic filings company party number patent infringement antitrust actions may require company pay damage awards tyco assessed status matters recorded liabilities related certain matters appropriate mallinckrodt inc mallinckrodt nellcor puritan bennett inc nellcor plaintiffscounterdefendants v masimo corporation masimo et al defendantscounterclaimants consolidated patent infringement action filed june 19 2000 united states district court central district california nellcor subsidiary tyco nellcor alleges masimo infringed one nellcor patent related pulse oximeters medical devices used measure blood oxygen levels patients masimo alleges nellcor infringed four masimo patents related pulse oximeters trial action commenced february 18 2004 march 16 2004 jury returned liability finding nellcor willfully infringed four masimo patents masimo infringe one nellcor patent march 26 2004 jury awarded masimo 135 million damages nellcors alleged infringement december 31 2003 hearing posttrial motions district court issued order july 14 2004 denied masimos request impose injunction sale pulse oximeters ii reversed jury finding patent infringement one four patents issue iii ruled second patent unenforceable due masimos inequitable conduct seeking patent iv overturned jury finding infringement willful august 6 2004 district court entered final judgment included additional damages 30 million nellcors alleged infringement january 1 2004 may 31 2004 nellcor asserts masimo infringes second nellcor patent us patent 4934372the 372 patent april 8 2005 united states court appeals federal circuit issued decision nellcors favor reversed district courts summary judgment finding infringement regarding 372 patent claim masimo court appeals remanded nellcors 372 patent claim district court proceedings district court yet scheduled trial 372 case nellcor appealed jurys infringement finding remaining two masimo patents united states court appeals federal circuit september 7 2005 court appeals issued decision appeal adverse nellcor particular court appeals 1 affirmed infringement finding nellcor two patents 2 reversed district courts ruling noninfringement third patent 3 reversed district courts ruling enter injunction directed district court issue injunction court appeals also 1 affirmed district courts ruling nellcors infringement willful precluded masimo seeking treble damages 2 affirmed district courts ruling one masimos patents unenforceable due masimos inequitable conduct seeking patent company assessed amount potential additional damages interest accruing date entry final judgment present accordingly fiscal quarter ending september 30 2005 tyco recorded pretax charge 277 million related matter january 17 2006 tyco international ltd subsidiaries tyco international us inc tyco healthcare group lp mallinckrodt inc nellcor puritan bennett inc collectively nellcor entered settlement agreement release claims masimo corporation masimo laboratories inc settlement related consolidated patent infringement action terms settlement tyco behalf nellcor paid masimo total 330 million january 19 2006 represents 265 million damages patent case sales january 31 2006 infringing products longer sold 65 million advance royalty oximetry sales including nellcors new 06 technology products february 1 2006 december 31 2006 2005 tyco recorded liability 277 million related matter settlement resolve masimo antitrust lawsuit related consumer antitrust class lawsuits described terms settlement nellcor received masimo covenant sue nellcor 06 products well termination pending patent litigation masimo march 2011 nellcor option terminate masimos covenant sue obligation pay future royalties nellcors current products well nextgeneration products addition nellcor discontinue making offering sell selling shipping products court found infringed patents held masimo continue provide service sensors previously sold products masimo corporation v tyco healthcare group lp tyco healthcare mallinckrodt inc separate lawsuit filed may 22 2002 also pending united states district court central district california tyco healthcare mallinckrodt subsidiaries tyco lawsuit masimo alleges violations antitrust laws tyco healthcare mallinckrodt markets pulse oximeter products masimo alleges tyco healthcare mallinckrodt used market position prevent hospitals purchasing masimos pulse oximetry products masimo seeks injunctive relief monetary damages including treble damages trial case began february 22 2005 jury returned verdict march 21 2005 awarded masimo 140 million damages automatically trebled antitrust statute award 420 million ultimately successful masimos attorneys entitled award reasonable fees costs addition verdict amount district court held hearing june 28 2005 regarding posttrial motions march 22 2006 district court issued memorandum decision regarding posttrial motions memorandum district court vacated jurys liability findings two business practices ii affirmed jurys liability finding two business practices iii vacated jurys damage award entirety iv ordered new trial damages district court held new trial damages october 18 19 2006 posttrial briefing district court issue decision regarding amount damages awarded tyco assessed status matter concluded likely remainder jurys decision overturned tyco intends vigorously pursue available means achieve reversal accordingly provision made consolidated financial statements respect damage award beginning august 29 2005 natchitoches parish hospital service district v tyco international ltd twelve consumer class actions filed nellcor united states district court central district california remaining eleven actions allied orthopedic appliances inc v tyco healthcare group lp mallinckrodt inc filed august 29 2005 scott valley respiratory home care v tyco healthcare group lp mallinckrodt inc filed october 27 2005 brooks memorial hospital et al v tyco healthcare group lp filed october 18 2005 star oxygen services inc et al v tyco healthcare group et al filed october 25 2005 niagara falls memorial medical center et al v tyco healthcare group lp filed october 28 2005 nicholas h noyes memorial hospital v tyco healthcare mallinckrodt filed november 4 2005 north bay hospital inc v tyco healthcare group et al filed november 15 2005 stephen skoronski v tyco international ltd et al filed november 21 2005 abington memorial hospital v tyco intl ltd tyco intl us inc mallinckrodt tyco healthcare group lp filed november 22 2005 south jersey hospital inc v tyco international ltd et al filed january 24 2006 deborah heart lung center v tyco international ltd et al filed january 27 2006 twelve complaints putative class representatives behalf others seek recover overcharges allege paid pulse oximetry products result anticompetitive conduct nellcor violation federal antitrust laws company respond complaints intends vigorously defend actions time possible estimate amount loss probable losses might result adverse resolution matters previously reported companys periodic filings applied medical resources corp applied medical v united states surgical us surgical patent infringement action filed united states district court central district california april 1999 us surgical subsidiary tyco defendant february 2002 district court held us surgicals versaseal universal seal system contained certain surgical trocar access devices manufactured us surgical infringed certain plaintiffs patents district court entered permanent injunction us surgical based upon infringement one three patents involved suit united states court appeals federal circuit affirmed district courts permanent injunction ruling september 2003 versaseal product longer market october 2003 district court ruled us surgicals favor holding two patents involved case invalid trial damages earlier infringement ruling district court concluded july 27 2004 jury awarded applied medical 44 million damages returned finding earlier infringement willful giving district court discretion enhance damages treble damages awarded applied medical jury october 1 2004 district court issued posttrial rulings denied us surgicals motion set aside jurys finding willfulness granted applied medicals motion enhanced damages enhancing jurys damages award 25 11 million january 27 2005 district court awarded applied medical 10 million costs prejudgment interest attorneys fees thus applied medicals total award 65 million us surgical appealed damages award willfulness finding court appeals federal circuit january 24 2006 court appeals issued decision affirming award applied medical february 17 2006 tyco behalf us surgical paid applied medical 66 million includes postjudgment interest accrued appeal tyco previously recorded liability 66 million related matter july 31 2003 applied medical filed another patent infringement suit us surgical united states district court central district california complaint alleges us surgicals versaseal plus trocar product infringes applied medicals us patent 5385553 applied medical seeks injunctive relief unspecified monetary damages including enhanced damages alleged willful infringement applied medical filed motion preliminary injunction district court denied december 23 2003 february 7 2005 district court granted us surgicals motion summary judgment applied medical appealed summary judgment ruling may 15 2006 united states court appeals federal circuit issued decision appeal vacating district courts grant summary judgment remanding case proceedings district court scheduled trial case july 10 2007 possible estimate amount loss probable losses might result adverse resolution matter environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 29 2006 tyco concluded probable would incur remedial costs range approximately 124 million 406 million september 29 2006 tyco concluded best estimate within range approximately 184 million 34 million included accrued current liabilities 150 million included liabilities consolidated balance sheets view companys financial position reserves environmental matters 184 million company believes potential payment estimated amounts material adverse effect financial position results operations cash flows tyco recorded asset retirement obligations aros according provisions sfas 143 accounting asset retirement obligations estimated future costs associated legal obligations decommission two nuclear facilities clarification outlined fin 47 valuation conditional aros tyco reassessed overall aro recorded additional 32 million september 29 2006 september 30 2005 companys aros 111 million 69 million respectively increase reserve 2006 primarily due adoption fin 47 addition company recorded insignificant amount accretion new cost estimates foreign currency translation related aros 2006 company believes potential payment estimated amounts material adverse effect financial position results operations cash flows see discussions implementation fin 47 note 1 asbestos matters tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation company observed increase number lawsuits past several years majority cases filed subsidiaries healthcare engineered products services limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property majority cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore companys experience large percentage claims never substantiated dismissed courts company continue vigorously defend lawsuits company suffered adverse verdict trial court proceeding related asbestos claims appropriate company settles claims however total amount paid year settle defend asbestos claims immaterial september 29 2006 approximately 15500 asbestos liability cases pending company subsidiaries company estimates pending asbestos claims incurred reported well related insurance indemnification recoveries companys estimate liability pending future claims based claim experience past five years covers claims expected filed next seven years company believes adequate amounts recorded related matters possible time determine certainty ultimate outcome asbestosrelated proceedings company believes final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect companys financial position results operations cash flows income taxes company subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including united states internal revenue service irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies management assessed probable estimable recorded timing ultimate resolution matters uncertain company anticipates certain matters could resolved 2007 irs continues audit years 1997 2000 2004 company submitted irs proposed adjustments prior period us federal income tax returns resulting reduction taxable income previously reported 2006 irs accepted substantially proposed adjustments material impact financial condition results operations cash flows company 2006 company developed amendments us federal income tax returns additional periods basis previously accepted amendments company determined acceptance adjustments probable accordingly recorded consolidated financial statements adjustments material impact companys financial condition results operations cash flows compliance matters tyco received responded various allegations certain improper payments made tyco subsidiaries recent years 2005 tyco reported us department justice doj sec investigative steps remedial measures taken response allegations tyco also informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance foreign corrupt practices act would continue make periodic progress reports agencies would present factual findings upon conclusion baseline review company continue communications doj sec provide updates baseline review conducted outside counsel including appropriate briefings concerning additional instances potential improper payments identified company course ongoing compliance activities time tyco cannot predict outcome matters reported regulatory law enforcement authorities therefore cannot estimate range potential loss extent risk may result adverse resolution matters earth tech v city phoenix contract dispute arising earth techs contract city phoenix arizona expansion citys 91st avenue waste water treatment plant december 21 2005 earth tech filed lawsuit city phoenix maricopa county superior court alleging 3 million damages plus interest citys failure pay dewatering computer systems costs related 91st avenue project city rejected earth techs administrative claim city earth tech filed served first amended complaint upon city phoenix first amended complaint earth tech alleged eighteen causes action requested following recovery least 73 million value services performed earth tech connection contract ii rescission contract iii equitable adjustment contract price additional dewatering services computer control system iv costs demobilization termination contract city phoenix filed motion dismiss rather filing answer first amended complaint may 18 2006 court granted citys motion dismiss without prejudice september 19 2006 allowing earth tech 30 days file second amended complaint earth tech filed second amended compliant city phoenix september 25 2006 december 29 2005 city phoenix filed lawsuit earth tech inc surety federal insurance company unnamed parties maricopa county superior court city phoenix v earth tech inc federal insurance company john 150 lawsuit connection city phoenixs termination august 12 2005 earth techs contract city phoenix arizona expansion citys 91st avenue waste water treatment plant city alleges following causes action earth tech breached preconstruction services construction management risk contracts ii earth tech properly reasonably timely manage supervise inspect work contracts iii federal insurance breached terms conditions performance bond iv federal insurance failed investigate citys bond claims city requested unspecified general consequential incidental special liquidated damages plus interest relief february 8 2006 earth tech filed motion dismiss citys complaint federal insurance company joined court denied earth techs motion dismiss september 25 2006 city phoenix filed amended complaint earth tech federal insurance september 25 2006 amended complaint city phoenix alleged damages 128 million presiding judge maricopa county superior court july 11 2006 consolidated pending lawsuits related dispute courts complex litigation docket time tyco cannot predict outcome matter therefore cannot estimate range potential loss extent risk may result adverse resolution matter company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows 19 retirement plans measurement datein 2005 company changed measurement date pension post retirement benefit plans september 30th august 31st effective october 1 2004 company believes onemonth change measurement date preferable change allows management adequate time evaluate report actuarial information companys consolidated financial statements accelerated reporting deadlines accordingly amounts presented years ended september 29 2006 september 30 2005 reflect august 31 measurement date prior years reflect september 30 measurement date company accounted change measurement date change accounting principle cumulative effect accounting principle change beginning 2005 21 million aftertax gain 28 million pretax effects change measurement date material effect net periodic benefit costs defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements income systematic basis expected average remaining service lives current participants contribution amounts determined based advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation following tables exclude amounts related discontinued operations periods presented net periodic benefit cost us nonus defined benefit pension plans 2006 2005 2004 follows millions change benefit obligations plan assets amounts recognized consolidated balance sheets us nonus defined benefit plans september 29 2006 september 30 2005 follows millions accumulated benefit obligation us plans september 29 2006 september 30 2005 2363 million 2465 million respectively accumulated benefit obligation nonus plans september 29 2006 september 30 2005 3192 million 2870 million respectively accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 2355 million 2149 million respectively september 29 2006 2465 million 2126 million respectively september 30 2005 accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 3051 million 2097 million respectively september 29 2006 2738 million 1796 million respectively september 30 2005 determining expected return plan assets company considers relative weighting plan assets class individual asset class performance expectations provided external advisors companys investment strategy pension plans manage plans goingconcern basis current investment policy achieve superior return assets subject prudent level portfolio risk purpose enhancing security benefits participants us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 54 equity securities 40 debt securities 6 asset classes including real estate cash equivalents pension plans following weightedaverage asset allocations september 29 2006 september 30 2005 although company buy sell stock direct investment pension funds due external investment management funds plans may indirectly hold tyco stock aggregate amount shares would considered material relative total fund assets companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates minimum make minimum required contributions pension plans 2007 10 million us plans 141 million nonus plans benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 6 million 15 million 13 million 2006 2005 2004 respectively executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 29 2006 66 million 34 million respectively companys accrued benefit obligations messrs kozlowski swartz september 30 2005 62 million 32 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era dispute company defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 204 million 190 million 175 million 2006 2005 2004 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 3 million 2006 6 million 2005 3 million 2004 deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation expense 10 million 14 million 15 million 2006 2005 2004 respectively total deferred compensation liabilities 179 million 171 million september 29 2006 september 30 2005 respectively rabbi truststhe company rabbi trusts assets may used pay nonqualified plan benefits trusts primarily hold corporateowned life insurance policies cash equivalents debt equity securities september 29 2006 september 30 2005 trust assets totaled 399 million 388 million respectively cash surrender value life insurance policies net outstanding loans included rabbi trust 228 million 218 million september 29 2006 september 30 2005 respectively rabbi trust assets consolidated subject claims companys creditors event companys insolvency plan participants general creditors company respect benefits postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide going eligibility benefits net periodic postretirement benefit cost 2006 2005 2004 follows millions components accrued postretirement benefit obligations substantially unfunded september 29 2006 september 30 2005 follows millions company expects make contributions postretirement benefit plans 26 million 2007 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions measurement purposes 101 115 composite annual rate increase per capita cost covered health care benefits assumed september 29 2006 september 30 2005 respectively september 29 2006 september 30 2005 composite annual rate increase health care benefit costs assumed decrease gradually 50 year 2013 remain level thereafter onepercentagepoint change assumed healthcare cost trend rates would following effects millions december 2003 us enacted law medicare prescription drug improvement modernization act 2003 act introduces prescription drug benefit medicare part well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part certain companys retiree medical programs already provided prescription drug coverage retirees age 65 least generous benefits provided medicare act reduces companys obligation instances company included effects act consolidated financial statements reducing net periodic benefit cost 12 million 2005 reflecting actuarial gain reduced accumulated post retirement benefit obligation approximately 64 million september 30 2005 20 shareholders equity preference sharestyco authorized 125000000 preference shares par value 1 per share none issued outstanding september 29 2006 september 30 2005 rights dividends return capital redemption conversion voting otherwise respect preference shares may determined tycos board directors time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders dividendson december 9 2004 board directors approved increase quarterly dividend companys common shares 00125 010 per share tyco paid quarterly cash dividend 00125 first quarter 2005 010 thereafter prior tyco paid quarterly cash dividend 00125 per common share shares owned subsidiariesshares owned subsidiaries treated treasury shares recorded cost share repurchase programin july 2005 may 2006 tycos board directors approved share repurchase programs 15 billion 20 billion respectively 2006 company repurchased 45 million common shares 12 billion completing 15 billion share repurchase program 50 million common shares 13 billion 20 billion share repurchase program 2005 company repurchased 10 million common shares 300 million 21 share plans previously mentioned company recorded compensation amounts prior periods related errors companys stock option accounting recognition expense companys employee stock purchase program united kingdom reported results prior periods restated reflect impact additional stockbased compensation expense effective october 1 2005 company adopted provisions sfas 123r using modified prospective transition method transition method compensation cost recognized beginning october 1 2005 includes compensation cost sharebased payments granted prior yet vested october 1 2005 based grantdate fair value estimated accordance original provisions sfas 123 ii sharebased payments granted subsequent september 30 2005 based grantdate fair value estimated accordance provisions sfas 123r compensation cost generally recognized ratably requisite service period retirement eligibility shorter prior period amounts restated adoption sfas 123r result adoption sfas 123r companys results year ended september 29 2006 include incremental sharebased compensation expense 161 million total sharebased compensation cost 2006 2005 restated 2004 restated 282 million 105 million 126 million respectively included consolidated statements income within selling general administrative expenses company recognized related tax benefit associated sharebased compensation arrangements 2006 2005 restated 2004 restated 85 million 36 million 37 million respectively prior october 1 2005 company accounted stockbased compensation plans accordance provisions apb opinion 25 permitted sfas 123 accordingly recognize compensation expense issuance options exercise price equal greater market price stock date grant fair value based method prescribed sfas 123 applied tyco effect net income earnings per share 2005 2004 would follows millions except per share data 2004 tyco international ltd 2004 stock incentive plan 2004 plan effectively replaced tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan well tyco international ltd 1994 restricted stock ownership plan key employees 1994 plan awards effective march 25 2004 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted stock deferred stock units promissory stock stockbased awards collectively awards 2004 plan provides maximum 160 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance ltip plans awarded thereunder january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 march 25 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason including termination ltip plans also available issuance 2004 plan common shares issued pursuant grant restricted stock restricted units collectively restricted share awards deferred stock units promissory stock performance units payment annual performance bonus stockbased award total number common shares remaining available grant decreased margin least 18 per common share issued september 29 2006 approximately 162 million shares available future grant 2004 plan including shares available ltip ii plans assumable 2004 plan 1994 plan provided issuance restricted stock grants officers nonofficer employees 1994 plan expired november 2004 thus additional grants restricted stock made plan since november 2004 shares available future grant september 29 2006 30 million shares granted 14 million granted 2004 plan 16 million granted 1994 plan ltip plan reserved common shares issuance tycos directors executives managers share options plan administered compensation human resources committee board directors company consists exclusively independent directors company tyco reserved 140 million common shares issuance ltip plan september 29 2006 approximately 29 million shares originally reserved issuance plan available future grant 2004 plan ltip ii plan broadbased option plan nonofficer employees tyco reserved 100 million common shares issuance ltip ii plan terms conditions plan similar ltip plan september 29 2006 approximately 35 million shares originally reserved issuance plan available future grant 2004 plan share optionsoptions granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant 2004 plan options generally exercisable equal annual installments period three years generally expire 10 years date grant options assumed part business combination transactions administered tycos plan reduce available shares retain rights terms conditions respective plans originally issued september 29 2006 approximately 401 million share options granted 230 million 124 million 47 million granted ltip ii 2004 plans respectively grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service periods awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based historical volatility companys stock implied volatility derived exchange traded options average expected life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well analysis actual option forfeitures weightedaverage assumptions used blackscholes option pricing model 2006 2005 2004 follows weightedaverage grantdate fair values options granted 2006 2005 2004 898 1104 1079 respectively total intrinsic value options exercised 2006 2005 2004 108 million 142 million 89 million respectively related excess cash tax benefit classified financing cash inflow 2006 significant summary option activity september 29 2006 changes year ended presented september 29 2006 161 million total unrecognized compensation cost related nonvested options granted cost expected recognized weightedaverage period 14 fiscal years employee stock purchase planssubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker company also maintains two employee stock purchase plans benefit employees certain qualified nonus subsidiaries terms plans provide company grant employees right purchase shares companys stock stated price receive certain tax benefits one plan operated ireland eligible employees offered opportunity acquire shares using portion bonus alternatively receive cash bonus subject normal taxation employees also opportunity forego portion basic salary purchase additional shares september 29 2006 1 million shares available future issuance plan second plan saveasyouearn saye plan eligible employees united kingdom granted options purchase shares end three years service 85 market price time grant options saye plan generally exercisable period three years expire six months date vesting saye plan provides maximum 10 million common shares issued september 29 2006 7 million shares available future issuance shares purchased saye plan irish bonus plan purchased open market summary option activity saye plan september 29 2006 changes year ended presented grantdatefair value option grant estimated using blackscholes option pricing model assumptions expected volatility average expected life riskfree rate made using methodology previously described share options weightedaverage grantdate fair values options granted saye plan 2006 2005 2004 880 1265 1209 respectively total intrinsic value options exercised 2006 2005 2004 24 million 3 million 0 respectively related excess cash tax benefit classified financing cash inflow 2006 significant september 29 2006 7 million total unrecognized compensation cost related nonvested options granted saye plan cost expected recognized period 20 fiscal years restricted share awardsrestricted share awards granted subject certain restrictions conditions vesting determined time grant 2004 plan restrictions award lapse upon normal retirement death disability employee grants vest based certain specified performance criteria fair market value shares units expensed period performance achievement criteria deemed probable grants vest passage time fair market value award time grant amortized expense period vesting fair value restricted share awards determined based market value companys shares grant date restricted share awards generally vest period three years determined compensation committee upon attainment various levels performance equal exceed targeted levels applicable compensation expense recognized restricted share awards net estimated forfeitures recipients restricted shares right vote shares receive dividends whereas recipients restricted units voting rights receive dividend equivalents summary status companys restricted share awards performance shares september 29 2006 changes year ended presented tables weightedaverage grantdate fair value restricted share awards granted 2006 2005 2004 2877 3525 2738 respectively total fair value restricted share awards vested 2006 2005 2004 26 million 3 million 5 million respectively total fair value performance shares vested 2006 2005 2004 insignificant september 29 2006 174 million total unrecognized compensation cost related nonvested restricted share awards performance shares cost expected recognized weightedaverage period 19 fiscal years deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment distribution made form actual shares similar restricted share grants vest passage time fair value dsus determined based market value companys shares grant date amortized expense vesting period recipients dsus right vote shares right receive cash dividends however right receive dividend equivalents conditions vesting determined time grant 2004 plan majority tycos dsu grants vest equal annual installments three years company granted 2 million dsus 01 million outstanding september 29 2006 summary status companys dsus september 29 2006 changes year ended presented weightedaverage grantdate fair value dsus granted 2006 2005 2004 2830 3108 2044 respectively total fair value dsus vested 2006 2005 2004 4 million 6 million 6 million respectively september 29 2006 17 million total unrecognized compensation cost related nonvested dsus cost expected recognized weightedaverage period 08 fiscal years 22 comprehensive income components accumulated comprehensive loss income follows millions 1during year ended september 29 2006 34 million transferred currency translation adjustments result sale foreign entities amount included loss discontinued operations year ended september 30 2005 48 million transferred currency translation adjustments included net income result sale foreign entities 48 million gain 30 million related tgn included gains losses divestitures 18 million included loss discontinued operations 2the years ended september 29 2006 september 30 2005 include reclassification unrealized gains 1 million 2 million respectively related sale certain investments year ended september 30 2004 includes unrealized losses 4 million related temporary impairment investments 23 consolidated segment geographic data companys segments strategic business units operate different industries managed separately certain corporate expenses allocated segments operating income based generally net revenues company operates following business segments •electronics designs manufactures distributes electrical electronic components related solutions •fire security designs manufactures installs monitors services electronic security fire protection systems •healthcare designs manufactures distributes medical devices supplies imaging agents pharmaceuticals adult incontinence infant care products •engineered products services designs manufactures distributes services engineered products including industrial valves controls well steel tubular goods provides consulting engineering construction management operating services segment geographic data presented reclassified exclude results discontinued operations also operating results tgn business presented within corporate sale third quarter 2005 selected information business segment presented following tables 2006 2005 2004 restated millions 1related tgn business 2revenue operating segment excludes intercompany transactions 1includes gain sale tgn 301 million 2005 addition includes tgn operating loss 54 million 73 million 2005 2004 respectively prior disposition also includes general overhead expenses previously allocated plastics adhesives segment 3 million 2006 12 million 2005 2004 2operating income 2005 2004 restated reflect additional compensation expense 24 million 85 million respectively related review prior period stock option grant practices equity plan compliance see note 1 net revenue groups products within tycos segments 2006 2005 2004 follows millions 1related tgn business total assets segment september 29 2006 september 30 2005 2004 follows millions 1includes total assets tgn business 48 million september 30 2004 depreciation amortization capital expenditures net segment years ended september 29 2006 september 30 2005 2004 follows millions net revenue geographic area years ended september 29 2006 september 30 2005 2004 follows millions 1revenue external customers attributed individual countries based reporting entity records transaction longlived assets geographic area september 29 2006 september 30 2005 2004 follows millions 1longlived assets comprised primarily property plant equipment exclude goodwill intangible assets 2includes longlived assets tgn business 24 million september 30 2004 24 supplementary income statement information selected supplementary income statement information years ended september 29 2006 september 30 2005 2004 follows millions 25 supplementary balance sheet cash flow information selected supplementary balance sheet information september 29 2006 september 30 2005 follows millions 1property capital leases consists primarily buildings 2accumulated amortization capital lease assets 154 million 146 million september 29 2006 september 30 2005 respectively supplementary noncash financing activities september 29 2006 september 30 2005 september 30 2004 follows millions 26 summarized quarterly financial data unaudited summarized quarterly financial data years ended september 29 2006 september 30 2005 restated follows millions except per share data 1net revenue excludes 579 million revenue related discontinued operations income continuing operations includes divestiturerelated charges 3 million net restructuring asset impairment charges 12 million 2 million included cost sales writeoff purchased inprocess research development 2 million incremental stock option charges 48 million separation costs 8 million 2net revenue excludes 281 million revenue related discontinued operations income continuing operations includes divestiturerelated gains 44 million net restructuring asset impairment charges 6 million writeoff purchased inprocess research development 1 million incremental stock option charges 46 million separation costs 25 million net income includes 127 million favorable adjustment related prior year tax reserves legacy matters 3net revenue excludes 145 million revenue related discontinued operations income continuing operations includes vrp charge 100 million divestiturerelated charges 2 million net restructuring asset impairment charges 9 million incremental stock option charges 38 million separation costs 56 million 4net revenue excludes 106 million revenue related discontinued operations income continuing operations includes divestiturerelated gains 5 million net restructuring asset impairment charges 6 million 4 million included cost sales writeoff purchased inprocess research development 60 million incremental stock option charges 29 million separation costs 80 million income settlement former executive 72 million 48 million income resulting reduction estimated workers compensation liabilities primarily due favorable claims experience 1net revenue excludes 568 million revenue related discontinued operations income continuing operations includes divestiturerelated charges 18 million including 3 million cost sales net restructuring charges 6 million loss 156 million related retirement debt charge 4 million related writedown investment 2net revenue excludes 580 million revenue related discontinued operations income continuing operations includes losses impairments divestitures 2 million net restructuring charges 5 million 1 million included cost sales 50 million charge related sec enforcement action loss 573 million related retirement debt 3net revenue excludes 565 million revenue related discontinued operations income continuing operations includes net restructuring credit 3 million charges impairment longlived assets 3 million net gain sale tgn 307 million along 6 million divestiturerelated charges loss 179 million related retirement debt 4net revenue excludes 560 million revenue related discontinued operations income continuing operations includes divestiturerelated charges 10 million net restructuring asset impairment charges 1 million 277 million charge related patent dispute healthcare segment 70 million charge related certain former executives employment loss 105 million related retirement debt 109 million courtordered restitution award 27 tyco international group sa tigsa wholly owned subsidiary company public debt securities outstanding see note 15 fully unconditionally guaranteed tyco following tables present condensed consolidating financial information tyco tigsa subsidiaries condensed financial information tyco tigsa standalone basis presented using equity method accounting subsidiaries consolidating statement income year ended september 29 2006 millions consolidating statement income restated year ended september 30 2005 millions consolidating statement income restated year ended september 30 2004 millions consolidating balance sheet september 29 2006 millions consolidating balance sheet restated september 30 2005 millions consolidating statement cash flows year ended september 29 2006 millions consolidating statement cash flows restated year ended september 30 2005 millions consolidating statement cash flows restated year ended september 30 2004 millions 28 subsequent events october 27 2006 company completed sale pcg business part electronics segment 226 million expects record gain sale approximately 45 million october 27 2006 mark h swartz former chief financial officer director paid restitution company amount 38 million addition november 17 2006 supreme court state new york ordered 98 million released escrow account supervision manhattan district attorney tyco january 2 2007 relation restitution owed l dennis kozlowski former chairman chief executive officer october 31 2006 company exercised right buy five cable laying sea vessels previously included offbalance sheet leasing arrangement 280 million november 2006 company announced launched restructuring program across segments including corporate organization streamline businesses reduce tycos operational footprint company obtained approval board directors 600 million next two years related costs december 8 2006 company repurchased additional 92 million common shares 279 million 20 billion share repurchase program approved board directors may 2006 tyco international ltd schedule iivaluation qualifying accounts millions part ii commitments contingencies offbalance sheet arrangements accounting pronouncements forwardlooking information part iii part iv signatures tyco international ltd index consolidated financial information managements responsibility financial statements report independent registered public accounting firm report independent registered public accounting firm tyco international ltd consolidated statements income years ended september 29 2006 september 30 2005 2004 millions except per share data tyco international ltd consolidated balance sheets september 29 2006 september 30 2005 millions except share data tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements consolidating balance sheet september 29 2006 millions consolidating balance sheet restated september 30 2005 millions consolidating statement cash flows year ended september 29 2006 millions consolidating statement cash flows restated year ended september 30 2005 millions consolidating statement cash flows restated year ended september 30 2004 millions tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules a1 2 financial statements supplementary datasee item 8 3exhibit index exhibit number exhibit 21 stock asset purchase agreement dated december 20 2005 among tyco group sarl tpa acquisition corporation limited purpose tyco international group sa incorporated reference exhibit 21 registrants quarterly report form 10q quarterly period ended december 30 2005 filed february 7 2006 22 separation distribution agreement among tyco international ltd covidien ltd tyco electronics ltd dated june 29 2007 incorporated reference exhibit 21 registrants current report form 8k filed july 6 2007 31 memorandum association altered incorporating amendments july 2 1997 incorporated reference exhibit 31 registrants quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 32 certificate incorporation incorporating amendments july 2 1997 incorporated reference exhibit 32 registrants quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 make exhibit electronically available last filed commission paper format 33 amended restated byelaws tyco international ltd incorporating amendments june 29 2007 incorporated reference exhibit 31 registrants current report form 8k filed july 6 2007 41 form indenture dated june 9 1998 among tyco international group sa tigsa tyco bank new york trustee incorporated reference exhibit 41 posteffective amendment 1 registrants tigsas coregistration statement form s3 33350855 filed june 9 1998 42 indenture among tigsa tyco state street bank trust company trustee dated february 12 2001 relating zero coupon convertible debentures due 2021 incorporated reference exhibit 41 registrants tigsas coregistration statement form s3 33357180 filed march 16 2001 43 indenture tyco state street bank trust company trustee dated november 17 2000 relating zero coupon convertible debentures due 2020 incorporated reference exhibit 41 registrants registration statement form s3 33351548 filed december 8 2000 44 indenture among tigsa us bank na trustee dated january 13 2003 relating series 275 convertible senior debentures due 2018 series b 3125 convertible senior debentures due 2023 incorporated reference exhibit 41 registrants quarterly report form 10q quarterly period ended december 31 2002 filed february 14 2003 45 supplemental indenture 1 dated january 10 2003 among tigsa tyco international ltd us bank na incorporated reference exhibit 99d2 registrants tigsas schedule filed january 14 2003 46 indenture dated november 12 2003 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 41 registrants quarterly report form 10q quarterly period ended december 31 2003 filed february 17 2004 47 first supplemental indenture dated november 12 2003 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 42 registrants quarterly report form 10q quarterly period ended december 31 2003 filed february 17 2004 48 supplemental indenture 3 dated january 9 1998 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 44 registrants posteffective amendment 1 registration statement form s3 33350855 filed june 9 1998 49 supplemental indenture 6 dated november 2 1998 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 43 registrants registration statement form s4 33371493 filed january 29 1999 410 supplemental indenture 7 dated january 12 1999 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 47 registrants posteffective amendment 2 registration statement form s3 33350855 filed january 26 1999 411 supplemental indenture 8 dated january 12 1999 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 47 registrants posteffective amendment 2 registration statement form s3 33350855 filed january 26 1999 412 supplemental indenture 16 dated february 21 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 43 tyco international group sas posteffective amendment 1 form s3 33344100 filed february 28 2001 413 supplemental indenture 20 dated october 26 2001 among tyco international group sa tyco international ltd bank new york trustee incorporated reference exhibit 44 registrants posteffective amendment 1 form s3 33368508 filed november 2 2001 101 tyco international ltd long term incentive plan formerly known adt 1993 longterm incentive plan amended may 12 1999 incorporated reference exhibit 101 registrants form s8 33380391 filed june 10 19991 102 1994 restricted stock ownership plan key employees incorporated reference exhibit 101 registrants registration statement form s8 33393261 filed december 21 19991 103 tyco international us inc supplemental executive retirement plan amended restated october 1 2000 dated december 30 2000 incorporated reference exhibit 103 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 104 second amendment tyco international us inc supplemental executive retirement plan dated february 14 2002 incorporated reference exhibit 104 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 105 third amendment tyco international us inc supplemental executive retirement plan dated july 30 2002 incorporated reference exhibit 105 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 106 amendments tyco international ltd supplemental executive retirement plan dated december 24 2003 incorporated reference exhibit 106 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 200412 107 december 2003 amendment tyco international us inc supplemental executive retirement plan dated december 24 2003 incorporated reference exhibit 107 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 108 amendment 20041 tyco international us inc supplemental executive retirement plan dated april 30 2004 incorporated reference exhibit 108 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 109 amended restated tyco international ltd deferred compensation plan directors effective january 1 2005 incorporated reference exhibit 109 registrants annual report form 10k year ended september 30 2005 filed december 9 20051 1010 tyco international ltd long term incentive plan ii incorporated reference exhibit 101 registrants registration statement form s8 33375037 filed march 25 19991 1011 change control severance plan certain us officers executives dated january 1 2005 incorporated reference exhibit 101 registrants current report form 8k filed march 16 20051 1012 retention agreement l dennis kozlowski dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit 108 registrants annual report form 10k fiscal year ended september 30 2001 filed december 28 20011 1013 retention agreement mark h swartz dated january 22 2001 amendment thereto dated august 1 2001 incorporated reference exhibit 109 registrants annual report form 10k fiscal year ended september 30 2001 filed december 28 20011 1014 edward breen employment contract dated july 25 2002 incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended june 30 2002 filed august 14 20021 1015 employment offer letter dated february 14 2005 tyco international ltd christopher j coughlin incorporated reference exhibit 101 registrants current report form 8k filed february 15 20051 1016 tyco international ltd uk savings related share option plan incorporated reference exhibit 1018 registrants annual report form 10k fiscal year ended september 30 2002 filed december 30 20021 1017 tyco employee stock purchase plan amended may 2003 incorporated reference exhibit 101 registrants registration statement form s8 dated july 30 20031 1018 tyco supplemental savings retirement plan amended restated effective january 1 2005 incorporated reference exhibit 1027 registrants annual report form 10k year ended september 30 2005 filed december 9 20051 1019 juergen gromer employment contract effective october 1 1999 executed june 19 2000 incorporated reference exhibit 1023 registrants annual report form 10k fiscal year ended september 30 2003 filed december 17 20031 1020 tyco international ltd 2004 stock incentive plan amended restated effective may 10 2007 filed herewith1 1021 terms conditions option award restricted stock award restricted unit award form director deferred stock unit award letter 2004 stock incentive plan incorporated reference exhibit 1027 registrants annual report form 10k fiscal year ended september 30 2004 filed december 14 20041 1022 tyco international us inc severance plan us officers executives plan amended restated effective may 10 2007 filed herewith1 1023 retention agreement dr juergen w gromer president vice chairman tyco electronics tyco international ltd dated march 22 2006 incorporated reference exhibit 101 registrants quarterly report form 10q quarterly period ended march 31 2006 filed may 9 2006 1024 bridge loan agreement dated april 25 2007 among tyco international group sa tyco international ltd tyco international finance sa lenders party thereto citibank na administrative agent incorporated reference exhibit 101 registrants current report form 8k filed april 27 2007 1025 credit agreement dated april 25 2007 among tyco international finance sa tyco international ltd lenders party thereto citibank na administrative agent incorporated reference exhibit 104 registrants current report form 8k filed april 27 2007 1026 amendment 1 364day senior bridge loan agreement dated may 25 2007 among tyco international group sa tyco international ltd tyco international finance sa lenders party thereto citibank na administrative agent incorporated reference exhibit 101 registrants current report form 8k filed may 30 2007 1027 amendment 2 364day senior bridge loan agreement dated november 27 2007 among tyco international ltd bermuda company tyco international finance sa luxembourg company lenders party thereto citibank na administrative agent filed herewith 1028 senior bridge letter credit agreement dated june 21 2007 among tyco international ltd tyco international finance sa lenders party thereto citibank na letter credit issuer administrative agent incorporated reference exhibit 101 registrants current report form 8k filed june 22 2007 1029 amendment 1 senior bridge letter credit agreement dated october 19 2007 among tyco international ltd tyco international finance sa lenders party thereto citibank na letter credit issuer administrative agent incorporated reference exhibit 991 registrants current report form 8k filed october 22 2007 1030 tax sharing agreement among tyco international ltd covidien ltd tyco electronics ltd dated june 29 2007 incorporated reference exhibit 101 registrants current report form 8k filed july 6 2007 1031 guarantor assumption agreement among tyco international ltd tyco electronics ltd dated june 29 2007 incorporated reference exhibit 102 registrants current report form 8k filed july 6 2007 1032 guarantor assumption agreement among tyco international ltd tyco electronics ltd dated june 29 2007 incorporated reference exhibit 103 registrants current report form 8k filed july 6 2007 1033 guarantor assumption agreement among tyco international ltd covidien ltd dated june 29 2007 incorporated reference exhibit 104 registrants current report form 8k filed july 6 2007 1034 guarantor assumption agreement among tyco international ltd covidien ltd dated june 29 2007 incorporated reference exhibit 105 registrants current report form 8k filed july 6 2007 1035 founders grant option award incorporated reference exhibit 106 registrants current report form 8k filed july 6 2007 1036 founders grant restricted unit award incorporated reference exhibit 107 registrants current report form 8k filed july 6 2007 1037 founders grant performance share unit award incorporated reference exhibit 108 registrants current report form 8k filed july 6 2007 1038 settlement agreement dated april 10 2007 tyco electronics amp gmbh tyco electronics logistics tyco international ltd juergen gromer incorporated reference exhibit 101 registrants quarterly report form 10q filed may 8 2007 211 subsidiaries registrant filed herewith 231 consent deloitte touche llp filed herewith 241 power attorney filed herewith 311 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 302 sarbanesoxley act 2002 filed herewith 312 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 302 sarbanesoxley act 2002 filed herewith 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 1management contract compensatory plan 2in july 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd massachusetts corporation time former tyco upon consummation merger adt continuing public company changed name tyco international ltd tyco former tyco became whollyowned subsidiary tyco changed name tyco international us inc bsee item 15a3 csee item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer date november 27 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant november 27 2007 capacities indicated name title edward breen edward breen chairman chief executive officer director principal executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer carol anthony davidson carol anthony davidson senior vice president controller chief accounting officer principal accounting officer adm dennis c blair director brian duperreault director bruce gordon director rajiv l gupta director john krol director h carl mccall director dr brendan r oneill director william stavropoulos director sandra wijnberg director jerome b york director judith reinsdorf signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report judith reinsdorf judith reinsdorf attorneyinfact tyco international ltd index consolidated financial information page managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations consolidated balance sheets consolidated statements shareholders equity consolidated statements cash flows notes consolidated financial statements schedule iivaluation qualifying accounts managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior team leading example includes every one tycos 118000 global employees well customers suppliers business partners one crucial objectives continuing maintain build public employee shareholder confidence restored tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2007 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls edward breen edward breen chairman chief executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 28 2007 september 29 2006 related consolidated statements operations shareholders equity cash flows three years period ended september 28 2007 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tyco international ltd subsidiaries september 28 2007 september 29 2006 results operations cash flows three years period ended september 28 2007 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed depreciation method estimated useful life used account pooled subscriber system assets related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years effective beginning fiscal third quarter 2007 ii company adopted recognition related disclosure provisions statement financial accounting standards 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r effective september 28 2007 discussed note 7 consolidated financial statements company adopted financial accounting standards board interpretation 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 effective september 29 2006 ii company changed measurement date pension post retirement plans september 30 august 31 fiscal year 2005 discussed note 19 consolidated financial statements company adopted statement financial accounting standards 123r sharebased payment effective october 1 2005 also audited accordance standards public company accounting oversight board united states companys internal control financial reporting september 28 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated november 27 2007 expressed adverse opinion companys internal control financial reporting material weakness deloitte touche llp deloitte touche llp new york new york november 27 2007 report independent registered public accounting firm board directors shareholders tyco international ltd audited tyco international ltd subsidiaries companys internal control financial reporting september 28 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement companys annual interim financial statements prevented detected timely basis following material weakness identified included managements assessment company maintain effective internal controls accounting income taxes control deficiencies existed related tax effecting consolidating entries analysis reconciliation taxes receivable taxes payable nonus jurisdictions certain aspects deferred taxes procedures respect classification tax amounts consolidated balance sheet design operation procedural monitoring controls may prevented detected errors occurring could material either individually aggregate material weakness considered determining nature timing extent audit tests applied audit consolidated financial statements financial statement schedule fiscal year ended september 28 2007 company report affect report financial statements financial statement schedule opinion effect material weakness described achievement objectives control criteria company maintained effective internal control financial reporting september 28 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements financial statement schedule year ended september 28 2007 company report dated november 27 2007 expressed unqualified opinion consolidated financial statements financial statement schedule included explanatory paragraph noting company changed depreciation method estimated useful life used account pooled subscriber system assets related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years effective beginning fiscal third quarter 2007 ii company adopted recognition related disclosure provisions statement financial accounting standards 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r effective september 28 2007 deloitte touche llp deloitte touche llp new york new york november 27 2007 tyco international ltd consolidated statements operations years ended september 28 2007 september 29 2006 september 30 2005 millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets september 28 2007 september 29 2006 millions except share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 28 2007 september 29 2006 september 30 2005 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 28 2007 september 29 2006 september 30 2005 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd company organized laws bermuda subsidiaries tyco subsidiaries hereinafter collectively referred company tyco prepared united states dollars accordance generally accepted accounting principles united states gaap unless otherwise indicated references consolidated financial statements 2007 2006 2005 tycos fiscal year ended september 28 2007 september 29 2006 september 30 2005 respectively effective june 29 2007 tyco completed spinoffs covidien tyco electronics formerly healthcare electronics businesses respectively separate publicly traded companies separation form distribution tyco shareholders distribution made june 29 2007 tyco shareholders record june 18 2007 record date tyco shareholder received 025 common share covidien tyco electronics tyco common share held record date tyco shareholders received cash lieu fractional shares amounts less one covidien tyco electronics common share distribution structured taxfree tyco shareholders except extent cash received lieu fractional shares party separation distribution tax sharing certain agreements determined significant continuing involvement us covidien tyco electronics discussed statement financial accounting standards sfas 144 accounting impairment disposal longlived assets emerging issues task force eitf issue 0313 applying conditions paragraph 42 sfas 144 determining whether report discontinued operations therefore classified covidien tyco electronics discontinued operations periods presented additionally distribution date company approved board directors effected reverse stock split tycos common shares split ratio one four shareholder approval reverse stock split obtained march 8 2007 special general meeting shareholders share per share data periods presented adjusted reflect reverse stock split 2007 2006 company incurred pretax costs related separation 1083 million 169 million respectively costs include loss early extinguishment debt refinancing tax restructuring professional services employeerelated costs amount 105 million 49 million included separation costs 259 million 2007 related loss early extinguishment debt included expense net 719 million 120 million included discontinued operations respectively additionally 2007 includes tax charges related separation primarily writeoff deferred tax assets longer realizable 183 million 95 million included income taxes 88 million included discontinued operations connection separation company realigned management segment reporting structure see note 21 first quarter 2007 sold aguas industriales de jose ca aij joint venture majority owned infrastructure services additionally fourth quarter 2007 remaining portion infrastructure services met held sale criteria results operations included discontinued operations periods presented references segment data companys continuing operations prior period amounts reclassified exclude results discontinued operations principles consolidationtyco holding company conducts business operating subsidiaries company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities company bears majority risk entities expected losses stands gain majority entities expected returns intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenue related costs legal liabilities income taxes tax valuation allowances pension postretirement employee benefit expenses actual results could differ materially estimates revenue recognitionthe company recognizes revenue principally four types transactionssales products sales security systems billings monitoring maintenance services contract sales revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions product returns discounts customers accounted reductions determining sales period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements amounts assigned component arrangement based components objectively determined fair value fair value cannot objectively determined sale involving multiple elements company recognizes revenue installation services along associated direct incremental costs contract life revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion extent progress toward completion generally measured based ratio actual cost incurred total estimated cost completion revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimated warranty costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting september 28 2007 september 29 2006 accounts receivable longterm receivables included retainage provisions 63 million years 41 million 36 million unbilled respectively retainage provisions consist primarily fire protection contracts become due upon contract completion acceptance september 28 2007 retainage provision included 62 million expected collected 2008 research developmentresearch development expenditures expensed incurred included cost product sales research development expenses include salaries direct costs incurred building overhead expenses see note 22 advertisingadvertising costs expensed incurred included selling general administrative expenses see note 22 translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars assets liabilities translated us dollars using yearend exchange rates revenue expenses translated average exchange rates effect year foreign currency translation gains losses included component accumulated comprehensive income loss within shareholders equity gains losses resulting foreign currency transactions including impact foreign currency derivatives reflected selling general administrative expenses 60 million 77 million 21 million 2007 2006 2005 respectively cash equivalentsall highly liquid investments purchased maturities three months less time purchase considered cash equivalents allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense 2007 2006 2005 638 million 665 million 676 million respectively maintenance repair expenditures charged expense incurred except pooled subscriber systems depreciation calculated using straightline method estimated useful lives related assets follows see discussion depreciation method estimated useful lives related subscriber systems subscriber system assets related deferred revenue accountsthe company generally considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition effective beginning third quarter 2007 tyco changed depreciation method estimated useful life used account pooled subscriber system assets primarily north america related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 195 residential subscriber pools 145 265 commercial subscriber pools converts straight line methodology resulting depreciation charge greater accelerated method company continue use straightline method 14year life nonpooled subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination change method estimated useful life used account pooled subscriber system assets related deferred revenue resulted ongoing analysis pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base accordance sfas 154 accounting changes error correction change method used account pooled subscriber system assets related deferred revenue accounts represents change accounting estimate effected change accounting principle accounted prospectively change method based information obtained continued observation expected benefits inherent pooled subscriber system assets customer category preferable results depreciation amortization reflective pattern expected benefits derived assets pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems continue reviewed company balance sheet date assess continued appropriateness methods estimated useful lives effects change described decreased net revenue 21 million decreased depreciation expense 37 million decreased loss continuing operations net loss 10 million increased basic diluted earnings per share 002 2007 longlived assetstyco reviews longlived assets including property plant equipment amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill indefinitelived intangible assetsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur see note 11 performing assessments management relies various factors including operating results business plans economic projections anticipated future cash flows comparable transactions market data inherent uncertainties related factors judgment applying analysis goodwill indefinitelived intangible assets impairment company performed annual impairment tests goodwill indefinitelived intangible assets first day fourth quarter 2007 testing goodwill impairment company first compares fair value reporting unit carrying amount carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting unit goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill dealer amortizable intangible assets netintangible assets primarily include contracts related customer relationships intellectual property certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program acquired contracts related customer relationships recorded contractually determined purchase price first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship effective beginning third quarter 2007 tyco changed estimated useful life dealer intangibles geographical areas comprising approximately 90 net carrying value dealer intangibles 12 15 years company continues amortize dealer intangible assets accelerated basis change estimated useful life used account dealer intangibles resulted ongoing analysis pertinent factors including actual customer attrition data demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base accordance sfas 154 change estimated useful life dealer intangibles accounted prospectively effect change estimated useful life dealer intangibles decreased loss continuing operations net loss 6 million increased basic diluted earnings per share 001 2007 contracts related customer relationships well intellectual property consisting primarily patents trademarks unpatented technology amortized straightline basis four forty years company evaluates amortization methods remaining useful lives intangible assets periodic basis determine whether events circumstances warrant revision amortization method remaining useful lives investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged comprehensive income within shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting reporting period company periodically evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented product warrantythe company records estimated product warranty costs time sale manufactured products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty manufactured equipment also warranted manner product warranties however instances warranty either negotiated contract sold separate component warranty period terms range 90 days eg various products 15 years eg pressure reducers floor heating products warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage environmental coststyco subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence likely deferred tax assets realized insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return pattern timing future obligation reliably determinable impact discount consolidated balance sheets september 28 2007 september 29 2006 reduce obligation 38 million 47 million respectively company maintains captive insurance companies manage certain insurable liabilities additionally company records receivables third party insurers recovery determined probable financial instrumentsthe company may use interest rate swaps currency swaps forward option contracts manage risks generally associated foreign exchange rate interest rate risk derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly correlated changes fair value underlying hedged item inception hedge life hedge contract derivative financial instruments reported consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items reported selling general administrative expenses along offsetting transaction gains losses items hedged gains losses net investment hedges included cumulative translation adjustment component comprehensive income extent effective gains losses derivatives designated cash flow hedges recorded comprehensive income reclassified earnings manner matches timing earnings impact hedged transactions ineffective portion hedges recognized currently earnings instruments qualify hedge accounting marked market changes recognized current earnings share premium contributed surplusin accordance bermuda companies act 1981 tyco issues shares cash premium par value resulting premium credited share premium account nondistributable reserve contributed surplus subject certain conditions distributable reserve reclassificationscertain prior year amounts reclassified conform current year presentation 2007 company presented proceeds divestiture businesses classified discontinued operations within net cash used discontinued investing activities proceeds 71 million 866 million 158 million 2007 2006 2005 respectively prior periods reclassified conform current period presentation recently adopted accounting pronouncementsin september 2006 financial accounting standards board fasb issued sfas 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r sfas 158 requires employers recognize funded status defined benefit pension postretirement benefit plans net asset liability balance sheet recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized component net periodic benefit cost sfas 158 companies required measure plan assets benefit obligations fiscal year end company presently uses measurement date august 31st sfas 158 also requires additional disclosure notes financial statements recognition provisions sfas 158 effective fiscal 2007 measurement date provisions become effective fiscal 2009 company adopted recognition disclosure provisions sfas 158 september 28 2007 company recognized net 111 million liability reduction shareholders equity september 2006 securities exchange commission sec issued staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements sab 108 requires companies utilize dual approach assessing quantitative effects financial statement misstatements dual approach includes income statement focused balance sheet focused assessment sab 108 effective tyco fiscal 2007 implementation sab 108 material impact tycos results operations financial position cash flows recently issued accounting pronouncementsin february 2007 fasb issued statement financial accounting standards sfas 159 fair value option financial assets financial liabilities sfas 159 permits entity contractbycontract basis make irrevocable election account certain types financial instruments warranty insurance contracts fair value rather historical cost changes fair value whether realized unrealized recognized earnings sfas 159 effective tyco first quarter fiscal 2009 company currently assessing impact sfas 159 results operations financial position cash flows september 2006 fasb issued sfas 157 fair value measurements enhances existing guidance measuring assets liabilities fair value sfas 157 defines fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective tyco beginning fiscal 2009 company currently assessing impact sfas 157 results operations financial position cash flows june 2006 fasb issued financial accounting standards board interpretation fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns fin 48 effective tyco first quarter fiscal 2008 company currently implementing assessing expected impact adopting fin 48 based assessment date management expect adoption material effect results operations financial position cash flows 2 discontinued operations divestitures discontinued operations third quarter 2007 tyco completed separation presented healthcare electronics businesses discontinued operations periods presented period prior separation net interest loss early extinguishment debt included expense net consolidated statements operations amounts proportionally allocated covidien tyco electronics based debt amounts tyco believes utilized covidien tyco electronics historically inclusive amounts directly incurred allocated net interest calculated using historical weightedaverage interest rate debt including impact interest rate swap agreements allocated amounts included discontinued operations 2007 allocated interest income interest expense net 35 million 242 million 388 million respectively 2006 allocated interest income interest expense net 53 million 378 million 0 million respectively 2005 allocated interest income interest expense net 43 million 433 million 608 million respectively company used available information develop best estimates certain assets liabilities related separation limited instances final determination balances made subsequent periods fourth quarter 2007 72 million recorded shareholders equity primarily related cash trueup adjustment items specified separation distribution agreement adjustments certain preseparation tax liabilities impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor tyco electronics legal entities additional adjustments expected material recorded shareholders equity subsequent periods tax returns finalized 2007 aij joint venture majority owned infrastructure services sold 42 million net cash proceeds pretax gain sale 19 million recorded additionally fourth quarter 2007 remaining portion infrastructure services met held sale criteria results operations included discontinued operations periods presented infrastructure services provides consulting engineering construction management operating services water wastewater environmental transportation facilities market company assessed recoverability businesses carrying values continue assess recoverability based current fair value less cost sell businesses sold september 17 2007 company executed definitive agreement sell approximately 295 million cash 100 stock eteoempresa de transmissao de energia oeste ltda brazilian subsidiary infrastructure services transaction subject brazilian regulatory approval normal closing conditions expected close end second quarter fiscal 2008 company expects sell remaining portion infrastructure services end fiscal 2008 aij infrastructure services plastics adhesives ludlow coated products ae products businesses met held sale discontinued operations criteria included discontinued operations periods presented net revenue income operations loss gain sale separation costs income tax expense discontinued operations 2007 2006 2005 follows millions balance sheet information discontinued operations september 28 2007 september 29 2006 follows millions losses divestitures 2007 2006 2005 company recorded 4 million 2 million 23 million respectively divestiture charges continuing operations connection writedown fair value less cost sell certain businesses fair value used impairment assessments primarily based terms conditions included expected included sales agreements 3 restructuring asset impairment charges net restructuring asset impairment charges net years ended september 28 2007 september 29 2006 september 30 2005 follows millions 2007 charges credits first quarter 2007 company launched restructuring program across segments including corporate organization streamline businesses reduce operational footprint company expects incur charges related program approximately 350 million 400 million end 2008 restructuring program includes numerous actions designed improve operating efficiency strengthen companys competitive position future date many actions initiated relate improving field efficiencies consolidating certain administrative functions european operations adt worldwide fire protection services addition corporate consolidated certain headquarter functions restructuring actions largely reductions workforce expected completed end 2008 net restructuring asset impairment charges 2007 217 million include 7 million reflected cost sales noncash write carrying value inventory remaining charge comprised restructuring charges 199 million include 183 million employee severance benefits 16 million facility exit charges cash charges 15 million asset impairments 2007 company completed restructuring activities announced prior years amounts less originally estimated accordingly reversed 4 million restructuring reserves restructuring credit 2007 company paid 59 million related actions initiated 2007 127 million accrued related actions september 28 2007 activity companys 2007 restructuring reserves related actions initiated 2007 summarized follows millions 2006 charges credits 2006 company recorded net restructuring asset impairment charges 13 million includes 11 million employee severance benefits 2 million asset impairments restructuring charges related several restructuring actions facility exit plans initiated 2006 16 million well costs incurred 2006 related actions initiated prior 2006 2 million 2006 company completed restructuring activities announced prior years amounts less originally estimated accordingly reversed 7 million restructuring reserves restructuring initiatives undertaken 2006 well actions taken prior periods impact restructuring charges incurred 2006 relate adt worldwide safety products segments 2007 company paid 14 million related actions 1 million accrued september 28 2007 2005 charges credits 2005 company recorded restructuring asset impairment charges 18 million including 1 million reflected cost sales noncash write carrying value inventory remaining charge comprised restructuring charges 28 million includes 13 million employee severance benefits 11 million facility exit charges 4 million charges related several restructuring actions facility exit plans initiated 2005 well incremental costs incurred 2005 related actions initiated 2004 charges 13 million related actions initiated completed 2005 remaining 15 million related actions commenced prior 2005 company completed restructuring activities announced prior years amounts less originally estimated accordingly reversed 11 million restructuring reserves restructuring credit 2005 restructuring initiatives largely result actions taken flow control safety products adt worldwide segments incurred employee severance benefits 4 million 3 million 3 million respectively 2007 company substantially paid obligations less 1 million accrued september 28 2007 2004 prior charges credits company continues maintain restructuring reserves related certain actions initiated prior 2005 total amount reserves 21 million 30 million september 28 2007 september 29 2006 respectively balances primarily include facility exit costs longterm noncancelable lease obligations within adt worldwide fire protection services segments expiration dates range 2008 2022 restructuring reserves restructuring reserves september 29 2006 september 28 2007 year restructuring action initiated follows millions restructuring reserves segment september 28 2007 september 29 2006 follows millions september 28 2007 september 29 2006 restructuring reserves included companys consolidated balance sheets follows millions 4 acquisitions 2007 cash paid acquisitions included continuing operations primarily within adt worldwide safety products flow control totaled 31 million cash paid acquisitions businesses included continuing operations 2006 2005 totaled 5 million 6 million respectively acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows acquisition liabilities september 28 2007 september 29 2006 acquisition liabilities included companys consolidated balance sheets follows millions acquisition liabilities relate facility exit costs employee severance benefits distributor supplier cancellation fees costs company paid 5 million 5 million 9 million fund acquisition liabilities 2007 2006 2005 respectively holdback liabilities company paid cash approximately 5 million 2 million 5 million 2007 2006 2005 respectively relating holdback liabilities related certain prior period acquisitions holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet contingencies september 28 2007 september 29 2006 holdback liabilities included companys consolidated balance sheets follows millions adt dealer program 2007 2006 2005 tyco paid 409 million 373 million 328 million cash respectively acquire approximately 415000 401000 364000 customer contracts electronic security services adt dealer program 5 expense net expense net 255 million 2007 296 million 2005 2007 expense net consisted primarily 259 million loss early extinguishment debt incurred connection debt tender offers see note 13 tax benefit available charge consists primarily premiums paid writeoff unamortized debt issuance costs discounts total loss early extinguishment debt 647 million 259 million included continuing operations 388 million allocated covidien tyco electronics included discontinued operations 2005 expense net consisted primarily losses related repurchase outstanding convertible debt prior scheduled maturity partially offset 109 million courtordered restitution award 2005 company repurchased 1241 million principal amount outstanding 275 convertible senior debentures 1823 million 750 million principal amount outstanding 3125 convertible senior debentures 1147 million repurchases resulted 1013 million loss retirement debt including writeoff unamortized debt issuance costs 405 included continuing operations 608 million allocated covidien tyco electronics included discontinued operations additionally september 2005 awarded total 134 million restitution connection litigation mr l dennis kozlowski former chairman chief executive officer mr mark h swartz former chief financial officer director restitution award comprised 109 million previously expensed compensation made defendants reported expense net prior years 25 million related loan receivable mr l dennis kozlowski reflected companys consolidated financial statements receivable 2007 company received payment amounts 6 income taxes significant components income tax provision 2007 2006 2005 follows millions nonus loss income continuing operations income taxes 2572 million 1052 million 402 million 2007 2006 2005 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 28 2007 september 29 2006 september 30 2005 follows millions 1excludes asset impairments nondeductible charges items broken separately table included nondeductible charges 2007 class action settlement net 2862 billion additionally nondeductible charges include 105 million associated separation costs fully deductible well writeoff deferred tax assets entities liquidated part separation loss retirement debt includes charges related early extinguishment debt 259 million tax benefit available valuation allowance benefit includes tax impact 72 million associated identification tax planning ensure realization certain deferred tax assets well net benefit 51 million associated changes valuation allowances driven primarily increased profitability certain jurisdictions included loss retirement debt 2006 cumulative onetime benefit associated receipt favorable tax ruling fourth quarter 2006 permitting deduction prior year debt retirement costs previously benefited benefit partially offset valuation allowance net operating losses created debt retirement deductions deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 28 2007 september 29 2006 follows millions september 28 2007 company 3584 million net operating loss carryforwards certain nonus jurisdictions 2581 million expiration remaining 1003 million expire future years 2027 due favorable tax ruling fourth quarter 2006 company able recognize 98 million net operating loss carryforwards associated deduction debt retirement costs us approximately 1292 million federal 1715 million state net operating loss carryforwards september 28 2007 expire future years 2027 valuation allowance deferred tax assets 666 million 800 million september 28 2007 september 29 2006 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets valuation allowance calculated accordance provisions sfas 109 accounting income taxes requires valuation allowance established maintained likely portion deferred tax assets realized september 28 2007 approximately 123 million valuation allowance ultimately reduce goodwill net operating losses utilized company subsidiaries income tax returns periodically examined various tax authorities see income taxes note 16 calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel certain issues raised taxing authorities adequacy recorded amounts companys estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities may result income tax benefits recognized period determine liabilities longer necessary substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries see income taxes note 16 information related tax sharing agreement covidien tyco electronics 7 cumulative effect accounting change 2006 company adopted fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fin 47 clarifies timing liability recognition legal obligations associated asset retirement timing method settling obligation conditional future event may within control entity clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation fin 47 requires conditional asset retirement obligations along associated capitalized asset retirement costs initially reported fair values upon adoption company recognized liability 32 million asset retirement obligations increase 10 million carrying amount related assets 19 million 5 million reflected liabilities assets discontinued operations respectively initial recognition resulted cumulative effect accounting change 14 million aftertax loss 22 million pretax reflecting accumulated depreciation accretion would recognized prior periods provisions fin 47 effect time 2005 company changed measurement date pension postretirement benefit plans september 30th august 31st effective october 1 2004 company believes onemonth change measurement date preferable change allows management adequate time evaluate report actuarial information companys consolidated financial statements accelerated reporting deadlines result change company recorded 21 million aftertax gain 28 million pretax cumulative effect accounting change 8 earnings per share discussed note 1 company effected reverse stock split tycos common shares split ratio one four share per share data periods presented adjusted reflect reverse stock split reconciliations basic diluted earnings per share 2007 2006 2005 follows millions except per share data computation diluted earnings per share prior separation includes impact equity instruments converted give effect distribution 2007 2006 2005 excludes effect potential exercise options purchase approximately 29 million 21 million 18 million shares respectively effect would antidilutive additionally computation diluted earnings per common share 2007 excludes impact convertible debt approximately 6 million shares effect would antidilutive computation diluted earnings per share 2007 excludes restricted share awards deferred stock units approximately 5 million effect would antidilutive computation diluted earnings per share 2006 2005 excludes restricted share awards approximately 2 million 1 million respectively effect would antidilutive 9 sale accounts receivable certain tycos international businesses utilize sale accounts receivable shortterm financing mechanisms aggregate amount outstanding companys remaining international accounts receivable programs 76 million 75 million 79 million september 28 2007 september 29 2006 september 30 2005 respectively 10 investments september 28 2007 september 29 2006 tyco availableforsale investments fair market value 352 million 334 million cost basis 352 million 337 million respectively investments consist primarily debt securities included prepaid expenses current assets within consolidated balance sheets september 28 2007 117 million debt securities due mature within one year remainder substantially due one five years unrealized gains losses related investments immaterial included separate component shareholders equity 11 goodwill intangible assets connection separation third quarter 2007 tyco reorganized new management segment reporting structure part organizational changes company assessed new reporting units conducted valuations determine assignment goodwill new reporting units based estimated relative fair values following relative fair value goodwill allocation company tested goodwill impairment comparing fair value reporting unit carrying value amount carrying amount reporting unit exceeded fair value goodwill considered potentially impaired goodwill potentially impaired company compared implied fair value reporting unit goodwill carrying amount goodwill carrying amount goodwill exceeded implied fair value goodwill australia new zealand security services business part adt worldwide segment result company recognized goodwill impairment 46 million third quarter 2007 determining fair value management relies number factors including operating results business plans economic projections anticipated future cash flows market place data inherent uncertainties related factors judgments applying analysis goodwill impairment changes factors judgments could result impairment one reporting units future period see note 1 goodwill impairments related continuing operations 2006 2005 changes carrying amount goodwill 2007 2006 follows millions changes carrying amount goodwill reallocation third quarter 2007 september 28 2007 follows millions intangible assets net 2697 million 2730 million september 29 2007 september 29 2006 respectively following table sets forth gross carrying amount accumulated amortization companys intangible assets september 28 2007 september 29 2006 millions intangible asset amortization expense 2007 2006 2005 513 million 517 million 528 million respectively estimated aggregate amortization expense intangible assets currently owned company expected approximately 450 million 2008 400 million 2009 300 million 2010 250 million 2011 200 million 2012 see note 1 discussion regarding changes estimated lives dealer intangibles 12 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans loans outstanding current executives loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average rates effect first day preceding 12 months loans generally repayable ten years however earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property 2007 2006 maximum amount outstanding programs 52 million 69 million respectively loans receivable programs well unsecured advances outstanding 24 million 52 million september 28 2007 september 29 2006 total outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 26 million 52 million september 28 2007 september 29 2006 respectively rate interest charged loans 54 50 2007 2006 respectively interest income interest bearing loans totaled 1 million 2 million 2 million 2007 2006 2005 respectively certain loans totaling 4 million 30 million september 28 2007 september 29 2006 respectively noninterest bearing fourth quarter 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified 2007 company engaged commercial transactions normal course business companies companys directors employed served officers including vf corporation rohm haas company mackey j mcdonald director retired effective march 7 2007 executive officer vf corporation rajiv l gupta director executive officer rohm haas company purchases companies noted 2007 aggregated less 1 percent consolidated net revenue 2006 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc vf corporation rohm haas company sandra wijnberg director executive officer marsh mclennan companies inc prior resignation company march 31 2006 mackey j mcdonald director period executive officer vf corporation rajiv l gupta director executive officer rohm haas company purchases marsh mclennan companies inc 2006 approximately 16 million purchases companies noted 2006 aggregated less 1 percent consolidated net revenue 2005 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc brunswick corporation vf corporation rohm haas company sandra wijnberg director period executive officer marsh mclennan companies inc george w buckley director period executive officer brunswick corporation mackey j mcdonald director period executive officer vf corporation rajiv l gupta director executive officer rohm haas company purchases marsh mclennan companies inc 2005 approximately 23 million purchases companies noted 2005 aggregated less 1 percent consolidated net revenue 2001 tyco authorized compensation arrangements l dennis kozlowski mark h swartz companys chief financial officer director august 2002 connection arrangements tyco purchased executive split dollar life insurance policies messrs kozlowski swartz entered shared ownership agreement whereby company agreed pay premiums insurance policies 11year period beginning 2001 amended policies executed providing additional companypaid premiums company cobeneficiary policies less amounts owed messrs kozlowski swartz messrs kozlowski swartz beneficiaries cash surrender values policies plus amount unpaid premiums companys obligations arrangements entered recognition services rendered officers contingent upon continuing employment time company deposited 31 million rabbi trust fund premiums policies event investment options within policies earn specified interest amounts tyco guaranteed supplemental premium payment amount ensure 10 annual return cash surrender value unpaid premiums liability accreted charge earnings throughout period arrangements make specified supplemental premium payments conjunction mr swartzs termination employment lump sum payment 25 million represented present value annual premium amounts termination date remainder contractual period made mr swartz return mr swartz waived tycos obligation continue making premium payments tyco discontinued making premium payments mr kozlowskis insurance policy october 1 2002 company filed affirmative actions mr kozlowski seeking disgorgement benefits executive life insurance policy pending resolution action mr kozlowski premium obligations since october 2002 drawn cash surrender value policy avoid termination policys death benefit september 27 2006 company mr kozlowski entered general release agreement terminated mr kozlowskis shared ownership agreement split dollar life insurance policy rabbi trust company continuing obligation make payment contributions respect split dollar insurance policy rabbi trust company recorded credit 72 million related liability 2006 within selling general administrative expenses consolidated statements operations consolidated financial statements include charges 7 million related mr kozlowskis life insurance policy 2006 2005 25 million remained rabbi trust september 29 2006 received tyco first quarter 2007 company filed civil complaints messrs kozlowski swartz breach fiduciary duty wrongful conduct relating alleged abuses key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct june 2002 company filed civil complaint frank e walsh jr former director breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought sec united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit group acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 claims mr walsh still pending 13 debt september 28 2007 september 29 2006 follows millions 1these instruments plus 13 million amount shown comprise current portion longterm debt september 28 2007 2these instruments plus 9 million amount shown comprise current portion longterm debt september 29 2006 debt tenders april 27 2007 tyco announced connection separation tyco certain subsidiaries issuers corporate debt commenced tender offers purchase cash substantially outstanding us dollar denominated public debt aggregating approximately 66 billion amount approximately 59 billion nonconvertible us debt 750 million convertible us debt maturities 2007 2029 conjunction tender offers relevant issuer solicited consents certain clarifying amendments indentures pursuant debt issued tyco received acceptance notices approximately 21 billion 36 outstanding nonconvertible us debt approximately 726 million 97 outstanding convertible us debt tendered amount approximately 38 billion remains tyco additionally tyco international group sa whollyowned subsidiary company organized laws luxembourg tigsa commenced april 30 2007 tender offers purchase cash outstanding euro pound sterling denominated public debt aggregating equivalent approximately 19 billion maturities 2008 2031 issued euro medium term note programme emtn notes consent solicitation certain clarifying amendments fiscal agency agreement pursuant emtn notes issued tyco received acceptance notices approximately 15 billion 80 emtn notes remaining emtn notes repurchased pursuant optional redemption connection debt tender offers tyco incurred pretax charge early extinguishment debt approximately 647 million tax benefit available see note 5 tigsas remaining debt contributed tyco international finance sa tifsa wholly owned subsidiary company successor company tigsa bank revolving credit facilities april 25 2007 tyco certain subsidiaries syndicate banks entered three 364day unsecured bridge loan facilities aggregate commitment amount 10 billion end may 2007 aggregate commitment amount facilities increased 125 billion tyco borrowed approximately 89 billion unsecured bridge loan facilities fund debt tender offers repay existing bank credit facilities finance class action settlement amount approximately 43 billion 36 billion assigned covidien tyco electronics respectively tyco initially guaranteed new unsecured bridge loan facilities covidien tyco electronics assumed tycos obligations respect unsecured bridge loan facilities upon separation longer guarantee assumed amounts facility variable interest rate based libor margin libor payable tifsa vary based changes credit rating september 28 2007 tycos aggregate commitment unsecured bridge loan facility 40 billion 367 million remained outstanding weightedaverage interest rate 55 october 1 2007 commitments respect unused portion companys unsecured bridge loan facility expired companys unsecured revolving credit facility letter credit facility described provide lenders facilities right demand repayment outstanding amounts terminate commitments extend additional credit certain companys outstanding public debt declared due payable ii company sufficient liquidity available unsecured bridge loan facility refinance debt result november 27 2007 company secured additional firm commitments certain lenders bridge loan facility additional commitments provide company sufficient liquidity repay outstanding public debt borrowings 40 billion additional commitments expire borrowings facility would mature november 25 2008 facility may used repay settle otherwise extinguish public debt described subject ongoing litigation company bank new york information regarding litigation see indenture trustee litigation note 16 additionally april 25 2007 tyco certain subsidiaries syndicate banks entered three unsecured revolving credit facilities initial aggregate commitment amount 25 billion increased 425 billion time separation aggregate commitment amount 425 billion 125 billion commitment available tyco 15 billion commitment available covidien tyco electronics tyco use revolving credit facilities working capital expenditures corporate purposes tyco initially guaranteed new revolving credit facilities covidien tyco electronics assumed tycos obligations respect revolving credit facilities upon separation longer guarantee assumed amounts september 28 2007 tyco borrowed 308 million unsecured revolving credit facility variable interest rate based libor margin libor payable tifsa vary based changes credit rating unsecured revolving credit facilities replaced tigsas existing 10 billion 5year revolving credit facility 15 billion 3year revolving bank credit facility 500 million 3year unsecured letter credit facility terminated june 1 2007 prior scheduled expiration dates december 16 2009 december 21 2007 june 15 2007 respectively date termination amounts borrowed 10 billion facility 15 billion facility letters credit 494 million issued 500 million facility june 21 2007 tyco tifsa entered new 500 million letter credit facility citibank na administrative agent expiring december 15 2007 facility provides issuance letters credit supported related line credit facility tifsa may borrow line credit agreement reimburse bank obligations respect letters credit issued facility covenants facility substantially similar covenants bridge loan revolving credit facilities tifsa would pay interest outstanding borrowings variable interest rate based banks base rate eurodollar rate defined september 28 2007 letters credit 494 million issued 500 million credit facility 6 million remains available issuance amounts borrowed credit facility september 28 2007 october 19 2007 facility amended amendment extended maturity date june 15 2008 adjusted interest rate spreads fees applicable extensions credit thereunder loans amended letter credit agreement continue bear interest based libor plus applicable margin tifsas bank credit agreements contain customary terms conditions financial covenants limit ratio companys debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property companys indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive companys business company believes compliance debt covenants bank new york indenture trustee indentures dated june 9 1998 november 12 2003 contesting whether separation transactions permitted indentures see note 16 convertible debentures september 28 2007 tifsa 21 million outstanding 3125 convertible senior debentures due 2023 2015 put option 3125 convertible senior debentures fully unconditionally guaranteed tyco debentures originally convertible tyco shares result separation distribution covidien tyco electronics shares tycos shareholders debentures convertible tyco covidien tyco electronics shares time subsequent separation holders may convert 1000 principal amount debentures 11496 tyco common shares 11496 covidien common shares 11496 tyco electronics common shares prior stated maturity additionally holders 3125 convertible senior debentures may require tifsa purchase portion debentures january 15 2015 option exercised tifsa must repurchase debentures par plus accrued interest may elect repurchase securities cash common shares combination thereof tifsa may redeem cash 3125 convertible senior debentures time january 20 2008 amount equal redemption price debt information fair value debt approximately 45 billion book value 45 billion 104 billion book value 96 billion september 28 2007 september 29 2006 respectively based discounted cash flow analyses using current market interest rates aggregate amounts principal debt including capital leases maturing next five years thereafter follows millions 380 2008 524 2009 7 2010 521 2011 1160 2012 1885 thereafter weightedaverage interest rate total debt 63 60 september 28 2007 september 29 2006 respectively excluding impact interest rate swaps weightedaverage interest rate shortterm debt 55 september 28 2007 impact companys interest rate swap agreements reported interest expense net increase 10 million 2006 net decrease 40 million 2005 respectively amounts 6 million increase 2006 24 million decrease 2005 interest expense allocated included discontinued operations 14 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2008 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien tyco electronics accordance terms separation distribution agreement tax sharing agreement time separation tyco recorded liability necessary recognize fair value guarantees indemnifications accordance fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others fair values determined assistance third party valuation firm liability necessary reflect fair value guarantees indemnifications 543 million included liabilities consolidated balance sheets guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 16 discussion tax sharing agreement addition tyco historically provided support form financial andor performance guarantees various covidien tyco electronics operating entities connection separation company worked guarantee counterparties cancel assign guarantees covidien tyco electronics extent guarantees assigned prior separation date tyco assumed primary liability remaining support estimated fair values obligations 7 million included liabilities offset shareholders equity consolidated balance sheets recorded accordance fin 45 disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company ability estimate potential liability indemnities relate unknown conditions however company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 16 discussion liabilities normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company records estimated product warranty costs time sale information estimated product warranty see note 1 following roll forward companys warranty accrual 2007 millions 2001 division safety products initiated voluntary replacement program vrp associated acquisition central sprinkler vrp relates replacement certain oring seal sprinkler heads originally manufactured central sprinkler prior tycos acquisition program sprinkler heads replaced free charge property owners third quarter 2006 company completed comprehensive review reported claims recent claim rates cost trends assessed future program company determined additional liability necessary order satisfy companys obligation vrp result company recorded 100 million charge reflected cost sales may 1 2007 consumer products safety commission company announced august 31 2007 deadline filing claims participate vrp company fulfill valid claims replacement qualifying sprinklers received august 31 2007 fourth quarter 2007 company assessed expected cost complete program light current claims data determined additional accrual 10 million necessary satisfy estimated remaining obligation ultimate cost complete program impacted number factors changes material labor costs actual number sprinkler heads replaced actual results could differ estimate settlements 2007 include cash expenditures 38 million related vrp 15 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable investments accounts payable approximated book value september 28 2007 september 29 2006 see note 13 fair value estimates debt derivative financial instruments reported consolidated balance sheets fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met fair value estimates based relevant market information including current market rates prices assuming adequate market liquidity fair value estimates interest rate crosscurrency swaps calculated company assistance highquality thirdparty financial institutions known high volume participants market company uses derivative financial instruments manage exposures foreign currency interest rate risks companys objective utilizing derivatives manage risks using effective methods eliminate reduce impacts exposures transactions designated hedges company documents relationships hedging instruments hedged items links derivatives designated fair value cash flow foreign currency hedges specific assets liabilities consolidated balance sheets specific firm commitments forecasted transactions designated hedges company also assesses documents hedges inception ongoing basis whether derivatives used hedging transactions effective offsetting changes fair values cash flows associated hedged items part managing exposure changes market interest rates company historically entered various interest rate swap transactions financial institutions acting principal counterparties ensure appropriate use hedge accounting treatment derivatives entered designated according hedge objective specified forecasted interest payments specifically underwritten debt issuances companys primary hedge objectives include conversion fixedrate liabilities variable rates derivative financial instruments associated objectives designated accounted fair value hedges part managing exposure changes foreign currency exchange rates company utilizes forward option contracts financial institutions acting principal counterparties objective derivative contracts minimize impacts cash flows associated intercompany loans notes receivable accounts payable forecasted transactions due changes foreign currency exchange rates companys derivative financial instruments present certain market counterparty risks however concentration counterparty risk mitigated tyco deals variety major banks worldwide longterm standard poors moodys credit ratings aa2 higher addition conventional derivative financial instruments utilized thereby affording optimum clarity market risk none companys derivative financial instruments outstanding year end would result significant loss company counterparty failed perform according terms agreement time company require collateral security furnished counterparties derivative financial instruments assessing current potential future risk attributable interest rate movements fourth quarter 2006 company terminated interest rate swaps cross currency agreements aggregate notional value 25 billion fair value swaps time termination net gain 10 million interest rate swaps designated hedging instruments outstanding debt net deferred loss 26 million recognized earnings remaining term related debt instrument remaining agreements terminated first quarter 2007 interest rate exposures company historically utilized interest rate swap agreements manage exposure interest rate risk first quarter 2007 company terminated interest rate swaps since interest rate swaps designated hedging instruments outstanding debt related loss amortized remaining life related debt instruments prior termination marktomarket effects interest rate swap agreements underlying debt obligations recorded interest expense directly offsetting extent hedges effective addition company historically utilized interest rate foreign currency swap agreements cross currency swaps manage exposure interest rate risk foreign currency exposure loans denominated foreign currency first quarter 2007 company terminated agreements settlement swaps terminated first quarter 2007 along 17 million swaps gain position terminated fourth quarter 2006 resulted net cash inflow 63 million first quarter 2007 connection debt tender offer 9 million unamortized loss interest rate swaps accelerated recorded loss retirement debt included expense net see note 13 september 28 2007 crosscurrency interest rate swaps outstanding prior termination marktomarket effects interest rate foreign currency swaps recorded interest expense selling general administrative expenses respectively directly offset corresponding changes fair value hedged items extent hedges effective ineffective portion hedge material foreign currency exposures company uses forward agreements hedge exposure foreign currency exchange rates raw material purchases forward agreements designated cash flow hedges gains losses resulting hedges amounts material period presented recorded comprehensive income amounts reclassified comprehensive income earnings recorded adjustment cost sales underlying transaction impacts earnings tyco uses various options swaps forwards designated hedging instruments manage foreign currency exposures accounts notes receivable accounts payable intercompany loans forecasted transactions denominated certain foreign currencies derivatives designated hedging instruments company records changes fair value selling general administrative expenses income statement period change fair value instruments totaled 95 million september 28 2007 december 2006 due required changes legal entity structure facilitate separation company determined would longer consider certain intercompany foreign currency transactions longterm investments result related foreign currency transaction gains losses investments recorded income statement subsequent determination rather currency translation component shareholders equity forward contracts previously designated hedges net investments continued used manage exposure longer designated net investment hedges remaining forward option contracts marked market changes derivatives fair value recognized income statement previously company hedged net investment certain foreign operations changes fair value forward contracts qualifying net investment hedges reported cumulative translation adjustment component accumulated comprehensive income extent hedges effective cumulative translation adjustment component comprehensive income includes net loss 299 million 91 million 2007 2006 respectively hedges foreign currency exposure companys net investment certain foreign operations connection separation debt tender company dedesignated 6125 euro denominated public notes due 2007 march 29 2007 55 euro denominated public notes due 2008 65 british pound denominated public notes due 2031 may 21 2007 previously considered hedges net investments certain foreign operations september 28 2007 company hedge net investments foreign operations outstanding borrowings denominated us dollars convertible debentures given potential requirement convert companys 3125 convertible senior debentures shares covidien tyco electronics separation distribution agreement provides covidien tyco electronics deliver shares needed tyco recorded asset fair value covidien tyco electronics shares required satisfy obligation debenture holders tyco also recorded related conversion option liability fair value amounts established offset shareholders equity connection separation fourth quarter 2007 tyco recorded 3 million credit expense net changes fair value asset conversion option september 28 2007 fair value asset conversion option liability 19 million 15 million respectively 16 commitments contingencies company facility vehicle equipment leases expire various dates year 2027 rental expense leases 410 million 390 million 405 million 2007 2006 2005 respectively company also facility equipment commitments capital leases following schedule minimum lease payments noncancelable leases september 28 2007 millions company also purchase obligations related commitments purchase certain goods services september 28 2007 obligations follows 114 million 2008 7 million 2009 3 million 2010 0 million thereafter normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows connection separation company entered liability sharing agreement regarding certain class actions pending tyco prior separation subject terms conditions separation distribution agreement company manage control legal matters related assumed contingent liabilities described separation distribution agreement including defense settlement thereof subject certain limitations tyco assumed 27 covidien assumed 42 tyco electronics assumed 31 certain tyco preseparation contingent corporate liabilities include securities class action litigation erisa class action litigation certain legacy tax contingencies actions respect spinoffs distributions made brought third party except litigation related public debt amounts relating contingent corporate liabilities paid tyco spinoffs subject allocation provisions separation distribution agreement shared among tyco covidien tyco electronics pursuant allocation ratio described separation distribution agreement tyco electronics covidien jointly severally liable amounts relating previously disclosed securities class action settlement costs expenses tyco incurs connection defense litigation amount judgment settlement allocated manner described borne equally covidien tyco electronics tyco class actions class action settlement result actions taken certain companys former senior corporate management tyco members companys former senior corporate management including former members board directors former general counsel named defendants number purported class actions alleging violations disclosure provisions federal securities laws addition tyco certain current former employees members companys former senior corporate management former members companys board directors also named defendants several employee retirement income security act erisa class actions company generally obligated indemnify directors officers former directors officers named defendants matters extent required bermuda law addition companys insurance carriers may decline coverage companys coverage may insufficient cover expenses liability matters may 14 2007 tyco entered memorandum understanding plaintiffs counsel connection settlement 32 purported securities class action lawsuits memorandum understanding resolve securities cases several remain outstanding addition proposed settlement release claims arising erisa lawsuits arising thereunder terms memorandum understanding plaintiffs agreed release claims tyco settling defendants ten individuals consideration payment 2975 billion tyco certified class parties memorandum understanding applied court approval settlement agreement july 13 2007 u district court concord new hampshire granted preliminary approval settlement november 2 2007 final fairness hearing class settlement held court indicated would approve settlement stated formal ruling would issued weeks settlement agreement receive final court approval memorandum understanding null void december 28 2007 class participants must file proofs claim demonstrating right recovery class settlement deadline deciding participate class settlement september 28 2007 date tyco received optout notices individuals entities totaling approximately 4 shares owned class members individuals entities may pursue claims separately tyco judgments resulting claims would reduce settlement amount one entity franklin mutual advisers llc filed complaint tyco september 24 2007 action styled franklin mutual advisers llc v tyco international ltd united states district court district new jersey alleging violations section 11 securities act 1933 15 usc sec 77b section 10b securities exchange act 1934 15 usc sec 78b rule 10b5 promulgated thereunder section 18 securities exchange act 1934 15 usc sec 78k connection plaintiffs purchases sales tyco securities june 4 2001 april 30 2002 plaintiffs seek unspecified compensatory damages reasonable attorneys fees costs tyco requested action transferred united states district court district new hampshire tyco intends vigorously defend litigation possible time predict final outcome estimate amount loss range possible loss might result adverse resolution franklin matter unasserted claims individuals optedout terms separation distribution agreement entered connection separation tyco covidien tyco electronics jointly severally liable full amount class action settlement judgments resulting optout claims additionally separation distribution agreement companies share liability related escrow accounts tyco assuming 27 covidien 42 tyco electronics 31 settlement amount tyco incurred charge expense tax benefit available current liability 2975 billion 2007 company also recovered expects recover certain costs insurers company recorded 113 million recoveries connection class action settlement consolidated statements operations tyco borrowed unsecured bridge credit facilities fund liability placed proceeds escrow benefit class connection separation covidien tyco electronics assumed portion related borrowing escrow accounts earn interest payable class interest also accrued class action settlement liability based separation distribution agreement september 28 2007 tyco receivable covidien tyco electronics portion liability 1257 million 927 million respectively payable covidien tyco electronics interest escrow accounts receivables payables pertain class action settlement related escrow accounts counterparty presented net consolidated balance sheet tycos portion liability 808 million additionally tyco paid 73 million recorded payables 9 million september 28 2007 offset shareholders equity amounts due covidien tyco electronics portion insurance recovery proposed settlement consummated agreed terms unresolved proceedings determined adversely tyco possible company required pay judgments settlements incur expenses excess insurance coverage aggregate amounts would material adverse effect financial position results operations cash flows time possible estimate amount loss probable losses might result adverse resolution matters investigations company others received various subpoenas requests secs division enforcement united states department labor state departments labor general service administration others seeking production voluminous documents connection various investigations companys governance management operations accounting related controls department labor investigating tyco administrators certain benefit plans company cannot predict investigations completed company predict results investigations may possible company required pay material fines consent injunctions future conduct lose ability conduct business government entities instrumentalities turn could negatively impact companys business nongovernmental customers suffer penalties adverse impacts could material adverse effect companys business possible estimate amount loss range possible loss might result adverse resolution matters environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 28 2007 tyco concluded probable would incur remedial costs range approximately 36 million 63 million september 28 2007 tyco concluded best estimate within range approximately 40 million 11 million included accrued current liabilities 29 million included liabilities tycos consolidated balance sheets view companys financial position reserves environmental matters company believes potential payment estimated amounts material adverse effect financial position results operations cash flows tyco recorded asset retirement obligations aros according provisions sfas 143 accounting asset retirement obligations fin 147 estimated future costs associated legal obligations retire certain assets september 28 2007 september 29 2006 companys aros 13 million periods company believes potential payment estimated amounts material adverse effect financial position results operations cash flows see discussions implementation fin 47 note 7 asbestos matters tyco subsidiaries certain subsidiaries covidien named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials pursuant separation distribution agreement covidien assumed liabilities pending cases filed covidiens subsidiaries consistent national trend increased asbestosrelated litigation company observed increase number lawsuits past several years limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property majority cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestos containing gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore companys experience large percentage claims never substantiated dismissed courts company continue vigorously defend lawsuits filed subsidiaries date company suffered adverse verdict trial court proceeding related asbestos claims appropriate company settles claims however total amount paid year settle defend asbestos claims immaterial september 28 2007 approximately 5600 asbestos liability cases pending company subsidiaries company estimates pending asbestos claims incurred reported well related insurance indemnification recoveries companys estimate liability pending future claims based claim experience past five years covers claims expected filed next seven years company believes adequate amounts recorded related matters possible time determine certainty ultimate outcome asbestosrelated proceedings company believes final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect companys financial position results operations cash flows income taxes connection spinoffs covidien tyco electronics tyco entered tax sharing agreement generally governs covidiens tyco electronics tycos respective rights responsibilities obligations distribution respect taxes including ordinary course business taxes incurred result failure distribution shares covidien tyco electronics qualify taxfree distribution us federal income tax purposes within meaning section 355 code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code tax sharing agreement certain exceptions tyco generally responsible payment 27 additional us income taxes required paid us tax authority result us tax audit covidiens tyco electronics tycos subsidiaries income tax returns periods prior spinoffs tax sharing agreement company shares responsibility certain tycos covidiens tyco electronics income tax liabilities based sharing formula periods prior including june 29 2007 specifically tyco covidien tyco electronics share 27 42 31 respectively us income tax liabilities arise adjustments made tax authorities tycos covidiens tyco electronics us income tax returns costs expenses associated management shared tax liabilities shared equally among parties september 28 2007 tyco recorded receivable covidien tyco electronics 103 million reflected assets estimate portion tax sharing obligations offset shareholders equity liabilities include 543 million fair value tycos obligations tax sharing agreement determined accordance fin 45 recognized offset shareholders equity tyco provide payment tax sharing agreement shared income tax liabilities settled settlement expected occur irs audit process completed impacted years given nature shared liabilities maximum amount potential future payments determinable event separation determined taxable determination result actions taken separation tyco covidien tyco electronics party responsible failure would responsible taxes imposed tyco covidien tyco electronics result thereof determination result actions taken separation tyco covidien tyco electronics tyco covidien tyco electronics would responsible 27 42 31 respectively taxes imposed tyco covidien tyco electronics result determination tax amounts could significant company responsible taxes shared pursuant tax sharing agreements sharing formula addition covidien tyco electronics responsible tax liabilities subject tax sharing agreements sharing formula party tax sharing agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party would required pay equally nondefaulting party amounts default addition another party tax sharing agreement responsible portion income tax liability default payment liability taxing authority company could legally liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances company may obligated pay amounts excess agreedupon share tycos covidiens tyco electronics tax liabilities company subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including internal revenue service irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments amounts related tax adjustments tax contingencies related interest management assessed probable estimable recorded 2004 connection irs audit 1997 2000 years company submitted irs proposed adjustments prior period us federal income tax returns resulting reduction taxable income previously filed 2006 irs accepted substantially proposed adjustments also 2006 company developed proposed amendments us federal income tax returns additional periods 2002 basis previously accepted amendments company determined acceptance adjustments probable accordingly recorded consolidated financial statements adjustments material impact companys financial condition results operations cash flows company yet complete proposed amendments us federal income tax returns periods subsequent 2002 primarily reflect roll forward 2006 amendments periods 1997 2002 companys tax return positions updated additional adjustments may identified recorded consolidated financial statements final adjustments cannot determined income tax return amendment process completed company believes resulting adjustments material impact financial condition results operations cash flows third quarter 2007 irs concluded field examination certain tycos us federal income tax returns years 1997 2000 issued anticipated revenue agents reports rars reflect irs determination proposed tax adjustments periods audit rars propose tax audit adjustments certain companys previously filed tax return positions company expected previously assessed balance sheet date accordingly company made additional provision year ended september 28 2007 result proposed audit adjustments rars company agreed irs adjustments totaling 498 million estimated cash impact company 458 million third quarter 2007 company paid 458 million 163 million relates companys discontinued operations company appealed proposed tax audit adjustments totaling approximately 1 billion audit managing party specified tax sharing agreement company intends vigorously defend prior filed tax return positions company continues believe amounts recorded financial statements relating tax adjustments sufficient however ultimate resolution matters uncertain could result material impact companys financial position results operations cash flows addition ultimate resolution matters could result company filing amended us federal income tax returns years subsequent current 1997 2000 audit period could material impact companys effective tax rate future reporting periods additionally irs proposed civil fraud penalties prior subsidiary distributed tyco electronics arising alleged actions former executives connection certain intercompany transfers stock simplex technologies 1998 1999 based statutory guidelines estimate proposed penalties could range 30 million 50 million company audit managing party vigorously oppose assertion penalties tyco electronics part beginning 2003 company discovered investigated reported conduct issue irs fully cooperated criminal prosecution companys former chief tax officer charge willful filing false tax return compliance matters tyco received responded various allegations information certain improper payments made tyco subsidiaries recent years previously reported informed two subsidiaries flow control business italy named request criminal charges filed milan public prosecutors office tyco reported us department justice doj sec investigative steps remedial measures taken response allegations tyco also informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance foreign corrupt practices act fcpa would continue make periodic progress reports agencies would present factual findings upon conclusion baseline review company continue communicate doj sec provide updates baseline review conducted outside counsel including appropriate briefings concerning additional instances potential improper payments identified company course ongoing compliance activities covidien tyco electronics agreed connection separation cooperate company response allegations date baseline review revealed business practices may comply tyco fcpa requirements time tyco cannot predict outcome matters allegations reported regulatory law enforcement authorities therefore cannot estimate range potential loss extent risk may result adverse resolution matters however possible company may required pay judgments suffer penalties incur settlements amounts may material adverse effect financial position results operations cash flows judgment required paid settlement cost incurred tyco connection matters would subject liability sharing provisions separation distribution agreement assigned liabilities primarily related former healthcare electronics businesses tyco covidien tyco electronics respectively provides tyco retain liabilities primarily related continuing operations liabilities primarily related particular segment shared equally among tyco covidien tyco electronics german federal cartel office fco charged certain german subsidiaries tycos flow control business engaged anticompetitive practices particular regard hydrant valve street box fittings business tyco investigated matter determined conduct may violated german antitrustlaw tyco cooperating fco investigation violation tyco cannot estimate range potential loss may result violation possible company may subject civil criminal proceedings may required pay judgments suffer penalties incur settlements amounts may material adverse effect financial position results operations cash flows indenture trustee litigation june 4 2007 bank new york bony indenture trustee indentures dated june 9 1998 november 12 2003 tyco international group sa tigsa whollyowned subsidiary tyco commenced action tigsa tyco united states district court southern district new york bony served amended complaint october 18 2007 added tyco international finance sa tifsa additional defendant amended complaint alleges separation breached indentures seeks damages behalf noteholders excess 41 billion consisting principal plus accrued interest notes issued indentures plus makewhole amount payable indentures event early redemption notes amended complaint also seeks judgment declaring bony required sign supplemental indentures proposed tigsa tifsa tyco connection separation bony also seeks declaratory judgment tigsa obligated pay bony reasonable compensation reimburse bony reasonable expenses including attorneys fees incurred connection separation resolving proper interpretation indentures november 15 2007 tyco tifsa filed counterclaims bony alleging refusal sign supplemental indentures connection separation filing amended complaint constituted breach indentures breach duty good faith fair dealing implied indentures seek unspecified damages claims tyco tifsa also seek declaratory judgment default occurred bony required sign supplemental indentures november 8 2007 bony delivered company notice events default claiming actions taken company connection separation constitute events default indentures claims made notice events default alleged bony litigation company continues believe default event default occurred indentures provide 90day cure period following delivery notice default bony could declare outstanding amounts indentures immediately due payable would contest acceleration tigsa tifsa tyco continue believe separation proposed supplemental indentures permitted indentures makewhole amount payable company intends vigorously defend claims default believes prevail legal proceedings liquidity available repay outstanding debt 1998 2003 indentures 364day bridge facility acceleration outstanding notes would permitted majority lenders bank letter credit facilities demand repayment amounts outstanding facilities terminate commitments extend additional credit thereunder result november 27 2007 company secured additional firm commitments certain lenders bridge facility providing company additional borrowings 40 billion repay notes additional commitments expire borrowings facility would mature november 25 2008 facility may used repay settle otherwise extinguish amounts required paid connection litigation bony erisa partial withdrawal liability assessment demand june 8 2007 simplexgrinnell received notice alleging partially withdrawn national automatic sprinkler industry pension fund title iv erisa fund prove employer completely partially withdraws multiemployer pension plan fund employer liable withdrawal liability equal proportionate share plans unfunded vested benefits alleged withdrawal results 1994 labor dispute grinnell fire protection systems simplexgrinnells predecessor road sprinkler fitters local union 669 erisa requires payment withdrawal liability made full quarterly installments commencing upon receipt liability assessment plan plans assessment withdrawal liability generally may challenged arbitration erisa requires quarterly payments must continue made pendency arbitration employer prevails arbitration subsequent court appeals quarterly withdrawal liability payments refunded interest funds total withdrawal liability assessment simplexgrinnell approximately 25 million quarterly withdrawal liability payments 11 million commencing august 1 2007 simplexgrinnell believes strong arguments withdrawal liability owed fund plans vigorously defend funds withdrawal liability assessment timely filing arbitration accordingly company made provision contingency consolidated financial statements matters earth tech v city phoenix contract dispute arising earth techs contract city phoenix arizona expansion citys 91st avenue waste water treatment plant december 21 2005 earth tech filed lawsuit city phoenix maricopa county superior court alleging 3 million damages plus interest citys failure pay dewatering computer systems costs related 91st avenue project city rejected earth techs administrative claim city earth tech filed served first amended complaint upon city phoenix first amended complaint earth tech alleged eighteen causes action requested following recovery least 73 million value services performed earth tech connection contract ii rescission contract iii equitable adjustment contract price additional dewatering services computer control system iv costs demobilization termination contract city phoenix filed motion dismiss rather filing answer first amended complaint may 18 2006 court granted citys motion dismiss without prejudice september 19 2006 allowing earth tech 30 days file second amended complaint earth tech filed second amended compliant city phoenix september 25 2006 connection matter company assets assessed recoverable 50 million september 28 2007 september 29 2006 december 29 2005 city phoenix filed lawsuit earth tech inc surety federal insurance company unnamed parties maricopa county superior court city phoenix v earth tech inc federal insurance company john 150 lawsuit connection city phoenixs termination august 12 2005 earth techs contract city phoenix arizona expansion citys 91st avenue waste water treatment plant city alleges following causes action earth tech breached preconstruction services construction management risk contracts ii earth tech properly reasonably timely manage supervise inspect work contracts iii federal insurance breached terms conditions performance bond iv federal insurance failed investigate citys bond claims city requested unspecified general consequential incidental special liquidated damages plus interest relief february 8 2006 earth tech filed motion dismiss citys complaint federal insurance company joined court denied earth techs motion dismiss september 25 2006 city phoenix filed amended complaint earth tech federal insurance september 25 2006 amended complaint city phoenix alleged damages 128 million presiding judge maricopa county superior court july 11 2006 consolidated pending lawsuits related dispute courts complex litigation docket june 6 2007 court granted earth techs motion partial summary judgment ordering application arizonas prompt payment act appropriate material inconsistencies contract resolved favor acts requirements october 19 2007 earth tech filed second motion related prompt payment act arguing city phoenix breached contract earth tech failing make payment application deemed certified approved prompt payment act court likely rule motion sometime spring 2008 tyco cannot predict outcome matter therefore cannot estimate range potential loss extent risk may result adverse resolution matter fitzpatrick contractors limited v tyco fire integrated solutions uk ltd july 18 2007 fitzpatrick contractors limited fcl commenced action tyco fire integrated solutions uk ltd high court justice queen bench division technology construction court united kingdom alleging tyco entered binding contract 2002 design manufacture installation mechanical electrical works refurbishment portion london transports blackwell tunnel fcl seeks declaratory judgment contract formed parties seeks damages breach contract amount approximately 38 million tyco believes valid counterclaims unpaid amounts owed fcl design work purchased equipment subcontracted construction work associated project denies entered binding contract fcl project intends defend action vigorously possible time predict final outcome dispute tyco believe action material adverse effect financial position results operations cash flows sensormatic security corp v sensormatic electronics corp adt security services inc wallace computer services inc april 2002 litigation commenced united states district court district maryland sensormatic franchisee sensormatic security corp ssc alleging breach contract sensormatic tortuous interference contract adt wallace computer services inc party unrelated tyco litigation based allegedly unpaid commissions franchise agreement lawsuit also alleges sensormatic improperly authorized third parties including adt wallace sell sscs exclusive territory maryland virginia district columbia sensormatic agreed indemnify wallace ssc seeks accounting monetary damages including punitive damages adt wallace injunctive relief sensormatic adt denied sscs allegations asserted affirmative defenses sensormatic also filed counterclaim seeking recovery overpayments made ssc september 7 2006 trial court denied part granted part parties cross motions summary judgment among things court ruled ssc right commissions sensormatic cctv products sensorvision systems sold automatic theft detection franchise territory ssc right commissions cctv indirect sales sold automatic theft detection franchise territory sensormatic adt intend appeal rulings sensormatic adt continue vigorously defend litigation possible time predict final outcome dispute tyco believe action material adverse effect financial position results operations cash flows company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows 17 retirement plans september 2006 fasb issued sfas 158 sfas 158 requires recognition funded status defined benefit pension postretirement benefit plans companys consolidated balance sheets sfas 158 requires recognition actuarial gains losses prior service costs yet included net periodic benefit cost component accumulated comprehensive income net tax company adopted recognition disclosure provisions sfas 158 september 28 2007 company uses measurement date august 31st table presents incremental effect applying sfas 158 individual line items consolidated balance sheet september 28 2007 millions defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation following tables exclude amounts related discontinued operations periods presented connection separation company legally separated certain pension plans included participants tyco healthcare tyco electronics subsidiaries result company remeasured assets projected benefit obligation separated pension plans impact remeasurement continuing operations immaterial also 2007 company completed merger certain pension plans united kingdom resulted increase minimum pension liability corresponding decrease accumulated comprehensive income 10 million net income taxes net periodic benefit cost us nonus defined benefit pension plans 2007 2006 2005 follows millions estimated net loss prior service cost us pension benefit plans amortized accumulated comprehensive income net periodic benefit cost next fiscal year expected 6 million 1 million respectively estimated net loss prior service credit nonus pension benefit plans amortized accumulated comprehensive income net periodic benefit cost next fiscal year expected 20 million 3 million respectively change benefit obligations plan assets amounts recognized consolidated balance sheets us nonus defined benefit plans september 28 2007 september 29 2006 follows millions accumulated benefit obligation us plans september 28 2007 september 29 2006 776 million 795 million respectively accumulated benefit obligation nonus plans september 28 2007 september 29 2006 1468 million 1413 million respectively accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 111 million 67 million respectively september 28 2007 794 million 719 million respectively september 29 2006 accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 1278 million 988 million respectively september 28 2007 1402 million 980 million respectively september 29 2006 aggregate benefit obligation fair value plan assets us pension plans benefit obligations excess plan assets 111 million 67 million respectively september 28 2007 802 million 719 million respectively september 29 2006 aggregate benefit obligation fair value plan assets nonus pension plans benefit obligations excess plan assets 1519 million 1175 million respectively september 28 2007 1492 million 989 million respectively september 29 2006 determining expected return plan assets company considers relative weighting plan assets class individual asset class performance expectations provided external advisors companys investment strategy pension plans manage plans goingconcern basis current investment policy achieve superior return assets subject prudent level portfolio risk purpose enhancing security benefits participants us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 52 equity securities 43 debt securities 5 asset classes including real estate cash equivalents pension plans following weightedaverage asset allocations although company buy sell stock direct investment pension funds due external investment management funds plans may indirectly hold tyco stock aggregate amount shares would considered material relative total fund assets companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates contribute least minimum required pension plans 2008 5 million us plans 64 million nonus plans benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 3 million 3 million 12 million 2007 2006 2005 respectively executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 28 2007 71 million 36 million respectively companys accrued benefit obligations messrs kozlowski swartz september 29 2006 66 million 34 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era dispute company defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 78 million 73 million 67 million 2007 2006 2005 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp 3 million 2007 2 million 2006 3 million 2005 deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation expense 13 million 6 million 7 million 2007 2006 2005 respectively total deferred compensation liabilities 100 million 91 million september 28 2007 september 29 2006 respectively rabbi truststhe company rabbi trusts assets may used pay nonqualified plan benefits trusts primarily hold corporateowned life insurance policies cash equivalents debt equity securities 2007 company permitted trust agreement sold substantially assets one trusts received 271 million proceeds september 28 2007 september 29 2006 trust assets totaled 2 million 265 million respectively cash surrender value life insurance policies net outstanding loans included rabbi trust 224 million september 29 2006 rabbi trust assets consolidated subject claims companys creditors event companys insolvency plan participants general creditors company respect benefits postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide going eligibility benefits net periodic postretirement benefit cost 2007 2006 2005 follows millions components accrued postretirement benefit obligations substantially unfunded september 28 2007 september 29 2006 follows millions company expects make contributions postretirement benefit plans 7 million 2008 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions measurement purposes 100 114 composite annual rate increase per capita cost covered health care benefits assumed september 28 2007 september 29 2006 respectively september 28 2007 september 29 2006 composite annual rate increase health care benefit costs assumed decrease gradually 50 year 2013 remain level thereafter onepercentagepoint change assumed healthcare cost trend rates would following effects millions december 2003 us enacted law medicare prescription drug improvement modernization act 2003 act introduces prescription drug benefit medicare part well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part certain companys retiree medical programs already provided prescription drug coverage retirees age 65 least generous benefits provided medicare act reduces companys obligation instances company included effects act consolidated financial statements reducing net periodic benefit cost 5 million 2005 reflecting actuarial gain reduced accumulated postretirement benefit obligation approximately 30 million september 30 2005 18 shareholders equity preference sharestyco authorized 31250000 preference shares par value 4 per share none issued outstanding september 28 2007 september 29 2006 rights dividends return capital redemption conversion voting otherwise respect preference shares may determined tycos board directors time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders dividendson september 13 2007 tycos board directors approved quarterly dividend companys common shares 015 per share payable november 1 2007 shareholders record tyco international ltd post separation october 1 2007 tyco paid quarterly cash dividend 005 first quarter 2005 040 thereafter shares owned subsidiariesshares owned subsidiaries treated treasury shares recorded cost connection separation shares effectively retired third quarter 2007 repurchases commenced fourth quarter 2007 share repurchase programin september 2007 tycos board directors approved 10 billion share repurchase program july 2005 may 2006 tycos board directors approved share repurchase programs 15 billion 20 billion respectively fourth quarter 2007 company repurchased 13 million common shares 56 million 10 billion share repurchase program first quarter 2007 company repurchased 5 million common shares 659 million completing 20 billion share repurchase program 2006 company repurchased 11 million common shares 12 billion completing 15 billion share repurchase program 13 million common shares 13 billion 20 billion share repurchase program 2005 company repurchased 3 million common shares 300 million 19 share plans connection separation share options modified issuance covidien tyco electronics share options result one four share split share option exercise prices tyco awards adjusted generally employee share options converted share options employer exception corporate employees whose awards converted share options three companies revisions made share options result separation constituted modification provisions sfas 123r requires comparison fair values share options immediately separation fair values immediately separation certain instances fair value immediately separation higher result modification result incremental compensation cost 18 million amount 13 million recorded third quarter 2007 vested share options 11 million discontinued operations 2 million recorded continuing operations remaining vesting period share options continuing operations impact included separation costs except changes described principal terms share options remain unchanged original grant also connection separation tyco employee restricted share awards restricted stock units collectively restricted share awards modified issuance covidien tyco electronics restricted shares conversion shares employer restricted shares restricted share units held employees company employed subject accelerated vesting provisions vest 50 first day trading separation 50 six months thereafter accelerated vesting result 14 million accelerated compensation expense tycos continuing operations tyco recorded 12 million selling general administrative expenses fourth quarter 2007 record remaining expense first quarter 2008 equity awards saveasyouearn plan saye plan modified connection separation thereby resulting additional compensation expense 14 million 5 million recorded 2007 2 million discontinued operations balance recorded remaining vesting period except changes described principal terms conditions restricted shares restricted units deferred stock units employees remain unchanged original grant company amended terms performance based awards granted november 22 2005 provide vesting remaining awards without regard original performance measures original performance awards previously adjusted reflect attainment performance metrics fiscal year 2006 converted time based restricted stock units employer exception corporate employees whose outstanding awards converted time based restricted stock units three separate companies effective october 1 2005 company adopted provisions sfas 123r using modified prospective transition method transition method compensation cost recognized beginning october 1 2005 includes compensation cost sharebased payments granted prior yet vested october 1 2005 based grantdate fair value estimated accordance original provisions sfas 123 ii sharebased payments granted subsequent september 30 2005 based grantdate fair value estimated accordance provisions sfas 123r compensation cost generally recognized ratably requisite service period retirement eligibility shorter prior period amounts restated adoption sfas 123r result adoption sfas 123r companys selling general administrative expenses years ended september 28 2007 september 29 2006 include incremental sharebased compensation expense 66 million 82 million respectively total sharebased compensation cost recognized 2007 297 million includes 155 million selling general administrative expenses 13 million restructuring asset impairment charges net 6 million separation costs 123 million discontinued operations total sharebased compensation cost recognized 2006 288 million includes 155 million selling general administrative expenses 133 million discontinued operations total sharebased compensation cost recognized 2005 108 million includes 59 million selling general administrative expenses 49 million discontinued operations company recognized related tax benefit associated sharebased compensation arrangements 2007 2006 2005 78 million 85 million 36 million respectively 31 million 41 million 14 million included discontinued operations respectively prior october 1 2005 company accounted stockbased compensation plans accordance provisions apb opinion 25 permitted sfas 123 accordingly recognize compensation expense issuance options exercise price equal greater market price stock date grant fair value based method prescribed sfas 123 applied tyco effect net income earnings per share 2005 adjusted impact separation one four reverse stock split would follows millions except per share data 2004 tyco international ltd 2004 stock incentive plan 2004 plan effectively replaced tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan well tyco international ltd 1994 restricted stock ownership plan key employees 1994 plan awards effective march 25 2004 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted stock deferred stock units promissory stock stockbased awards collectively awards 2004 plan provides maximum 36 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance ltip plans awarded thereunder january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 march 25 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason including termination ltip plans also available issuance 2004 plan common shares issued pursuant grant restricted share awards deferred stock units promissory stock performance units payment annual performance bonus stockbased award total number common shares remaining available grant decreased margin least 18 per common share issued september 28 2007 approximately 31 million shares available future grant 2004 plan including shares available ltip ii plans assumable 2004 plan 1994 plan provided issuance restricted stock grants officers nonofficer employees 1994 plan expired november 2004 thus additional grants restricted stock made plan since november 2004 shares available future grant september 28 2007 14 million shares granted 10 million granted 2004 plan 4 million granted 1994 plan ltip plan reserved common shares issuance tycos directors executives managers share options plan administered compensation human resources committee board directors company consists exclusively independent directors company september 28 2007 approximately 05 million shares originally reserved issuance plan available future grant 2004 plan ltip ii plan broadbased option plan nonofficer employees terms conditions plan similar ltip plan september 28 2007 approximately 01 million shares originally reserved issuance plan available future grant 2004 plan share optionsoptions granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant 2004 plan options generally exercisable equal annual installments period three four years generally expire 10 years date grant september 28 2007 approximately 250 million share options granted 138 million 76 million 36 million granted ltip ii 2004 plans respectively grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service periods awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based historical volatility companys stock implied volatility derived exchange traded options post separation expected volatility calculated based analysis historic implied volatility measures set peer companies average expected life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well analysis actual option forfeitures weightedaverage assumptions used blackscholes option pricing model 2007 2006 2005 follows weightedaverage grantdate fair values options granted 2007 2006 2005 1535 1433 1744 respectively total intrinsic value options exercised 2007 2006 2005 163 million 108 million 142 million respectively related excess cash tax benefit classified financing cash inflow 2007 2006 significant summary option activity september 28 2007 changes year ended presented adjusted conversion tyco share options share options covidien tyco electronics well separation september 28 2007 93 million total unrecognized compensation cost related nonvested options granted cost expected recognized weightedaverage period 27 fiscal years employee stock purchase planssubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker saye plan eligible employees united kingdom granted options purchase shares end three years service 85 market price time grant options saye plan generally exercisable period three years expire six months date vesting saye plan provides maximum 10 million common shares issued september 28 2007 7 million shares available future issuance shares purchased saye plan purchased open market summary option activity saye plan september 28 2007 changes year ended presented grantdatefair value option grant estimated using blackscholes option pricing model assumptions expected volatility average expected life riskfree rate made using methodology previously described share options weightedaverage grantdate fair values options granted saye plan 2006 2005 880 1265 respectively total intrinsic value options exercised 2007 2006 2005 5 million 24 million 3 million respectively related excess cash tax benefit classified financing cash inflow 2007 2006 significant september 28 2007 2 million total unrecognized compensation cost related nonvested options granted saye plan cost expected recognized period 13 fiscal years restricted share awardsrestricted share awards granted subject certain restrictions conditions vesting determined time grant 2004 plan restrictions award lapse upon normal retirement death disability employee grants vest based certain specified performance criteria fair market value shares units expensed period performance achievement criteria deemed probable grants vest passage time fair market value award time grant amortized expense period vesting fair value restricted share awards determined based market value companys shares grant date restricted share awards generally vest period three four years determined compensation committee upon attainment various levels performance equal exceed targeted levels applicable compensation expense recognized restricted share awards net estimated forfeitures recipients restricted shares right vote shares receive dividends whereas recipients restricted units voting rights receive dividend equivalents summary status companys restricted share awards performance shares september 28 2007 changes year ended presented tables adjusted conversion tyco restricted share awards performance shares restricted share awards performance shares covidien tyco electronics separation one four reverse stock split weightedaverage grantdate fair value restricted share awards granted 2007 2006 2005 4949 4537 5587 respectively total fair value restricted share awards vested 2007 2006 2005 58 million 26 million 3 million respectively total fair value performance shares vested 2007 1 million 2006 2005 insignificant september 28 2007 144 million total unrecognized compensation cost related nonvested restricted share awards performance shares cost expected recognized weightedaverage period 31 fiscal years deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment distribution made form actual shares similar restricted share grants vest passage time fair value dsus determined based market value companys shares grant date amortized expense vesting period recipients dsus right vote shares right receive cash dividends however right receive dividend equivalents conditions vesting determined time grant 2004 plan majority tycos dsu grants vest equal annual installments three years company granted 1 million dsus outstanding september 28 2007 summary status companys dsus september 28 2007 changes year ended presented adjusted separation one four reverse stock split weightedaverage grantdate fair value dsus granted 2007 2006 2005 4229 4495 4938 respectively total fair value dsus vested 2007 2006 2005 8 million 4 million 6 million respectively september 28 2007 dsus vested 20 comprehensive income components accumulated comprehensive income follows millions 1during year ended september 28 2007 6 million transferred currency translation adjustments result sale foreign entities amount included income discontinued operations year ended september 29 2006 34 million transferred currency translation adjustments result sale foreign entities amount included income discontinued operations year ended september 30 2005 48 million transferred currency translation adjustments included income discontinued operations 2the years ended september 29 2006 september 30 2005 include reclassification unrealized gains 1 million 2 million respectively related sale certain investments included income discontinued operations 3the year ended september 28 2007 reflects adoption sfas 158 181 million pretax 70 million income tax expense 21 consolidated segment geographic data segment information consistent management reviews businesses makes investing resource allocation decisions assesses operating performance connection separation company realigned management segment reporting structure effective march 31 2007 segment data presented reflects new segment structure company reports financial operating information following five segments •adt worldwide designs sells installs services monitors electronic security systems residential commercial industrial governmental customers •fire protection services designs sells installs services fire detection fire suppression systems commercial industrial governmental customers •flow control designs manufactures sells services valves pipes fittings valve automation heat tracing products water wastewater markets oil gas energy markets along general process industries •safety products designs manufactures sells fire protection security life safety products including fire suppression products breathing apparatus intrusion security access control video management systems addition safety products manufactures products installed serviced adt worldwide fire protection services •electrical metal products designs manufactures sells steel tubing pipe products well cable products including prewired armored cable flexible conduit products commercial construction tyco also provides general corporate services segments costs reported corporate selected information new segment structure presented following tables 2007 2006 2005 millions 1revenue operating segment excludes intercompany transactions 2revenue relates certain international building products businesses 1includes operating income 24 million 18 million 18 million 2007 2006 2005 respectively related certain international building products businesses 2corporate 2007 includes net charge 2862 billion related class action settlement total assets segment september 28 2007 september 29 2006 september 30 2005 follows millions 1includes total assets certain international building products businesses 99 million 38 million 37 million september 28 2007 september 29 2006 september 30 2005 depreciation amortization capital expenditures net segment years ended september 28 2007 september 29 2006 september 30 2005 follows millions net revenue geographic area years ended september 28 2007 september 29 2006 september 30 2005 follows millions 1revenue attributed individual countries based reporting entity records transaction longlived assets geographic area september 28 2007 september 29 2006 september 30 2005 follows millions 1longlived assets comprised primarily property plant equipment exclude goodwill intangible assets 22 supplementary statement operations information selected supplementary statement operations information years ended september 28 2007 september 29 2006 september 30 2005 follows millions 23 supplementary balance sheet cash flow information selected supplementary balance sheet information september 28 2007 september 29 2006 follows millions 1property capital leases consists primarily buildings 2accumulated amortization capital lease assets 19 million 18 million september 28 2007 september 29 2006 respectively supplementary noncash financing activities september 28 2007 september 29 2006 september 30 2005 follows millions 24 summarized quarterly financial data unaudited summarized quarterly financial data years ended september 28 2007 september 29 2006 follows millions except per share data 1net revenue excludes 5951 million revenue related discontinued operations income continuing operations includes net restructuring charges 57 million separation costs 25 million 2net revenue excludes 6268 million revenue related discontinued operations income continuing operations includes net restructuring asset impairment charges 53 million separation costs 32 million divestiturerelated losses 3 million 3net revenue excludes 6391 million revenue related discontinued operations income continuing operations includes class action settlement charge net 2875 billion 259 million charge related loss early extinguishment debt goodwill impairment charge 46 million net restructuring asset impairment charges 47 million separation costs 28 million divestiturerelated losses 1 million 4net revenue excludes 356 million revenue related discontinued operations income continuing operations includes net restructuring asset impairment charges 60 million separation costs 20 million 13 million insurance recovery related class action settlement 10 million charges related voluntary replacement program income tax provision includes negative impact approximately 58 million related changes valuation allowances reserve adjustments nondeductible costs partially offset favorable adjustments approximately 48 million related prior periods 1net revenue excludes 6203 million revenue related discontinued operations income continuing operations includes net restructuring charges 4 million divestiturerelated losses 3 million 2net revenue excludes 6341 million revenue related discontinued operations income continuing operations includes separation costs 13 million net restructuring charges 3 million divestiturerelated gains 2 million 3net revenue excludes 6007 million revenue related discontinued operations income continuing operations includes vrp charge 100 million separation costs 19 million net restructuring charges 7 million divestiturerelated losses 1 million 4net revenue excludes 6246 million revenue related discontinued operations income continuing operations includes income settlement former executive 72 million 48 million income resulting reduction estimated workers compensation liabilities primarily due favorable claims experience separation costs 17 million net restructuring credits 1 million 25 tyco international finance sa tifsa wholly owned subsidiary company tifsa formed december 2006 holding company established connection separation successor company tigsa third quarter 2007 tigsas assets liabilities contributed tifsa covidien tyco electronics tigsa put liquidation june 1 2007 tifsa directly indirectly owns substantially operating subsidiaries company performs treasury operations assumed indebtedness tigsa historically tigsas debt currently tifsas debt fully unconditionally guaranteed tyco see note 13 following tables present condensed consolidating financial information tyco tifsa subsidiaries condensed financial information tyco tifsa standalone basis presented using equity method accounting subsidiaries consolidating statement operations year ended september 28 2007 millions consolidating statement operations year ended september 29 2006 millions consolidating statement operations year ended september 30 2005 millions consolidating balance sheet september 28 2007 millions consolidating balance sheet september 29 2006 millions consolidating statement cash flows year ended september 28 2007 millions consolidating statement cash flows year ended september 29 2006 millions consolidating statement cash flows year ended september 30 2005 millions 26 subsequent events october company repurchased 16 million common shares 74 million 10 billion share repurchase program approved board directors september 2007 tyco international ltd schedule iivaluation qualifying accounts millions documents incorporated reference part item 1b unresolved staff comments item 2 properties part ii critical accounting policies estimates liquidity capital resources commitments contingencies offbalance sheet arrangements accounting pronouncements forwardlooking information part iii part iv signatures tyco international ltd index consolidated financial information managements responsibility financial statements report independent registered public accounting firm report independent registered public accounting firm tyco international ltd consolidated statements operations years ended september 28 2007 september 29 2006 september 30 2005 millions except per share data tyco international ltd consolidated balance sheets september 28 2007 september 29 2006 millions except share data tyco international ltd consolidated statements shareholders equity years ended september 28 2007 september 29 2006 september 30 2005 millions tyco international ltd consolidated statements cash flows years ended september 28 2007 september 29 2006 september 30 2005 millions tyco international ltd notes consolidated financial statements consolidating statement operations year ended september 28 2007 millions consolidating statement operations year ended september 29 2006 millions consolidating statement operations year ended september 30 2005 millions consolidating balance sheet september 28 2007 millions consolidating balance sheet september 29 2006 millions consolidating statement cash flows year ended september 28 2007 millions consolidating statement cash flows year ended september 29 2006 millions consolidating statement cash flows year ended september 30 2005 millions tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules a1 2 financial statements supplementary datasee item 8 3exhibit index 1management contract compensatory plan 2in july 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd massachusetts corporation time former tyco upon consummation merger adt continuing public company changed name tyco international ltd tyco former tyco became whollyowned subsidiary tyco changed name tyco international us inc bsee item 15a3 csee item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer date november 19 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant november 19 2008 capacities indicated name title edward breen edward breen chairman chief executive officer director principal executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer carol anthony davidson carol anthony davidson senior vice president controller chief accounting officer principal accounting officer adm dennis c blair director timothy donahue director brian duperreault director bruce gordon director judith reinsdorf signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report judith reinsdorf judith reinsdorf attorneyinfact tyco international ltd index consolidated financial information page managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations consolidated balance sheets consolidated statements shareholders equity consolidated statements cash flows notes consolidated financial statements schedule iivaluation qualifying accounts managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior team leading example includes every one tycos 113000 global employees well customers suppliers business partners one crucial objectives continuing maintain build public employee shareholder confidence restored tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2008 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls edward breen edward breen chairman chief executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 26 2008 september 28 2007 related consolidated statements operations shareholders equity cash flows three years period ended september 26 2008 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tyco international ltd subsidiaries september 26 2008 september 28 2007 results operations cash flows three years period ended september 26 2008 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements effective september 29 2007 company adopted financial accounting standards board interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 ii company changed depreciation method estimated useful life used account pooled subscriber system assets related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years effective beginning fiscal third quarter 2007 iii company adopted recognition related disclosure provisions statement financial accounting standards 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r effective september 28 2007 discussed note 7 consolidated financial statements company adopted financial accounting standards board interpretation 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 effective september 29 2006 also audited accordance standards public company accounting oversight board united states companys internal control financial reporting september 26 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated november 19 2008 expressed adverse opinion companys internal control financial reporting material weakness deloitte touche llp deloitte touche llp new york new york november 19 2008 report independent registered public accounting firm board directors stockholders tyco international ltd audited tyco international ltd subsidiaries companys internal control financial reporting september 26 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect consolidated financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement companys consolidated annual interim financial statements prevented detected timely basis following material weakness identified included managements assessment managements procedures testing identified errors although material consolidated financial statements led management conclude control deficiencies exist related tax effecting consolidating entries analysis reconciliation taxes receivable taxes payable nonus jurisdictions certain aspects deferred taxes procedures respect classification tax amounts consolidated balance sheet result deficiencies reasonably possible internal controls financial reporting may prevented detected errors occurring could material either individually aggregate material weakness considered determining nature timing extent audit tests applied audit consolidated financial statements financial statement schedule year ended september 26 2008 company report affect report consolidated financial statements financial statement schedule opinion effect material weakness identified achievement objectives control criteria company maintained effective internal control financial reporting september 26 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements financial statement schedule year ended september 26 2008 company report dated november 19 2008 expressed unqualified opinion consolidated financial statements financial statement schedule included explanatory paragraph regarding companys adoption financial accounting standards board interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 deloitte touche llp deloitte touche llp new york new york november 19 2008 tyco international ltd consolidated statements operations years ended september 26 2008 september 28 2007 september 29 2006 millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets september 26 2008 september 28 2007 millions except share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 26 2008 september 28 2007 september 29 2006 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 26 2008 september 28 2007 september 29 2006 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd company organized laws bermuda subsidiaries tyco subsidiaries hereinafter collectively referred company tyco prepared united states dollars accordance generally accepted accounting principles united states gaap unless otherwise indicated references consolidated financial statements 2008 2007 2006 tycos fiscal year ended september 26 2008 september 28 2007 september 29 2006 respectively effective june 29 2007 tyco completed spinoffs covidien tyco electronics formerly healthcare electronics businesses respectively separate publicly traded companies separation form distribution tyco shareholders distribution made june 29 2007 tyco shareholders record june 18 2007 record date tyco shareholder received 025 common share covidien tyco electronics tyco common share held record date tyco shareholders received cash lieu fractional shares amounts less one covidien tyco electronics common share distribution structured taxfree tyco shareholders except extent cash received lieu fractional shares party separation distribution tax sharing certain agreements determined significant continuing involvement company covidien tyco electronics relevant guidance statement financial accounting standards sfas 144 accounting impairment disposal longlived assets emerging issues task force eitf issue 0313 applying conditions paragraph 42 sfas 144 determining whether report discontinued operations therefore classified covidien tyco electronics discontinued operations periods prior separation additionally distribution date company approved board directors effected reverse stock split tycos common shares split ratio one four shareholder approval reverse stock split obtained march 8 2007 special general meeting shareholders share per share data periods presented adjusted reflect reverse stock split 2008 2007 2006 company incurred pretax costs related separation 275 million 1083 million 169 million respectively costs include loss early extinguishment debt refinancing tax restructuring professional services employeerelated costs amounts 4 million 105 million 49 million included separation costs 2008 2007 2006 respectively additionally 258 million 259 million 2008 2007 respectively related loss early extinguishment debt included expense net separation costs included interest expense net 2008 47 million related writeoff unamortized credit facility fees also 2008 34 million income relating tax sharing agreement included expense net 2007 2006 719 million 120 million included discontinued operations respectively additionally 2007 includes tax charges related separation primarily writeoff deferred tax assets longer realizable 183 million 95 million included income taxes 88 million included discontinued operations 2008 part companys portfolio refinement efforts company sold empresa de transmissao oeste ltda eteo business ancon building products ancon business nippon drychemical ndc business european manufacturer public address products acoustic systems additionally company substantially completed sale infrastructure tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued services business fourth quarter 2008 company received approximately 10 billion cash proceeds divestitures see note 2 company presents proceeds divestiture businesses classified discontinued operations within discontinued investing activities consolidated statements cash flows references segment data companys continuing operations prior period amounts reclassified exclude results discontinued operations principles consolidationtyco holding company conducts business operating subsidiaries company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities company bears majority risk entities expected losses stands gain majority entities expected returns intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenue related costs legal liabilities income taxes tax valuation allowances pension postretirement employee benefit expenses actual results could differ materially estimates revenue recognitionthe company recognizes revenue principally four types transactionssales products sales security systems billings monitoring maintenance services contract sales revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions product returns discounts customers accounted reductions determining sales period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements accordance eitf 0021 revenue arrangements multiple deliverables company assesses revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using deliverables relative fair value revenue tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued recognized equipment installation limited lesser allocated amounts relative fair value method noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship expect situations fair value objectively determined sales security systems services cases arise companys policy recognize revenue elements contract life revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion extent progress toward completion generally measured based ratio actual cost incurred total estimated cost completion revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimated warranty costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting september 26 2008 september 28 2007 accounts receivable longterm receivables included retainage provisions 70 million 63 million respectively 51 million 41 million unbilled respectively retainage provisions consist primarily fire protection contracts become due upon contract completion acceptance september 26 2008 retainage provision included 68 million expected collected 2009 research developmentresearch development expenditures expensed incurred included cost product sales amounted 127 million 120 million 111 million years ended september 26 2008 september 28 2007 september 29 2006 respectively research development expenses include salaries direct costs incurred building overhead expenses advertisingadvertising costs expensed incurred included selling general administrative expenses amounted 142 million 132 million 119 million years ended september 26 2008 september 28 2007 september 29 2006 respectively translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars assets liabilities translated us dollars using yearend exchange rates revenue expenses translated average exchange rates effect year foreign currency translation gains losses included component accumulated comprehensive income loss within shareholders equity tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued gains losses resulting foreign currency transactions including impact foreign currency derivatives reflected selling general administrative expenses 37 million 60 million 77 million 2008 2007 2006 respectively cash equivalentsall highly liquid investments maturities three months less time purchase considered cash equivalents allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense 2008 2007 2006 626 million 635 million 663 million respectively maintenance repair expenditures charged expense incurred except pooled subscriber systems depreciation calculated using straightline method estimated useful lives related assets follows see discussion depreciation method estimated useful lives related subscriber systems subscriber system assets related deferred revenue accountsthe company generally considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers residence place business installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses ie commissions related acquiring customer commissions related upfront consideration paid customers connection establishment tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded noncurrent assets included assets line item within consolidated balance sheets subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition effective beginning third quarter 2007 tyco changed depreciation method estimated useful life used account pooled subscriber system assets primarily north america related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 195 residential subscriber pools 145 265 commercial subscriber pools converts straight line methodology resulting depreciation charge greater accelerated method company continue use straightline method 14year life nonpooled subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination change method estimated useful life used account pooled subscriber system assets related deferred revenue resulted ongoing analysis pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base accordance sfas 154 accounting changes error correction change method used account pooled subscriber system assets related deferred revenue accounts represents change accounting estimate effected change accounting principle accounted prospectively change method based information obtained continued observation expected benefits inherent pooled subscriber system assets customer category preferable resulted depreciation amortization reflective pattern expected benefits derived assets pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems reviewed company balance sheet date assess continued appropriateness methods estimated useful lives effects change described decreased net revenue 21 million decreased depreciation expense 37 million decreased loss continuing operations net loss 10 million increased basic diluted earnings per share 002 2007 longlived assetstyco reviews longlived assets including property plant equipment amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill indefinitelived intangible assetsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur see note 11 performing assessments management relies various factors including operating results business plans economic projections anticipated future cash flows comparable transactions market data inherent uncertainties related factors judgment applying analysis goodwill indefinitelived intangible assets impairment company performed annual impairment tests goodwill indefinitelived intangible assets first day fourth quarter 2008 testing goodwill impairment company first compares fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using companys weighted average cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill indefinite lived intangible assets consisting primarily trade names tested impairment using relief royalty method dealer amortizable intangible assets netintangible assets primarily include contracts related customer relationships intellectual property certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program acquired contracts related customer relationships recorded contractually determined purchase price first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship effective tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued beginning third quarter 2007 tyco changed estimated useful life dealer intangibles geographical areas comprising approximately 90 net carrying value dealer intangibles 12 15 years company continues amortize dealer intangible assets accelerated basis change estimated useful life used account dealer intangibles resulted ongoing analysis pertinent factors including actual customer attrition data demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base accordance sfas 154 change estimated useful life dealer intangibles accounted prospectively effect change estimated useful life dealer intangibles decreased loss continuing operations net loss 6 million increased basic diluted earnings per share 001 2007 contracts related customer relationships well intellectual property consisting primarily patents trademarks unpatented technology amortized straightline basis four forty years company evaluates amortization methods remaining useful lives intangible assets periodic basis determine whether events circumstances warrant revision amortization method remaining useful lives investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged comprehensive income within shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting reporting period company evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented product warrantythe company records estimated product warranty costs time sale products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty however instances warranty either negotiated contract sold separate component warranty period terms range 90 days eg various products 15 years eg pressure reducers floor heating products warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued environmental coststyco subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence likely deferred tax assets realized insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return pattern timing future obligation reliably determinable impact discount consolidated balance sheets september 26 2008 september 28 2007 reduce obligation 30 million 38 million respectively company maintains captive insurance companies manage certain insurable liabilities additionally company records receivables third party insurers recovery determined probable financial instrumentsthe company may use interest rate swaps currency swaps forward option contracts manage risks generally associated foreign exchange rate interest rate risk derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly effective offsetting changes fair value underlying hedged item inception hedge expected remain highly effective life hedge contract derivative financial instruments reported consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items reported selling general administrative expenses along offsetting transaction gains losses items hedged gains losses net investment hedges included cumulative translation adjustment component comprehensive income extent effective gains losses derivatives designated cash flow hedges recorded comprehensive income reclassified earnings manner matches timing earnings impact hedged transactions ineffective portion hedges recognized currently earnings instruments qualify hedge accounting marked market changes recognized current earnings share premium contributed surplusin accordance bermuda companies act 1981 tyco issues shares cash premium par value resulting premium credited share premium account nondistributable reserve contributed surplus subject certain conditions distributable reserve reclassificationscertain prior year amounts reclassified conform current year presentation reclassification certain businesses discontinued operations tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued recently adopted accounting pronouncementsin june 2006 financial accounting standards board fasb issued financial accounting standards board interpretation fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 interpretation prescribes comprehensive model financial statement recognition measurement presentation disclosure uncertain tax positions taken expected taken income tax returns fin 48 became effective tyco first quarter 2008 result adopting fin 48 tyco increased reserve uncertain tax positions 55 million reduced deferred tax assets 24 million corresponding 79 million cumulative effect adjustment shareholders equity see note 6 additional information related adoption fin 48 recently issued accounting pronouncementsin may 2008 fasb issued statement financial accounting standards sfas 162 hierarchy generally accepted accounting principles sfas 162 sfas 162 identifies sources accounting principles framework selecting principles used preparation financial statements sfas 162 effective 60 days following secs approval public company accounting oversight board amendments au section 411 meaning present fairly conformity generally accepted accounting principles company expect standard material impact results operations financial position cash flows april 2008 fasb issued staff position fsp 1423 determination useful life intangible assets fsp 1423 amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset sfas 142 goodwill intangible assets fsp 1423 effective tyco first quarter 2010 company currently assessing impact fsp 1423 results operations financial position cash flows march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities sfas 161 intended improve financial reporting derivative instruments hedging activities requiring enhanced disclosures enable investors better understand effects entitys results operations financial position cash flows disclosure provisions sfas 161 effective tyco second quarter 2009 december 2007 fasb issued sfas 141 revised 2007 business combinations sfas 141r retains underlying concepts sfas 141 business combinations still accounted fair value however accounting certain aspects business combinations affected acquisition costs generally expensed incurred restructuring costs associated business combination generally expensed subsequent acquisition date inprocess research development recorded fair value indefinitelived intangible acquisition date completed abandoned useful life determined changes deferred tax asset valuation allowances uncertain tax positions acquisition date generally impact income tax expense sfas 141r also expands required disclosures surrounding nature financial effects business combinations sfas 141r effective prospective basis tyco first quarter fiscal 2010 december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 sfas 160 requires recognition noncontrolling interest minority interest prior adoption sfas 160 equity consolidated financial statements amount net income attributable noncontrolling interest tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued included consolidated net income face statement income sfas 160 also amends certain accounting research bulletin 51s consolidation procedures order achieve consistency requirements sfas 141r statement also includes expanded disclosure requirements regarding interests parent noncontrolling interest statement effective tyco first quarter fiscal 2010 company currently assessing impact sfas 160 results operations financial position cash flows february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities sfas 159 permits entity contractbycontract basis make irrevocable election account certain types financial instruments warranty insurance contracts fair value rather historical cost changes fair value whether realized unrealized recognized earnings sfas 159 effective tyco first quarter 2009 company currently assessing impact sfas 159 results operations financial position cash flows september 2006 fasb issued sfas 157 fair value measurements enhances existing guidance measuring assets liabilities fair value sfas 157 defines fair value establishes framework measuring fair value expands disclosure fair value measurements february 2008 fasb issued fasb staff position 1571 application fasb statement 157 fasb statement 13 accounting pronouncements address fair value measurements purposes lease classification measurement statement 13 exclude sfas 13 accounting leases accounting pronouncements address fair value measurements purposes lease classification measurement sfas 13 fasb staff position 1572 effective date fasb statement 157 permits companies partially defer effective date sfas 157 one year nonfinancial assets liabilities recognized disclosed fair value financial statements nonrecurring basis october 2008 fasb issued fasb staff position 1573 determining fair value financial asset market asset active clarifies application sfas 157 financial asset active market first quarter 2009 company elected defer adoption sfas 157 one year nonfinancial assets liabilities recognized disclosed fair value financial statements nonrecurring basis sfas 157 effective tyco first quarter 2009 company currently assessing impact sfas 157 results operations financial position cash flows september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r sfas 158 requires employers recognize funded status defined benefit pension postretirement benefit plans net asset liability balance sheet recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized component net periodic benefit cost company adopted recognition disclosure provisions sfas 158 september 28 2007 sfas 158 also requires companies measure plan assets benefit obligations fiscal year end company presently uses measurement date august 31st measurement date provisions become effective fiscal 2009 company currently assessing impact sfas 158 measurement date provisions results operations financial position cash flows tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued june 2008 fasb ratified fasb staff position eitf 0361 determining whether instruments granted sharebased payment transactions participating securities fsp eitf 0361 addresses whether instruments granted sharebased payment awards participating securities prior vesting therefore must included earnings allocation calculating earnings per share twoclass method described sfas 128 earnings per share sfas 128 fsp eitf 0361 requires unvested sharebased payment awards contain nonforfeitable rights dividends dividendequivalents treated participating securities calculating earnings per share fsp eitf 0361 effective tyco fiscal 2010 interim periods within fiscal years shall applied retrospectively prior periods currently evaluating effects fsp eitf 0361 may earnings per share 2 divestitures held sale reflected continuing operations third quarter 2008 company approved plan sell business safety products segment business presented continuing operations criteria discontinued operations met company assessed determined carrying value business recoverable continue assess recoverability based current fair value less cost sell business sold fair value used impairment assessment based existing market conditions company expects complete sale first half fiscal 2009 discontinued operations company continued assess strategic fit various businesses pursued divestiture certain businesses align longterm strategy 2008 part companys portfolio refinement efforts company sold eteo business ancon business ndc business european manufacturer public address products acoustic systems additionally company substantially completed sale infrastructure services business fourth quarter 2008 businesses met held sale discontinued operations criteria included discontinued operations periods presented may 2008 company sold 100 stock eteo brazilian subsidiary infrastructure services 338 million net cash proceeds recorded pretax gain 232 million including effects economic hedge purchase price discussed gain recorded income loss discontinued operations net income taxes companys consolidated statement operations eteo part companys corporate segment september 2007 tyco entered economic hedge brazilian real denominated contractual sale price eteo business since hedging transaction directly linked proceeds sale business reflected discontinued operations tyco began including impact hedge discontinued operations first quarter 2008 third quarter 2008 tyco incurred pretax loss 36 million hedge impact hedge prior year material february 2008 company executed definitive agreement sell remaining portion infrastructure services excluding earth tech brasil ltda et brasil aecom technologies corporation aecom july 2008 company substantially completed sale aecom tyco international ltd notes consolidated financial statements 2 divestitures continued sale completed 455 million net 20 million working capital adjustment resulting net cash proceeds 435 million 435 million net cash proceeds includes 53 million sale earth tech uk pretax gain approximately 183 million recorded income discontinued operations net income taxes companys consolidated statements operations order complete sale company required obtain consents approvals transfer legal ownership earth tech uk businesses aecom therefore july 2008 company aecom entered agreement aecom would manage uk businesses behalf company would finance uk businesses operations also part agreement aecom agreed reimburse company funding provided company closing date sale result agreement aecom assumed risks rewards ownership uk businesses september 26 2008 necessary consents approvals obtained company transfer legal ownership earth tech uk businesses aecom company expects record gain related uk businesses upon receipt necessary consents approvals expected occur first half 2009 certain assets china excluded sale expected transferred first half 2009 additional consideration approximately 55 million necessary consents approvals obtained infrastructure services et brasil earthtech uk business china assets discussed part companys corporate segment et brasil excluded sale aecom discussed company recorded pretax impairment charge approximately 16 million write et brasil fair value less cost sell 2008 fair value used impairment assessment based existing market conditions july 2008 company executed definitive agreement sell et brasil approximately 16 million net cash proceeds sale expected close first quarter 2009 upon receipt necessary consents approvals september 26 2008 company assessed determined carrying value remaining assets china et brasil recoverable based current fair value less cost sell company continue assess recoverability assets china et brasil sold 2008 company settled contract dispute arising former infrastructure services business connection settlement company assessed assets original contract concluded assets longer recoverable resulting 51 million charge discontinued operations april 2008 company sold ancon manufacturer stainless steel products used masonry construction ancon part companys corporate segment sale completed 164 million net cash proceeds pretax gain 100 million recorded largely exempt tax gain recorded income discontinued operations net income taxes companys consolidated statement operations fourth quarter 2008 company received additional 6 million proceeds related sale ancon february 2008 company sold ndc company japanese fire protection industry ndc part companys fire protection safety products segments sale completed 50 million net cash proceeds pretax gain 7 million recorded gain recorded income discontinued operations net income taxes companys consolidated statement operations tyco international ltd notes consolidated financial statements 2 divestitures continued january 2008 company sold european manufacturer public address products acoustic systems part companys fire protection segment recorded 8 million pretax loss sale loss recorded income discontinued operations net income taxes companys consolidated statement operations first quarter 2007 aquas industriales de jose ca aij joint venture majority owned infrastructure services sold 42 million net cash proceeds pretax gain 19 million recorded gain recorded discontinued operations net income taxes companys consolidated statement operations aij part companys corporate segment third quarter 2007 tyco completed separation presented healthcare electronics businesses discontinued operations periods presented period prior separation net interest loss early extinguishment debt included expense net consolidated statements operations amounts proportionally allocated covidien tyco electronics based debt amounts tyco believes utilized covidien tyco electronics historically inclusive amounts directly incurred allocated net interest calculated using historical weightedaverage interest rate debt including impact interest rate swap agreements allocated amounts included discontinued operations 2007 allocated interest income interest expense net 35 million 242 million 388 million respectively 2006 allocated interest income interest expense net 53 million 378 million 0 million respectively 2007 company incurred pretax separation costs related primarily professional services employeerelated costs 154 million 289 million respectively discontinued operations additionally year ended september 28 2007 includes tax charges related separation primarily writeoff deferred tax assets longer realizable 88 million discontinued operations company used available information develop best estimates certain assets liabilities related separation limited instances final determination balances made subsequent periods year ended september 28 2007 72 million recorded shareholders equity primarily related cash trueup adjustment 57 million 15 million items year ended september 26 2008 70 million items recorded shareholders equity items aggregate 85 million reflect immaterial adjustments shareholders equity recorded correct distribution amount date separation adjustments future impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor tyco electronics legal entities certain amended income tax returns periods prior separation may recorded either shareholders equity statement income depending specific item giving rise adjustment tyco international ltd notes consolidated financial statements 2 divestitures continued net revenue income operations gain loss sale separation costs income tax expense discontinued operations 2008 2007 2006 follows millions balance sheet information pending divestitures september 26 2008 september 28 2007 follows millions losses divestitures 2008 2007 2006 company recorded 1 million 4 million 2 million respectively divestiture charges continuing operations connection writedown fair value less cost sell certain businesses get classified discontinued operations meet criteria classification fair value used impairment assessments primarily based terms conditions included expected included sales agreements tyco international ltd notes consolidated financial statements 3 restructuring asset impairment charges net restructuring asset impairment charges net years ended september 26 2008 september 28 2007 september 29 2006 follows millions improve operating efficiency first quarter 2007 launched restructuring program 2007 program across companys segments including corporate organization streamline businesses reduce operational footprint september 26 2008 substantially completed program upon initiation program expected incur aggregate charges related program approximately 350 million 400 million primarily end calendar 2008 since inception program september 26 2008 company incurred charges 395 million 2007 program included numerous actions designed improve operating efficiency strengthen companys competitive position future many actions initiated 2007 related improving field efficiencies consolidating certain administrative functions european operations adt worldwide fire protection services consolidation certain corporate headquarter functions 2008 company continued execution various european restructuring activities within adt worldwide fire protection services segments within flow control safety products electrical metal products segments company recognized employee severance benefits charges facility exit costs asset impairment charges related primarily closure relocation manufacturing facilities company completed franchise acquisitions winner security services llc sensormatic security corp resulted restructuring charges 51 million adt worldwide 7 million safety products refer note 4 58 million restructuring charges related franchise acquisitions reflected 2007 programs aggregate charges 395 million discussed company identified additional opportunities cost savings restructuring activities fiscal 2009 company expects incur restructuring charges approximately 50 million fiscal 2009 2008 charges credits net restructuring asset impairment charges year ended september 26 2008 247 million include 22 million noncash write carrying value inventory accelerated depreciation classified cost sales selling general administrative expenses related assets expected become obsolete result restructuring remaining tyco international ltd notes consolidated financial statements 3 restructuring asset impairment charges net continued charge comprised restructuring charges 237 million include 139 million employee severance benefits 40 million facility exit charges cash charges 58 million related reacquisition certain unfavorable franchise rights 20 million asset impairments net gains sale properties asset impairments primarily related companys electrical metal products segment period ended september 26 2008 company completed restructuring activities announced prior years amounts less originally estimated accordingly reversed 32 million restructuring reserves restructuring credits company paid 30 million related actions initiated 2008 2007 program paid 58 million related franchise acquisitions september 26 2008 98 million accrued activity companys 2008 restructuring reserves related 2007 program summarized follows millions 2007 charges credits net restructuring asset impairment charges 2007 207 million include 7 million reflected cost sales noncash write carrying value inventory remaining charge comprised restructuring charges 189 million include 173 million employee severance benefits 16 million facility exit charges cash charges 15 million asset impairments 2007 company completed restructuring activities announced prior years amounts less originally estimated accordingly reversed 4 million restructuring reserves restructuring credit 2008 company paid 95 million related actions 2007 program 55 million accrued september 26 2008 2006 charges credits 2006 company recorded net restructuring asset impairment charges 13 million includes 11 million employee severance benefits 2 million asset impairments restructuring charges related several restructuring actions facility exit plans initiated 2006 16 million well costs incurred 2006 related actions initiated prior 2006 2 million 2006 company completed restructuring activities announced prior years amounts less originally estimated accordingly reversed 7 million restructuring reserves restructuring initiatives undertaken 2006 well actions taken prior periods impact restructuring charges incurred 2006 relate adt worldwide safety products segments tyco international ltd notes consolidated financial statements 3 restructuring asset impairment charges net continued 2008 company paid 1 million related actions 1 million accrued september 26 2008 2005 prior charges credits company continues maintain restructuring reserves related certain actions initiated prior 2005 total amount reserves 16 million 21 million september 26 2008 september 28 2007 respectively balances primarily include facility exit costs longterm noncancelable lease obligations within adt worldwide fire protection services segments expiration dates range 2008 2022 restructuring reserves restructuring reserves september 28 2007 september 26 2008 year restructuring action initiated follows millions restructuring reserves segment september 26 2008 september 28 2007 follows millions september 26 2008 september 28 2007 restructuring reserves included companys consolidated balance sheets follows millions tyco international ltd notes consolidated financial statements 4 acquisitions part companys strategy strengthen product service offerings market positions company acquired winner security services llc winner sensormatic security corp ssc firstservice security firstservice 2008 june 5 2008 companys adt worldwide segment acquired substantially assets winner 90 million franchise originally granted sensormatic electronics corporation granted winner rights sell install service certain sensormatic products entitled winner commissions sensormatic products sold installed shipped franchise territories sensormatic products sold adt worldwide safety products july 9 2008 companys adt worldwide segment acquired substantially assets ssc including franchise rights agreed settle related legal matter total consideration approximately 86 million ssc franchisee sensormatic electronics corporation states virginia maryland district columbia last remaining major sensormatic franchise original franchise agreement ssc granted rights sell install service certain sensormatic products entitled commissions sensormatic products sold installed shipped franchise territories sensormatic ssc also settled previously disclosed litigation parties related ssc franchise 6 million connection transaction value ascribed settlement legal matter determined based consideration paid excess fair value franchise rights acquired transactions accounted business combinations company applied eitf issue 041 accounting preexisting relationships parties business combination since preexisting relationships company winner ssc needed assessed accounted separately assessing specific facts circumstances related transactions company recorded charges 38 million 20 million winner ssc respectively 2008 reacquisition franchise rights deemed unfavorable company compared pricing current market transactions similar arrangements company utilized income method valuation approach measuring value preexisting relationship since charges relate change manner company conduct business territories reflected restructuring charges remaining purchase price winner 52 million consists 46 million indefinitelived intangible asset 1 million customer lists amortizable 10year period 5 million goodwill remaining purchase price ssc 60 million consists 52 million indefinitelived intangible asset 4 million customer lists amortizable 10year period 4 million goodwill associated winner ssc transactions deductible tax purposes june 30 2008 companys adt worldwide segment acquired firstservice security division firstservice corporation approximately 187 million firstservice security commercial security systems integrator provides full range integrated security system services including design engineering installation servicing monitoring access control closedcircuit television intrusion systems purchase price firstservice allocated preliminary basis consists 38 million net working capital assets 5 million property plant equipment net 52 million intangible assets 92 million goodwill associated firstservice transaction deductible tax purposes additionally 2008 cash paid acquisitions included continuing operations primarily within adt worldwide safety products totaled 38 million 2007 cash paid tyco international ltd notes consolidated financial statements 4 acquisitions continued acquisitions included continuing operations primarily within adt worldwide safety products flow control totaled 31 million cash paid acquisitions businesses included continuing operations 2006 5 million acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows aggregate amounts paid acquired businesses allocated assets acquired liabilities assumed based preliminary estimates fair value september 26 2008 purchase price allocation remains subject change based final valuations assets acquired liabilities assumed company expect finalization matters material effect allocations following represents preliminary purchase price allocations acquired businesses million acquisition liabilities september 26 2008 september 28 2007 acquisition liabilities included companys consolidated balance sheets follows millions acquisition liabilities relate facility exit costs employee severance benefits distributor supplier cancellation fees costs company paid 2 million 5 million 5 million fund acquisition liabilities 2008 2007 2006 respectively holdback liabilities company paid cash approximately 5 million 2 million 2007 2006 respectively relating holdback liabilities related certain prior period acquisitions payments 2008 holdback liabilities represent portion purchase price withheld seller pending finalization acquisition balance sheet contingencies september 26 2008 september 28 2007 holdback liabilities included companys consolidated balance sheets follows millions tyco international ltd notes consolidated financial statements 4 acquisitions continued adt dealer program 2008 2007 2006 tyco paid 376 million 409 million 373 million cash respectively acquire approximately 370000 415000 401000 customer contracts electronic security services adt dealer program 5 expense net expense net 224 million 2008 255 million 2007 expense net 2008 primarily relates loss 258 million extinguishment debt related consent solicitation exchange offers termination bridge loan facility offset income 6 million recorded connection settlement 3125 convertible senior debentures related financial instruments refer notes 13 15 company also recorded otherthantemporary impairments realized losses sale investments 6 million related primarily investments corporate debt refer note 10 additionally company recorded 40 million income result increase receivables due covidien tyco electronics tax sharing agreement upon adoption financial accounting standards board fasb interpretation fin 48 accounting uncertain income taxesan interpretation fasb statement 109 company also recorded 6 million expense activity accordance tax sharing agreement 2008 2007 expense net consisted primarily 259 million loss early extinguishment debt incurred connection debt tender offers undertaken connection separation tax benefit available charge consists primarily premiums paid writeoff unamortized debt issuance costs discounts total loss early extinguishment debt 647 million 259 million included continuing operations 388 million allocated covidien tyco electronics included discontinued operations 6 income taxes significant components income tax provision 2008 2007 2006 follows millions tyco international ltd notes consolidated financial statements 6 income taxes continued nonus income loss continuing operations income taxes 1010 million 2587 million 1040 million 2008 2007 2006 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 26 2008 september 28 2007 september 29 2006 follows millions 1excludes nondeductible charges items broken separately table included income taxes 2008 benefit increased profitability operations lower tax rate jurisdictions partially offset enacted tax law changes negatively impacted nonus deferred tax assets valuation allowance benefit includes tax impact 70 million associated business restructurings increased companys profitability certain jurisdictions included nondeductible charges 2007 class action settlement net 2862 billion additionally nondeductible charges include 105 million associated separation costs fully deductible well writeoff deferred tax assets entities liquidated part separation loss retirement debt includes charges related early extinguishment debt 259 million tax benefit available valuation allowance benefit includes tax impact 72 million associated identification tax planning ensure realization certain deferred tax assets well net benefit 51 million associated changes valuation allowances driven primarily increased profitability certain jurisdictions included loss retirement debt 2006 cumulative onetime benefit associated receipt favorable tax ruling fourth quarter 2006 permitting deduction prior year debt retirement costs previously benefited benefit partially offset valuation allowance net operating losses created debt retirement deductions tyco international ltd notes consolidated financial statements 6 income taxes continued deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 26 2008 september 28 2007 follows millions september 26 2008 company 3822 million net operating loss carryforwards certain nonus jurisdictions 3192 million expiration remaining 630 million expire future years 2028 us approximately 1478 million federal 1669 million state net operating loss carryforwards september 26 2008 expire future years 2028 valuation allowance deferred tax assets 745 million 644 million september 26 2008 september 28 2007 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets valuation allowance calculated accordance provisions sfas 109 accounting income taxes requires valuation allowance established maintained likely portion deferred tax assets realized september 26 2008 approximately 110 million valuation allowance ultimately reduce goodwill net operating losses utilized company subsidiaries income tax returns periodically examined various tax authorities tyco adopted recognition measurement disclosure provisions fin 48 september 29 2007 result adoption tyco increased reserve uncertain tax positions 55 million reduced deferred tax assets 24 million corresponding 79 million cumulative effect adoption adjustment shareholders equity adoption date tyco unrecognized tax benefits 370 million 241 million recognized would affect tyco international ltd notes consolidated financial statements 6 income taxes continued effective tax rate september 26 2008 tyco unrecognized tax benefits 369 million 248 million recognized would affect effective tax rate tyco accrued interest penalties related unrecognized tax benefits 49 million september 26 2008 tyco recognized 9 million income tax expense interest penalties accrued related unrecognized tax benefits tyco recognizes interest penalties accrued related unrecognized tax benefits income tax expense reconciliation beginning ending amount unrecognized tax benefit follows many tycos uncertain tax positions relate tax years remain subject audit taxing authorities us federal state local foreign jurisdictions open tax years significant jurisdictions follows based current status income tax audits company anticipate significant change unrecognized tax benefits next twelve months tax sharing agreement connection spinoffs covidien tyco electronics tyco entered tax sharing agreement generally governs covidiens tyco electronics tycos respective rights responsibilities obligations separation respect taxes including ordinary course business taxes incurred result failure distribution shares covidien tyco electronics qualify taxfree distribution us federal income tax purposes within meaning section 355 code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code tax sharing agreement company shares responsibility certain tycos covidiens tyco electronics income tax liabilities based sharing formula periods prior including june 29 2007 specifically tyco covidien tyco electronics share 27 42 31 respectively shared income tax liabilities arise adjustments made tax tyco international ltd notes consolidated financial statements 6 income taxes continued authorities tycos covidiens tyco electronics us income tax returns costs expenses associated management shared tax liabilities shared equally among parties tyco recorded receivable covidien tyco electronics 113 million september 26 2008 103 million september 28 2007 included assets estimate portion tax sharing obligations liabilities include 554 million 543 million september 26 2008 september 28 2007 respectively fair value tycos obligations tax sharing agreement determined accordance fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others tyco assesses shared tax liabilities related fin 45 liability reporting period receivable liability initially recognized offset shareholders equity 2007 first quarter 2008 connection adoption fin 48 related increase uncertain tax positions shared tax liabilities tax sharing agreement tyco increased receivable covidien tyco electronics tax sharing agreement corresponding increase income net 40 million 008 basic diluted earnings per share addition 6 million expense activity recorded accordance tax sharing agreement 2008 tyco provide payment tax sharing agreement shared income tax liabilities settled settlement expected occur audit process local taxing authorities completed impacted years given nature shared liabilities maximum amount potential future payments determinable event separation determined taxable determination result actions taken separation tyco covidien tyco electronics party responsible failure would responsible taxes imposed tyco covidien tyco electronics result thereof determination result actions taken separation tyco covidien tyco electronics tyco covidien tyco electronics would responsible 27 42 31 respectively taxes imposed tyco covidien tyco electronics result determination tax amounts could significant company responsible taxes shared pursuant tax sharing agreements sharing formula addition covidien tyco electronics responsible tax liabilities subject tax sharing agreements sharing formula party tax sharing agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party would required pay equally nondefaulting party amounts default addition another party tax sharing agreement responsible portion income tax liability default payment liability taxing authority company could legally liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances company may obligated pay amounts excess agreedupon share tycos covidiens tyco electronics tax liabilities see note 14 discussion guarantees indemnifications extended tyco covidien tyco electronics income tax matters company subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including internal revenue tyco international ltd notes consolidated financial statements 6 income taxes continued service irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments management assessed issues related adjustments recognition measurement fin 48 recorded unrecognized tax benefits accordance fin 48 ultimate resolution matters uncertain could result material impact companys financial position results operations cash flows effective tax rate future reporting periods 2004 connection irs audit 1997 2000 years company submitted irs proposed adjustments certain prior period us federal income tax returns resulting reduction taxable income previously filed 2006 irs accepted substantially proposed adjustments company developed proposed amendments us federal income tax returns additional periods 2002 basis previously accepted amendments company determined adjustments morelikelythannot accepted accordingly recorded consolidated financial statements adjustments material impact companys financial condition results operations cash flows additionally 2008 company completed proposed amendments us federal income tax returns periods subsequent 2002 primarily reflect roll forward 2006 amendments periods 1997 2002 adjustments material impact companys financial condition results operations cash flows final adjustments cannot determined income tax return amendment process irs review completed company believes resulting adjustments material impact financial condition results operations cash flows third quarter 2007 irs concluded field examination certain tycos us federal income tax returns years 1997 2000 issued revenue agents reports rars reflect irs determination proposed tax adjustments periods audit rars propose tax audit adjustments certain companys previously filed tax return positions company agreed irs adjustments totaling 498 million estimated cash impact company 458 million third quarter 2007 company paid 458 million 163 million related companys discontinued operations company appealed proposed tax audit adjustments totaling approximately 1 billion relating tyco covidien tyco electronics audit managing party specified tax sharing agreement company intends vigorously defend prior filed tax return positions second quarter 2008 irs issued additional rars asserting withholding tax liability approximately 106 million associated prior proposed tax adjustments related tyco covidien tyco electronics 1997 2000 period withholding tax amount asserted tyco immaterial first quarter fiscal 2009 company reached agreement irs appeals team work towards timely resolution unagreed issues related time period company audit managing party specified tax sharing agreement intends vigorously defend prior filed tax return positions determined adjustment required companys guarantees indemnifications liability recorded conjunction tax sharing agreement discussed note 14 additionally irs auditing prior tax returns company include legal entities tyco covidien tyco electronics 2001 2004 period irs issued rars period tyco international ltd notes consolidated financial statements 6 income taxes continued irs proposed civil fraud penalties prior subsidiary distributed tyco electronics arising alleged actions former executives connection intercompany transfers stock simplex technologies 1998 1999 based statutory guidelines estimate proposed penalties could range 30 million 50 million company audit managing party specified tax sharing agreement intends vigorously oppose assertion penalties tyco electronics part beginning 2003 company discovered investigated reported conduct issue irs fully cooperated criminal prosecution companys former chief tax officer charge willful filing false tax return preseparation shared tax matter tax sharing agreement except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations recognize potential liabilities record tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards adjust reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different current estimate tax liabilities management reviewed tax counsel certain issues raised taxing authorities adequacy recorded amounts companys estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities may result income tax benefits recognized period determine liabilities longer necessary substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year 7 cumulative effect accounting change 2006 company adopted fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fin 47 clarifies timing liability recognition legal obligations associated asset retirement timing method settling obligation conditional future event may within control entity clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation fin 47 requires conditional asset retirement obligations along associated capitalized asset retirement costs initially reported fair values upon adoption company recognized liability 32 million asset retirement obligations increase 10 million carrying amount related assets 19 million 5 million reflected liabilities assets discontinued operations respectively initial recognition resulted cumulative effect accounting change 14 million aftertax loss tyco international ltd notes consolidated financial statements 7 cumulative effect accounting change continued 22 million pretax reflecting accumulated depreciation accretion would recognized prior periods provisions fin 47 effect time 8 earnings per share discussed note 1 2007 company effected reverse stock split tycos common shares split ratio one four share per share data 2006 period presented adjusted reflect reverse stock split reconciliations basic diluted earnings per share 2008 2007 2006 follows millions except per share data computation diluted earnings per share 2008 excludes effect potential exercise options purchase approximately 19 million shares excludes restricted share awards deferred stock units approximately 4 million shares effect would antidilutive computation diluted earnings per share 2007 2006 excludes effect potential exercise options purchase approximately 29 million 21 million shares respectively excludes restricted share awards deferred stock units approximately 5 million 2 million respectively effect would antidilutive additionally computation diluted earnings per common share 2007 excludes impact convertible debt approximately 6 million shares effect would antidilutive 9 sale accounts receivable certain tycos international businesses utilize sale accounts receivable shortterm financing mechanisms aggregate amount outstanding companys remaining international accounts receivable programs 65 million 76 million 75 million september 26 2008 september 28 2007 september 29 2006 respectively 10 investments september 26 2008 september 28 2007 company availableforsale investments fair value 303 million 352 million cost basis 317 million 352 million respectively tyco international ltd notes consolidated financial statements 10 investments continued cost fair market value companys investments type security classification companys consolidated balance sheets follows millions september 26 2008 september 28 2007 investments continuous unrealized losses less 12 months 12 months greater related fair values follows millions september 26 2008 september 28 2007 company believes unrealized losses temporary nature company intent ability hold investments maturity company concluded unrealized losses temporary company believes market value partially due global market current economic conditions unprecedented levels ii securities continue tyco international ltd notes consolidated financial statements 10 investments continued high credit quality interest paid due iii company intent ability hold investments recovery market value occurs securities mature company believe unrealized losses represent otherthantemporary impairment based evaluation available evidence september 26 2008 future company determines decline value securities otherthantemporary company would recognize loss consolidated statements operations unrealized gains losses recorded accumulated comprehensive income companys consolidated balance sheets company recorded otherthantemporary impairment 5 million year ended september 26 2008 otherthantemporary impairment related investments corporate debt lehman brothers holding inc lehman filed petition chapter 11 us bankruptcy code us bankruptcy court southern district new york september 15 2008 lehman impairment company record additional otherthantemporary impairment years ended september 28 2007 september 29 2006 maturities companys investments debt securities september 26 2008 follows millions 11 goodwill intangible assets annually frequently triggering events occur company tests goodwill impairment comparing fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using companys weighted average cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired annual goodwill impairment testing fiscal year ended september 26 2008 carrying amount goodwill latin america fire protection business part fire protection services segment exceeded implied fair value goodwill result company recognized goodwill impairment 9 million fourth quarter 2008 furthermore company believes goodwill balance september 26 2008 recoverable connection separation third quarter 2007 tyco reorganized new management segment reporting structure part organizational changes company assessed new reporting units conducted valuations determine assignment goodwill new reporting units based estimated relative fair values following relative fair value goodwill allocation company tested goodwill impairment comparing fair value reporting unit carrying value amount carrying amount reporting unit exceeded fair value goodwill considered potentially impaired goodwill potentially impaired company compared implied fair value reporting unit goodwill carrying amount goodwill carrying amount goodwill exceeded implied fair value goodwill tyco international ltd notes consolidated financial statements 11 goodwill intangible assets continued australia new zealand security services business part adt worldwide segment result company recognized goodwill impairment 46 million third quarter 2007 determining fair value management relies number factors including operating results business plans economic projections anticipated future cash flows marketplace data inherent uncertainties related factors judgments applying analysis goodwill impairment however fair value determinations require considerable judgment sensitive changes factors described light current economic conditions additional impairments one reporting units could occur future periods whether connected annual impairment analysis company certain reporting units limited excess fair value carrying value goodwill balance reporting units less ten percent excess fair value carrying value aggregate approximately 24 billion september 26 2008 see note 1 goodwill impairments related continuing operations 2006 changes carrying amount goodwill 2008 2007 follows millions 1includes 69 million goodwill businesses met held sale criteria included assets held sale consolidated balance sheets therefore amount presented reduction goodwill rollforward third quarter 2008 company approved plan sell business safety products segment see note 2 goodwill related safety products business presented reduction goodwill period goodwill reallocated connection separation third quarter 2007 tyco international ltd notes consolidated financial statements 11 goodwill intangible assets continued changes carrying amount goodwill september 28 2007 september 26 2008 follows millions intangible assets net 2655 million 2653 million september 26 2008 september 28 2007 respectively following table sets forth gross carrying amount accumulated amortization companys intangible assets september 26 2008 september 28 2007 millions intangible asset amortization expense 2008 2007 2006 528 million 513 million 517 million respectively estimated aggregate amortization expense intangible assets currently owned company expected approximately 500 million 2009 350 million 2010 300 million 2011 250 million 2012 200 million 2013 indefinite lived intangible assets consisting primarily trade names tested impairment using relief royalty method company believes intangible assets balance september 26 2008 recoverable however fair value determinations require considerable judgment sensitive change light current economic conditions impairments intangible assets could occur future periods see note 1 discussion regarding changes estimated lives dealer intangibles tyco international ltd notes consolidated financial statements 12 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans loans outstanding current executives loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average rates effect first day preceding 12 months loans generally repayable ten years however earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property 2008 2007 maximum amount outstanding programs 24 million 52 million respectively loans receivable programs well unsecured advances outstanding 24 million september 26 2008 september 28 2007 total outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 27 million 26 million september 26 2008 september 28 2007 respectively rate interest charged loans 30 54 2008 2007 respectively interest income interest bearing loans totaled 1 million 1 million 2 million 2008 2007 2006 respectively certain loans totaling 4 million september 26 2008 september 28 2007 noninterest bearing fourth quarter 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified 2008 company engaged commercial transactions normal course business companies companys directors employed served officers purchases companies 2008 aggregated less 1 percent consolidated net revenue 2007 company engaged commercial transactions normal course business companies companys directors employed served officers including vf corporation rohm haas company mackey j mcdonald director retired effective march 7 2007 executive officer vf corporation 2007 rajiv l gupta director executive officer rohm haas company 2007 purchases companies 2007 aggregated less 1 percent consolidated net revenue 2006 company engaged commercial transactions normal course business companies companys directors employed served officers including marsh mclennan companies inc vf corporation rohm haas company sandra wijnberg director executive officer marsh mclennan companies inc prior resignation company march 31 2006 mackey j mcdonald director period executive officer vf corporation 2006 rajiv l gupta director executive officer rohm haas company 2006 purchases marsh mclennan companies inc 2006 approximately 16 million purchases companies noted 2006 aggregated less 1 percent consolidated net revenue 2001 tyco authorized compensation arrangements l dennis kozlowski mark h swartz companys chief financial officer director august 2002 connection tyco international ltd notes consolidated financial statements 12 related party transactions continued arrangements tyco purchased executive split dollar life insurance policies messrs kozlowski swartz entered shared ownership agreement whereby company agreed pay premiums insurance policies 11year period beginning 2001 amended policies executed providing additional companypaid premiums company cobeneficiary policies less amounts owed messrs kozlowski swartz messrs kozlowski swartz beneficiaries cash surrender values policies plus amount unpaid premiums companys obligations arrangements entered recognition services rendered officers contingent upon continuing employment time company deposited 31 million rabbi trust fund premiums policies event investment options within policies earn specified interest amounts tyco guaranteed supplemental premium payment amount ensure 10 annual return cash surrender value unpaid premiums liability accreted charge earnings throughout period arrangements make specified supplemental premium payments conjunction mr swartzs termination employment lump sum payment 25 million represented present value annual premium amounts termination date remainder contractual period made mr swartz return mr swartz waived tycos obligation continue making premium payments tyco discontinued making premium payments mr kozlowskis insurance policy october 1 2002 company filed affirmative actions mr kozlowski seeking disgorgement benefits executive life insurance policy pending resolution action mr kozlowski premium obligations since october 2002 drawn cash surrender value policy avoid termination policys death benefit september 27 2006 company mr kozlowski entered general release agreement terminated mr kozlowskis shared ownership agreement split dollar life insurance policy rabbi trust company continuing obligation make payment contributions respect split dollar insurance policy rabbi trust company recorded credit 72 million related liability 2006 within selling general administrative expenses consolidated statements operations consolidated financial statements include charges 7 million related mr kozlowskis life insurance policy 2006 25 million remained rabbi trust september 29 2006 received tyco first quarter 2007 company filed civil complaints messrs kozlowski swartz breach fiduciary duty wrongful conduct relating alleged abuses key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct june 2002 company filed civil complaint frank e walsh jr former director breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought sec united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged tyco international ltd notes consolidated financial statements 12 related party transactions continued mr walsh knew registration statement covering sale tyco securities part cit group acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 claims mr walsh still pending 13 debt september 26 2008 september 28 2007 follows millions 1these instruments plus 40 million amount shown comprise current portion longterm debt september 26 2008 2these instruments plus 13 million amount shown comprise current portion longterm debt september 28 2007 september 26 2008 company classified 116 million shortterm borrowings longterm settlement debt expected require use working capital next year company intent ability refinance debt longterm basis debt tenders connection settlement litigation arising separation related companys public debt june 3 2008 company along finance subsidiary tyco international finance sa tifsa whollyowned subsidiary company successor company tyco international group sa tigsa whollyowned subsidiary company organized laws luxembourg consummated consent solicitations exchange offers related certain series debt issued 1998 2003 indentures connection exchange offers tyco issued 422 million principal amount 70 notes due 2019 exchange equal principal amount 70 notes due 2028 707 million principal amount 6875 notes due 2021 exchange equal principal amount 6875 notes due 2029 connection consent solicitations holders companys 60 notes due 2013 6125 notes due 2008 6125 notes due 2009 675 notes due 2011 6375 notes due 2011 70 notes due 2028 6875 notes due 2029 collectively received consent payments totaling 250 million tyco international ltd notes consolidated financial statements 13 debt continued terms consent exchange offers evaluated debt modification accordance eitf 9619 debtors accounting modification exchange debt instruments determined 70 notes due 2028 6875 notes due 2029 extinguished cash flows new bonds compared original bonds substantially modified result new bonds 70 notes due 2028 6875 notes due 2029 tendered exchange recorded fair value upon completion exchange offers determining fair value company measured bonds initial issuance public done obtaining effective yield data derived comparable pricing received issuance bonds similar ratings covenants large public companies connection consent solicitations exchange offers company recorded 222 million charge expense net loss extinguishment debt charge comprised consent payments related extinguished bonds notes due 2028 2029 premium exchanged bonds represents difference fair value book value extinguished bonds writeoff original unamortized debt issuance costs well fees paid third parties associated bonds deemed extinguished remaining portion consent payment issuance costs amortized remaining life bonds may 2008 tifsa commenced issuing commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 26 2008 tifsa 116 million commercial paper outstanding bore interest average rate 295 year ended september 28 2007 company recorded 259 million charge expense net loss early extinguishment debt related debt tender offers connection separation bank revolving credit facilities june 24 2008 tyco tifsa entered 500 million senior unsecured revolving credit agreement citibank na administrative agent lenders party thereto credit agreement threeyear term borrowings agreement variable interest rate based libor alternate base rate margin libor vary based changes companys credit rating facility utilization together existing 125 billion fiveyear senior revolving credit agreement dated april 25 2007 companys total commitments facilities increased 175 billion revolving credit facilities used working capital expenditures corporate purposes september 26 2008 286 million drawn unsecured revolving credit facilities september 15 2008 lehman brothers holdings inc lehman filed petition chapter 11 us bankruptcy code us bankruptcy court southern district new york lehman one lenders companys 125 billion revolving credit facility commitment 60 million companys 500 million credit facility commitment lehman september 25 2008 company issued borrowing request 300 million 125 billion credit facility accordance terms agreement lehman portion tyco international ltd notes consolidated financial statements 13 debt continued commitment funded resulting total funding 286 million represented total amount outstanding revolving credit facilities september 26 2008 april 25 2007 tyco certain subsidiaries syndicate banks entered 364day unsecured bridge loan facility october 1 2007 commitments respect unused portion companys unsecured bridge loan facility expired subsequently renewed terminated connection overall facilitys termination june 2008 unsecured bridge loan facility provided company sufficient liquidity repay companys outstanding public debt borrowings 40 billion facility could used repay settle otherwise extinguish public debt subject ongoing litigation company trustee public debt june 2008 company settled litigation terminated facility connection facility termination company recorded 36 million charge expense net writeoff unamortized debt issuance costs june 21 2007 tyco tifsa entered 500 million letter credit facility citibank na administrative agent scheduled expire june 15 2008 facility provided issuance letters credit supported related line credit facility effective june 6 2008 facility commitments facility terminated tifsas bank credit agreements contain customary terms conditions financial covenants limit ratio companys debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property companys indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive companys business convertible debentures september 28 2007 tifsa 21 million outstanding 3125 convertible senior debentures due 2023 2015 put option 3125 convertible senior debentures august 25 2008 company delivered holders notice redemption 19 million remaining principal amount 3125 convertible senior debentures originally convertible tyco shares result separation transactions undertaken company 2007 debentures became convertible common shares tyco international ltd covidien ltd tyco electronics ltd 3125 convertible debentures converted 11496 common shares three separate companies per 1000 principal amount fourth quarter fiscal year 2008 company issued 217589 shares tyco common stock obtained shares covidien ltd tyco electronics connection redemption 3125 convertible senior debentures additionally fourth quarter company recorded gain 6 million upon exercise conversion option holders see note 15 last redemption date september 25 2008 notes outstanding date redeemed available cash september 26 2008 amounts remain outstanding 3125 convertible senior debentures debt information fair value debt approximately 40 billion book value 43 billion 45 billion book value 45 billion september 26 2008 september 28 2007 respectively based discounted cash flow analyses using current market interest rates tyco international ltd notes consolidated financial statements 13 debt continued aggregate amounts principal debt including capital leases maturing next five years thereafter follows millions 671 2009 22 2010 539 2011 1139 2012 7 2013 1874 thereafter included amount debt maturing 2009 116 million commercial paper borrowings company classified longterm september 26 2008 debt matures 2009 classified longterm consolidated balance sheet settlement debt expected require use working capital next year company intent ability refinance debt longterm basis weightedaverage interest rate total debt 62 63 september 26 2008 september 28 2007 respectively excluding impact interest rate swaps weightedaverage interest rate shortterm debt 61 55 september 26 2008 september 28 2007 respectively impact companys interest rate swap agreements reported interest expense material 2008 2007 net increase 10 million 2006 amount 6 million increase allocated included discontinued operations 14 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2008 completion transactions guarantees would triggered event nonperformance potential exposure nonperformance guarantees would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien tyco electronics accordance terms separation distribution agreement tax sharing agreement guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 6 discussion tax sharing agreement time separation tyco recorded liability necessary recognize fair value guarantees indemnifications accordance financial accounting standards board fasb interpretation fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others absence observable transactions identical similar guarantees company determined fair value guarantees indemnifications utilizing expected present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using companys incremental borrowing rate liability necessary reflect fair value guarantees indemnifications tax sharing agreement 554 million 543 million included liabilities consolidated balance sheet september 26 2008 september 28 2007 respectively guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 16 discussion tax sharing agreement addition tyco historically provided support form financial andor performance guarantees various covidien tyco electronics operating entities connection separation company worked guarantee counterparties cancel assign guarantees covidien tyco electronics extent guarantees assigned prior tyco international ltd notes consolidated financial statements 14 guarantees continued separation date tyco assumed primary liability remaining support estimated fair values obligations 7 million included liabilities consolidated balance sheets recorded accordance fin 45 offset shareholders equity separation date disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 16 discussion liabilities normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows company records estimated product warranty costs time sale information estimated product warranty see note 1 following roll forward companys warranty accrual 2008 millions 2001 division safety products initiated voluntary replacement program vrp associated acquisition central sprinkler vrp relates replacement certain oring seal sprinkler heads originally manufactured central sprinkler prior tycos acquisition program sprinkler heads replaced free charge property owners third quarter 2006 company completed comprehensive review reported claims recent claim rates cost trends assessed future program company determined additional liability necessary order satisfy companys obligation vrp result company recorded 100 million charge reflected cost sales may 1 2007 consumer products safety commission company announced august 31 2007 deadline filing claims participate vrp company fulfill valid claims replacement qualifying sprinklers received august 31 2007 fourth quarter 2007 company assessed expected cost complete program light current claims data determined additional accrual 10 million necessary satisfy estimated remaining obligation ultimate cost complete program impacted number factors changes material labor costs tyco international ltd notes consolidated financial statements 14 guarantees continued actual number sprinkler heads replaced actual results could differ estimate settlements 2008 include cash expenditures 49 million related vrp 15 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable investments accounts payable approximated book value september 26 2008 september 28 2007 see note 10 note 13 fair value investments estimates debt respectively derivative financial instruments reported consolidated balance sheets fair value changes derivatives fair value recognized currently earnings unless specific hedge criteria met fair value estimates based relevant market information including current market rates prices assuming adequate market liquidity company uses derivative financial instruments manage exposures foreign currency interest rate risks companys objective utilizing derivatives manage risks using effective methods eliminate reduce impacts exposures transactions designated hedges company documents relationships hedging instruments hedged items links derivatives designated fair value cash flow foreign currency hedges specific assets liabilities consolidated balance sheets specific firm commitments forecasted transactions designated hedges company also assesses documents hedges inception ongoing basis whether derivatives used hedging transactions effective offsetting changes fair values cash flows associated hedged items part managing exposure changes market interest rates company historically entered various interest rate swap transactions financial institutions acting principal counterparties ensure appropriate use hedge accounting treatment derivatives entered designated according hedge objective fluctuations interest rates specifically underwritten debt issuances companys primary hedge objectives include conversion fixedrate liabilities variable rates derivative financial instruments associated objectives designated accounted fair value hedges part managing exposure changes foreign currency exchange rates company utilizes forward option contracts financial institutions acting principal counterparties objective derivative contracts minimize impacts cash flows associated intercompany loans notes receivable accounts payable forecasted transactions due changes foreign currency exchange rates companys derivative financial instruments present certain market counterparty risks however concentration counterparty risk mitigated tyco deals variety major banks worldwide longterm standard poors moodys credit ratings aa2 higher addition conventional derivative financial instruments utilized thereby affording optimum clarity market risk none companys derivative financial instruments outstanding year end would result significant loss company counterparty failed perform according terms agreement time company require collateral security furnished counterparties derivative financial instruments tyco international ltd notes consolidated financial statements 15 financial instruments continued assessing current potential future risk attributable interest rate movements fourth quarter 2006 company terminated interest rate swaps cross currency agreements aggregate notional value 25 billion fair value swaps time termination net gain 10 million interest rate swaps designated hedging instruments outstanding debt net deferred loss 26 million recognized earnings remaining term related debt instrument remaining agreements terminated first quarter 2007 interest rate exposures company historically utilized interest rate swap agreements manage exposure interest rate risk first quarter 2007 company terminated interest rate swaps since interest rate swaps designated hedging instruments outstanding debt related loss amortized remaining life related debt instruments prior termination marktomarket effects interest rate swap agreements underlying debt obligations recorded interest expense directly offsetting extent hedges effective addition company historically utilized interest rate foreign currency swap agreements cross currency swaps manage exposure interest rate risk foreign currency exposure loans denominated foreign currency first quarter 2007 company terminated agreements settlement swaps terminated first quarter 2007 along 17 million swaps net gain position terminated fourth quarter 2006 resulted net cash inflow 63 million first quarter 2007 connection debt tender offer 9 million unamortized loss interest rate swaps accelerated recorded loss retirement debt included expense net see note 13 september 26 2008 september 28 2007 crosscurrency interest rate swaps outstanding prior termination marktomarket effects interest rate foreign currency swaps recorded interest expense selling general administrative expenses respectively directly offset corresponding changes fair value hedged items extent hedges effective ineffective portion hedge material foreign currency exposures tyco uses various options swaps forwards designated hedging instruments manage foreign currency exposures accounts notes receivable accounts payable intercompany loans forecasted transactions denominated certain foreign currencies derivatives designated hedging instruments company records changes fair value selling general administrative expenses income statement period change fair value instruments totaled 25 million 95 million september 26 2008 september 28 2007 respectively december 2006 due required changes legal entity structure facilitate separation company determined would longer consider certain intercompany foreign currency transactions longterm investments result related foreign currency transaction gains losses investments recorded income statement subsequent determination rather currency translation component shareholders equity forward contracts previously designated hedges net investments continued used manage exposure longer designated net investment hedges remaining forward tyco international ltd notes consolidated financial statements 15 financial instruments continued option contracts marked market changes derivatives fair value recognized income statement period ended september 28 2007 previously company hedged net investment certain foreign operations changes fair value forward contracts qualifying net investment hedges reported cumulative translation adjustment component accumulated comprehensive income extent hedges effective cumulative translation adjustment component comprehensive income included net loss 299 million 91 million 2007 2006 respectively hedges foreign currency exposure companys net investment certain foreign operations connection separation debt tender company dedesignated 6125 euro denominated public notes due 2007 march 29 2007 55 euro denominated public notes due 2008 65 british pound denominated public notes due 2031 may 21 2007 previously considered hedges net investments certain foreign operations september 26 2008 september 28 2007 company hedge net investments foreign operations net investment hedges outstanding borrowings denominated us dollars 2008 company designated certain intercompany loans permanent nature amount 21 billion september 26 2008 result company recorded 141 million cumulative translation adjustment accumulated comprehensive income september 26 2008 related loans convertible debentures given requirement convert companys 3125 convertible senior debentures shares tyco covidien tyco electronics company previously recognized asset fair value covidien tyco electronics shares liability related conversion option fourth quarter fiscal year 2008 company issued 217589 shares tyco common stock obtained shares covidien tyco electronics connection redemption companys 3125 convertible senior debentures company recorded income 6 million expense net related settlement previously recognized asset liability see note 13 september 26 2008 amounts remained outstanding 3125 convertible senior debentures 16 commitments contingencies company facility vehicle equipment leases expire various dates year 2027 rental expense leases 415 million 406 million 386 million 2008 2007 2006 respectively company also facility equipment commitments capital leases tyco international ltd notes consolidated financial statements 16 commitments contingencies continued following schedule minimum lease payments noncancelable leases september 26 2008 millions company also purchase obligations related commitments purchase certain goods services september 26 2008 obligations follows 53 million 2009 3 million 2010 0 million thereafter normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows connection separation company entered liability sharing agreement regarding certain legal actions pending tyco prior separation distribution agreement company covidien tyco electronics jointly severally liable full amount judgments resulting actions subject agreement generally relate legacy claims including erisa fcpa securities claims separation distribution agreement also provides responsible 27 covidien 42 tyco electronics 31 payments resolve matters costs expenses associated management contingencies shared equally among parties addition agreement company manage control legal matters related assumed contingent liabilities described separation distribution agreement including defense settlement thereof subject certain limitations tyco assumed 27 covidien assumed 42 tyco electronics assumed 31 certain tyco preseparation contingent corporate liabilities include securities class action litigation erisa class action litigation certain legacy tax contingencies actions respect distributions made separation made brought third party amounts relating contingent corporate liabilities paid tyco separation subject allocation provisions separation distribution agreement shared among tyco covidien tyco electronics pursuant allocation ratio described separation distribution agreement tyco electronics covidien jointly severally liable amounts relating previously disclosed securities class action settlement costs expenses tyco incurs connection defense litigation amount judgment settlement allocated manner described borne equally covidien tyco electronics tyco international ltd notes consolidated financial statements 16 commitments contingencies continued company subsidiaries income tax returns periodically examined various tax authorities see income tax matters note 6 class action settlement legacy securities matters result actions taken certain companys former senior corporate management tyco members companys former senior corporate management including former general counsel named defendants number actions alleging violations disclosure provisions federal securities laws addition tyco certain current former employees members companys former senior corporate management named defendants several employee retirement income security act erisa class actions company generally obligated indemnify directors officers named defendants matters extent required bermuda law company settled number legacy securities lawsuits 2008 2007 third quarter 2008 company signed definitive agreement plaintiff settle lawsuit entitled new jersey v tyco international ltd et al connection settlement company made payment 7325 million plaintiffs june 2 2008 pursuant separation distribution agreement companys share settlement amount approximately 20 million covidien tyco electronics responsible approximately 30 million 23 million respectively company recorded settlement related receivables covidien tyco electronics respective shares settlement amount second quarter 2008 resulting net charge selling general administrative expenses share settlement approximately 20 million also third quarter 2008 company settled lawsuit entitled ballard v tyco international ltd pursuant settlement company made payment 36 million plaintiffs subject sharing formula contained separation distribution agreement resulted company recording net charge selling general administrative expense approximately 10 million recording receivables tyco electronics covidien approximately 11 million 15 million respectively third quarter 2007 company settled 32 purported securities class action lawsuits arising actions alleged taken prior management 2975 billion amount company contributed 803 million representing share separation distribution agreement 2975 billion escrow account established connection settlement legal contingencies could affected final order approving settlement expired february 21 2008 claims administrator settlement class currently processing claims settlement purport resolve securities cases several cases remain outstanding addition settlement release claims arising erisa lawsuits arising thereunder optout deadline tyco received optout notices individuals entities totaling approximately 4 shares owned class members number individuals entities filed claims separately tyco judgments resulting claims filed future would reduce settlement amount generally claims asserted plaintiffs include claims similar asserted settling defendants namely violations disclosure provisions federal securities laws tyco intends vigorously defend litigation resulting optout claims possible predict final outcome estimate amount loss range possible loss might result adverse resolution asserted unasserted tyco international ltd notes consolidated financial statements 16 commitments contingencies continued claims individuals optedout legacy securities litigation cases result adverse judgment settled significant amount could material adverse effect financial position results operations cash flows terms separation distribution agreement tyco covidien tyco electronics jointly severally liable full amount legacy securities action settlement including erisa claims judgments resulting optout claims additionally separation distribution agreement companies shared liability escrow accounts related class action settlement tyco assuming 27 covidien 42 tyco electronics 31 settlement amount result tyco incurred charge expense tax benefit available current liability 2975 billion third quarter 2007 tyco borrowed unsecured bridge credit facilities fund liability placed proceeds escrow benefit class connection separation covidien tyco electronics assumed portion related borrowing company also recovered certain costs insurers result company recorded 113 million recoveries connection class action settlement consolidated statements operations 2007 based separation distribution agreement company recorded payables covidien tyco electronics portion 2007 recoveries offset shareholders equity company recovered additional 38 million costs insurers 2008 company recorded payables covidien tyco electronics respective shares 2008 recoveries resulting net 10 million credit recorded class action settlement net consolidated statement operations since legal contingencies could affected settlement exhausted february 21 2008 administration distribution settlement funds escrow managed counsel certified class tyco subject liability related class action settlement result tyco extinguished class action liability longer claim escrow account escrow accounts earned interest payable class result interest also accrued class action settlement liability february 21 2008 class action liability escrow account balances including interest 302 billion based separation distribution agreement tyco receivable covidien tyco electronics portion liability 1257 million 927 million respectively september 28 2007 corresponding payables covidien tyco electronics interest escrow accounts receivables payables pertain class action settlement related escrow accounts counterparty presented net consolidated balance sheet tycos portion liability 808 million september 28 2007 amounts extinguished second quarter 2008 erisa partial withdrawal liability assessment demand june 8 2007 simplexgrinnell received notice alleging partially withdrawn national automatic sprinkler industry pension fund title iv erisa fund prove employer completely partially withdraws multiemployer pension plan fund employer liable withdrawal liability equal proportionate share plans unfunded vested benefits alleged withdrawal results 1994 labor dispute grinnell fire protection systems simplexgrinnells predecessor road sprinkler fitters local union 669 tyco international ltd notes consolidated financial statements 16 commitments contingencies continued erisa requires payment withdrawal liability made full quarterly installments commencing upon receipt liability assessment plan plans assessment withdrawal liability generally may challenged arbitration erisa requires quarterly payments must continue made pendency arbitration employer prevails arbitration subsequent court appeals quarterly withdrawal liability payments refunded interest funds total withdrawal liability assessment simplexgrinnell approximately 25 million quarterly withdrawal liability payments 11 million 66 million paid date ultimate outcome uncertain simplexgrinnell believes strong arguments withdrawal liability owed fund plans vigorously defend funds withdrawal liability assessment matter currently arbitration company made provision contingency believes quarterly payments recoverable investigations company others received various subpoenas requests securities exchange commission secs division enforcement united states department labor state departments labor general service administration others seeking production voluminous documents connection various investigations companys governance management operations accounting related controls company cannot predict investigations completed company predict results investigations may possible company required pay material fines consent injunctions future conduct lose ability conduct business government entities instrumentalities turn could negatively impact companys business nongovernmental customers suffer penalties adverse impacts could material adverse effect companys business possible estimate amount loss range possible loss might result adverse resolution matters environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 26 2008 tyco concluded probable would incur remedial costs range approximately 37 million 76 million september 26 2008 tyco concluded best estimate within range approximately 43 million 10 million included accrued current liabilities 33 million included liabilities tycos consolidated balance sheet view companys financial position reserves environmental matters company believes potential payment estimated amounts material adverse effect financial position results operations cash flows tyco recorded asset retirement obligations aros according provisions sfas 143 accounting asset retirement obligations fin 47 estimated future costs associated legal obligations retire certain assets september 26 2008 september 28 2007 companys aros 13 million 12 million respectively company believes potential payment estimated amounts material adverse effect financial position results operations cash flows see discussions implementation fin 47 note 7 tyco international ltd notes consolidated financial statements 16 commitments contingencies continued asbestos matters tyco subsidiaries named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials consistent national trend increased asbestosrelated litigation company observed increase number lawsuits past several years limited number cases allege premises liability based claims individuals exposed asbestos subsidiarys property majority cases involve product liability claims based principally allegations past distribution heatresistant industrial products incorporating asbestos past distribution industrial valves incorporated asbestoscontaining gaskets packing case typically names dozens hundreds corporate defendants tycos involvement asbestos cases limited subsidiaries mine produce asbestos furthermore companys experience large percentage claims never substantiated result dismissed courts company continue vigorously defend lawsuits filed subsidiaries cannot predict whether successful cases proceed trial appropriate company settles claims although past total amount paid year settle defend asbestos claims immaterial tyco recently experienced increase number lawsuits proceeded trial lawsuits proceeded trial 2008 tyco settled one case one case returning adverse jury verdict approximately 77 million included compensatory punitive damages tyco filed posttrial motions seeking overturn verdict order new trial believes verdict ultimately overturned september 26 2008 approximately 4600 asbestos liability cases pending company subsidiaries company estimates pending asbestos claims incurred reported well related insurance indemnification recoveries certain claims companys estimate liability pending future claims based claim experience past five years covers claims expected filed next seven years company believes adequate amounts recorded related matters possible time determine certainty ultimate outcome asbestosrelated proceedings company believes final outcome known anticipated future claims taking account substantial indemnification rights insurance coverage material adverse effect companys financial position results operations cash flows compliance matters previously reported periodic filings received responded various allegations information certain improper payments made subsidiaries recent years previously reported informed two subsidiaries flow control business italy named request criminal charges filed milan public prosecutors office reported us department justice doj sec investigative steps remedial measures taken response allegations also informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance foreign corrupt practices act fcpa would continue make periodic progress reports agencies would present factual findings upon conclusion baseline review tyco international ltd notes consolidated financial statements 16 commitments contingencies continued continue communicate doj sec provide updates baseline review followup investigations including appropriate briefings concerning additional instances potential improper payments identified us course ongoing compliance activities covidien tyco electronics agreed connection separation cooperate company response allegations date baseline review revealed business practices may comply tyco fcpa requirements time cannot predict outcome matters allegations reported regulatory law enforcement authorities therefore cannot estimate range potential loss extent risk may result adverse resolution matters however possible may required pay material fines consent injunctions future conduct suffer penalties adverse impacts could material adverse effect financial position results operations cash flows judgment required paid settlement cost incurred tyco connection fcpa investigations matters would subject liability sharing provisions separation distribution agreement assigned liabilities primarily related former healthcare electronics businesses tyco covidien tyco electronics respectively provides tyco retain liabilities primarily related continuing operations liabilities primarily related particular segment shared equally among tyco covidien tyco electronics german federal cartel office fco charged early 2007 certain german subsidiaries tycos flow control business engaged anticompetitive practices particular regard hydrant valve street box fittings business tyco investigated matter determined conduct may violated german antitrustlaw tyco cooperating fco investigation violation tyco cannot estimate range potential loss may result violation possible company may subject civil criminal proceedings may required pay judgments suffer penalties incur settlements amounts may material adverse effect financial position results operations cash flows matters fitzpatrick contractors limited v tyco fire integrated solutions uk ltd july 18 2007 fitzpatrick contractors limited fcl commenced action tyco fire integrated solutions uk ltd high court justice queen bench division technology construction court united kingdom alleging tyco entered binding contract 2002 design manufacture installation mechanical electrical works refurbishment portion london transports blackwell tunnel fcl seeks damages breach contract amount approximately 38 million reserved best estimate probable loss related matter tyco intends defend action vigorously possible time predict final outcome dispute tyco believe action material adverse effect financial position results operations cash flows beyond accrued trial expected begin april 2009 company defendant number pending legal proceedings incidental present former operations acquisitions dispositions company expect outcome proceedings either individually aggregate material adverse effect financial position results operations cash flows tyco international ltd notes consolidated financial statements 17 retirement plans september 2006 fasb issued sfas 158 requires recognition funded status defined benefit pension postretirement benefit plans companys consolidated balance sheets sfas 158 requires recognition actuarial gains losses prior service costs yet included net periodic benefit cost component accumulated comprehensive income net tax company adopted recognition disclosure provisions sfas 158 september 28 2007 company uses measurement date august 31st defined benefit pension plans company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation connection separation company legally separated certain pension plans included participants tyco healthcare tyco electronics subsidiaries result company remeasured assets projected benefit obligation separated pension plans impact remeasurement continuing operations immaterial also 2007 company completed merger certain pension plans united kingdom resulted increase minimum pension liability corresponding decrease accumulated comprehensive income 10 million net income taxes net periodic benefit cost us nonus defined benefit pension plans 2008 2007 2006 follows millions estimated net loss prior service cost us pension benefit plans amortized accumulated comprehensive income net periodic benefit cost next fiscal year expected 10 million 1 million respectively tyco international ltd notes consolidated financial statements 17 retirement plans continued estimated net gain prior service cost nonus pension benefit plans amortized accumulated comprehensive income net periodic benefit cost next fiscal year expected 24 million 3 million respectively change benefit obligations plan assets amounts recognized consolidated balance sheets us nonus defined benefit plans september 26 2008 september 28 2007 follows millions tyco international ltd notes consolidated financial statements 17 retirement plans continued accumulated benefit obligation us plans september 26 2008 september 28 2007 723 million 776 million respectively accumulated benefit obligation nonus plans september 26 2008 september 28 2007 1379 million 1458 million respectively accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 473 million 417 million respectively september 26 2008 111 million 67 million respectively september 28 2007 accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 1350 million 1055 million respectively september 26 2008 1268 million 981 million respectively september 28 2007 aggregate benefit obligation fair value plan assets us pension plans benefit obligations excess plan assets 475 million 417 million respectively september 26 2008 111 million 67 million respectively september 28 2007 aggregate benefit obligation fair value plan assets nonus pension plans benefit obligations excess plan assets 1419 million 1066 million respectively september 26 2008 1508 million 1167 million respectively september 28 2007 determining expected return plan assets company considers relative weighting plan assets class individual asset class performance expectations provided external advisors companys investment strategy pension plans manage plans goingconcern basis current investment policy achieve superior return assets subject prudent tyco international ltd notes consolidated financial statements 17 retirement plans continued level portfolio risk purpose enhancing security benefits participants us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 52 equity securities 43 debt securities 5 asset classes including real estate cash equivalents pension plans following weightedaverage asset allocations although company buy sell stock direct investment pension funds due external investment management funds plans may indirectly hold tyco stock aggregate amount shares would considered material relative total fund assets companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates contribute least minimum required pension plans 2009 5 million us plans 58 million nonus plans benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 1 million 3 million 3 million 2008 2007 2006 respectively executive retirement arrangements messrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 26 2008 76 million 39 million respectively companys accrued benefit tyco international ltd notes consolidated financial statements 17 retirement plans continued obligations messrs kozlowski swartz september 28 2007 71 million 36 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era dispute company defined contribution retirement plans company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 84 million 78 million 73 million 2008 2007 2006 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans gain related serp 1 million 2008 expense 3 million 2007 2 million 2006 incurred deferred compensation plans company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation gain 1 million expense 13 million 6 million 2008 2007 2006 respectively total deferred compensation liabilities 91 million 100 million september 26 2008 september 28 2007 respectively rabbi trusts fiscal year 2007 company permitted trust agreement sold substantially assets one trusts received 271 million proceeds trust assets primarily composed corporateowned life insurance policies remaining trust assets totaled 2 million september 26 2008 september 28 2007 trust assets consolidated subject claims companys creditors event companys insolvency plan participants general creditors company respect benefits postretirement benefit plans company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits net periodic postretirement benefit cost 2008 2007 2006 follows millions tyco international ltd notes consolidated financial statements 17 retirement plans continued components accrued postretirement benefit obligations substantially unfunded september 26 2008 september 28 2007 follows millions company expects make contributions postretirement benefit plans 7 million 2009 tyco international ltd notes consolidated financial statements 17 retirement plans continued benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions measurement purposes 94 96 composite annual rate increase per capita cost covered health care benefits assumed september 26 2008 september 28 2007 respectively september 26 2008 september 28 2007 composite annual rate increase health care benefit costs assumed decrease gradually 50 year 2015 2014 respectively remain level thereafter onepercentagepoint change assumed healthcare cost trend rates would following effects millions 18 shareholders equity preference sharestyco authorized 31250000 preference shares par value 4 per share none issued outstanding september 26 2008 september 28 2007 rights dividends return capital redemption conversion voting otherwise respect preference shares may determined tycos board directors time issuance event liquidation company holders preference shares outstanding would entitled payment amount preference shares subscribed unpaid dividends prior payment common shareholders dividendson september 9 2008 tycos board directors approved quarterly dividend companys common shares 020 per share paid november 3 2008 shareholders record october 1 2008 tyco paid quarterly cash dividend 015 per common share fiscal year 2008 040 per common share fiscal 2007 fiscal 2006 shares owned subsidiaries common shares held treasuryshares owned subsidiaries treated treasury shares recorded cost connection separation shares effectively retired third quarter 2007 repurchases commenced fourth quarter 2007 2008 company amended bylaws allow companys board directors authorize company purchase hold shares treasury result shares repurchased prior july 7 2008 classified shares owned subsidiaries shares repurchased date classified common shares held treasury consolidated balance sheet september 26 2008 board directors may authorize purchase companys common shares may held canceled disposed transferred cash consideration tyco international ltd notes consolidated financial statements 18 shareholders equity continued share repurchase programon july 10 2008 tycos board directors approved 10 billion share repurchase program september 2007 may 2006 tycos board directors approved share repurchase programs 10 billion 20 billion respectively fourth quarter 2008 company repurchased 73 million shares 290 million 25 million common shares repurchased 100 million 2008 share repurchase program 48 million shares repurchased 190 million 2007 share repurchase program fiscal 2008 company repurchased 231 million common shares 944 million completing 2007 10 billion share repurchase program 2007 company repurchased 13 million common shares 56 million 2007 10 billion share repurchase program 5 million common shares 659 million completing 2006 20 billion share repurchase program 2006 company repurchased 11 million common shares 12 billion completing 2005 15 billion share repurchase program 13 million common shares 13 billion 2006 20 billion share repurchase program 19 share plans connection separation 2007 share options modified issuance covidien tyco electronics share options result one four share split share option exercise prices tyco awards adjusted generally employee share options converted share options employer exception corporate employees whose awards converted share options three companies revisions made share options result separation constituted modification provisions sfas 123r sharebased payment requires comparison fair values share options immediately separation fair values immediately separation certain instances fair value immediately separation higher result modification resulted incremental compensation cost 15 million amount 1 million 13 million 11 million discontinued operations recorded 2008 2007 respectively 2008 amount included selling general administrative expenses 2007 amount included separation costs companys consolidated statements operations remaining balance recorded continuing operations remaining vesting period share options except changes described principal terms share options remain unchanged original grant also connection separation tyco employee restricted share awards restricted stock units collectively restricted share awards modified issuance covidien tyco electronics restricted shares conversion shares employer restricted shares restricted share units held employees company employed subject accelerated vesting provisions vested 50 first day trading separation 50 six months thereafter accelerated vesting resulted 14 million accelerated compensation expense tycos continuing operations tyco recorded 12 million selling general administrative expenses fourth quarter 2007 recorded remaining expense first quarter 2008 equity awards saveasyouearn plan saye plan modified connection separation thereby resulting additional compensation expense 14 million amount 7 million 1 million discontinued operations 5 million 2 million discontinued operations recorded 2008 2007 respectively balance 2 million recorded remaining vesting period second quarter 2009 tyco international ltd notes consolidated financial statements 19 share plans continued except changes described principal terms conditions restricted shares restricted units deferred stock units employees remain unchanged original grant company amended terms performance based awards granted november 22 2005 provide vesting remaining awards without regard original performance measures original performance awards previously adjusted reflect attainment performance metrics fiscal year 2006 converted time based restricted stock units employer exception corporate employees whose outstanding awards converted time based restricted stock units three separate companies effective october 1 2005 company adopted provisions sfas 123r using modified prospective transition method transition method compensation cost recognized beginning october 1 2005 includes compensation cost sharebased payments granted prior yet vested october 1 2005 based grantdate fair value estimated accordance original provisions sfas 123 accounting stockbased compensation ii sharebased payments granted subsequent september 30 2005 based grantdate fair value estimated accordance provisions sfas 123r compensation cost generally recognized ratably requisite service period retirement eligibility shorter total sharebased compensation cost recognized 2008 104 million includes 97 million selling general administrative expenses 3 million separation costs 4 million discontinued operations total sharebased compensation cost recognized 2007 297 million includes 155 million selling general administrative expenses 13 million restructuring asset impairment charges net 6 million separation costs 123 million discontinued operations total sharebased compensation cost recognized 2006 288 million includes 155 million selling general administrative expenses 133 million discontinued operations company recognized related tax benefit associated sharebased compensation arrangements 2008 2007 2006 28 million 78 million 85 million respectively 1 million 31 million 41 million included discontinued operations respectively 2004 tyco international ltd 2004 stock incentive plan 2004 plan effectively replaced tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan well tyco international ltd 1994 restricted stock ownership plan key employees 1994 plan awards effective march 25 2004 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted stock deferred stock units promissory stock stockbased awards collectively awards 2004 plan provides maximum 40 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance ltip plans awarded thereunder january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 march 25 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu tyco international ltd notes consolidated financial statements 19 share plans continued common shares january 1 2004 longer available reason including termination ltip plans also available issuance 2004 plan common shares issued pursuant grant awards total number common shares remaining available grant decreased margin least 18 per common share issued september 26 2008 approximately 34 million shares available future grant 2004 plan including shares available ltip ii plans assumable 2004 plan 1994 plan provided issuance restricted stock grants officers nonofficer employees 1994 plan expired november 2004 thus additional grants restricted stock made plan since november 2004 shares available future grant september 26 2008 14 million shares granted 10 million granted 2004 plan 4 million granted 1994 plan ltip plan reserved common shares issuance tycos directors executives managers share options plan administered compensation human resources committee board directors company consisted exclusively independent directors company 2008 approximately 05 million shares originally reserved issuance plan became available future grant 2004 plan ltip ii plan broadbased option plan nonofficer employees terms conditions plan similar ltip plan 2008 approximately 11 million shares originally reserved issuance plan became available future grant 2004 plan share optionsoptions granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant 2004 plan options generally exercisable equal annual installments period three four years generally expire 10 years date grant historically companys practice settle stock option exercises either newly issued shares held treasury repurchased company september 26 2008 approximately 251 million share options granted 138 million 76 million 37 million granted ltip ii 2004 plans respectively grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service periods awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based historical volatility companys stock implied volatility derived exchange traded options postseparation expected volatility calculated based analysis historic implied volatility measures set peer companies average expected life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well tyco international ltd notes consolidated financial statements 19 share plans continued analysis actual share option forfeitures weightedaverage assumptions used blackscholes option pricing model 2008 2007 2006 follows weightedaverage grantdate fair values options granted 2008 2007 2006 1106 1535 1433 respectively total intrinsic value options exercised 2008 2007 2006 16 million 163 million 108 million respectively related excess cash tax benefit classified financing cash inflow 2008 2007 2006 significant summary option activity september 26 2008 changes year ended presented september 26 2008 48 million total unrecognized compensation cost related nonvested options granted cost expected recognized weightedaverage period 24 fiscal years employee stock purchase plans substantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan eligible employees authorize payroll deductions made purchase shares company matches portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker saye plan eligible employees united kingdom granted options purchase shares end three years service 85 market price time grant options saye plan generally exercisable period three years expire six months date vesting saye plan provides maximum 10 million common shares issued september 26 2008 7 million shares available future issuance shares purchased saye plan purchased open market tyco international ltd notes consolidated financial statements 19 share plans continued summary option activity saye plan september 26 2008 changes year ended presented grantdatefair value option grant estimated using blackscholes option pricing model assumptions expected volatility average expected life riskfree rate well expected annual dividend per share made using methodology previously described share options weightedaverage grantdate fair values options granted saye plan 2008 2006 1418 880 respectively options granted saye plan 2007 total intrinsic value options exercised 2008 2007 2006 3 million 5 million 24 million respectively related excess cash tax benefit classified financing cash inflow 2008 2007 2006 significant september 26 2008 4 million total unrecognized compensation cost related nonvested options granted saye plan cost expected recognized period 12 fiscal years restricted share awards restricted share awards granted subject certain restrictions conditions vesting determined time grant 2004 plan restrictions award lapse upon normal retirement death disability employee grants vest based certain specified performance criteria fair market value shares units expensed period performance achievement criteria deemed probable grants vest passage time fair market value award time grant amortized expense period vesting fair value restricted share awards determined based market value companys shares grant date restricted share awards generally vest period three four years determined compensation committee upon attainment various levels performance equal exceed targeted levels applicable compensation expense recognized restricted share awards net estimated forfeitures recipients restricted shares right vote shares receive dividends whereas recipients restricted units voting rights receive dividend equivalents tyco international ltd notes consolidated financial statements 19 share plans continued summary status companys restricted share awards including performance shares september 26 2008 changes year ended presented tables weightedaverage grantdate fair value restricted share awards granted 2008 2007 2006 4027 4949 4537 respectively total fair value restricted share awards vested 2008 2007 2006 41 million 58 million 26 million respectively weightedaverage grantdate fair value performance share awards granted 2008 2007 2006 4611 5949 4437 respectively total fair value performance shares vested 2007 1 million 2006 insignificant performance shares vested 2008 september 26 2008 86 million total unrecognized compensation cost related nonvested restricted share awards performance shares cost expected recognized weightedaverage period 24 fiscal years deferred stock units deferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment distribution made form actual shares similar restricted share grants vest passage time fair value dsus determined based market value companys shares grant date amortized expense vesting period recipients dsus right vote shares right receive cash dividends however right receive dividend equivalents conditions vesting determined time grant 2004 plan majority tycos dsu grants vest equal annual installments three years company granted 1 million dsus majority outstanding september 26 2008 tyco international ltd notes consolidated financial statements 19 share plans continued summary status companys dsus september 26 2008 changes year ended presented table weightedaverage grantdate fair value dsus granted 2008 2007 2006 4496 4229 4495 respectively total fair value dsus vested 2008 2007 2006 2 million 8 million 4 million respectively september 26 2008 dsus vested 20 comprehensive income components accumulated comprehensive income follows millions 1during years ended september 26 2008 september 28 2007 september 29 2006 58 million 6 million 34 million respectively transferred currency translation adjustments result sale foreign entities amounts included income discontinued operations 2the year ended september 29 2006 includes reclassification unrealized gains 1 million related sale certain investments included income discontinued operations reclassification unrealized gains 2008 2007 material tyco international ltd notes consolidated financial statements 21 consolidated segment geographic data segment information consistent management reviews businesses makes investing resource allocation decisions assesses operating performance connection separation company realigned management segment reporting structure effective march 31 2007 segment data presented reflects new segment structure company reports financial operating information following five segments •adt worldwide designs sells installs services monitors electronic security systems residential commercial industrial governmental customers •flow control designs manufactures sells services valves pipes fittings valve automation heat tracing products water wastewater markets oil gas energy markets along general process industries •fire protection services designs sells installs services fire detection fire suppression systems commercial industrial governmental customers •electrical metal products designs manufactures sells galvanized steel tubing armored wire cable metal products nonresidential construction electrical fire safety mechanical customers •safety products designs manufactures sells fire protection security life safety products including fire suppression products breathing apparatus intrusion security access control video management systems addition safety products manufactures products installed serviced adt worldwide fire protection services tyco also provides general corporate services segments costs reported corporate selected information new segment structure presented following tables 2008 2007 2006 millions 1revenue operating segment excludes intercompany transactions tyco international ltd notes consolidated financial statements 21 consolidated segment geographic data continued 1corporate 2007 includes net charge 2862 billion related class action settlement total assets segment september 26 2008 september 28 2007 september 29 2006 follows millions depreciation amortization capital expenditures net segment years ended september 26 2008 september 28 2007 september 29 2006 follows millions tyco international ltd notes consolidated financial statements 21 consolidated segment geographic data continued net revenue geographic area years ended september 26 2008 september 28 2007 september 29 2006 follows millions 1revenue attributed individual countries based reporting entity records transaction longlived assets geographic area september 26 2008 september 28 2007 september 29 2006 follows millions 1longlived assets comprised primarily property plant equipment exclude goodwill intangible assets deferred taxes shared assets tyco international ltd notes consolidated financial statements 22 supplementary balance sheet cash flow information selected supplementary balance sheet information september 26 2008 september 28 2007 follows millions 1property capital leases consists primarily buildings 2accumulated amortization capital lease assets 23 million 19 million september 26 2008 september 28 2007 respectively supplementary noncash financing activities september 26 2008 september 28 2007 september 29 2006 follows millions tyco international ltd notes consolidated financial statements 23 summarized quarterly financial data unaudited summarized quarterly financial data years ended september 26 2008 september 28 2007 follows millions except per share data 1net revenue excludes 425 million revenue related discontinued operations income continuing operations includes restructuring asset impairment divestiture charges net 14 million separation costs 9 million 2net revenue excludes 418 million revenue related discontinued operations income continuing operations includes restructuring asset impairment divestiture charges net 42 million legacy legal settlement charge 20 million slightly offset 5 million credit related separation costs 3net revenue excludes 264 million revenue related discontinued operations income continuing operations includes restructuring asset impairment charges net 53 million legacy legal settlement charge 9 million offset credit 7 million class action settlement recoveries 4net revenue excludes 114 million revenue related discontinued operations income continuing operations includes restructuring asset impairment divestiture charges net 139 million goodwill impairment charges 9 million environmental remediation charge 6 million related closure facility north america offset credit 3 million class action settlement recoveries tyco international ltd notes consolidated financial statements 23 summarized quarterly financial data unaudited continued 1net revenue excludes 6023 million revenue related discontinued operations income continuing operations includes restructuring asset impairment divestiture charges net 57 million separation costs 25 million 2net revenue excludes 6351 million revenue related discontinued operations income continuing operations includes restructuring asset impairment divestiture charges net 46 million separation costs 32 million 3net revenue excludes 6465 million revenue related discontinued operations income continuing operations includes class action settlement charge net 2875 billion 259 million charge related loss early extinguishment debt goodwill impairment charge 46 million restructuring asset impairment divestiture charges net 48 million separation costs 28 million 4net revenue excludes 432 million revenue related discontinued operations income continuing operations includes restructuring asset impairment divestiture charges net 60 million separation costs 20 million 13 million insurance recovery related class action settlement 10 million charges related voluntary replacement program income tax provision includes negative impact approximately 58 million related changes valuation allowances reserve adjustments nondeductible costs partially offset favorable adjustments approximately 48 million related prior periods 24 tyco international finance sa tifsa whollyowned subsidiary company public debt securities outstanding see note 13 fully unconditionally guaranteed tyco tifsa formed december 2006 holding company established connection separation successor company tigsa third quarter 2007 tigsas assets liabilities contributed tifsa covidien tyco electronics tigsa put liquidation june 1 2007 tifsa directly indirectly owns substantially operating subsidiaries company performs treasury operations assumed indebtedness tigsa following tables present condensed consolidating financial information tyco tifsa subsidiaries condensed financial information tyco tifsa standalone basis presented using equity method accounting subsidiaries second quarter 2008 company completed taxfree restructuring involving transfer certain investments tyco tifsa since transactions entirely among whollyowned subsidiaries tyco impact companys consolidated financial position results operations cash flows transactions however result increase tifsas investment subsidiaries 19 billion since transactions among entities common control effects reflected beginning earliest period presented tyco international ltd notes consolidated financial statements 24 tyco international finance sa continued consolidating statement operations year ended september 26 2008 millions tyco international ltd notes consolidated financial statements 24 tyco international finance sa continued consolidating statement operations year ended september 28 2007 millions tyco international ltd notes consolidated financial statements 24 tyco international finance sa continued consolidating statement operations year ended september 29 2006 millions tyco international ltd notes consolidated financial statements 24 tyco international finance sa continued consolidating balance sheet september 26 2008 millions tyco international ltd notes consolidated financial statements 24 tyco international finance sa continued consolidating balance sheet september 28 2007 millions tyco international ltd notes consolidated financial statements 24 tyco international finance sa continued consolidating statement cash flows year ended september 26 2008 millions tyco international ltd notes consolidated financial statements 24 tyco international finance sa continued consolidating statement cash flows year ended september 28 2007 millions tyco international ltd notes consolidated financial statements 24 tyco international finance sa continued consolidating statement cash flows year ended september 29 2006 millions 25 subsequent events october 7 2008 company acquired vue technology inc leading provider radio frequency identification rfid technology approximately 43 million strengthen technology portfolio offered retailers sensormatic business tyco international ltd notes consolidated financial statements 25 subsequent events continued october 7 2008 company granted tyco employees 53 million share options weightedaverage grantdate fair value 715 per share date grant additionally company granted 17 million 10 million restricted stock units performance share units fair value 2900 2784 per share date grant respectively first quarter 2009 company agreed settle sciallo v tyco international ltd et al hess v tyco international ltd et al approximately 2 million 16 million respectively amounts company responsible aggregate approximately 5 million terms separation distribution agreement tyco international ltd schedule iivaluation qualifying accounts millions documents incorporated reference part item 1 business item 1a risk factors item 1b unresolved staff comments item 2 properties item 3 legal proceedings part ii item 6 selected financial data item 7 managements discussion analysis financial condition results operations critical accounting policies estimates liquidity capital resources commitments contingencies offbalance sheet arrangements accounting pronouncements forwardlooking information item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers corporate governance item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions director independence item 14 principal accountant fees services part iv item 15 exhibits financial statement schedules signatures tyco international ltd index consolidated financial information managements responsibility financial statements report independent registered public accounting firm report independent registered public accounting firm tyco international ltd consolidated statements operations years ended september 26 2008 september 28 2007 september 29 2006 millions except per share data tyco international ltd consolidated balance sheets september 26 2008 september 28 2007 millions except share data tyco international ltd consolidated statements shareholders equity years ended september 26 2008 september 28 2007 september 29 2006 millions tyco international ltd consolidated statements cash flows years ended september 26 2008 september 28 2007 september 29 2006 millions tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements tyco international ltd notes consolidated financial statements consolidating statement operations year ended september 26 2008 millions consolidating statement operations year ended september 28 2007 millions tyco international ltd notes consolidated financial statements consolidating statement operations year ended september 29 2006 millions consolidating balance sheet september 26 2008 millions consolidating balance sheet september 28 2007 millions tyco international ltd notes consolidated financial statements consolidating statement cash flows year ended september 26 2008 millions consolidating statement cash flows year ended september 28 2007 millions consolidating statement cash flows year ended september 29 2006 millions tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules a1 2 financial statements supplementary datasee item 8 3exhibit index 1management contract compensatory plan 2in july 1997 whollyowned subsidiary formerly called adt limited adt merged tyco international ltd massachusetts corporation time former tyco upon consummation merger adt continuing public company changed name tyco international ltd tyco former tyco became whollyowned subsidiary tyco changed name tyco international us inc bsee item 15a3 csee item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer date november 16 2009 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant november 16 2009 capacities indicated name title edward breen edward breen chairman chief executive officer director principal executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer carol anthony davidson carol anthony davidson senior vice president controller chief accounting officer principal accounting officer timothy donahue director brian duperreault director bruce gordon director rajiv l gupta director judith reinsdorf signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report judith reinsdorf judith reinsdorf attorneyinfact tyco international ltd index consolidated financial statements page managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations consolidated balance sheets consolidated statements shareholders equity consolidated statements cash flows notes consolidated financial statements schedule iivaluation qualifying accounts managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior team leading example includes every one tycos global employees well customers suppliers business partners one crucial objectives continuing maintain build public employee shareholder confidence restored tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2009 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls edward breen edward breen chairman chief executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 25 2009 september 26 2008 related consolidated statements operations shareholders equity cash flows three fiscal years period ended september 25 2009 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tyco international ltd subsidiaries september 25 2009 september 26 2008 results operations cash flows three fiscal years period ended september 25 2009 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements effective september 29 2007 company adopted new accounting guidance accounting uncertain income tax positions ii company changed depreciation method estimated useful life used account pooled subscriber system assets related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years effective beginning third quarter fiscal 2007 iii company adopted new accounting guidance recognition related disclosure provisions defined benefit pension postretirement plans effective september 29 2007 related guidance measurement date effective september 27 2008 also audited accordance standards public company accounting oversight board united states companys internal control financial reporting september 25 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated november 16 2009 expressed unqualified opinion companys internal control financial reporting deloitte touche llp new york new york november 16 2009 report independent registered public accounting firm board directors shareholders tyco international ltd audited internal control financial reporting tyco international ltd subsidiaries company september 25 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting september 25 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements financial statement schedule fiscal year ended september 25 2009 company report dated november 16 2009 expressed unqualified opinion financial statements financial statement schedule included explanatory paragraph regarding companys adoption new accounting guidance defined benefit pension postretirement plans deloitte touche llp new york new york november 16 2009 tyco international ltd consolidated statements operations years ended september 25 2009 september 26 2008 september 28 2007 millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets september 25 2009 september 26 2008 millions except share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 25 2009 september 26 2008 september 28 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 25 2009 september 26 2008 september 28 2007 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd corporation organized laws switzerland subsidiaries tyco subsidiaries hereinafter collectively referred company tyco effective march 17 2009 following shareholder board director approval march 12 2009 company ceased exist bermuda corporation continued existence swiss corporation articles 620 et seq swiss code obligations change domicile rights holders companys common shares governed swiss law companys swiss articles association swiss organizational regulations financial statements prepared united states dollars usd accordance generally accepted accounting principles united states gaap certain information described article 663663h swiss code obligations presented companys swiss statutory financial statements period ended september 25 2009 unless otherwise indicated references consolidated financial statements 2009 2008 2007 tycos fiscal year ended september 25 2009 september 26 2008 september 28 2007 respectively effective june 29 2007 tyco completed spinoffs covidien tyco electronics formerly healthcare electronics businesses respectively separate publicly traded companies separation form distribution tyco shareholders distribution made june 29 2007 tyco shareholders record june 18 2007 tyco shareholder received 025 common share covidien tyco electronics tyco common share held record date tyco shareholders received cash lieu fractional shares amounts less one covidien tyco electronics common share distribution structured taxfree tyco shareholders except extent cash received lieu fractional shares company party separation distribution tax sharing certain agreements determined significant continuing involvement covidien tyco electronics therefore company classified covidien tyco electronics discontinued operations periods prior separation additionally distribution date company approved board directors effected reverse stock split tycos common shares split ratio 1for4 shareholder approval reverse stock split obtained march 8 2007 special general meeting shareholders share per share data periods presented adjusted reflect reverse stock split 2008 2007 company incurred pretax costs related separation 275 million 1083 million respectively costs include loss early extinguishment debt refinancing tax restructuring professional services employeerelated costs amounts 4 million 105 million included separation costs 2008 2007 respectively additionally 258 million 259 million 2008 2007 respectively related loss early extinguishment debt included expense net separation costs included interest expense net 2008 47 million related writeoff unamortized credit facility fees also 2009 2008 14 million expense 34 million income respectively relating tax sharing agreement included expense net 2007 719 million included discontinued operations additionally 2007 includes tax charges related separation primarily writeoff deferred tax assets longer realizable 183 million 95 million included income taxes within continuing operations 88 million included discontinued operations principles consolidationtyco holding company conducts business operating subsidiaries company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities company bears majority risk entities expected losses stands gain majority entities expected returns intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal references segment data companys continuing operations use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies net realizable value inventories fair values financial instruments estimated contract revenue related costs legal liabilities income taxes tax valuation allowances pension postretirement employee benefit expenses actual results could differ materially estimates revenue recognitionthe company recognizes revenue principally four types transactionssales products sales security systems billings monitoring maintenance services contract sales revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions product returns discounts customers accounted reductions determining sales period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements company assesses revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using deliverables relative fair value revenue recognized equipment installation limited lesser allocated amounts relative fair value method noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship company expect situations fair value cannot objectively determined sales security systems services cases arise companys policy recognize revenue elements contract life revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion extent progress toward completion generally measured based ratio actual cost incurred total estimated cost completion revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimated warranty costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting september 25 2009 september 26 2008 accounts receivable longterm receivables included retainage provisions 65 million 70 million respectively 46 million 51 million unbilled respectively retainage provisions consist primarily fire protection contracts become due upon contract completion acceptance september 25 2009 retainage provision included 64 million expected collected fiscal 2010 research developmentresearch development expenditures expensed incurred included cost product sales amounted 118 million 127 million 120 million 2009 2008 2007 respectively research development expenses include salaries direct costs incurred building overhead expenses advertisingadvertising costs expensed incurred included selling general administrative expenses amounted 131 million 142 million 132 million 2009 2008 2007 respectively translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars assets liabilities translated us dollars using yearend exchange rates revenue expenses translated average exchange rates effect year foreign currency translation gains losses included component accumulated comprehensive loss income within shareholders equity gains losses resulting foreign currency transactions including impact foreign currency derivatives related operating activities dividends declared swiss francs reflected selling general administrative expenses expense net respectively cash equivalentsall highly liquid investments maturities three months less time purchase considered cash equivalents allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense 2009 2008 2007 617 million 626 million 635 million respectively maintenance repair expenditures charged expense incurred except pooled subscriber systems depreciation calculated using straightline method estimated useful lives related assets follows see discussion depreciation method estimated useful lives related subscriber systems subscriber system assets related deferred revenue accountsthe company generally considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers residence place business installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses ie commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded noncurrent assets included assets line item within consolidated balance sheets subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition effective beginning third quarter 2007 tyco changed depreciation method estimated useful life used account pooled subscriber system assets primarily north america related deferred revenue straightline method lives ranging 10 14 years accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 195 residential subscriber pools 145 265 commercial subscriber pools converts straight line methodology resulting depreciation charge greater accelerated method company continue use straightline method 14year life nonpooled subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination change method estimated useful life used account pooled subscriber system assets related deferred revenue resulted ongoing analysis pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base change method used account pooled subscriber system assets related deferred revenue accounts represents change accounting estimate effected change accounting principle accounted prospectively change method based information obtained continued observation expected benefits inherent pooled subscriber system assets customer category preferable resulted depreciation amortization reflective pattern expected benefits derived assets pertinent factors including actual customer attrition data specific customer categories geographical areas demand competition estimated technological life installed systems reviewed company balance sheet date assess continued appropriateness methods estimated useful lives effects change described decreased net revenue 21 million decreased depreciation expense 37 million decreased loss continuing operations net loss 10 million increased basic diluted earnings per share 002 2007 longlived asset impairmentstyco reviews longlived assets including property plant equipment amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur see note 10 performing assessments management relies various factors including operating results business plans economic projections anticipated future cash flows comparable transactions market data inherent uncertainties related factors require judgment applying analysis goodwill indefinitelived intangible assets impairment company performed annual impairment tests goodwill indefinitelived intangible assets first day fourth quarter 2009 testing goodwill impairment company first compares fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using market participants weightedaverage cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill indefinite lived intangible assets consisting primarily trade names franchise rights tested impairment using either relief royalty method excess earnings method dealer amortizable intangible assets netintangible assets primarily include contracts related customer relationships intellectual property certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program acquired contracts related customer relationships recorded contractually determined purchase price first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship effective beginning third quarter 2007 tyco changed estimated useful life dealer intangibles geographical areas comprising approximately 90 net carrying value dealer intangibles 12 15 years company continues amortize dealer intangible assets accelerated basis change estimated useful life used account dealer intangibles resulted ongoing analysis pertinent factors including actual customer attrition data demand competition estimated technological life installed systems pertinent factors influenced managements ongoing customer retention programs well tactical strategic initiatives improve service delivery customer satisfaction credit worthiness subscriber customer base change estimated useful life dealer intangibles accounted prospectively effect change estimated useful life dealer intangibles decreased loss continuing operations net loss 6 million increased basic diluted earnings per share 001 2007 contracts related customer relationships well intellectual property consisting primarily patents trademarks copyrights unpatented technology amortized straightline basis 4 40 years company evaluates amortization methods remaining useful lives intangible assets periodic basis determine whether events circumstances warrant revision amortization method remaining useful lives investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged accumulated comprehensive loss income within shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting reporting period company evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented product warrantythe company records estimated product warranty costs time sale products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty however instances warranty either negotiated contract sold separate component warranty period terms range 90 days 15 years warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage environmental coststyco subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return pattern timing future obligation reliably determinable impact discount consolidated balance sheets september 25 2009 september 26 2008 reduce obligation 20 million 30 million respectively company maintains captive insurance companies manage certain insurable liabilities additionally company records receivables third party insurers recovery determined probable financial instrumentsthe company may use interest rate swaps currency swaps forward option contracts commodity swaps manage risks generally associated interest rate risk foreign exchange risk commodity prices derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly effective offsetting changes fair value underlying hedged item inception hedge expected remain highly effective life hedge contract derivative financial instruments reported consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items related operating activities reported selling general administrative expenses along offsetting transaction gains losses items hedged derivatives used economically hedge dividends declared swiss francs reported companys consolidated statements operations part expense net along offsetting transaction gains losses items hedged derivatives used manage exposure changes interest rates reported interest expense along offsetting transaction gains losses items hedged gains losses net investment hedges included cumulative translation adjustment component accumulated comprehensive loss income extent effective gains losses derivatives designated cash flow hedges recorded accumulated comprehensive loss income reclassified earnings manner matches timing earnings impact hedged transactions company net investment cash flow hedges 2009 ineffective portion hedges recognized currently earnings noted instruments qualify hedge accounting marked market changes recognized current earnings reclassificationscertain prior period amounts reclassified conform current period presentation quarter ended march 27 2009 company reclassified business previously classified held sale business longer met held sale criteria fourth quarter 2009 company approved plan sell business adt worldwide segment business classified held sale however results operations presented continuing operations criteria discontinued operations met see note 2 additionally company realigned certain business operations september 27 2008 resulting certain prior period amounts recast within note 20 recently adopted accounting pronouncementsin june 2009 financial accounting standards board fasb issued authoritative guidance established fasb standards accounting codification source authoritative gaap recognized fasb applied nongovernmental entities rules interpretive releases sec authoritative gaap sec registrants codification supersedes existing nonsec accounting reporting standards upon effective date subsequently fasb issue new standards form statements fasb staff positions emerging issues task force abstracts guidance intended change alter existing gaap guidance became effective tyco fourth quarter 2009 guidance impact companys financial position results operations cash flows references previous numbering fasb statements fasb staff positions emerging issues task force abstracts removed financial statements accompanying footnotes may 2009 fasb issued authoritative guidance subsequent events guidance provides authoritative accounting literature related evaluating subsequent events previously addressed auditing literature guidance similar current guidance exceptions intended result significant change current practice guidance defines subsequent events also requires disclosure date entity evaluated subsequent events basis date company adopted disclosure provisions guidance june 26 2009 adoption impact companys financial position results operations cash flows april 2009 fasb issued authoritative guidance interim disclosures fair value financial instruments amended existing guidance requires disclosures fair value financial instruments interim financial statements well annual financial statements company adopted disclosure provisions guidance june 26 2009 see note 14 additional information related adoption guidance adoption impact companys financial position results operations cash flows march 2008 fasb issued authoritative guidance disclosures derivative instruments hedging activities guidance intended improve financial reporting derivative instruments hedging activities requiring enhanced disclosures enable investors better understand effects entitys results operations company adopted disclosure provisions guidance december 27 2008 see note 14 additional information related adoption guidance adoption impact companys financial position results operations cash flows february 2007 fasb issued authoritative guidance fair value option financial assets financial liabilities guidance permits entity contractbycontract basis make irrevocable election account certain types financial instruments warranty insurance contracts fair value rather historical cost changes fair value whether realized unrealized recognized earnings guidance became effective company first quarter 2009 time company elect fair value option eligible items september 2006 fasb issued authoritative guidance fair value measurements enhances existing guidance measuring assets liabilities fair value guidance defines fair value establishes framework measuring fair value expands disclosure fair value measurements february 2008 fasb issued authoritative guidance permits companies partially defer effective date guidance one year nonfinancial assets liabilities recognized disclosed fair value financial statements nonrecurring basis first quarter 2009 company elected defer adoption guidance one year nonfinancial assets liabilities recognized disclosed fair value financial statements nonrecurring basis effective tyco first quarter fiscal 2010 prospective basis guidance became effective tyco first quarter fiscal 2009 financial assets liabilities adoption material impact companys financial position results operations cash flows see note 14 additional information related adoption guidance september 2006 fasb issued authoritative guidance employers accounting defined benefit pension postretirement plans guidance requires employers recognize funded status defined benefit pension postretirement benefit plans net asset liability consolidated balance sheets recognize component accumulated comprehensive loss income net income taxes gains losses prior service costs credits arise period recognized component net periodic benefit cost company adopted recognition disclosure provisions guidance september 28 2007 guidance also requires companies measure plan assets benefit obligations fiscal year end company adopted measurement date provisions guidance september 27 2008 result tyco measured plan assets benefit obligations september 26 2008 adjusted opening balances accumulated deficit earnings accumulated comprehensive loss income change net periodic benefit cost fair value respectively previously used measurement date august 31 2008 adoption measurement date provisions resulted net decrease accumulated deficit earnings 5 million net income tax benefit 2 million net increase accumulated comprehensive loss income 61 million net income taxes 28 million 2009 see note 16 additional information related adoption guidance recently issued accounting pronouncementsin september 2009 fasb issued authoritative guidance accounting revenue arrangements multiple deliverables guidance establishes selling price hierarchy determining selling price deliverable selling price used deliverable based vendorspecific objective evidence available thirdparty evidence vendorspecific objective evidence available estimated selling price neither vendorspecific evidence thirdparty evidence available guidance requires arrangements multiple revenue generating activities performed allocated inception residual method existing accounting guidance eliminated guidance expands disclosure requirements related multipledeliverable revenue arrangements guidance becomes effective revenue arrangements entered materially modified beginning fiscal 2011 early adoption permitted guidance applies prospective basis unless company specifically elects apply guidance retrospectively company currently assessing impact guidance financial position results operations cash flows well timing adoption guidance june 2009 fasb issued authoritative guidance amended existing guidance consolidation variable interest entities address elimination concept qualifying special purpose entity guidance also replaces quantitativebased risks rewards calculation determining enterprise controlling financial interest variable interest entity approach focused identifying enterprise power direct activities variable interest entity obligation absorb losses entity right receive benefits entity additionally guidance requires enterprise holds variable interest variable interest entity provide enhanced disclosures provide users financial statements transparent information enterprises involvement variable interest entity guidance effective tyco first quarter fiscal 2011 company currently assessing impact guidance financial position results operations cash flows december 2008 fasb issued authoritative guidance employers disclosures postretirement benefit plan assets guidance requires additional disclosures plan assets related employers defined benefit pension postretirement plans enable investors better understand investment decisions made major categories plan assets inputs valuation techniques used measure fair value plan assets effect fair value measurements using significant unobservable inputs level 3 changes plan assets period significant concentrations risk within plan assets disclosure provisions guidance effective tyco first quarter fiscal 2010 june 2008 fasb ratified authoritative guidance determining whether instruments granted sharebased payment transactions participating securities guidance addresses whether instruments granted sharebased payment awards participating securities prior vesting therefore must included earnings allocation calculating earnings per share twoclass method guidance requires unvested sharebased payment awards contain nonforfeitable rights dividends dividendequivalents treated participating securities calculating earnings per share guidance effective tyco starting first quarter fiscal 2010 shall applied retrospectively prior periods company believes guidance material impact financial position results operations cash flows april 2008 fasb issued authoritative guidance determining useful life intangible assets guidance amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset guidance effective tyco first quarter fiscal 2010 company determined guidance material impact financial position results operations cash flows december 2007 fasb revised authoritative guidance business combinations revised guidance retains underlying concepts existing guidance business combinations still accounted fair value however accounting certain aspects business combinations affected acquisition costs generally expensed incurred restructuring costs associated business combination generally expensed subsequent acquisition date inprocess research development recorded fair value indefinitelived intangible acquisition date completed abandoned useful life determined changes deferred tax asset valuation allowances uncertain tax positions acquisition date generally impact income tax expense revised guidance also expands required disclosures surrounding nature financial effects business combinations revised guidance effective prospective basis tyco first quarter fiscal 2010 december 2007 fasb issued authoritative guidance noncontrolling interests consolidated financial statements guidance requires recognition noncontrolling interest minority interest prior adoption guidance equity consolidated financial statements amount net income attributable noncontrolling interest included consolidated net income face consolidated statements operations guidance also amends certain existing consolidation procedures order achieve consistency requirements revised authoritative guidance business combinations discussed guidance also includes expanded disclosure requirements regarding interests parent noncontrolling interest guidance effective tyco first quarter fiscal 2010 implementation guidance material impact companys financial position results operations cash flows 2 divestitures company continued assess strategic fit various businesses pursue divestiture businesses align longterm strategy held sale reflected continuing operations fourth quarter 2009 company approved plan sell business adt worldwide segment business classified held sale however results operations presented continuing operations criteria discontinued operations met company assessed determined carrying value business recoverable continue assess recoverability based current fair value less cost sell business sold fair value used impairment assessment based existing market conditions company expects complete sale fiscal 2010 third quarter 2008 company approved plan sell business safety products segment business classified held sale companys historical consolidated balance sheets second quarter 2009 due change strategy management company decided sell business result business longer satisfied requirements classified held sale companys consolidated balance sheet march 27 2009 accordingly consolidated balance sheet september 26 2008 recast reclassify business held sale held used company measured business lower carrying amount classified held sale adjusted depreciation amortization expense would recognized business continuously classified held used ii fair value date decision sell made company recorded charge 8 million second quarter 2009 relating amount depreciation amortization expense would recorded asset continuously classified held used discontinued operations previously reported tycos periodic filings july 2008 company substantially completed sale infrastructure services business met criteria presented discontinued operations order complete sale earth tech brasil ltda et brasil earth tech uk businesses certain assets china company required obtain consents approvals transfer legal ownership business assets january 22 2009 company received necessary consents approvals transfer legal ownership et brasil business carioca christianinielsen engenharia sa received cash proceeds 13 million fourth quarter 2008 company sold earth tech uk business received net cash proceeds 53 million however gain deferred receipt necessary consents approvals may 12 2009 company received necessary consents approvals transfer legal ownership earth tech uk business aecom technologies corporation aecom realized deferred gain companys consolidated statements operations third quarter 2009 furthermore february 27 2009 company received necessary consents transfer certain china assets received cash proceeds 18 million may 8 2009 company received necessary consents transfer additional china assets received cash proceeds 6 million july 2 2009 company received necessary consents approvals transfer remaining assets china received cash proceeds 24 million result fiscal 2009 dispositions net pretax gain 33 million recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 25 2009 2008 company sold empresa de transmissao de energia oeste ltda eteo business ancon building products ancon business nippon drychemical co ltd ndc business european manufacturer public address products acoustic systems discussed company substantially completed sale infrastructure services business fourth quarter 2008 businesses met held sale discontinued operations criteria included discontinued operations periods presented may 2008 company sold 100 stock eteo brazilian subsidiary companys infrastructure services business 338 million net cash proceeds recorded pretax gain 232 million including effects economic hedge purchase price discussed gain recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 26 2008 eteo part companys corporate segment september 2007 tyco entered economic hedge brazilian real denominated contractual sale price eteo business since hedging transaction directly linked proceeds sale business reflected discontinued operations tyco began including impact hedge discontinued operations first quarter 2008 third quarter 2008 tyco incurred pretax loss 36 million hedge impact hedge 2007 material additionally fiscal year 2008 company settled contract dispute arising former infrastructure services business connection settlement company assessed assets original contract concluded assets longer recoverable resulting 51 million charge discontinued operations april 2008 company sold ancon manufacturer stainless steel products used masonry construction ancon part companys corporate segment sale completed 164 million net cash proceeds pretax gain 100 million recorded largely exempt tax gain recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 26 2008 fourth quarter 2008 company received additional 6 million proceeds related sale ancon february 2008 company sold ndc company japanese fire protection industry ndc part companys fire protection services safety products segments sale completed 50 million net cash proceeds pretax gain 7 million recorded gain recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 26 2008 january 2008 company sold european manufacturer public address products acoustic systems part companys fire protection services segment recorded 8 million pretax loss sale loss recorded income discontinued operations net income taxes companys consolidated statements operations first quarter 2007 aquas industriales de jose ca aij joint venture majority owned infrastructure services sold 42 million net cash proceeds pretax gain 19 million recorded gain recorded discontinued operations net income taxes companys consolidated statements operations aij part companys corporate segment third quarter 2007 tyco completed separation presented healthcare electronics businesses discontinued operations periods presented period prior separation net interest loss early extinguishment debt included expense net consolidated statements operations amounts proportionally allocated covidien tyco electronics based debt amounts tyco believes utilized covidien tyco electronics historically inclusive amounts directly incurred allocated net interest calculated using historical weightedaverage interest rate debt including impact interest rate swap agreements allocated amounts included discontinued operations 2007 allocated interest income interest expense net 35 million 242 million 388 million respectively 2007 company incurred pretax separation costs related primarily professional services employeerelated costs 154 million 289 million respectively discontinued operations additionally year ended september 28 2007 includes tax charges related separation primarily writeoff deferred tax assets longer realizable 88 million discontinued operations company used available information develop best estimates certain assets liabilities related separation limited instances final determination balances made subsequent periods year ended september 28 2007 72 million recorded shareholders equity primarily related cash trueup adjustment 57 million 15 million items year ended september 26 2008 70 million items recorded shareholders equity year ended september 25 2009 43 million recorded shareholders equity 9 million related preseparation income tax filing nonus jurisdiction 34 million items discussed aggregate 119 million reflect immaterial adjustments shareholders equity recorded correct distribution amount date separation adjustments future impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor tyco electronics legal entities certain amended income tax returns periods prior separation may recorded either shareholders equity consolidated statements operations depending specific item giving rise adjustment net revenue income operations gain loss sale separation costs income tax expense discontinued operations 2009 2008 2007 follows millions consolidated balance sheet information pending divestitures september 25 2009 september 26 2008 follows millions losses divestitures 2009 2008 2007 company recorded 15 million 1 million 4 million respectively divestiture charges continuing operations connection writedown fair value less cost sell certain businesses get classified discontinued operations fair value used impairment assessments primarily based terms conditions included expected included sales agreements 3 restructuring asset impairment charges net first quarter 2007 company launched restructuring program 2007 program across companys segments including corporate organization streamline businesses reduce operational footprint upon initiation 2007 program company expected incur aggregate charges related program approximately 350 million 400 million primarily end calendar 2008 december 26 2008 company substantially completed program fiscal 2009 company identified additional opportunities cost savings restructuring activities workforce reductions fiscal 2009 2010 company incurred restructuring related charges approximately 236 million fiscal 2009 company expects incur restructuring related charges approximately 100 million 150 million fiscal 2010 restructuring asset impairment charges net years ended september 25 2009 september 26 2008 september 28 2007 follows millions years ended september 25 2009 september 26 2008 september 28 2007 restructuring asset impairment charges net included companys consolidated statements operations follows millions 2009 net restructuring net restructuring asset impairment charges year ended september 25 2009 236 million include 32 million accelerated depreciation assets directly related underlying restructuring actions remaining charge 204 million consists 10 million asset impairments 174 million employee severance benefits 38 million facility exit charges offset 18 million restructuring reversals resulting company completing restructuring activities announced prior years amounts less originally estimated activity companys 2009 restructuring reserves related actions initiated 2009 summarized follows millions activity companys 2009 restructuring reserves related 2007 program summarized follows millions 2009 company paid 88 million related actions 2007 program 64 million related actions initiated 2009 addition company paid 2 million related 2006 prior restructuring actions september 25 2009 130 million accrued related actions initiated 2009 2008 net restructurings net restructuring asset impairment charges year ended september 26 2008 246 million include 22 million accelerated depreciation assets expected become obsolete result restructuring remaining charge 224 million consists 139 million employee severance benefits 40 million facility exit charges 58 million related reacquisition certain unfavorable franchise rights 19 million asset impairments offset 32 million restructuring reversals resulting company completing restructuring activities announced prior years amounts less originally estimated company paid 30 million related actions initiated 2008 2007 program paid 58 million related franchise acquisitions september 26 2008 97 million accrued 2007 net restructurings net restructuring asset impairment charges 2007 194 million include 7 million accelerated depreciation assets directly related underlying restructuring actions remaining charge 187 million consists 173 million employee severance benefits 16 million facility exit charges cash charges 2 million asset impairments offset 4 million restructuring reversals resulting company completing restructuring activities announced prior years amounts less originally estimated 2008 company paid 95 million related actions 2007 program 54 million accrued september 26 2008 2006 prior restructurings company continues maintain restructuring reserves related certain actions initiated prior 2006 total amount reserves 15 million 16 million september 25 2009 september 26 2008 respectively balances primarily include facility exit costs longterm noncancelable lease obligations within adt worldwide fire protection services segments expiration dates range 2009 2022 restructuring reserves restructuring reserves september 26 2008 september 25 2009 year restructuring action initiated follows millions restructuring reserves businesses met held sale criteria included liabilities held sale consolidated balance sheets excluded rollforward tables see note 2 restructuring reserves segment september 25 2009 september 26 2008 follows millions september 25 2009 september 26 2008 restructuring reserves included companys consolidated balance sheets follows millions 4 acquisitions year ended september 25 2009 cash paid acquisitions totaled 50 million primarily related acquisition vue technology inc provider radio frequency identification rfid technology companys safety products segment year ended september 26 2008 company acquired winner security services llc winner sensormatic security corp ssc firstservice security firstservice well various acquisitions within adt worldwide safety products segments june 5 2008 companys adt worldwide segment acquired substantially assets winner 90 million franchise originally granted sensormatic electronics corporation sensormatic granted winner rights sell install service certain sensormatic products entitled winner commissions sensormatic products sold installed shipped franchise territories sensormatic products sold companys adt worldwide safety products segments july 9 2008 companys adt worldwide segment acquired substantially assets ssc including franchise rights agreed settle related legal matter total consideration approximately 86 million ssc franchisee sensormatic states virginia maryland district columbia last remaining major sensormatic franchise original franchise agreement ssc granted rights sell install service certain sensormatic products entitled commissions sensormatic products sold installed shipped franchise territories sensormatic ssc also settled previously reported litigation parties related ssc franchise 6 million connection transaction value ascribed settlement legal matter determined based consideration paid excess fair value franchise rights acquired transactions accounted business combinations however company winner ssc preexisting relationship result company required assess account business combination separately due preexisting relationship company winner ssc assessing specific facts circumstances related transactions company recorded charges 38 million 20 million winner ssc respectively 2008 reacquisition franchise rights deemed unfavorable company compared pricing current market transactions similar arrangements company utilized income method valuation approach measuring value preexisting relationship since charges related change manner company conducts business territories reflected restructuring charges remaining purchase price winner 52 million consisted 46 million indefinitelived intangible asset 1 million customer lists amortizable 10year period 5 million goodwill remaining purchase price ssc 60 million consisted 52 million indefinitelived intangible asset 4 million customer lists amortizable 10year period 4 million goodwill see note 10 goodwill associated winner ssc transactions deductible tax purposes june 30 2008 companys adt worldwide segment acquired firstservice division firstservice corporation approximately 187 million firstservice commercial security systems integrator provides full range integrated security system services including design engineering installation servicing monitoring access control closedcircuit television intrusion systems purchase price allocation firstservice resulted 38 million net working capital assets 5 million property plant equipment net 52 million intangible assets 92 million goodwill associated firstservice transaction deductible tax purposes 2008 cash paid acquisitions primarily within companys adt worldwide safety products segments totaled 38 million 2007 cash paid acquisitions totaled 31 million primarily within companys adt worldwide safety products flow control segments acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates acquisitions material effect companys financial position results operations cash flows adt dealer program 2009 2008 2007 tyco paid 543 million 376 million 409 million cash respectively acquire approximately 512000 370000 415000 customer contracts electronic security services adt dealer program 5 expense net expense net 7 million 2009 compared 224 million 2008 255 million 2007 expense net 2009 primarily relates 14 million charge recorded result decrease receivables due covidien tyco electronics tax sharing agreement partially offset income 5 million relating gain derivative contracts used economically hedge foreign currency risk related swiss franc denominated dividends expense net 2008 includes 258 million extinguishment debt related consent solicitation exchange offers termination bridge loan facility offset income 6 million recorded connection settlement 3125 convertible senior debentures related financial instruments see notes 12 14 company also recorded otherthantemporary impairments realized losses sale investments 6 million related primarily investments corporate debt see note 9 additionally company recorded 40 million income result increase receivables due covidien tyco electronics tax sharing agreement connection adoption guidance pertaining accounting uncertain income taxes company also recorded 6 million expense activity accordance tax sharing agreement 2008 2007 expense net consisted primarily 259 million loss early extinguishment debt incurred connection debt tender offers undertaken connection separation tax benefit available charge consists primarily premiums paid writeoff unamortized debt issuance costs discounts total loss early extinguishment debt 647 million 259 million included continuing operations 388 million allocated covidien tyco electronics included discontinued operations 6 income taxes significant components income tax provision 2009 2008 2007 follows millions nonus income loss continuing operations income taxes 138 million 1010 million 2587 million 2009 2008 2007 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 25 2009 september 26 2008 september 28 2007 follows millions 1excludes nondeductible charges items broken separately table included nondeductible charges 2009 loss driven goodwill impairment charges 26 billion almost tax benefit available included income taxes 2008 benefit increased profitability operations lower tax rate jurisdictions partially offset enacted tax law changes negatively impacted nonus deferred tax assets valuation allowance benefit includes tax impact 70 million associated business restructurings increased companys profitability certain jurisdictions included nondeductible charges 2007 class action settlement net 2862 billion additionally nondeductible charges include 105 million associated separation costs fully deductible well writeoff deferred tax assets entities liquidated part separation loss retirement debt includes charges related early extinguishment debt 259 million tax benefit available valuation allowance benefit includes tax impact 72 million associated identification tax planning ensure realization certain deferred tax assets well net benefit 51 million associated changes valuation allowances driven primarily increased profitability certain jurisdictions deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 25 2009 september 26 2008 follows millions september 25 2009 company 4869 million net operating loss carryforwards certain nonus jurisdictions 3385 million expiration remaining 1484 million expire future years 2028 us approximately 1883 million federal 1536 million state net operating loss carryforwards september 25 2009 expire future years 2028 valuation allowance deferred tax assets 791 million 742 million september 25 2009 september 26 2008 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets company subsidiaries income tax returns periodically examined various tax authorities tyco adopted recognition measurement disclosure guidance accounting uncertain income tax positions september 29 2007 result adoption tyco increased reserve uncertain tax positions 55 million reduced deferred tax assets 24 million corresponding 79 million cumulative effect adoption adjustment shareholders equity adoption date tyco unrecognized tax benefits 370 million 241 million recognized would affect effective tax rate september 25 2009 september 26 2008 tyco unrecognized tax benefits 284 million 369 million respectively 224 million 248 million recognized would affect effective tax rate tyco recognizes interest penalties accrued related unrecognized tax benefits income tax expense tyco accrued interest penalties related unrecognized tax benefits 50 million 49 million september 25 2009 september 26 2008 respectively tyco recognized 1 million 9 million income tax expense interest penalties accrued related unrecognized tax benefits september 25 2009 september 26 2008 respectively reconciliation beginning ending amount unrecognized tax benefit follows millions many tycos uncertain tax positions relate tax years remain subject audit taxing authorities us federal state local foreign jurisdictions open tax years significant jurisdictions follows based current status income tax audits company anticipate significant change unrecognized tax benefits next twelve months tax sharing agreement connection spinoffs covidien tyco electronics tyco entered tax sharing agreement generally governs covidiens tyco electronics tycos respective rights responsibilities obligations separation respect taxes including ordinary course business taxes incurred result failure distribution shares covidien tyco electronics qualify taxfree distribution us federal income tax purposes within meaning section 355 code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code tax sharing agreement company shares responsibility certain tycos covidiens tyco electronics income tax liabilities result cash payments based sharing formula periods prior including june 29 2007 specifically tyco covidien tyco electronics share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens tyco electronics us certain nonus income tax returns costs expenses associated management shared tax liabilities shared equally among parties september 25 2009 september 26 2008 tyco recorded net receivable covidien tyco electronics 98 million 126 million respectively 95 million 113 million respectively included noncurrent assets 3 million 13 million respectively included prepaid expenses current assets companys estimate tax sharing obligations liabilities include 554 million september 25 2009 september 26 2008 fair value tycos obligations tax sharing agreement tyco assesses shared tax liabilities related guaranteed liabilities reporting period receivable liability initially recognized offset shareholders equity 2007 first quarter 2008 connection adoption guidance pertaining accounting uncertain income tax positions related increase uncertain tax positions shared tax liabilities tax sharing agreement tyco increased receivable covidien tyco electronics tax sharing agreement corresponding increase income net 40 million 008 basic diluted earnings per share addition 14 million expense activity recorded accordance tax sharing agreement 2009 tyco provide payment covidien tyco electronics tax sharing agreement shared income tax liabilities settled settlement expected occur audit process local taxing authorities completed impacted years cash payments made given nature shared liabilities maximum amount potential future payments determinable cash payments occur reduce guarantor liability payments represent equivalent reduction risk company also assesses sufficiency tax sharing agreement guarantee liability quarterly basis increase liability probable cash payments expected made tax sharing agreement exceed recorded balance fourth quarter 2009 company audit management party tax sharing agreement reached settlement agreement irs certain deductions taken tyco covidien tyco electronics preseparation tax returns filed periods 2001 2004 settlement material effect companys results operations financial position cash flows additionally company considered potential impact settlement part quarterly assessment guarantee liability concluded adjustment liability needed event separation determined taxable determination result actions taken separation tyco covidien tyco electronics party responsible failure would responsible taxes imposed company result thereof determination result actions taken three companies separation tyco covidien tyco electronics would responsible 27 42 31 respectively taxes imposed companies result determination tax amounts could significant company responsible taxes shared pursuant tax sharing agreements sharing formula addition covidien tyco electronics responsible tax liabilities subject tax sharing agreements sharing formula party tax sharing agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party would required pay equally nondefaulting party amounts default addition another party tax sharing agreement responsible portion income tax liability default payment liability taxing authority company could legally liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances company may obligated pay amounts excess agreedupon share tycos covidiens tyco electronics tax liabilities see note 13 discussion guarantees indemnifications extended tyco covidien tyco electronics income tax matters company subsidiaries income tax returns periodically examined various tax authorities connection examinations tax authorities including internal revenue service irs raised issues proposed tax adjustments company reviewing contesting certain proposed tax adjustments company continuing dialog irs related proposed adjustments objective resolving matters management assessed issues related adjustments recorded unrecognized tax benefits pursuant guidance accounting uncertain income tax positions ultimate resolution matters uncertain could result material impact companys financial position results operations cash flows effective tax rate future reporting periods 2004 connection irs audit 1997 2000 years company submitted irs proposed adjustments certain prior period us federal income tax returns resulting reduction taxable income previously filed 2006 irs accepted substantially proposed adjustments subsequently company developed proposed amendments us federal income tax returns additional periods 2006 basis previously accepted amendments company determined adjustments morelikelythannot accepted accordingly recorded adjustments consolidated financial statements adjustments material impact companys financial condition results operations cash flows final adjustments cannot determined irs review completed company believes resulting adjustments material impact financial condition results operations cash flows irs proposed civil fraud penalties prior subsidiary distributed tyco electronics connection separation penalties allegedly arise actions former executives taken connection intercompany transfers stock simplex technologies 1998 1999 based statutory guidelines company estimates proposed penalties could range 30 million 50 million company audit management party specified tax sharing agreement intends vigorously oppose assertion penalties tyco electronics part beginning 2003 company discovered investigated reported conduct issue irs fully cooperated criminal prosecution companys former chief tax officer charge willful filing false tax return preseparation shared tax matter tax sharing agreement except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries since earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries calculation tax liabilities involves dealing uncertainties application complex tax regulations multitude jurisdictions across global operations company records tax liabilities anticipated tax audit issues us tax jurisdictions based estimate whether extent additional taxes due tax liabilities reflected net related tax loss carryforwards company adjusts reserves light changing facts circumstances however due complexity uncertainties ultimate resolution may result payment materially different companys current estimate tax liabilities companys estimate tax liabilities proves less ultimate assessment additional charge expense would result payment amounts ultimately proves less recorded amounts reversal liabilities may result income tax benefits recognized period determine liabilities longer necessary substantially potential tax liabilities recorded liabilities consolidated balance sheets payment expected within one year 7 earnings per share discussed note 1 2007 company effected reverse stock split tycos common shares split ratio 1for4 reconciliations basic diluted earnings per share 2009 2008 2007 follows millions except per share data computation diluted earnings per share 2009 excludes effect potential exercise options purchase approximately 27 million shares excludes restricted share awards deferred stock units approximately 5 million shares effect would antidilutive computation diluted earnings per share 2008 2007 excludes effect potential exercise options purchase approximately 19 million 29 million shares respectively excludes restricted share awards deferred stock units approximately 4 million 5 million respectively effect would antidilutive additionally computation diluted earnings per common share 2007 excludes impact convertible debt approximately 6 million shares effect would antidilutive 8 sale accounts receivable certain tycos international businesses utilize sale accounts receivable shortterm financing mechanisms aggregate amount outstanding companys remaining international accounts receivable programs 55 million 65 million 76 million september 25 2009 september 26 2008 september 28 2007 respectively 9 investments september 25 2009 september 26 2008 company availableforsale investments fair value 340 million 303 million cost basis 334 million 317 million respectively cost fair market value companys investments type security classification companys consolidated balance sheets follows millions september 25 2009 september 26 2008 investments continuous unrealized losses less 12 months 12 months greater related fair values follows millions september 25 2009 september 26 2008 company recorded otherthantemporary impairment 5 million year ended september 26 2008 otherthantemporary impairment related investments corporate debt lehman brothers holding inc lehman filed petition chapter 11 us bankruptcy code september 15 2008 company record otherthantemporary impairments years ended september 25 2009 september 28 2007 maturities companys investments debt securities september 25 2009 follows millions 10 goodwill intangible assets previously reported company began experience decline revenue first quarter 2009 adt worldwide fire protection services safety products segments result slowdown commercial markets including retailer end market well decline sales volume electrical metal products segment although company considered concluded factors constitute triggering events first quarter 2009 continued existence conditions second quarter 2009 along downward revisions forecasted results restructuring actions weaker industry outlooks caused company conclude sufficient indicators impairment existed certain reporting units reporting units within adt worldwide fire protection services safety products segments continued negatively impacted result slowdown commercial markets including retailer end market additionally companys electrical metal products reporting unit continued negatively impacted decline sales volume due downturn nonresidential construction market second quarter 2009 company determined underlying events circumstances constituted triggering events six reporting units events would morelikelythannot reduce fair value respective carrying amounts specifically company concluded europe middle east africa emea security emea fire reporting units within adt worldwide fire protection services segments respectively electrical metal products reporting unit within electrical metal products segment access control video systems acvs life safety sensormatic retail solutions srs reporting units within safety products segment experienced triggering events result triggering events company assessed recoverability reporting units longlived assets concluded carrying amounts recoverable march 27 2009 subsequently company performed first step goodwill impairment test reporting units perform first step goodwill impairment test six reporting units triggering events company compared carrying amounts reporting units estimated fair values company utilized discounted cash flow analysis determining fair value reporting units triggering events occurred based factors described actual anticipated reductions demand reporting units products services well increased risk due current economic uncertainty estimates future cash flows used second quarter 2009 discounted cash flow analyses revised downward companys recent test conducted fourth quarter 2008 range weightedaverage cost capital utilized increased reflect increased risk due current economic volatility uncertainties related demand companys products services weightedaverage cost capital follows results first step goodwill impairment test indicated potential impairment goodwill six reporting units identified triggering events carrying amounts reporting units exceeded respective fair values result company performed second step goodwill impairment test reporting units implied fair values goodwill determined allocating fair values reporting unit assets liabilities applicable reporting unit including unrecognized intangible assets reporting unit acquired business combination results second step goodwill impairment test indicated implied goodwill amount less carrying amount goodwill aforementioned reporting units fiscal 2009 company recorded aggregate noncash impairment charge 26 billion 26 billion aftertax noncash impairment charge recorded goodwill intangible asset impairments companys consolidated statements operations fiscal 2009 specifically company recorded following noncash goodwill impairment charges goodwill following reporting units millions annually fiscal fourth quarter frequently triggering events occur company tests goodwill impairment comparing fair value reporting unit carrying amount see note 1 fair value reporting unit determined utilizing discounted cash flow analysis based companys forecasted cash flows revenue operating income growth rates discounted using estimated weightedaverage cost capital market participants market approach utilized corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeds fair value goodwill considered potentially impaired determining fair value management relies considers number factors including operating results business plans economic projections cash flow forecasts market data companys overall market capitalization fair value determinations sensitive changes factors described well inherent uncertainties applying analysis goodwill recoverability described company considers market capitalization one number factors evaluation recoverability goodwill company considered evaluated market capitalization well factors described concluded remaining goodwill balance 88 billion september 25 2009 recoverable part companys ongoing monitoring efforts company continue consider uncertainty current global economic environment volatility stock market well companys stock price assessing goodwill recoverability given current economic environment uncertainties regarding potential impact companys business assurance companys estimates assumptions regarding forecasted cash flow revenue operating income growth rates certain reporting units well duration ongoing economic downturn period strength recovery made purposes annual goodwill impairment test prove accurate predictions future companys assumptions achieved possible impairment charge may need recorded however possible time determine impairment charge would result charge would material company certain reporting units within companys adt worldwide safety products segments less ten percent excess fair value carrying value goodwill balance reporting units approximately 855 million september 25 2009 annual goodwill impairment testing fiscal year ended september 26 2008 carrying amount goodwill latin america fire protection business part fire protection services segment exceeded implied fair value goodwill result company recognized goodwill impairment 9 million fourth quarter 2008 connection separation third quarter 2007 tyco reorganized new management segment reporting structure part organizational changes company assessed new reporting units conducted valuations determine assignment goodwill new reporting units based estimated relative fair values following relative fair value goodwill allocation company tested goodwill impairment result company recognized goodwill impairment related australia new zealand security services business part adt worldwide segment 46 million third quarter 2007 changes carrying amount goodwill segment 2009 2008 follows millions goodwill reporting units met held sale criteria included assets held sale consolidated balance sheets excluded table see note 2 intangible assets previously reported company began experience decline revenue first quarter 2009 adt worldwide safety products segments due slowdown commercial markets including retailer end market although company considered concluded factors constitute triggering events first quarter 2009 continued existence conditions second quarter 2009 along downward revisions forecasted results restructuring actions weaker industry outlooks caused company conclude sufficient indicators impairment existed certain indefinitelived intangible assets deterioration business environment related retailer business companys adt worldwide safety products segments resulted lowering managements projections revenues retailer end market second quarter 2009 based factors uncertainties estimates future cash flows used determining fair value companys safety products sensormatic tradename well adt worldwide franchise rights relating winner ssc second quarter 2009 revised downward relative estimates used companys recent test fourth quarter 2008 range discount rates utilized increased reflect increased risk due current economic volatility uncertainties related demand companys products services discount rates follows results impairment test conducted second quarter 2009 indicated safety products sensormatic tradename adt worldwide winner ssc franchise rights estimated fair values less respective carrying amounts company recorded aggregate noncash impairment charge 64 million 40 million aftertax second quarter 2009 noncash impairment charge recorded goodwill intangible asset impairments companys consolidated statements operations fiscal 2009 specifically company recorded following noncash intangible asset impairment charges reduce carrying amount following indefinitelived intangible assets millions annually fiscal fourth quarter frequently triggering events occur company tests indefinitelived intangible assets impairment company believes intangible assets balance september 25 2009 recoverable indefinitelived intangible assets consisting primarily trade names franchise rights tested impairment using either relief royalty method excess earnings method impairment test indefinitelived intangible assets involves comparison estimated fair value intangible asset carrying amount carrying amount intangible asset exceeds fair value impairment loss recognized amount equal excess fair value determinations require considerable judgment sensitive change significant judgments inherent analysis include selection appropriate discount rates terminal year growth rate assumptions estimates amount timing future cash flows attributable underlying intangible assets discount rate assumptions based assessment risk inherent projected future cash flows generated intangible asset also subject judgment assumptions royalty rates based estimated rates similar trademarks licensed marketplace given current economic environment uncertainties regarding potential impact companys business assurance companys estimates assumptions regarding forecasted cash flow revenue operating income growth rates well duration ongoing economic downturn period strength recovery made purposes annual indefinitelived intangible asset impairment test prove accurate predictions future companys assumptions achieved possible impairment charge may need recorded however possible time determine impairment charge would result charge would material intangible assets net 2647 million 2681 million september 25 2009 september 26 2008 respectively following table sets forth gross carrying amount accumulated amortization companys intangible assets september 25 2009 september 26 2008 millions intangible asset amortization expense 2009 2008 2007 516 million 528 million 513 million respectively estimated aggregate amortization expense intangible assets currently owned company expected approximately 450 million 2010 350 million 2011 300 million 2012 300 million 2013 200 million 2014 see note 1 discussion regarding changes estimated lives dealer intangibles 11 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans fourth quarter 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified loans made current executives outstanding loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average rates effect first day preceding 12 months loans generally repayable ten years however earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property 2009 2008 maximum amount outstanding programs 22 million 24 million respectively loans receivable programs well unsecured advances outstanding 22 million 24 million september 25 2009 september 26 2008 respectively total outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 27 million 27 million september 25 2009 september 26 2008 respectively rate interest charged loans 19 30 2009 2008 respectively interest income interest bearing loans totaled nil 1 million 1 million 2009 2008 2007 respectively certain loans totaling 1 million 4 million september 25 2009 september 26 2008 respectively noninterest bearing 2009 2008 2007 company engaged commercial transactions normal course business companies companys directors employed served officers purchases companies year aggregated less 1 percent consolidated net revenue company filed civil complaints messrs kozlowski swartz breach fiduciary duty wrongful conduct relating alleged abuses key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct june 2002 company filed civil complaint frank e walsh jr former director breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought sec united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit group acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 claims mr walsh still pending 12 debt september 25 2009 september 26 2008 follows millions 1commercial paper plus 45 million amount shown comprise current portion longterm debt september 25 2009 2these instruments plus 40 million amount shown comprise current portion longterm debt september 26 2008 carrying amount tycos debt subject fair value disclosure requirements september 25 2009 4155 million company determined fair value debt 4578 million september 25 2009 company utilizes various valuation methodologies determine fair value debt primarily dependent type market companys debt traded available company uses quoted market prices determine fair value debt traded active markets september 25 2009 fair value companys debt actively traded 4338 million quoted market prices readily available representative fair value company utilizes market information comparable debt similar terms maturities interest rates credit risk determine fair value debt traded markets active september 25 2009 fair value companys debt actively traded 40 million additionally company believes carrying amount commercial paper 200 million approximates fair value based shortterm nature debt commercial paper may 2008 tyco international finance sa tifsa commenced issuing commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 25 2009 september 26 2008 tifsa 200 million 116 million respectively commercial paper outstanding bore interest average rate 033 295 respectively september 25 2009 company classified outstanding commercial paper balance 200 million shortterm company intends repay amount next twelve months september 26 2008 company classified 116 million shortterm commercial paper longterm settlement amount outstanding expected require use working capital next twelve months company intent ability refinance debt longterm basis debt offerings january 9 2009 tifsa issued 750 million aggregate principal amount 85 notes due january 15 2019 fully unconditionally guaranteed company 2019 notes tifsa received net proceeds approximately 745 million underwriting discounts offering expenses 2019 notes unsecured rank equally tifsas unsecured unsubordinated debt tifsa may redeem 2019 notes time paying greater principal amount notes makewhole amount plus accrued unpaid interest holders 2019 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires change control rating event defined indenture governing notes additionally holders 2019 notes right require company repurchase portion 2019 notes july 15 2014 purchase price equal 100 principal amount notes tendered plus accrued unpaid interest otherwise notes mature january 15 2019 company incurred approximately 5 million debt issuance costs connection transaction included underwriter discounts well legal accounting rating agency fees debt issuance costs amortized date issuance earliest redemption date july 15 2014 interest payable semiannually january 15th july 15th interest rate payable 2019 notes subject escalations defined indenture either moodys sp downgrades companys debt rating investment grade 2019 notes subject preceding adjustments time companys debt rating increases one level current rating a3 moodys sp respectively january 15 2009 tifsa made payment 215 million extinguish 6125 notes due 2009 matured date additionally november 2008 tifsa made payment 300 million extinguish 6125 notes due 2008 see note 26 information regarding 500 million 4125 notes issued subsequent september 25 2009 debt tenders connection settlement litigation arising separation related companys public debt june 3 2008 company along finance subsidiary tifsa whollyowned subsidiary company successor company tyco international group sa tigsa whollyowned subsidiary company organized laws luxembourg consummated consent solicitations exchange offers related certain series debt issued companys 1998 2003 indentures connection exchange offers tyco issued 422 million principal amount 70 notes due 2019 exchange equal principal amount 70 notes due 2028 707 million principal amount 6875 notes due 2021 exchange equal principal amount 6875 notes due 2029 connection consent solicitations holders companys 60 notes due 2013 6125 notes due 2008 6125 notes due 2009 675 notes due 2011 6375 notes due 2011 70 notes due 2028 6875 notes due 2029 collectively received consent payments totaling 250 million terms consent exchange offers evaluated debt modification accordance authoritative guidance debtors accounting modification exchange debt instruments determined 70 notes due 2028 6875 notes due 2029 extinguished cash flows new bonds compared original bonds substantially modified result new bonds 70 notes due 2028 6875 notes due 2029 tendered exchange recorded fair value upon completion exchange offers determining fair value company measured bonds initial issuance public done obtaining effective yield data derived comparable pricing received issuance bonds similar ratings covenants large public companies year ended september 26 2008 connection consent solicitations exchange offers company recorded 222 million charge expense net loss extinguishment debt charge comprised consent payments related extinguished bonds notes due 2028 2029 premium exchanged bonds represents difference fair value book value extinguished bonds writeoff original unamortized debt issuance costs well fees paid thirdparties associated bonds deemed extinguished remaining portion consent payment issuance costs amortized remaining life bonds year ended september 28 2007 company recorded 259 million charge expense net loss early extinguishment debt related debt tender offers connection separation bank revolving credit facilities june 24 2008 tyco tifsa entered 500 million senior unsecured revolving credit agreement citibank na administrative agent lenders party thereto credit agreement threeyear term borrowings agreement variable interest rate based libor alternate base rate margin libor vary based changes companys credit rating facility utilization together companys 119 billion fiveyear senior revolving credit agreement dated april 25 2007 companys total committed revolving credit line 169 billion september 25 2009 revolving credit facilities may used working capital expenditures corporate purposes september 25 2009 amounts drawn facilities although company dedicated 200 million availability backstop outstanding commercial paper april 25 2007 tyco certain subsidiaries syndicate banks entered 364day unsecured bridge loan facility october 1 2007 commitments respect unused portion companys unsecured bridge loan facility expired subsequently renewed terminated connection overall facilitys termination june 2008 unsecured bridge loan facility provided company sufficient liquidity repay companys outstanding public debt borrowings 40 billion facility could used repay settle otherwise extinguish public debt subject ongoing litigation company trustee public debt june 2008 company settled litigation terminated facility connection facility termination company recorded 36 million charge expense net writeoff unamortized debt issuance costs tifsas bank credit agreements contain customary terms conditions financial covenants limit ratio companys debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property companys indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive companys business convertible debentures september 28 2007 tifsa 21 million outstanding 3125 convertible senior debentures due 2023 2015 put option 3125 convertible senior debentures august 25 2008 company delivered holders notice redemption 19 million remaining principal amount 3125 convertible senior debentures originally convertible tyco shares result separation transactions undertaken company 2007 debentures became convertible common shares tyco international ltd covidien ltd tyco electronics ltd 3125 convertible debentures converted 11496 common shares three separate companies per 1000 principal amount fourth quarter fiscal year 2008 company issued 217589 shares tyco common stock obtained shares covidien ltd tyco electronics connection redemption 3125 convertible senior debentures additionally fourth quarter fiscal 2008 company recorded gain 6 million upon exercise conversion option holders see note 14 last redemption date september 25 2008 notes outstanding date redeemed available cash september 26 2008 amounts remain outstanding 3125 convertible senior debentures debt information aggregate amounts principal debt including capital leases maturing next five years thereafter follows millions 245 2010 540 2011 853 2012 4 2013 660 2014 1951 thereafter weightedaverage interest rate total debt 66 62 september 25 2009 september 26 2008 respectively excluding impact interest rate swaps weightedaverage interest rate shortterm debt 03 61 september 25 2009 september 26 2008 respectively impact companys interest rate swap agreements reported interest expense net decrease 6 million 2009 material 2008 2007 13 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging 2009 completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien tyco electronics accordance terms separation distribution agreement tax sharing agreement guarantees primarily relate certain contingent tax liabilities included tax sharing agreement time separation tyco recorded liability necessary recognize fair value guarantees indemnifications absence observable transactions identical similar guarantees company determined fair value guarantees indemnifications utilizing expected present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using companys incremental borrowing rate liability necessary reflect fair value guarantees indemnifications tax sharing agreement 554 million included liabilities companys consolidated balance sheets september 25 2009 september 26 2008 guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 6 discussion tax sharing agreement addition tyco historically provided support form financial andor performance guarantees various covidien tyco electronics operating entities connection separation company worked guarantee counterparties cancel assign guarantees covidien tyco electronics extent guarantees assigned prior separation date tyco assumed primary liability remaining support estimated fair value obligations 4 million 7 million included liabilities companys consolidated balance sheets september 25 2009 september 26 2008 respectively offset shareholders equity separation date disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 15 discussion liabilities normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows september 25 2009 company total outstanding letters credit bank guarantees 659 million company records estimated product warranty costs time sale information estimated product warranty see note 1 changes carrying amount companys warranty accrual 2009 follows millions 2001 division safety products initiated voluntary replacement program vrp associated acquisition central sprinkler vrp relates replacement certain oring seal sprinkler heads originally manufactured central sprinkler prior tycos acquisition program sprinkler heads replaced free charge property owners may 1 2007 consumer products safety commission company announced august 31 2007 deadline filing claims participate vrp company fulfill valid claims replacement qualifying sprinklers received august 31 2007 settlements 2009 2008 2007 include cash expenditures 33 million 49 million 38 million respectively related vrp company believes remaining liability represents best estimate cost required complete vrp september 25 2009 material 14 financial instruments derivative instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable accounts payable approximated book value september 25 2009 see fair value derivative financial instruments see note 9 investments note 12 debt normal course business tyco exposed market risk arising changes currency exchange rates interest rates commodity prices company uses derivative financial instruments manage exposures foreign currency interest rate risks companys objective utilizing derivative financial instruments manage risks using effective methods eliminate reduce impacts exposures company utilize derivative financial instruments hedge exposure attributable changes commodity prices may consider strategies future company manages foreign currency exchange rate risk use derivative financial instruments comprised principally forward contracts foreign currency designated hedging instruments accounting purposes objective derivatives instruments minimize income statement impact potential variability cash flows associated intercompany loans accounts receivable accounts payable forecasted transactions denominated certain foreign currencies effective march 17 2009 tyco changed jurisdiction incorporation bermuda switzerland january 1 2011 tyco intends make dividend payments form reduction capital denominated swiss francs however company expects actually pay dividends us dollars based exchange rates effect shortly payment date fluctuations value us dollar compared swiss franc date dividend declared paid increase decrease us dollar amount required paid company manages potential variability cash flows associated dividend payments entering derivative financial instruments used economic hedges underlying risk company manages interest rate risk use interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes 2009 company entered interest rate swap transactions objective managing exposure interest rate risk converting interest rates 14 billion fixedrate debt variable rates contracts company agrees financial institutions acting principal counterparties exchange specified intervals difference fixed floating interest amounts calculated agreedupon notional principal amount derivative instruments designated qualify fair value hedges company documented relationships hedging instruments hedged items linked derivatives designated fair value hedges specific debt issuances transactions designated hedges company also assessed documented hedges inception whether derivatives used hedging transactions effective offsetting changes fair values associated hedged items company continue assess hedge effectiveness ongoing basis fair value hedges result hedge ineffectiveness year ended september 25 2009 company terminated certain interest rate swaps first quarter 2007 outstanding time since interest rate swaps designated hedging instruments outstanding debt related loss amortized remaining life related debt instruments year ended september 26 2008 connection debt tender offer 9 million unamortized loss interest rate swaps accelerated recorded loss retirement debt included expense net see note 12 company use derivative financial instruments trading speculative purposes derivative financial instruments reported consolidated balance sheets fair value changes fair value derivative financial instruments recognized currently earnings following table summarizes fair value derivative instruments location consolidated balance sheets september 25 2009 millions fair values derivative instruments 1the company nets derivative assets liabilities aggregating derivative contracts presentation consolidated financial statements certain criteria met table presents contracts gross basis following tables summarize amount gain loss recognized earnings derivative instruments location consolidated statements operations year ended september 25 2009 millions effect derivative instruments consolidated statements operations 1includes economic hedges related operating activities 2includes economic hedges related dividends declared swiss francs september 25 2009 total gross notional amount companys foreign exchange contracts approximately 525 million 1the gain loss derivative well offsetting loss gain hedged item attributable hedged risk recognized current earnings company includes gain loss hedged item line item interest expense offsetting loss gain related interest rate swaps year ended september 25 2009 company recognized 3 million loss underlying debt issuances september 25 2009 total gross notional amount companys interest rate swap contracts 14 billion counterparty credit risk use derivative financial instruments exposes company counterparty credit risk counterparty fails perform company exposed losses derivative asset position fair value derivative instrument asset counterparty pay company settle contract exposes company credit risk however fair value derivative instrument liability company pay counterparty settle contract therefore counterparty credit risk tyco established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide longterm standard poors moodys credit ratings aa3 higher reduce risk loss company generally enters international swaps derivatives association master agreements substantially counterparties master netting agreements provide protection bankruptcy certain circumstances cases enable receivables payables counterparty offset consolidated balance sheets providing meaningful balance sheet presentation credit exposure companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes september 25 2009 company exposed industry concentration financial institutions well risk loss individual counterparty issuer failed perform obligations contractual terms maximum amount loss company would incur without giving consideration effects legally enforceable master netting agreements approximately 32 million fair value financial instruments effective september 27 2008 company adopted authoritative guidance fair value measurements financial assets liabilities well nonfinancial assets liabilities recognized disclosed fair value financial statements recurring basis guidance provides single definition fair value establishes comprehensive framework measuring fair value expands related disclosure requirements specifically guidance requires fair value determined based exchange price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date fair value marketbased measurement based assumptions market participants would use price asset liability accordingly framework considers markets observable inputs preferred source value followed assumptions based hypothetical transactions absence market inputs fair value calculated based assumptions market participants would use pricing asset liability assumptions specific entity addition fair value assets liabilities include consideration nonperformance risk including companys credit risk additionally guidance establishes threelevel hierarchy ranks quality reliability information used developing fair value estimates hierarchy gives highest priority quoted prices active markets lowest priority unobservable data cases two levels inputs used determine fair value financial instruments level determined based lowest level input considered significant fair value measurement entirety three levels fair value hierarchy summarized follows •level 1inputs based upon quoted prices unadjusted active markets identical assets liabilities accessible measurement date •level 2inputs based upon quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations asset liability derived principally corroborated market data primary inputs observable including forward interest rates yield curves credit risk exchange rates •level 3inputs valuations unobservable based managements estimates assumptions market participants would use pricing asset liability fair values therefore determined using modelbased techniques option pricing models discounted cash flow models investments primarily include cash equivalents us government obligations corporate debt securities available company uses quoted market prices determine fair value investment securities investments included level 1 quoted market prices readily available pricing determinations made based results valuation models using observable market data recently reported trades bid offer information benchmark securities investments included level 2 consist primarily us government debt securities corporate debt securities derivative financial instruments described caption derivative instruments derivative assets liabilities consist principally forward foreign currency exchange contracts interest rate swaps fair values derivative financial instruments derived pricing models take account contractual terms features instrument forward foreign currency rates companys foreign exchange contracts yield curves companys interest rate swaps existing end period valuations adjusted reflect creditworthiness counterparty assets creditworthiness company liabilities adjustments based observable market evidence categorized level 2 exposures assets liabilities measured fair value recurring basis following table presents companys assets liabilities measured fair value recurring basis september 25 2009 level within fair value hierarchy financial assets liabilities classified entirety based lowest level input significant valuation 1the company nets derivative assets liabilities aggregating derivative contracts presentation consolidated financial statements certain criteria met amounts include fair value adjustments related companys credit risk counterparty credit risk fiscal 2009 2008 company designated certain intercompany loans permanent nature september 25 2009 30 billion intercompany loans designated permanent nature year ended september 25 2009 company recorded cumulative translation loss accumulated comprehensive loss income related loans material impact fiscal 2009 141 million fiscal 2008 fourth quarter fiscal year 2008 company issued 217589 shares tyco common stock obtained shares covidien tyco electronics connection redemption companys 3125 convertible senior debentures given requirement convert companys 3125 convertible senior debentures shares tyco covidien tyco electronics company previously recognized asset fair value covidien tyco electronics shares liability related conversion option company recorded income 6 million expense net related settlement previously recognized asset liability year ended september 26 2008 september 25 2009 september 26 2008 convertible debentures remained outstanding december 2006 due required changes legal entity structure facilitate separation company determined would longer consider certain intercompany foreign currency transactions longterm investments result related foreign currency transaction gains losses investments recorded consolidated statements operations subsequent determination rather currency translation component accumulated comprehensive loss income within shareholders equity forward contracts previously designated hedges net investments continued used manage exposure longer designated net investment hedges remaining forward option contracts marked market changes derivatives fair value recognized consolidated statements operations previously company hedged net investment certain foreign operations changes fair value forward contracts qualifying net investment hedges reported cumulative translation adjustment component accumulated comprehensive loss income extent hedges effective cumulative translation adjustment component accumulated comprehensive loss income includes net loss 299 million 91 million 2007 2006 respectively hedges foreign currency exposure companys net investment certain foreign operations connection separation debt tender company dedesignated 6125 euro denominated public notes due 2007 march 29 2007 55 euro denominated public notes due 2008 65 british pound denominated public notes due 2031 may 21 2007 previously considered hedges net investments certain foreign operations september 28 2007 company hedge net investments foreign operations outstanding borrowings denominated us dollars 15 commitments contingencies company facility vehicle equipment leases expire various dates year 2027 rental expense leases 392 million 415 million 406 million 2009 2008 2007 respectively company also facility equipment commitments capital leases following schedule minimum lease payments noncancelable leases september 25 2009 millions company also purchase obligations related commitments purchase certain goods services september 25 2009 obligations follows 90 million 2010 5 million 2011 3 million thereafter normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows connection separation company entered liability sharing agreement regarding certain legal actions pending tyco prior separation distribution agreement company covidien tyco electronics jointly severally liable full amount judgments resulting actions subject agreement generally relate legacy matters specific business operations companies separation distribution agreement also provides company responsible 27 covidien 42 tyco electronics 31 payments resolve matters costs expenses associated management contingencies shared equally among parties addition agreement company manage control legal matters related assumed contingent liabilities described separation distribution agreement including defense settlement thereof subject certain limitations additionally time separation company covidien tyco electronics agreed allocate responsibility certain legacy tax claims pursuant formula tax sharing agreement see note 6 class action settlement legacy securities matters previously reported tyco members companys former senior corporate management named defendants number lawsuits alleging violations disclosure provisions federal securities laws june 2007 company settled 32 purported securities class action lawsuits arising actions alleged taken prior management 2975 billion amount company contributed 803 million representing share separation distribution agreement 2975 billion escrow account established connection settlement result tyco incurred charge expense tax benefit available current liability 2975 billion third quarter 2007 tyco borrowed unsecured bridge credit facilities fund liability placed proceeds escrow benefit class connection separation covidien tyco electronics assumed portion related borrowing company also recovered certain costs insurers result company recorded 113 million recoveries connection class action settlement consolidated statements operations 2007 based separation distribution agreement company recorded payables covidien tyco electronics portion 2007 recoveries offset shareholders equity company recovered additional 38 million costs insurers 2008 company recorded payables covidien tyco electronics respective shares 2008 recoveries resulting net 10 million credit recorded class action settlement net consolidated statements operations since legal contingencies could affected settlement exhausted february 21 2008 administration distribution settlement funds escrow managed counsel certified class tyco subject liability related class action settlement result tyco extinguished class action liability longer claim escrow account escrow accounts earned interest payable class result interest also accrued class action settlement liability february 21 2008 class action liability escrow account balances including interest 302 billion based separation distribution agreement tyco receivable covidien tyco electronics portion liability 1257 million 927 million respectively september 28 2007 corresponding payables covidien tyco electronics interest escrow accounts receivables payables pertain class action settlement related escrow accounts counterparty presented net consolidated balance sheets tycos portion liability 808 million september 28 2007 amounts extinguished second quarter 2008 june 2007 class action settlement purport resolve legacy securities cases several remain outstanding significant stumpf v tyco international ltd class action lawsuit plaintiffs allege tyco among others violated disclosure provisions federal securities laws matter arises tycos july 2000 initial public offering common stock tycom inc alleges tycom registration statement prospectus relating sale common stock inaccurate misleading failed disclose facts necessary make registration statement prospectus misleading complaint alleges defendants violated securities laws making materially false misleading statements omissions concerning among things executive compensation tycoms business prospects tycos tycoms finances matter currently pretrial stages litigation discussed company reserved best estimate probable loss related matter second quarter 2009 addition stumpf matter tyco party several lawsuits based alleged violations federal securities laws fraud negligence committed former management matters consist jasin v tyco international ltd et al action brought pro se plaintiff hall v kozlowski et al action brought pro se plaintiff relating plaintiffs employment 401k pension plans ownership tyco common stock several affirmative actions brought tyco messrs kozlowski swartz walsh former executives director tyco connection affirmative actions messrs kozlowski swartz made counterclaims seeking amounts allegedly due connection former executives compensation retention arrangements erisa mr walsh made claims alleging tyco required indemnify defense costs arising role tyco director tyco intends vigorously defend actions believe ultimate outcome matters material adverse affect financial position results operations cash flows company settled number legacy securities lawsuits 2008 connection settlements company made total payments 10925 million pursuant separation distribution agreement companys share settlement amounts approximately 30 million covidien tyco electronics responsible approximately 45 million 34 million respectively company recorded settlement related receivables covidien tyco electronics respective shares settlement amount resulting net charge selling general administrative expenses share settlement approximately 30 million second quarter fiscal 2009 company settled additional legacy legal matters including several lawsuits filed plaintiffs opted june 2007 class action settlement aggregate amount approximately 90 million pursuant separation distribution agreement companys share settlement amounts approximately 24 million covidien tyco electronics responsible approximately 38 million 28 million respectively company recorded total settlement amount 90 million liability within companys consolidated balance sheet march 27 2009 recorded receivables due covidien tyco electronics respective portions liability current assets companys consolidated balance sheet march 27 2009 result company recorded 24 million charges consolidated statements operations 2009 second quarter 2009 company concluded best estimate probable loss legacy securities matters outstanding time 375 million aggregate company recorded liability accrued current liabilities consolidated balance sheet march 27 2009 due sharing provisions separation distribution agreement company also recorded receivables covidien tyco electronics amounts 158 million 116 million respectively recorded current assets companys consolidated balance sheet march 27 2009 result company recorded net charge 101 million related legacy securities matters quarter ended march 27 2009 selling general administrative expenses consolidated statements operations second half fiscal 2009 company agreed settle remaining plaintiffs optedout class action settlement well plaintiffs brought erisa related claims total 271 million pursuant separation distribution agreement companys share settlement amount approximately 73 million covidien tyco electronics responsible approximately 114 million 84 million respectively settlement activity result company recording charge consolidated statements operations company established reserve best estimate amount loss second quarter 2009 discussed company continues believe accrual remaining september 25 2009 best estimate remaining unresolved claims although company reserved best estimate probable loss related unresolved legacy securities claims ultimate resolution could differ estimate could material adverse effect companys financial position results operations cash flows terms separation distribution agreement tyco covidien tyco electronics jointly severally liable full amount legacy securities matters excluding counterclaims brought former executives director described environmental matters tyco involved various stages investigation cleanup related known environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 25 2009 tyco concluded probable would incur remedial costs range approximately 31 million 85 million september 25 2009 tyco concluded best estimate within range approximately 40 million 12 million included accrued current liabilities 28 million included liabilities tycos consolidated balance sheet view companys financial position reserves environmental matters company believes potential payment estimated amounts material adverse effect financial position results operations cash flows tyco recorded asset retirement obligations aros estimated future costs associated legal obligations retire certain assets september 25 2009 september 26 2008 companys aros 11 million 13 million respectively company believes potential payment estimated amounts material adverse effect financial position results operations cash flows asbestos matters company certain subsidiaries named defendants bodily injury lawsuits based alleged exposure asbestoscontaining materials cases typically involve product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos attached used asbestoscontaining components manufactured thirdparties case typically names dozens hundreds corporate defendants company observed increase number lawsuits past several years including lawsuits plaintiffs mesotheliomarelated claims large percentage suits presented viable legal claims result dismissed courts companys strategy continues mount vigorous defense aimed unsubstantiated suits dismissed appropriate settling suits trial although large percentage litigated suits dismissed company cannot predict extent successful resolving lawsuits future lawsuits proceeded trial since 2005 company settled one case one case returning adverse jury verdict approximately 77 million included compensatory punitive damages company appealed verdict believes ultimately overturned september 25 2009 4200 lawsuits pending company subsidiaries lawsuit typically includes several claims company determined 5509 6569 6461 claims outstanding september 25 2009 september 26 2008 september 28 2007 respectively amounts reflect adjustments claims actively prosecuted identify incorrect defendants duplicative actions annually fiscal fourth quarter company performs analysis update estimated asbestosrelated assets liabilities companys estimate liability corresponding insurance recovery pending future claims defense costs based claim experience past five years covers claims expected filed including related defense costs next seven years undiscounted basis due high degree uncertainty regarding pattern length time claims made factors company concluded estimating liability beyond seven year period provide reasonable estimate accordingly recorded liability asbestosrelated costs beyond 2016 companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers available insurance allocation methodologies solvency creditworthiness insurers september 25 2009 companys estimated net liability 49 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 240 million separately asset insurance recoveries 191 million similarly september 26 2008 companys estimated net liability 21 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 194 million separately asset insurance recoveries 173 million increase liability 2008 2009 due number factors primarily driven increase mesotheliomarelated claims noted well increase average cost resolution past five years estimated insurance asset increased due availability certain insurance policies cover portion increased liability amounts recorded company asbestosrelated liabilities insurancerelated assets based currently available information well estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims resolution coverage issues insurance carriers solvency risk respect companys insurance carriers furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries company believes asbestosrelated reserves september 25 2009 appropriate however actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results compliance matters previously reported companys periodic filings company received responded various allegations information certain improper payments made companys subsidiaries agents recent years example two subsidiaries companys flow control business italy charged along numerous parties connection milan public prosecutors investigation allegedly improper payments made certain italian entities company reported german authorities potentially improper conduct involving agents retained companys emea water business company reported us department justice doj sec investigative steps remedial measures taken response allegations internal investigations company also informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance foreign corrupt practices act fcpa would continue investigate make periodic progress reports agencies company continue communicate doj sec provide updates baseline review followup investigations including appropriate briefings concerning additional instances potential improper payments identified company course ongoing compliance activities baseline review revealed business practices may comply tyco fcpa requirements time company cannot predict outcome matters allegations reported regulatory law enforcement authorities therefore cannot estimate range potential loss extent risk may result adverse resolution matters however possible company may required pay material fines consent injunctions future conduct suffer criminal civil penalties adverse impacts could material adverse effect companys financial position results operations cash flows covidien tyco electronics agreed connection separation cooperate company responses regarding matters judgment required paid settlement cost incurred company connection fcpa investigations would subject liability sharing provisions separation distribution agreement assigned liabilities primarily related former healthcare electronics businesses company covidien tyco electronics respectively provides company retain liabilities primarily related continuing operations liabilities primarily related particular segment shared equally among company covidien tyco electronics german federal cartel office fco charged early 2007 certain german subsidiaries companys flow control business engaged anticompetitive practices particular regard hydrant valve street box fittings business company investigated matter determined conduct may violated german antitrust law company cooperating fco investigation violation ongoing company cannot estimate range potential loss may result violation possible company may subject civil criminal proceedings may required pay judgments suffer penalties incur settlements amounts may material adverse effect financial position results operations cash flows erisa partial withdrawal liability assessment demand june 8 2007 simplexgrinnell received notice alleging partially withdrawn national automatic sprinkler industry pension fund title iv erisa fund prove employer completely partially withdraws multiemployer pension plan fund employer liable withdrawal liability equal proportionate share plans unfunded vested benefits alleged withdrawal results 1994 labor dispute grinnell fire protection systems simplexgrinnells predecessor road sprinkler fitters local union 669 erisa requires payment withdrawal liability made full quarterly installments commencing upon receipt liability assessment plan plans assessment withdrawal liability generally may challenged arbitration erisa requires quarterly payments must continue made pendency arbitration employer prevails arbitration subsequent court appeals quarterly withdrawal liability payments refunded interest funds total withdrawal liability assessment simplexgrinnell approximately 25 million quarterly withdrawal liability payments 11 million 11 million paid date ultimate outcome uncertain simplexgrinnell believes strong arguments withdrawal liability owed fund plans vigorously defend funds withdrawal liability assessment matter currently arbitration company made provision contingency believes quarterly payments recoverable matters previously reported 2002 secs division enforcement conducted investigation related past accounting practices dealer connect fees adt charged authorized dealers upon purchasing customer accounts investigation related accounting practices employed companys former management discontinued 2003 although company settled sec 2006 number former dealers related parties filed lawsuits company including class action lawsuit filed district court arapahoe county colorado alleging breach contract claims related adts decision terminate certain authorized dealers 2002 2003 possible time predict final outcome lawsuits company believe claims material adverse effect companys financial position results operations cash flows addition foregoing company subject claims suits including time contractual disputes product general liability claims incidental present former operations acquisitions dispositions respect many claims company either selfinsures maintains insurance thirdparties varying deductibles ultimate outcome matters cannot predicted certainty company believes resolution proceedings whether underlying claims covered insurance material adverse effect companys financial condition results operations cash flows beyond amounts recorded matters 16 retirement plans company sponsors number pension plans company measures pension plans fiscal year end following disclosures exclude impact plans immaterial individually aggregate defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based local regulations advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation connection separation company legally separated certain pension plans included participants tyco healthcare tyco electronics subsidiaries result company remeasured assets projected benefit obligation separated pension plans impact remeasurement continuing operations immaterial also 2007 company completed merger certain pension plans united kingdom resulted increase minimum pension liability corresponding decrease accumulated comprehensive loss income 10 million net income taxes net periodic benefit cost us nonus defined benefit pension plans 2009 2008 2007 follows millions estimated net loss prior service cost us pension benefit plans amortized accumulated comprehensive loss income net periodic benefit cost next fiscal year expected 26 million 1 million respectively estimated net loss prior service credit nonus pension benefit plans amortized accumulated comprehensive loss income net periodic benefit cost next fiscal year expected 29 million 3 million respectively change benefit obligations plan assets amounts recognized consolidated balance sheets us nonus defined benefit plans september 25 2009 september 26 2008 follows millions company adopted measurement date provisions authoritative guidance employers accounting defined benefit pension postretirement plans september 27 2008 result tyco measured plan assets benefit obligations september 26 2008 adjusted opening balances accumulated deficit earnings accumulated comprehensive loss income change net periodic benefit cost fair value respectively previously used measurement date august 31 2008 adoption measurement date provisions resulted net decrease accumulated earnings 5 million net income tax benefit 2 million net increase accumulated comprehensive loss income 61 million net income taxes 28 million see note 1 additional information related adoption guidance accumulated benefit obligation us plans september 25 2009 september 26 2008 862 million 720 million respectively accumulated benefit obligation nonus plans september 25 2009 september 26 2008 1287 million 1356 million respectively accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 862 million 631 million respectively september 25 2009 470 million 415 million respectively september 26 2008 accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 1264 million 919 million respectively september 25 2009 1333 million 1054 million respectively september 26 2008 aggregate benefit obligation fair value plan assets us pension plans benefit obligations excess plan assets 864 million 631 million respectively september 25 2009 472 million 415 million respectively september 26 2008 aggregate benefit obligation fair value plan assets nonus pension plans benefit obligations excess plan assets 1323 million 927 million respectively september 25 2009 1395 million 1061 million respectively september 26 2008 determining expected return plan assets company considers relative weighting plan assets class individual asset class performance expectations provided external advisors companys investment strategy pension plans manage plans goingconcern basis current investment policy maximize return assets subject prudent level portfolio risk purpose enhancing security benefits participants us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 52 equity securities 44 debt securities 4 asset classes including real estate cash equivalents pension plans following weightedaverage asset allocations although company buy sell securities direct investment pension funds due external investment management certain commingled funds plans may indirectly hold tyco securities aggregate amount securities would considered material relative total fund assets 2009 company contributed 61 million us nonus pension plans represented companys minimum required contributions pension plans fiscal year 2009 additionally company made voluntary contributions 22 million 2009 us pension plans companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates contribute least minimum required pension plans 2010 4 million us plans 76 million nonus plans benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans 1 million 1 million 3 million 2009 2008 2007 respectively executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 25 2009 81 million 42 million respectively companys accrued benefit obligations messrs kozlowski swartz september 26 2008 76 million 39 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era subject litigation brought company messrs kozlowski swartz defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 79 million 84 million 78 million 2009 2008 2007 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans gain related serp 1 million 2009 2008 respectively expense 3 million 2007 incurred deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation gain 5 million 1 million expense 13 million 2009 2008 2007 respectively total deferred compensation liabilities 97 million 91 million september 25 2009 september 26 2008 respectively rabbi trustshistorically company held assets within rabbi trusts assets could used pay nonqualified plan benefits trust assets primarily composed corporateowned life insurance policies fiscal year 2007 company permitted trust agreement sold substantially assets held trusts received 271 million proceeds remaining trust assets material september 25 2009 september 26 2008 trust assets consolidated subject claims companys creditors event companys insolvency plan participants general creditors company respect benefits postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits net periodic postretirement benefit cost 2009 2008 2007 follows millions components accrued postretirement benefit obligations substantially unfunded september 25 2009 september 26 2008 follows millions company expects make contributions postretirement benefit plans 7 million 2010 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions measurement purposes 80 94 composite annual rate increase per capita cost covered health care benefits assumed september 25 2009 september 26 2008 respectively september 25 2009 september 26 2008 composite annual rate increase health care benefit costs assumed decrease gradually 46 50 years 2027 2015 respectively remain level thereafter onepercentagepoint change assumed healthcare cost trend rates would following effects millions 17 shareholders equity discussed note 1 effective march 17 2009 company changed jurisdiction incorporation bermuda canton schaffhausen switzerland connection change domicile par value companys common shares increased 080 per share 853 swiss francs chf per share 721 based exchange rate effect march 17 2009 change domicile approved special general meeting shareholders held march 12 2009 following steps occurred connection change domicile result change total shareholders equity 1approximately 21 million shares held directly indirectly treasury cancelled 2the par value common shares increased 080 chf 853 approximate 1for9 reverse share split followed issuance approximately eight fully paid shares number shares outstanding change domicile reduced share premium increased common shares 3the remaining amount share premium eliminated corresponding increase contributed surplus preference sharesin connection change domicile authorized preference shares cancelled september 26 2008 tyco authorized 31250000 preference shares par value 4 per share none issued outstanding common sharesas september 25 2009 companys share capital amounted chf 386791146507 479295101 registered common shares par value chf 807 per share march 12 2011 board directors may increase companys share capital maximum amount chf 193395572850 issuing maximum 239647550 shares addition march 12 2011 share capital company may increased amount exceeding chf 38679114570 issue maximum 47929510 shares exercise conversion andor option warrant rights granted connection bonds notes similar instruments including convertible debt instruments ii share capital company may increased amount exceeding chf 38679114570 issue maximum 47929510 shares employees persons providing services company although company states par value swiss francs continues use us dollar reporting currency preparing consolidated financial statements shares owned subsidiaries common shares held treasuryprior change domicile approximately 21 million shares held company directly indirectly treasury cancelled september 25 2009 approximately 5 million shares held treasury september 26 2008 approximately 22 million shares held subsidiary 5 million shares held directly treasury share premium contributed surplusas september 26 2008 tyco international ltd incorporated laws bermuda accordance bermuda companies act 1981 tyco issued shares cash premium par value resulting premium increase share premium account nondistributable reserve contributed surplus subject certain conditions distributable reserve discussed effective march 17 2009 company ceased exist bermuda corporation continued existence swiss corporation company undertook number steps connection change domicile described reduced share premium zero march 17 2009 increased common shares approximately 35 billion share premium remaining recapitalization allocated contributed surplus eliminated remaining share premium balance dividendspursuant swiss law dividend payments made prior january 1 2011 subject swiss withholding taxes unless made form return capital companys registered share capital result company intends first pay dividends form reduction registered share capital least january 1 2011 january 1 2011 company expects make dividend payments form reduction contributed surplus also may made free swiss withholding taxes march 12 2009 companys board directors declared quarterly dividend companys common shares chf 023 per share paid may 27 2009 shareholders record april 30 2009 may 7 2009 companys board directors declared quarterly dividend companys common shares chf 023 per share paid august 26 2009 shareholders record july 31 2009 september 10 2009 companys board directors declared quarterly dividend companys common shares chf 023 per share paid november 24 2009 shareholders record october 30 2009 quarterly dividends represent first second third installments annual dividend chf 093 per share approved shareholders march 12 2009 certain administrative steps need occur effectuate dividend payment approval shareholders establishes dividend swiss law result company recorded accrued dividend chf 440 million march 12 2009 approximated 377 million based exchange rate effect date dividend approved special shareholders meeting march 12 2009 made form return capital amount recorded reduction common shares reduced companys par value chf 853 chf 760 however company expects actually pay dividends us dollars based exchange rates effect shortly payment date prior change domicile december 4 2008 companys board directors declared quarterly dividend companys common shares 020 per share paid february 2 2009 shareholders record january 5 2009 amount recorded reduction accumulated deficit earnings december 6 2007 march 13 2008 may 8 2008 companys board directors declared quarterly dividend companys common shares 015 per share paid february 1 2008 may 1 2008 august 1 2008 respectively shareholders record january 3 2008 april 1 2008 july 1 2008 respectively september 9 2008 companys board directors declared quarterly dividend companys common shares 020 per share paid november 3 2008 shareholders record october 1 2008 share repurchase programsthe companys board directors approved 10 billion 2008 share repurchase program 10 billion 2007 share repurchase program 20 billion 2006 share repurchase program 15 billion 2005 share repurchase program july 2008 september 2007 may 2006 september 2005 respectively following table represents number shares dollar amount repurchases made companys repurchase programs fiscal year remaining amount available repurchase september 25 2009 18 share plans connection separation 2007 share options modified issuance covidien tyco electronics share options result one four share split share option exercise prices tyco awards adjusted generally employee share options converted share options employer exception corporate employees whose awards converted share options three companies revisions made share options result separation constituted modification required comparison fair values share options immediately separation fair values immediately separation certain instances fair value immediately separation higher result modification resulted incremental compensation cost 15 million amount 03 million 1 million 13 million 11 million discontinued operations recorded 2009 2008 2007 respectively 2009 2008 amounts included selling general administrative expenses 2007 amount included separation costs companys consolidated statements operations remaining balance recorded continuing operations remaining vesting period share options except changes described principal terms share options remain unchanged original grant also connection separation tyco employee restricted share awards restricted stock units collectively restricted share awards modified issuance covidien tyco electronics restricted shares conversion shares employer restricted shares restricted share units held employees company employed subject accelerated vesting provisions vested 50 first day trading separation 50 six months thereafter accelerated vesting resulted 14 million accelerated compensation expense tycos continuing operations tyco recorded 12 million selling general administrative expenses fourth quarter 2007 recorded remaining expense first quarter 2008 equity awards uk saveasyouearn plan saye plan modified connection separation resulted additional compensation expense 14 million amount 2 million 7 million 1 million discontinued operations 5 million 2 million discontinued operations recorded 2009 2008 2007 respectively except changes described principal terms conditions restricted shares restricted units deferred stock units employees remain unchanged original grant also connection separation company amended terms performance based awards granted november 22 2005 provide vesting remaining awards without regard original performance measures original performance awards previously adjusted reflect attainment performance metrics fiscal year 2006 converted time based restricted stock units employer exception corporate employees whose outstanding awards converted time based restricted stock units three separate companies effective october 1 2005 company utilized modified prospective transition method account shared based payment awards transition method compensation cost recognized beginning october 1 2005 includes compensation cost sharebased payments granted prior yet vested october 1 2005 based estimated grantdate fair value ii sharebased payments granted subsequent september 30 2005 based estimated grantdate fair value compensation cost generally recognized ratably requisite service period retirement eligibility shorter total sharebased compensation cost recognized 2009 99 million included selling general administrative expenses total sharebased compensation cost recognized 2008 104 million includes 97 million selling general administrative expenses 3 million separation costs 4 million discontinued operations total sharebased compensation cost recognized 2007 297 million includes 155 million selling general administrative expenses 13 million restructuring asset impairment charges net 6 million separation costs 123 million discontinued operations company recognized related tax benefit associated sharebased compensation arrangements 2009 2008 2007 25 million 28 million 1 million discontinued operations 78 million 31 million discontinued operations respectively 2004 tyco international ltd 2004 stock incentive plan 2004 plan effectively replaced tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan awards effective march 25 2004 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted shares deferred stock units promissory stock stockbased awards collectively awards 2004 plan provides maximum 40 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance ltip plans awarded thereunder january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 march 25 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason including termination ltip plans also available issuance 2004 plan common shares issued pursuant grant awards total number common shares remaining available grant decreased margin least 18 per common share issued september 25 2009 approximately 26 million shares available future grant 2004 plan including shares available ltip ii plans assumable 2004 plan september 25 2009 13 million shares granted 2004 plan 1994 plan provided issuance restricted stock grants officers nonofficer employees 1994 plan expired november 2004 thus additional grants restricted stock made plan since november 2004 shares available future grant september 25 2009 4 million shares remained outstanding granted 1994 plan prior november 2004 expiration ltip plan reserved common shares issuance tycos directors executives managers share options plan administered compensation human resources committee board directors company consisted exclusively independent directors company 2009 approximately 01 million shares originally reserved issuance plan became available future grant 2004 plan ltip ii plan broadbased option plan nonofficer employees terms conditions plan similar ltip plan 2009 approximately 15 million shares originally reserved issuance plan became available future grant 2004 plan share optionsoptions granted purchase common shares prices equal greater market price common shares date option granted conditions vesting determined time grant 2004 plan options generally exercisable equal annual installments period three four years generally expire 10 years date grant historically companys practice settle stock option exercises either newly issued shares held treasury repurchased company since reincorporation switzerland intend settle stock option exercises shares held treasury repurchased company grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service period awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based historical volatility companys stock implied volatility derived exchange traded options postseparation expected volatility calculated based analysis historic implied volatility measures set peer companies average expected life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well analysis actual share option forfeitures weightedaverage assumptions used blackscholes option pricing model 2009 2008 2007 follows weightedaverage grantdate fair values options granted 2009 2008 2007 709 1106 1535 respectively total intrinsic value options exercised 2009 2008 2007 05 million 16 million 163 million respectively related excess cash tax benefit classified financing cash inflow 2009 2008 2007 significant summary option activity september 25 2009 changes year ended presented september 25 2009 51 million total unrecognized compensation cost related nonvested options granted cost expected recognized weightedaverage period 22 fiscal years employee stock purchase planssubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan espp eligible employees authorized payroll deductions made purchase shares company matched portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker essp suspended indefinitely quarter ended september 25 2009 saye plan eligible employees united kingdom granted options purchase shares end three years service 85 market price time grant options saye plan generally exercisable period three years expire six months date vesting saye plan provided maximum 10 million common shares issued september 25 2009 7 million shares available future issuance shares purchased saye plan purchased open market saye plan approved november 3 1999 ten year period expired according terms november 3 2009 international benefits oversight committee approved additional grants since last annual grant october 9 2008 applied approval replacement saye plan time summary option activity saye plan september 25 2009 changes year ended presented grantdatefair value option grant estimated using blackscholes option pricing model assumptions expected volatility average expected life riskfree rate well expected annual dividend per share made using methodology previously described share options weightedaverage grantdate fair values options granted saye plan 2009 2008 347 1418 respectively options granted saye plan 2007 total intrinsic value options exercised 2009 2008 2007 1 million 3 million 5 million respectively related excess cash tax benefit classified financing cash inflow 2009 2008 2007 significant september 25 2009 1 million total unrecognized compensation cost related nonvested options granted saye plan cost expected recognized period 11 fiscal years restricted share awardsrestricted share awards granted subject certain restrictions conditions vesting determined time grant 2004 plan restrictions award lapse upon normal retirement death disability employee fair market value units certain specified performance criteria expensed period vesting grants vest passage time fair market value award time grant amortized expense period vesting fair value restricted share awards determined based market value companys shares grant date restricted share awards generally vest period three four years determined compensation committee respect performance awards upon attainment various levels performance equal exceed targeted levels compensation expense recognized restricted share awards net estimated forfeitures recipients restricted shares right vote shares receive dividends whereas recipients restricted stock units voting rights receive dividend equivalents recipients performance shares voting rights receive dividend equivalents summary status companys restricted share awards including performance shares september 25 2009 changes year ended presented tables weightedaverage grantdate fair value restricted share awards granted 2009 2008 2007 2856 4027 4949 respectively total fair value restricted share awards vested 2009 2008 2007 74 million 41 million 58 million respectively weightedaverage grantdate fair value performance share awards granted 2009 2008 2007 2784 4611 5949 respectively total fair value performance shares vested 2007 1 million performance shares vested 2009 2008 september 25 2009 96 million total unrecognized compensation cost related nonvested restricted share awards performance shares cost expected recognized weightedaverage period 21 fiscal years deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment distribution made form actual shares similar restricted share grants vest passage time fair value dsus determined based market value companys shares grant date amortized expense vesting period recipients dsus right vote shares right receive cash dividends however right receive dividend equivalents conditions vesting determined time grant 2004 plan majority tycos dsu grants vest equal annual installments three years company granted 1 million dsus majority outstanding september 25 2009 summary status companys dsus september 25 2009 changes year ended presented table weightedaverage grantdate fair value dsus granted 2009 2008 2007 3409 4496 4229 respectively total fair value dsus vested 2009 2008 2007 2 million 2 million 8 million respectively september 25 2009 dsus vested 19 accumulated comprehensive loss income components accumulated comprehensive loss income follows millions 1during years ended september 25 2009 september 26 2008 september 28 2007 21 million 58 million 6 million respectively transferred currency translation adjustments result sale foreign entities amounts included income discontinued operations 2adjustment accumulated deficit earnings recorded correct distribution amount covidien tyco electronics date separation see note 2 20 consolidated segment geographic data segment information consistent management reviews businesses makes investing resource allocation decisions assesses operating performance connection separation company realigned management segment reporting structure effective march 31 2007 segment data presented reflects new segment structure company operates reports financial operating information following five segments •adt worldwide designs sells installs services monitors electronic security systems residential commercial industrial governmental customers •flow control designs manufactures sells services valves pipes fittings valve automation heat tracing products oil gas energy markets along general process industries water wastewater markets •fire protection services designs sells installs services fire detection fire suppression systems commercial industrial governmental customers •electrical metal products designs manufactures sells galvanized steel tubing armored wire cable metal products nonresidential construction electrical fire safety mechanical customers •safety products designs manufactures sells fire suppression electronic security life safety products including fire suppression products breathing apparatus intrusion security access control video management systems addition safety products manufactures products installed serviced adt worldwide fire protection services tyco also provides general corporate services segments costs reported corporate company time realign businesses management responsibility within operating segments possess similar characteristics product service offerings realignments designed fully leverage existing capabilities enhance development future products services effective september 27 2008 certain businesses transferred companys adt worldwide segment companys fire protection services segment companys fire protection services segment companys flow control segment companys electrical metal products segment companys safety products segment realignment businesses results segment data presented line managements view segment operating results revenue operating income 2008 2007 recast reflect realignment companys adt worldwide businesses companys fire protection services segment business realignments recast changes immaterial selected information new segment structure presented following tables 2009 2008 2007 millions 1revenue operating segment excludes intercompany transactions 1operating loss 2009 includes goodwill intangible asset impairment charges 2705 billion 2corporate 2007 includes net charge 2862 billion related class action settlement total assets segment september 25 2009 september 26 2008 september 28 2007 follows millions depreciation amortization capital expenditures net segment years ended september 25 2009 september 26 2008 september 28 2007 follows millions net revenue geographic area years ended september 25 2009 september 26 2008 september 28 2007 follows millions 1revenue attributed individual countries based reporting entity records transaction longlived assets geographic area september 25 2009 september 26 2008 september 28 2007 follows millions 1longlived assets comprised primarily property plant equipment exclude goodwill intangible assets deferred taxes shared assets 21 supplementary consolidated balance sheets information selected supplementary consolidated balance sheets information september 25 2009 september 26 2008 follows millions 22 inventory inventories consisted following millions inventories recorded lower cost primarily firstin firstout market value 23 property plant equipment property plant equipment consisted following millions 1property capital leases consists primarily buildings 2accumulated amortization capital lease assets 28 million 23 million september 25 2009 september 26 2008 respectively 24 summarized quarterly financial data unaudited summarized quarterly financial data years ended september 25 2009 september 26 2008 follows millions except per share data 1income continuing operations includes restructuring asset impairment divestiture charges net 8 million legacy legal charges 8 million 2loss continuing operations includes goodwill impairments 26 billion restructuring asset impairment divestiture charges net 102 million legacy legal charges 101 million intangible asset impairments 64 million 3income continuing operations includes restructuring asset impairment charges net 37 million 4income continuing operations includes restructuring asset impairment divestiture charges net 104 million 1net revenue excludes 425 million revenue related discontinued operations income continuing operations includes restructuring asset impairment divestiture charges net 14 million separation costs 9 million 2net revenue excludes 418 million revenue related discontinued operations income continuing operations includes restructuring asset impairment divestiture charges net 42 million legacy legal settlement charge 20 million slightly offset 5 million credit separation costs 3net revenue excludes 264 million revenue related discontinued operations income continuing operations includes class action settlement charge net 53 million legacy legal settlement charge 9 million offset credit 7 million class action settlement recoveries 4net revenue excludes 114 million revenue related discontinued operations income continuing operations includes restructuring asset impairment divestiture charges net 139 million goodwill impairment charges 9 million environmental remediation charge 6 million related closure facility north america offset credit 3 million class action settlement recoveries 25 tyco international finance sa tifsa whollyowned subsidiary company public debt securities outstanding see note 12 fully unconditionally guaranteed tyco tifsa formed december 2006 holding company established connection separation successor company tigsa third quarter 2007 tigsas assets liabilities contributed tifsa covidien tyco electronics tigsa put liquidation june 1 2007 tifsa directly indirectly owns substantially operating subsidiaries company performs treasury operations assumed indebtedness tigsa following tables present condensed consolidating financial information tyco tifsa subsidiaries condensed financial information tyco tifsa standalone basis presented using equity method accounting subsidiaries second quarter 2008 company completed taxfree restructuring involving transfer certain investments tyco tifsa since transactions entirely among wholly owned subsidiaries tyco impact companys consolidated financial position results operations cash flows transactions however result increase tifsas investment subsidiaries 19 billion since transactions among entities common control effects reflected beginning earliest period presented consolidating statement operations year ended september 25 2009 millions consolidating statement operations year ended september 26 2008 millions consolidating statement operations year ended september 28 2007 millions consolidating balance sheet september 25 2009 millions consolidating balance sheet september 26 2008 millions consolidating statement cash flows year ended september 25 2009 millions consolidating statement cash flows year ended september 26 2008 millions consolidating statement cash flows year ended september 28 2007 millions 26 subsequent events company evaluated subsequent events time filed annual report form 10k november 16 2009 october 1 2009 company granted tyco employees 41 million share options weightedaverage grantdate fair value 917 per share date grant additionally company granted 13 million 08 million restricted stock units performance share units fair value 3375 4019 per share date grant respectively september 30 2009 tifsa issued 500 million aggregate principle amount 4125 notes due 2014 fully unconditionally guaranteed company tifsa received net proceeds approximately 496 million underwriting discounts estimated offering expenses net proceeds may used general corporate purposes may include repayment indebtedness acquisitions additions working capital repurchase common shares capital expenditures investments companys subsidiaries also september 30 2009 tifsa entered interest rate swap contracts hedge 500 million notional amount 60 public notes due 2013 tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules a1 2 financial statements supplementary datasee item 8 3exhibit index 1management contract compensatory plan bsee item 15a3 csee item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer date november 12 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant november 12 2010 capacities indicated name title edward breen edward breen chairman chief executive officer director principal executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer principal financial officer carol anthony davidson carol anthony davidson senior vice president controller chief accounting officer principal accounting officer timothy donahue director brian duperreault director bruce gordon director rajiv l gupta director judith reinsdorf signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report judith reinsdorf judith reinsdorf attorneyinfact tyco international ltd index consolidated financial statements page managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations consolidated balance sheets consolidated statements shareholders equity consolidated statements cash flows notes consolidated financial statements schedule iivaluation qualifying accounts managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior team leading example includes every one tycos global employees well customers suppliers business partners one crucial objectives continuing maintain build public employee shareholder confidence restored tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2010 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls edward breen edward breen chairman chief executive officer christopher j coughlin christopher j coughlin executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 24 2010 september 25 2009 related consolidated statements operations shareholders equity cash flows three fiscal years period ended september 24 2010 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tyco international ltd subsidiaries september 24 2010 september 25 2009 results operations cash flows three fiscal years period ended september 24 2010 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company adopted new accounting guidance related measurement date defined benefit pension postretirement plans effective september 27 2008 also audited accordance standards public company accounting oversight board united states companys internal control financial reporting september 24 2010 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated november 11 2010 expressed unqualified opinion companys internal control financial reporting deloitte touche llp new york new york november 11 2010 report independent registered public accounting firm board directors shareholders tyco international ltd audited internal control financial reporting tyco international ltd subsidiaries company september 24 2010 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting september 24 2010 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements financial statement schedule fiscal year ended september 24 2010 company report dated november 11 2010 expressed unqualified opinion financial statements financial statement schedule deloitte touche llp new york new york november 11 2010 tyco international ltd consolidated statements operations years ended september 24 2010 september 25 2009 september 26 2008 millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets september 24 2010 september 25 2009 millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity year ended september 24 2010 september 25 2009 september 26 2008 millions see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity continued year ended september 24 2010 september 25 2009 september 26 2008 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 24 2010 september 25 2009 september 26 2008 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd corporation organized laws switzerland subsidiaries tyco subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance generally accepted accounting principles united states gaap certain information described article 663663h swiss code obligations presented companys swiss statutory financial statements period ended september 24 2010 unless otherwise indicated references consolidated financial statements 2010 2009 2008 tycos fiscal year ended september 24 2010 september 25 2009 september 26 2008 respectively effective june 29 2007 tyco completed spinoffs covidien tyco electronics formerly healthcare electronics businesses respectively separate publicly traded companies separation form distribution tyco shareholders 2008 company incurred pretax costs related separation 275 million amount 4 million included selling general administrative expenses 2008 additionally 258 million 2008 related loss early extinguishment debt included expense net separation costs included interest expense net 2008 47 million related writeoff unamortized credit facility fees also 2010 2009 2008 8 million income 14 million expense 34 million income respectively relating tax sharing agreement included expense net revenue related sale electronic tags labels utilized retailer antitheft systems classified revenue product sales reporting periods prior first quarter fiscal 2010 revenue related sale electronic tags labels utilized retailer antitheft systems misclassified service revenue item effect net revenue operating income loss net income loss cash flows changes made previously filed financial statements comparative amounts presented herein effect prior periods material revenue related sale electronic tags labels reflected service revenue 286 million 364 million 2009 2008 respectively related cost services 176 million 221 million 2009 2008 respectively company 52 53week fiscal year ends last friday september fiscal years 2010 2009 2008 52week years fiscal 2011 53week year end september 30 2011 principles consolidationtyco holding company conducts business operating subsidiaries company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities company bears majority risk entities expected losses stands gain majority entities expected returns intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal references segment data companys continuing operations use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges allowances doubtful accounts receivable estimates future cash flows associated tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued asset impairments useful lives depreciation amortization loss contingencies including legal environmental asbestos reserves net realizable value inventories fair values financial instruments estimated contract revenue related costs income taxes tax valuation allowances pension postretirement employee benefit expenses actual results could differ materially estimates revenue recognitionthe company recognizes revenue principally four types transactionssales products sales security systems billings monitoring maintenance services contract sales revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions product returns discounts customers accounted reductions determining sales period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements company assesses revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using deliverables relative fair value revenue recognized equipment installation limited lesser allocated amounts relative fair value method noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship company expect situations fair value cannot objectively determined sales security systems services cases arise companys policy recognize revenue elements contract life revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion extent progress toward completion generally measured tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued based ratio actual cost incurred total estimated cost completion revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimated warranty costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting september 24 2010 september 25 2009 accounts receivable longterm receivables included retainage provisions 62 million 66 million respectively 45 million 46 million unbilled respectively retainage provisions consist primarily fire protection contracts become due upon contract completion acceptance september 24 2010 retainage provision included 50 million expected collected fiscal 2011 research developmentresearch development expenditures expensed incurred included cost product sales amounted 131 million 116 million 125 million 2010 2009 2008 respectively research development expenses include salaries direct costs incurred building overhead expenses advertisingadvertising costs expensed incurred included selling general administrative expenses amounted 164 million 131 million 142 million 2010 2009 2008 respectively translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars assets liabilities translated us dollars using yearend exchange rates revenue expenses translated average exchange rates effect year foreign currency translation gains losses included component accumulated comprehensive loss shareholders equity gains losses resulting foreign currency transactions including impact foreign currency derivatives related operating activities dividends declared swiss francs reflected selling general administrative expenses expense net respectively cash equivalentsall highly liquid investments maturities three months less time purchase considered cash equivalents allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense 2010 2009 2008 654 million 610 million 620 million respectively maintenance repair expenditures charged expense tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued incurred except pooled subscriber systems depreciation calculated using straightline method estimated useful lives related assets follows see discussion depreciation method estimated useful lives related subscriber systems subscriber system assets related deferred revenue accountsthe company considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers residence place business installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses ie commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded noncurrent assets included assets within consolidated balance sheets subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets primarily north america related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 195 residential subscriber pools 145 265 commercial subscriber pools converts straightline methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination longlived asset impairmentstyco reviews longlived assets including property plant equipment amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur see note 9 performing assessments management relies various factors including operating results business plans economic projections anticipated future cash flows comparable transactions market data inherent uncertainties related factors require judgment applying analysis goodwill indefinitelived intangible assets impairment company performed annual impairment tests goodwill indefinitelived intangible assets first day fourth quarter 2010 testing goodwill impairment company first compares fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using market participants weightedaverage cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill indefinite lived intangible assets consisting primarily trade names franchise rights tested impairment using either relief royalty method excess earnings method dealer amortizable intangible assets netintangible assets primarily include contracts related customer relationships intellectual property certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program acquired contracts related customer relationships recorded contractually determined purchase price tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship estimated useful life dealer intangibles geographical areas comprising approximately 90 net carrying value dealer intangibles 15 years company amortizes dealer intangible assets accelerated basis contracts related customer relationships well intellectual property consisting primarily patents trademarks copyrights unpatented technology amortized straightline basis 4 40 years company evaluates amortization methods remaining useful lives intangible assets periodic basis determine whether events circumstances warrant revision amortization method remaining useful lives investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged accumulated comprehensive loss within shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting reporting period company evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented product warrantythe company records estimated product warranty costs time sale products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty however instances warranty either negotiated contract sold separate component warranty period terms range 90 days 15 years warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued environmental coststyco subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized asbestosrelated contingencies insurance receivablesthe company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs predominantly based claim experience past five years projection covers claims expected filed including related defense costs next seven years undiscounted basis due high degree uncertainty regarding pattern length time claims made settled litigated company uses multiple estimation methodologies based varying scenarios potential outcomes estimate range loss company concluded estimating liability beyond seven year period provide reasonable estimate uncertainties increase significantly projection period lengthens connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return pattern timing future obligation reliably determinable impact discount consolidated balance sheets september 24 2010 september 25 2009 reduce obligation 21 million 20 million respectively company maintains captive insurance companies manage certain insurable liabilities additionally company records receivables third party insurers recovery determined probable financial instrumentsthe company may use interest rate swaps currency swaps forward option contracts commodity swaps manage risks generally associated interest rate risk foreign exchange risk commodity prices derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly effective offsetting changes fair tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued value underlying hedged item inception hedge expected remain highly effective life hedge contract derivative financial instruments reported consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items related operating activities reported selling general administrative expenses along offsetting transaction gains losses items hedged derivatives used economically hedge dividends declared swiss francs reported companys consolidated statements operations part expense net along offsetting transaction gains losses items hedged derivatives used manage exposure changes interest rates reported interest expense along offsetting transaction gains losses items hedged gains losses net investment hedges included cumulative translation adjustment component accumulated comprehensive loss extent effective gains losses derivatives designated cash flow hedges recorded accumulated comprehensive loss reclassified earnings manner matches timing earnings impact hedged transactions company classifies cash flows associated settlement derivatives consistent nature transaction hedged company cash flow hedges 2010 ineffective portion hedges recognized currently earnings noted instruments qualify hedge accounting marked market changes recognized current earnings reclassificationscertain prior period amounts reclassified conform current period presentation specifically company reclassified certain businesses satisfied criteria presented discontinued operations income discontinued operations consolidated statements operations assets liabilities held sale within consolidated balance sheets see note 2 additionally company realigned certain business operations first quarter fiscal 2010 resulting prior period segment amounts recast see note 19 recently adopted accounting pronouncementsin december 2008 fasb issued authoritative guidance employers disclosures postretirement benefit plan assets guidance requires additional disclosures plan assets related employers defined benefit pension postretirement plans enable investors better understand investment decisions made major categories plan assets inputs valuation techniques used measure fair value plan assets effect fair value measurements using significant unobservable inputs level 3 changes plan assets period significant concentrations risk within plan assets disclosure provisions guidance adopted concurrent pension disclosures associated companys annual valuation process fourth quarter fiscal 2010 adoption impact companys financial position results operations cash flows see note 15 june 2008 financial accounting standards board fasb ratified authoritative guidance determining whether instruments granted sharebased payment transactions participating securities guidance addresses whether instruments granted sharebased payment awards participating securities prior vesting therefore must included earnings allocation calculating earnings per share twoclass method guidance requires unvested sharebased payment awards contain nonforfeitable rights dividends dividendequivalents treated participating securities calculating earnings per share guidance became effective tyco first quarter fiscal 2010 applied retrospectively prior periods adoption tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued material impact companys historical annual quarterly basic diluted earnings per share see note 7 additional information related adoption guidance december 2007 fasb revised authoritative guidance business combinations revised guidance retains underlying concepts existing guidance business combinations still accounted fair value however accounting certain aspects business combinations affected acquisition costs generally expensed incurred restructuring costs associated business combination generally expensed subsequent acquisition date inprocess research development recorded fair value indefinitelived intangible acquisition date completed abandoned useful life determined changes deferred tax asset valuation allowances uncertain tax positions acquisition date generally impact income tax expense revised guidance also expands required disclosures surrounding nature financial effects business combinations revised guidance adopted company first quarter fiscal 2010 material impact companys financial position results operations cash flows revised guidance primarily effective business combinations beginning first quarter fiscal 2010 thereafter including acquisition broadview security see note 4 december 2007 fasb issued authoritative guidance noncontrolling interests consolidated financial statements guidance requires recognition noncontrolling interest minority interest prior adoption guidance equity consolidated financial statements amount net income attributable noncontrolling interest included consolidated net income face consolidated statements operations guidance also amends certain existing consolidation procedures order achieve consistency requirements revised authoritative guidance business combinations discussed guidance also includes expanded disclosure requirements regarding interests parent noncontrolling interest guidance adopted tyco first quarter fiscal 2010 applied retrospectively adoption material impact companys financial position results operations cash flows september 2006 fasb issued authoritative guidance fair value measurements enhances existing guidance measuring assets liabilities fair value guidance defines fair value establishes framework measuring fair value expands disclosure fair value measurements guidance adopted two phases tyco adopted fair value provisions relating financial assets liabilities first quarter 2009 nonfinancial assets liabilities first quarter fiscal 2010 adoption material impact companys financial position results operations cash flows april 2008 fasb issued authoritative guidance determining useful life intangible assets guidance amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset guidance became effective tyco first quarter fiscal 2010 adoption material impact companys financial position results operations cash flows recently issued accounting pronouncementsin september 2009 fasb issued authoritative guidance accounting revenue arrangements multiple deliverables guidance establishes selling price hierarchy determining selling price deliverable selling price used deliverable based vendorspecific objective evidence available thirdparty tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies continued evidence vendorspecific objective evidence available estimated selling price neither vendorspecific evidence thirdparty evidence available guidance requires arrangements multiple revenue generating activities performed allocated inception residual method existing accounting guidance eliminated guidance expands disclosure requirements related multipledeliverable revenue arrangements guidance becomes effective revenue arrangements entered materially modified beginning first quarter fiscal 2011 guidance applies prospective basis company believes guidance material impact financial position results operations cash flows june 2009 fasb issued authoritative guidance amended existing guidance consolidation variable interest entities address elimination concept qualifying special purpose entity guidance also replaces quantitativebased risks rewards calculation determining enterprise controlling financial interest variable interest entity approach focused identifying enterprise power direct activities variable interest entity obligation absorb losses entity right receive benefits entity additionally guidance requires enterprise holds variable interest variable interest entity provide enhanced disclosures provide users financial statements transparent information enterprises involvement variable interest entity guidance effective tyco first quarter fiscal 2011 company believes guidance material impact financial position results operations cash flows 2 divestitures company continued assess strategic fit various businesses pursued divestiture certain businesses align longterm strategy third quarter 2010 board directors approved plan pursue taxfree spinoff tycos electrical metal products business november 9 2010 company announced agreement sell 51 interest electrical metal products business connection announcement company longer plans pursue taxfree spinoff electrical metal products business proposed april 27 2010 see note 25 fourth quarter 2009 company approved plan sell french security business part companys adt worldwide segment business classified held sale september 25 2009 however results operations presented continuing operations criteria presented discontinued operations met second quarter 2010 company completed sale recorded 53 million pretax gain within restructuring asset impairment divestiture charges net companys consolidated statement operations third quarter 2008 company approved plan sell business safety products segment business classified held sale companys historical consolidated balance sheet second quarter 2009 due change strategy management company decided sell business result business longer satisfied requirements classified held sale company measured business lower carrying amount classified held sale adjusted depreciation amortization expense would recognized business continuously classified held used ii fair value date decision sell made company recorded tyco international ltd notes consolidated financial statements 2 divestitures continued charge 8 million second quarter 2009 relating amount depreciation amortization expense would recorded asset continuously classified held used discontinued operations fiscal 2010 quarter ended june 25 2010 board directors approved plan sell companys european water business part companys flow control segment subject receipt certain consents approvals customary closing conditions company agreed sell business approximately 245 million september 24 2010 necessary consents approvals obtained business met held sale discontinued operations criteria included discontinued operations periods presented september 24 2010 company assessed determined carrying value remaining assets recoverable based current fair value less cost sell transaction subsequently closed company expects record gain transaction see note 25 fiscal 2009 july 2008 company substantially completed sale infrastructure services business met criteria presented discontinued operations order complete sale remaining infrastructure services businesses earth tech brasil ltda et brasil earth tech uk businesses certain assets china company required obtain consents approvals transfer legal ownership businesses assets fourth quarter 2009 company received necessary consents approvals transfer legal ownership businesses assets received cash proceeds 61 million result fiscal 2009 dispositions net pretax gain 33 million recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 25 2009 fiscal 2008 company sold empresa de transmissao de energia oeste ltda eteo business ancon building products ancon business nippon drychemical co ltd ndc business european manufacturer public address products acoustic systems discussed company also substantially completed sale infrastructure services business fourth quarter 2008 businesses met held sale discontinued operations criteria included discontinued operations periods presented tyco international ltd notes consolidated financial statements 2 divestitures continued may 2008 company sold 100 stock eteo brazilian subsidiary companys infrastructure services business 338 million net cash proceeds recorded pretax gain 232 million including effects economic hedge purchase price discussed gain recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 26 2008 eteo part companys corporate september 2007 tyco entered economic hedge brazilian real denominated contractual sale price eteo business since hedging transaction directly linked proceeds sale business reflected discontinued operations tyco began including impact hedge discontinued operations first quarter 2008 third quarter 2008 tyco incurred pretax loss 36 million hedge additionally fiscal year 2008 company settled contract dispute arising former infrastructure services business connection settlement company assessed assets original contract concluded assets longer recoverable resulting 51 million charge discontinued operations april 2008 company sold ancon manufacturer stainless steel products used masonry construction ancon part companys corporate sale completed 164 million net cash proceeds pretax gain 100 million recorded largely exempt tax gain recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 26 2008 fourth quarter 2008 company received additional 6 million proceeds related sale ancon february 2008 company sold ndc company japanese fire protection industry ndc part companys fire protection services safety products segments sale completed 50 million net cash proceeds pretax gain 7 million recorded gain recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 26 2008 january 2008 company sold european manufacturer public address products acoustic systems part companys fire protection services segment recorded 8 million pretax loss sale loss recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 26 2008 net revenue income operations loss gain sale income tax expense discontinued operations 2010 2009 2008 follows millions tyco international ltd notes consolidated financial statements 2 divestitures continued consolidated balance sheet information pending divestitures september 24 2010 september 25 2009 follows millions fiscal year 2007 tyco completed spinoffs healthcare electronics businesses separation company used available information develop best estimates certain assets liabilities related separation limited instances final determination balances made subsequent periods adjustments year ended september 24 2010 year ended september 25 2009 43 million recorded shareholders equity 9 million related preseparation income tax filing nonus jurisdiction 34 million items year ended september 26 2008 70 million items recorded shareholders equity items discussed aggregate 104 million reflect immaterial adjustments shareholders equity recorded correct distribution amount date separation adjustments future impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor tyco electronics legal entities certain amended income tax returns periods prior separation may recorded either shareholders equity consolidated statement operations depending specific item giving rise adjustment divestiture charges net 2010 2009 2008 company recorded net gain 40 million net loss 15 million 1 million respectively restructuring asset impairment divestiture charges net companys consolidated statements operations connection divestiture writedown fair value less cost sell certain businesses meet criteria discontinued operations net gain 2010 includes 53 million gain recognized upon sale companys french security business tyco international ltd notes consolidated financial statements 3 restructuring asset impairment charges net 2009 program fiscal 2009 2010 company identified pursued opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across companys businesses 2009 program september 24 2010 company substantially completed 2009 program fiscal 2010 company identified additional opportunities cost savings restructuring activities fiscal 2011 company expects incur restructuring related charges approximately 150 million fiscal 2011 restructuring asset impairment charges net years ended september 24 2010 september 25 2009 related 2009 program follows millions tyco international ltd notes consolidated financial statements 3 restructuring asset impairment charges net continued restructuring asset impairment charges net incurred cumulative date initiation 2009 program follows millions rollforward reserves related 2009 program september 25 2009 september 24 2010 follows millions restructuring reserves businesses met held sale criteria included liabilities held sale consolidated balance sheets excluded table see note 2 2007 program pre2006 actions fiscal 2007 2008 company launched restructuring program across companys segments including corporate organization streamline businesses reduce operational footprint 2007 program december 26 2008 company substantially completed program company maintained restructuring reserve related 2007 program 26 million 59 million september 24 2010 september 25 2009 respectively company utilized 33 million restructuring reserve balance fiscal 2010 addition company continues maintain restructuring reserves related certain actions initiated prior 2006 total amount reserves 14 million september 24 2010 15 million september 25 2009 aggregate remaining reserves related 2007 program pre2006 actions include employee severance benefits well facility exit costs longterm noncancelable lease obligations expiration dates range 2011 2022 primarily within companys adt worldwide safety products fire protection services segments company incurred 3 million 5 million 246 million charges related 2007 program pre2006 actions 3 million 5 million 222 million recorded restructuring asset tyco international ltd notes consolidated financial statements 3 restructuring asset impairment charges net continued impairment divestiture charges net consolidated statement operations fiscal years ended september 24 2010 september 25 2009 september 26 2008 respectively september 24 2010 september 25 2009 restructuring reserves related 2009 program 2007 program pre2006 actions included companys consolidated balance sheets follows millions 4 acquisitions acquisition brinks home security holdings inc may 14 2010 companys adt worldwide segment acquired outstanding equity brinks home security holdings inc broadview security publicly traded company formerly owned brinks company cashandstock transaction valued approximately 20 billion broadview security integrated companys adt worldwide segment terms transaction outstanding share broadview security common stock converted right receive 1 1315 cash 07562 tyco common shares shareholders made allcash election 2 10951 tyco common shares shareholders made stock election 3 1275 cash 07666 tyco common shares shareholders made mixed cashstock election failed make election broadview securitys core business provide security alarm monitoring services residential commercial properties north america broadview security large residential recurring customer base expands companys presence north american residential security business broadview security also leader technologies services expected enhance adt worldwides service offerings customers company expects realize cost savings synergies operational efficiencies including consolidation marketing general administrative functions tyco international ltd notes consolidated financial statements 4 acquisitions continued fair value calculation consideration transferred calculation consideration transferred acquire broadview security follows certain amounts cannot recalculated exact broadview security common share amounts presented common share data millions except per share data 1represents fair value broadview security stock option restricted stock unit deferred stock unit replacement awards attributable precombination service issued holders awards acquisition fair value determined using blackscholes model stock option awards tycos closing stock price restricted tyco international ltd notes consolidated financial statements 4 acquisitions continued deferred stock unit awards fair value outstanding broadview security stockbased compensation awards immediately vested effective time acquisition attributed precombination service included consideration transferred addition certain broadview security stock based compensation awards immediately vest upon completion acquisition awards fair value awards attributed precombination service included part consideration transferred fair value attributed postcombination service recognized compensation expense requisite service period postcombination financial statements tyco fair value allocation consideration transferred assets acquired liabilities assumed consideration transferred broadview security allocated identifiable assets acquired liabilities assumed acquisition date based preliminary estimates fair value final determinations fair value certain assets liabilities remain subject change based final valuations assets acquired liabilities assumed company expect finalization valuation material effect allocation expected completed later one year acquisition date fourth quarter 2010 company recorded purchase accounting adjustments material individually aggregate following amounts represent preliminary determination fair value identifiable assets acquired liabilities assumed millions 1as acquisition date fair value accounts receivable approximated book value included net current assets 32 million accounts receivable gross contractual amount receivable approximately 35 million 3 million expected collected 2included net noncurrent liabilities 442 million deferred tax liabilities recorded liabilities companys consolidated balance sheet september 24 2010 3the goodwill recognized primarily related expected synergies benefits company believes result combining operations bhs operations adt worldwide goodwill allocated companys adt worldwide segment none goodwill expected deductible tax purposes actual broadview security financial results fourth quarter fiscal 2010 company initiated program fully integrate broadview security companys adt worldwide segment fiscal 2011 broadview tyco international ltd notes consolidated financial statements 4 acquisitions continued security form part companys adt worldwide segments north american operations result broadview securitys operating results including revenue income continuing operations reflected operating results adt worldwides north american operations longer reported separately company included actual results broadview security acquisition date may 14 2010 consolidated statement operations year ended september 24 2010 due integration operations company estimated acquisition contributed following net revenue loss continuing operations fiscal 2010 millions acquisition related costs acquisition costs expensed incurred company incurred approximately 17 million costs directly related acquisition broadview security year ended september 24 2010 addition company recorded 18 million integration costs year ended september 24 2010 acquisition integration costs recorded within selling general administrative expenses companys consolidated statement operations year ended september 24 2010 companys adt worldwide segment corporate recorded 32 million 3 million respectively acquisition integration costs year ended september 24 2010 addition companys adt worldwide segment recorded 14 million restructuring expenses recorded within restructuring asset impairments divestiture charges net companys consolidated statement operations year ended september 24 2010 supplemental pro forma financial information unaudited supplemental pro forma financial information years ended september 24 2010 september 25 2009 follows millions supplemental pro forma financial information based historical financial information tyco broadview security supplemental pro forma financial information period tyco international ltd notes consolidated financial statements 4 acquisitions continued ended september 24 2010 utilized broadview securitys historical financial information fiscal fourth quarter ended december 31 2009 preacquisition period january 1 2010 acquisition date supplemental pro forma financial information period ended september 25 2009 utilized broadview securitys historical financial information fiscal fourth quarter ended december 31 2008 nine months ended september 30 2009 supplemental pro forma financial information reflect primarily following pro forma pretax adjustments •elimination broadview security historical intangible asset amortization property plant equipment depreciation expense •elimination broadview security historical deferred acquisition costs amortization •elimination broadview security historical deferred revenue amortization •additional amortization depreciation expense related fair value identifiable intangible assets property plant equipment acquired •reduction interest income cash used fund acquisition tyco dividends assumed paid broadview security shareholders •all pro forma adjustments tax effected using statutory tax rate 39 supplemental pro forma financial information year ended september 24 2010 reflects following nonrecurring adjustments •direct acquisition costs primarily relating advisory legal fees integration costs •restructuring charges primarily related employee severance onetime benefit arrangements supplemental pro forma financial information gives effect acquisition considered indicative results would occurred periods presented indicative future results addition supplemental pro forma financial information reflect potential realization cost savings relating integration two companies acquisitions year ended september 24 2010 cash paid acquisitions included continuing operations broadview security totaled 152 million year ended september 24 2010 companys flow control segment acquired two brazilian valve companies including hiter industria e comercio de controle termohidraulico ltda hiter valve manufacturer serves variety industries including oil gas chemical petrochemical markets net cash paid brazilian valve companies totaled 104 million companys electrical metal products segment acquired certain assets business 39 million safety products segment acquired business 9 million 2010 year ended september 25 2009 cash paid acquisitions included continuing operations totaled 48 million net cash acquired 2 million respectively primarily related acquisition vue technology inc provider radio frequency identification rfid technology 43 million companys safety products segment tyco international ltd notes consolidated financial statements 4 acquisitions continued year ended september 26 2008 cash paid acquisitions included continuing operations totaled 347 million net cash acquired 8 million companys adt worldwide segment acquired winner security services llc winner 63 million sensormatic security corp ssc 66 million franchises originally granted sensormatic electronics corporation sensormatic granted winner rights sell install service certain sensormatic products entitled winner ssc commissions sensormatic products sold installed shipped franchise territories additionally companys adt worldwide segment acquired firstservice security 180 million net cash acquired 7 million cash paid acquisitions primarily within companys adt worldwide safety products segments totaled 38 million net cash acquired 1 million acquisitions funded utilizing cash operations results operations acquired companies included tycos consolidated results respective acquisition dates adt worldwide account acquisitions 2010 2009 2008 tyco paid 559 million 543 million 376 million cash respectively acquire approximately 501000 512000 370000 customer contracts electronic security services companys adt worldwide segment 5 expense net expense net 75 million 2010 primarily relates charge 87 million loss extinguishment debt redemption companys 6375 public notes due 2011 7 notes due 2028 6875 notes due 2029 see note 11 loss partially offset 8 million gain recorded result increase receivables due covidien tyco electronics tax sharing agreement see note 6 expense net 7 million 2009 primarily relates 14 million charge recorded result decrease receivables due covidien tyco electronics tax sharing agreement partially offset income 5 million relating gain derivative contracts used economically hedge foreign currency risk related swiss franc denominated dividends expense net 223 million 2008 primarily relates charge 258 million loss extinguishment debt related consent solicitation exchange offers termination bridge loan facility offset income 6 million recorded connection settlement 3125 convertible senior debentures related financial instruments company also recorded otherthantemporary impairments realized losses sale investments 6 million related primarily investments corporate debt additionally company recorded 40 million income result increase receivables due covidien tyco electronics tax sharing agreement connection adoption guidance pertaining accounting uncertain income taxes company also recorded 6 million expense activity accordance tax sharing agreement 2008 tyco international ltd notes consolidated financial statements 6 income taxes significant components income tax provision 2010 2009 2008 follows millions nonus income loss continuing operations income taxes 1507 119 million 968 million 2010 2009 2008 respectively tyco international ltd notes consolidated financial statements 6 income taxes continued reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 24 2010 september 25 2009 september 26 2008 follows millions 1excludes nondeductible charges items broken separately table included nonus net earnings 2010 20 million tax benefit result companys disposition french security business nonrecurring item generating 30 million tax benefit included nondeductible charges 2009 loss driven goodwill impairment charges 26 billion almost tax benefit available included income taxes 2008 benefit increased profitability operations lower tax rate jurisdictions partially offset enacted tax law changes negatively impacted nonus deferred tax assets valuation allowance benefit includes tax impact 62 million associated business restructurings increased companys profitability certain jurisdictions tyco international ltd notes consolidated financial statements 6 income taxes continued deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 24 2010 september 25 2009 follows millions september 24 2010 company 7735 million net operating loss carryforwards certain nonus jurisdictions 4785 million expiration remaining 2950 million expire future years 2029 us approximately 2173 million federal 1842 million state net operating loss carryforwards september 24 2010 expire future years 2029 valuation allowance deferred tax assets 1379 million 766 million september 24 2010 september 25 2009 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets consolidated balance sheets tyco adopted recognition measurement disclosure guidance accounting uncertain tax positions september 29 2007 result adoption tyco increased reserve uncertain tax positions 55 million reduced deferred tax assets 24 million corresponding 79 million cumulative effect adoption adjustment shareholders equity september 24 2010 september 25 2009 tyco unrecognized tax benefits 318 million 281 million respectively 276 million 221 million recognized would affect effective tax rate tyco recognizes interest penalties accrued related unrecognized tax benefits income tax expense tyco accrued interest penalties related unrecognized tax benefits 63 million 50 million september 24 2010 september 25 2009 respectively tyco international ltd notes consolidated financial statements 6 income taxes continued recognized 13 million 1 million 9 million income tax expense interest penalties related unrecognized tax benefits september 24 2010 september 25 2009 september 26 2008 respectively rollforward unrecognized tax benefits september 24 2010 september 25 2009 september 26 2008 follows millions many tycos uncertain tax positions relate tax years remain subject audit taxing authorities us federal state local foreign jurisdictions open tax years significant jurisdictions follows based current status income tax audits company believes reasonably possible 18 million 140 million unrecognized tax benefits may resolved next twelve months tax sharing agreement income tax matters connection spinoffs covidien tyco electronics tyco entered tax sharing agreement generally governs covidiens tyco electronics tycos respective rights responsibilities obligations separation respect taxes including ordinary course business taxes incurred result failure distribution shares covidien tyco electronics qualify taxfree distribution us federal income tax purposes within meaning section 355 code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code tyco international ltd notes consolidated financial statements 6 income taxes continued tax sharing agreement company shares responsibility certain tycos covidiens tyco electronics income tax liabilities result cash payments based sharing formula periods prior including june 29 2007 specifically tyco covidien tyco electronics share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens tyco electronics us certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties connection execution tax sharing agreement tyco established net receivable covidien tyco electronics representing amount company expected receive preseparation uncertain tax positions amounts include amounts owed internal revenue service irs september 24 2010 september 25 2009 respectively aggregate amount net receivable 114 million 106 million respectively 89 million 103 million respectively included assets 25 million 3 million respectively included prepaid expenses current assets consolidated balance sheet company also established liabilities representing fair market value share covidiens tyco electronics estimated obligations primarily irs preseparation taxes covered tax sharing agreement september 24 2010 september 25 2009 company recorded 398 million 554 million respectively liabilities 156 million nil respectively accrued current liabilities fourth quarter 2010 company reclassified 156 million liabilities accrued current liabilities expects make payment within next twelve months covidien tyco electronics related resolution certain outstanding irs audit matters discussed tyco assesses shared tax liabilities related guaranteed liabilities reporting period receivable liability initially recognized offset shareholders equity time separation 2007 company recorded income 8 million expense 14 million 2010 2009 respectively accordance tax sharing agreement first quarter 2008 connection adoption guidance pertaining accounting uncertain income tax positions related increase uncertain tax positions shared tax liabilities tax sharing agreement tyco increased receivable covidien tyco electronics tax sharing agreement corresponding increase income net 40 million 008 basic diluted earnings per share tyco provide payment covidien tyco electronics tax sharing agreement shared income tax liabilities settled settlement expected occur audit process applicable taxing authorities completed impacted years cash payments made given nature shared liabilities maximum amount potential future payments determinable cash payments occur reduce guarantor liability payments represent equivalent reduction risk company also assesses sufficiency tax sharing agreement guarantee liability quarterly basis increase liability probable cash payments expected made tax sharing agreement exceed recorded balance tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding separation issues proposed adjustments related years generally subject sharing provisions tax sharing agreement tyco reviewing contesting certain proposed tax adjustments respect adjustments raised irs although expect resolve substantial number tyco international ltd notes consolidated financial statements 6 income taxes continued adjustments irs significant items expected remain open respect audit 1997 2004 years date hereof unlikely company able resolve open items primarily involve treatment certain intercompany transactions period irs appeals process result company may required litigate matters company assessed obligations tax sharing agreement including respect proposed civil fraud penalties discussed determine recorded liability 554 million sufficient cover indemnifications made company agreement see note 12 however ultimate resolution matters uncertain could result material adverse impact companys financial position results operations cash flows effective tax rate future reporting periods connection aforementioned audits irs proposed civil fraud penalties prior subsidiary distributed tyco electronics connection separation penalties allegedly arise actions former executives taken connection intercompany transfers stock simplex technologies 1998 1999 based statutory guidelines company estimates proposed penalties could range 30 million 50 million preseparation tax liability covered provisions tax sharing agreement also connection irs audits described fourth quarter 2009 company audit management party tax sharing agreement reached settlement agreement irs certain deductions taken tyco covidien tyco electronics preseparation tax returns filed periods 2001 2004 settlement material effect companys results operations financial position cash flows notwithstanding settlement mentioned certain significant items related audits periods 1997 2004 remain open company considered potential impact settlement part quarterly assessment guarantee liability concluded adjustment liability needed addition dealing preseparation tax liabilities three entities party thereto tax sharing agreement contains sharing provisions address contingency separation internal transactions related separation may deemed taxable us non us taxing authorities event separation determined taxable determination result actions taken separation tyco covidien tyco electronics party responsible failure would responsible taxes imposed company result thereof determination result actions taken three companies separation tyco covidien tyco electronics would responsible 27 42 31 respectively taxes imposed companies result determination tax amounts could significant company responsible taxes shared pursuant tax sharing agreements sharing formula addition covidien tyco electronics responsible tax liabilities subject tax sharing agreements sharing formula party tax sharing agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party would required pay equally nondefaulting party amounts default addition another party tax sharing agreement responsible portion income tax liability default payment liability taxing authority company could liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances company may obligated pay amounts tyco international ltd notes consolidated financial statements 6 income taxes continued excess agreedupon share tycos covidiens tyco electronics tax liabilities see note 12 discussion guarantees indemnifications extended tyco covidien tyco electronics except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries unrecognized deferred tax liabilities temporary differences related investments subsidiaries since earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries 7 earnings per share discussed note 1 company adopted authoritative guidance determining whether instruments granted sharebased payment transactions participating securities first quarter fiscal 2010 company historically issued certain restricted stock awards vest period three years contained nonforfeitable rights dividends treated participating securities types awards last issued fiscal 2006 awards containing rights unvested considered participating securities included computation earnings per share pursuant twoclass method awards vested september 25 2009 result company required compute earnings per share fiscal 2010 using twoclass method unless new awards granted retrospective application guidance impact companys historically reported earnings per share 2009 effects would antidilutive company reported loss continuing operations addition retrospective application guidance 2008 impact companys historically reported earnings per share tyco international ltd notes consolidated financial statements 7 earnings per share continued reconciliations basic diluted earnings per share attributable tyco common shareholders 2010 2009 2008 follows millions except per share data 1the twoclass method applicable fiscal year ended september 24 2010 participating securities vested september 25 2009 2the twoclass method applicable fiscal year ended september 25 2009 effects would antidilutive company reported loss continuing operations period 3income allocated participating securities rounds zero computation diluted earnings per share 2010 excludes effect potential exercise share options purchase approximately 15 million shares excludes restricted share awards approximately 2 million shares effect would antidilutive computation diluted earnings per share 2009 2008 excludes effect potential exercise share options purchase approximately 27 million 19 million shares respectively excludes restricted share awards approximately 5 million 4 million shares respectively effect would antidilutive tyco international ltd notes consolidated financial statements 8 investments september 24 2010 september 25 2009 company availableforsale investments fair value 283 million 340 million cost basis 277 million 334 million respectively cost fair market value companys investments type security classification companys consolidated balance sheets follows millions september 24 2010 september 25 2009 investments continuous unrealized losses less 12 months 12 months greater september 24 2010 september 25 2009 material company record otherthantemporary impairments years ended 2010 2009 company recorded otherthantemporary impairment 5 million year ended september 26 2008 otherthantemporary impairment related investments corporate debt lehman brothers holding inc lehman filed petition chapter 11 us bankruptcy code september 15 2008 maturities companys investments debt securities september 24 2010 follows millions tyco international ltd notes consolidated financial statements 9 goodwill intangible assets goodwill annually fiscal fourth quarter frequently triggering events occur company tests goodwill impairment comparing fair value reporting unit carrying amount fair value reporting unit determined utilizing discounted cash flow analysis based companys forecast cash flows discounted using estimated weightedaverage cost capital market participants market approach utilized corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeds fair value goodwill considered potentially impaired determining fair value management relies considers number factors including operating results business plans economic projections including expectations assumptions regarding timing degree economic recovery anticipated future cash flow comparable market transactions extent available market data companys overall market capitalization goodwill impairments result performing companys 2010 annual impairment test first quarter 2010 businesses realigned among adt worldwide fire protection services segments adt worldwide safety products segments fire protection services safety products segments result realignments goodwill reallocated detailed part realignment company tested related goodwill balances recoverability determined goodwill recoverable changes carrying amount goodwill segment 2009 2010 follows millions tyco international ltd notes consolidated financial statements 9 goodwill intangible assets continued fiscal 2009 goodwill impairment company began experience decline revenue first quarter 2009 adt worldwide fire protection services safety products segments result slowdown commercial markets including retailer end market well decline sales volume electrical metal products segment due slow nonresidential construction market although company considered concluded factors constitute triggering events first quarter 2009 continued existence conditions second quarter 2009 along downward revisions forecast results restructuring actions weaker industry outlooks caused company conclude sufficient indicators impairment existed certain reporting units mentioned businesses company determined events changes circumstances constituted triggering events following six reporting units europe middle east africa emea security emea fire reporting units within adt worldwide fire protection services segments respectively electrical metal products reporting unit within electrical metal products segment access control video systems acvs life safety sensormatic retail solutions srs reporting units within safety products segment result triggering events company assessed recoverability reporting units longlived assets concluded carrying amounts recoverable tyco international ltd notes consolidated financial statements 9 goodwill intangible assets continued march 27 2009 subsequently company performed first step goodwill impairment test reporting units perform first step goodwill impairment test six reporting units triggering events company compared carrying amounts reporting units estimated fair values fair value reporting unit determined utilizing discounted cash flow analysis based forecast cash flows including estimated underlying revenue operating income growth rates discounted using estimated weighted average cost capital market participants market approach utilizing observable market data comparable companies similar lines business publicly traded part public private transaction extent available used corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeded fair value goodwill considered potentially impaired determining fair value management relied considered number factors including operating results business plans economic projections including expectations assumptions regarding timing degree economic recovery anticipated future cash flow comparable market transactions extent available market data companys overall market capitalization described company utilized discounted cash flow analysis determining fair value reporting units triggering events occurred based factors described actual anticipated reductions demand reporting units products services well increased risk due economic uncertainty estimates future cash flows used second quarter 2009 discounted cash flow analyses revised downward companys recent test conducted fourth quarter 2008 range weightedaverage cost capital utilized increased reflect increased risk due economic volatility uncertainties related demand companys products services weightedaverage cost capital follows results first step goodwill impairment test indicated potential impairment goodwill six reporting units identified triggering events carrying amounts reporting units exceeded respective fair values result company performed second step goodwill impairment test reporting units second step goodwill impairment test company compared implied fair value reporting unit goodwill carrying amount reporting units goodwill implied fair values goodwill determined allocating fair values reporting unit assets liabilities applicable reporting unit including unrecognized intangible assets reporting unit acquired business combination results second step goodwill impairment test indicated implied goodwill amount less carrying amount goodwill aforementioned reporting units company recorded aggregate noncash impairment charge 26 billion 26 billion aftertax recorded goodwill intangible asset impairments companys consolidated statement operations quarter ended march 27 tyco international ltd notes consolidated financial statements 9 goodwill intangible assets continued 2009 specifically company recorded following noncash goodwill impairment charges following reporting units millions annual goodwill impairment testing fiscal year ended september 26 2008 carrying amount goodwill latin america fire protection business part fire protection services segment exceeded implied fair value goodwill result company recognized goodwill impairment 9 million fourth quarter 2008 intangible assets indefinite lived intangible assets consisting primarily trade names tested impairment using relief royalty method indefinite lived intangible asset impairments result performing companys 2010 annual impairment test following table sets forth gross carrying amount accumulated amortization companys intangible assets september 24 2010 september 25 2009 millions intangible asset amortization expense 2010 2009 2008 549 million 516 million 528 million respectively tyco international ltd notes consolidated financial statements 9 goodwill intangible assets continued estimated aggregate amortization expense intangible assets expected approximately 550 million 2011 475 million 2012 400 million 2013 350 million 2014 300 million 2015 fiscal 2009 intangible asset impairment company began experience decline revenue first quarter 2009 adt worldwide safety products segments due slowdown commercial markets including retailer end market although company considered concluded factors constitute triggering events first quarter 2009 continued existence conditions second quarter 2009 along downward revisions forecast results restructuring actions weaker industry outlooks caused company conclude sufficient indicators impairment existed certain indefinitelived intangible assets deterioration business environment related retailer business companys adt worldwide safety products segments resulted lowering managements projections revenues retailer end market second quarter 2009 based factors uncertainties described estimates future cash flows used determining fair value companys safety products sensormatic tradename well adt worldwide franchise rights relating winner sensormatic security corp ssc second quarter 2009 revised downward relative estimates used companys recent test fourth quarter 2008 range discount rates utilized increased reflect increased risk due economic volatility uncertainties related demand companys products services discount rates follows results impairment test indicated safety products sensormatic tradename adt worldwide winner ssc franchise rights estimated fair values less respective carrying amounts company recorded aggregate noncash impairment charge 64 million 40 million aftertax recorded goodwill intangible asset impairments companys consolidated statement operations quarter ended march 27 2009 specifically company recorded following noncash intangible asset impairment charges reduce carrying amount following indefinitelived intangible assets millions tyco international ltd notes consolidated financial statements 10 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans fourth quarter 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified loans made companys current executives outstanding loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average rates effect first day preceding 12 months loans generally repayable ten years however earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property 2010 2009 maximum amount outstanding programs 21 million 22 million respectively loans receivable programs well unsecured advances outstanding 21 million 22 million september 24 2010 september 25 2009 respectively total outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 28 million 27 million september 24 2010 september 25 2009 respectively rate interest charged loans 05 19 2010 2009 respectively interest income interest bearing loans totaled nil 2010 2009 1 million 2008 certain loans totaling 1 million september 24 2010 september 25 2009 noninterest bearing company filed civil complaints messrs kozlowski former chief financial officer mark swartz breach fiduciary duty wrongful conduct relating alleged abuses key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct june 2002 company filed civil complaint frank e walsh jr former director breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought sec united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit group acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 connection companys civil complaint mr walsh october 2010 united states district court southern district new york ruled mr walsh breached fiduciary duties company companys board directors implicitly tyco international ltd notes consolidated financial statements 10 related party transactions continued ratified payment mr walsh weeks immediately following revelation payment board directors early 2002 result court ruled company entitled damages mr walsh company believes based facts law determination court incorrect company process appealing courts ruling 2010 2009 2008 company engaged commercial transactions normal course business companies companys directors employed served officers purchases companies year aggregated less 1 percent consolidated net revenue 11 debt september 24 2010 september 25 2009 follows millions 1this instrument 20 million amount shown comprise current portion companys total debt september 24 2010 2commercial paper plus 45 million amount shown comprise current portion companys total debt september 25 2009 fair value carrying amount tycos debt subject fair value disclosure requirements september 24 2010 september 25 2009 4065 million 4155 million respectively company determined fair value debt 4730 million 4578 million september 24 2010 september 25 2009 respectively company utilizes various valuation methodologies determine fair value debt primarily dependent type market companys debt traded available company uses quoted market tyco international ltd notes consolidated financial statements 11 debt continued prices determine fair value debt traded active markets september 24 2010 september 25 2009 fair value companys debt actively traded 4730 million 4338 million respectively quoted market prices readily available representative fair value company utilizes market information comparable debt similar terms maturities interest rates credit risk determine fair value debt traded markets active third quarter 2010 company redeemed public notes due 2028 2029 result companys debt actively traded september 24 2010 september 25 2009 fair value companys debt actively traded 40 million additionally company believes carrying amount commercial paper 200 million september 25 2009 approximated fair value based shortterm nature debt september 24 2010 commercial paper outstanding commercial paper may 2008 tyco international finance sa tifsa commenced issuing commercial paper us institutional accredited investors qualified institutional buyers borrowings commercial paper program available general corporate purposes september 24 2010 tifsa commercial paper outstanding september 25 2009 tifsa 200 million commercial paper outstanding bore interest average rate 033 credit facilities companys committed revolving credit facilities totaled 169 billion september 24 2010 consists 500 million senior unsecured revolving credit agreement three year term due 2011 revolving credit facility 119 billion senior revolving credit agreement five year term due 2012 revolving credit agreement revolving credit facilities may used working capital expenditures general corporate purposes september 24 2010 amounts drawn facilities interest revolving credit facilities variable calculated reference libor alternate base rate tifsas bank credit agreements contain customary terms conditions financial covenants limit ratio companys debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property companys indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive companys business january 29 2009 company repaid 686 million extinguish entire outstanding balance revolving credit facilities september 25 2009 amounts drawn facilities although company dedicated 200 million availability backstop outstanding commercial paper debt issuancesrepayments fiscal may 5 2010 tifsa issued 500 million aggregate principal amount 3375 notes due october 15 2015 fully unconditionally guaranteed company 2015 notes tifsa received net proceeds approximately 495 million deducting debt issuance costs tyco international ltd notes consolidated financial statements 11 debt continued approximately 3 million debt discount approximately 2 million net proceeds along available funds used redeem companys outstanding 6375 notes due october 2011 notes 2015 notes unsecured rank equally tifsas unsecured unsubordinated debt tifsa may redeem 2015 notes time paying greater principal amount notes makewhole amount plus accrued unpaid interest holders 2015 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires occurrence change control rating event defined indenture governing notes debt issuance costs amortized date issuance maturity date interest payable semiannually april 15th october 15th may 28 2010 company redeemed 2011 notes 7 notes due 2028 6875 notes due 2029 outstanding time aggregated 878 million principal amount result debt redemption company recorded 87 million charge expense net loss extinguishment debt charge comprised makewhole premium writeoff unamortized debt issuance costs discount related extinguished bonds net loss recognized upon termination associated interest rate swap contracts related 2011 notes october 5 2009 tifsa issued 500 million aggregate principal amount 4125 notes due october 15 2014 fully unconditionally guaranteed company 2014 notes tifsa received net proceeds approximately 495 million deducting debt issuance costs approximately 3 million debt discount approximately 2 million 2014 notes unsecured rank equally tifsas unsecured unsubordinated debt tifsa may redeem 2014 notes time paying greater principal amount notes makewhole amount plus accrued unpaid interest holders 2014 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires change control rating event defined indenture governing notes debt issuance costs amortized date issuance maturity date interest payable semiannually april 15th october 15th fiscal january 9 2009 tifsa issued 750 million aggregate principal amount 85 notes due january 15 2019 fully unconditionally guaranteed company 2019 notes tifsa received net proceeds approximately 745 million underwriting discounts offering expenses approximately 5 million 2019 notes unsecured rank equally tifsas unsecured unsubordinated debt tifsa may redeem 2019 notes time paying greater principal amount notes makewhole amount plus accrued unpaid interest holders 2019 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires change control rating event defined indenture governing notes additionally holders 2019 notes right require company repurchase portion 2019 notes july 15 2014 purchase price equal 100 tyco international ltd notes consolidated financial statements 11 debt continued principal amount notes tendered plus accrued unpaid interest otherwise notes mature january 15 2019 debt issuance costs amortized date issuance earliest redemption date july 15 2014 interest payable semiannually january 15th july 15th interest rate payable 2019 notes subject escalations defined indenture either moodys sp downgrades companys debt rating investment grade 2019 notes subject preceding adjustments time companys debt rating increases a3 moodys sp respectively january 15 2009 tifsa made payment 215 million extinguish 6125 notes due 2009 matured date additionally november 2008 tifsa made payment 300 million extinguish 6125 notes due 2008 debt information aggregate amounts principal debt including capital leases maturing next five years thereafter follows millions 537 2011 5 2012 5 2013 662 2014 506 2015 2414 thereafter weightedaverage interest rate total debt 63 66 september 24 2010 september 25 2009 respectively excluding impact interest rate swaps weightedaverage interest rate shortterm debt 68 03 september 24 2010 september 25 2009 respectively september 24 2010 september 25 2009 company swapped aggregate approximately 15 billion 14 billion respectively fixed floating rate debt impact companys interest rate swap agreements reported interest expense net decrease 24 million 2010 net decrease 6 million 2009 material 2008 12 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien tyco electronics accordance terms separation distribution agreement tax sharing agreement guarantees primarily relate certain contingent tax liabilities included tax sharing agreement time separation tyco recorded liability necessary recognize fair value guarantees indemnifications absence observable transactions identical similar guarantees company determined fair value guarantees indemnifications utilizing expected present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using companys incremental borrowing rate liability necessary reflect fair value guarantees indemnifications tax sharing agreement 554 million 156 million included accrued current liabilities remaining amount liabilities companys consolidated balance sheet tyco international ltd notes consolidated financial statements 12 guarantees continued september 24 2010 liability 554 million september 25 2009 recorded liabilities companys consolidated balance sheet fourth quarter 2010 company reclassified 156 million liabilities accrued current liabilities expects make payment within next twelve months covidien tyco electronics related resolution certain irs audit matters guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 6 addition tyco historically provided support form financial andor performance guarantees various covidien tyco electronics operating entities connection separation company worked guarantee counterparties cancel assign guarantees covidien tyco electronics extent guarantees assigned prior separation date tyco assumed primary liability remaining support companys obligations 4 million included liabilities companys consolidated balance sheets september 24 2010 september 25 2009 respectively offset shareholders equity separation date disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 14 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows september 24 2010 company total outstanding letters credit bank guarantees approximately 740 million company records estimated product warranty costs time sale information estimated product warranty see note 1 changes carrying amount companys warranty accrual september 25 2009 september 24 2010 follows millions warranty accruals businesses met held sale criteria included liabilities held sale consolidated balance sheets excluded table see note 2 tyco international ltd notes consolidated financial statements 12 guarantees continued 2001 division safety products initiated voluntary replacement program vrp associated acquisition central sprinkler vrp relates replacement certain oring seal sprinkler heads originally manufactured central sprinkler prior tycos acquisition program sprinkler heads replaced free charge property owners may 1 2007 consumer product safety commission company announced august 31 2007 deadline filing claims participate vrp company fulfill valid claims replacement qualifying sprinklers received august 31 2007 settlements 2010 2009 2008 include cash expenditures 10 million 33 million 49 million respectively related vrp company believes remaining recorded liability sufficient cover cost required complete vrp september 24 2010 material 13 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable accounts payable approximated book value september 24 2010 september 25 2009 fair value derivative financial instruments material periods presented see fair value investments note 11 debt derivative instruments normal course business tyco exposed market risk arising changes currency exchange rates interest rates commodity prices company uses derivative financial instruments manage exposures foreign currency interest rate commodity price risks companys objective utilizing derivative financial instruments manage risks using effective methods eliminate reduce impacts exposures derivative instruments designated qualify fair value hedges company documented relationships hedging instruments hedged items linked derivatives designated fair value hedges specific debt issuances transactions designated hedges company also assessed documented hedges inception whether derivatives used hedging transactions effective offsetting changes fair values associated hedged items fair value hedges result hedge ineffectiveness fiscal year ended september 24 2010 company use derivative financial instruments trading speculative purposes derivative financial instruments reported consolidated balance sheet fair value changes fair value derivative financial instruments recognized currently earnings exception net investment hedges changes fair value reported cumulative translation component accumulated comprehensive income extent hedges effective ineffective portion hedge recognized companys consolidated statement operations derivative financial instruments impact changes fair value derivative financial instruments material consolidated balance sheets september 24 2010 september 25 2009 consolidated statements operations statement cash flows fiscal years ended september 24 2010 september 25 2009 september 26 2008 tyco international ltd notes consolidated financial statements 13 financial instruments continued foreign currency exposures company manages foreign currency exchange rate risk use derivative financial instruments comprised principally forward contracts foreign currency designated hedging instruments accounting purposes objective derivatives instruments minimize income statement impact potential variability cash flows associated intercompany loans accounts receivable accounts payable forecasted transactions denominated certain foreign currencies september 24 2010 september 25 2009 total gross notional amount companys foreign exchange contracts 860 million 525 million respectively effective march 17 2009 tyco changed jurisdiction incorporation bermuda switzerland last payment made february 2011 tyco intends make dividend payments form reduction capital denominated swiss francs however company expects actually pay dividends us dollars based exchange rates effect shortly payment date fluctuations value us dollar compared swiss franc date dividend declared paid increase decrease us dollar amount required paid company manages potential variability cash flows associated dividend payments entering derivative financial instruments used economic hedges underlying risk third quarter 2010 company hedged net investment certain foreign operations use foreign exchange forward contracts objective minimize exposure changes value foreign currency denominated net investment aggregate notional amount hedges approximately 255 million september 24 2010 september 25 2009 company hedge net investments foreign operations interest rate exposures company manages interest rate risk use interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes third quarter 2009 first quarter 2010 third quarter 2010 company entered interest rate swap transactions objective managing exposure interest rate risk converting interest rates 14 billion 500 million 501 million respectively fixedrate debt variable rates contracts company agrees financial institutions acting principal counterparties exchange specified intervals difference fixed floating interest amounts calculated agreedupon notional principal amount connection redemption 6375 public notes due 2011 third quarter 2010 company terminated corresponding interest rate swaps september 24 2010 september 25 2009 total gross notional amount companys interest rate swap contracts 15 billion 14 billion respectively commodity exposures fiscal 2010 company entered commodity swaps copper designated hedging instruments accounting purposes swaps material impact companys financial position results operations cash flows tyco international ltd notes consolidated financial statements 13 financial instruments continued counterparty credit risk use derivative financial instruments exposes company counterparty credit risk counterparty fails perform company exposed losses derivative asset position fair value derivative instrument asset counterparty pay company settle contract exposes company credit risk however fair value derivative instrument liability company pay counterparty settle contract therefore counterparty credit risk tyco established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide longterm standard poors moodys credit ratings aa3 higher reduce risk loss company generally enters international swaps derivatives association master agreements substantially counterparties master netting agreements provide protection bankruptcy certain circumstances cases enable receivables payables counterparty offset consolidated balance sheets providing meaningful balance sheet presentation credit exposure companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes september 24 2010 company exposed industry concentration financial institutions well risk loss individual counterparty issuer failed perform obligations contractual terms maximum amount loss company would incur september 24 2010 without giving consideration effects legally enforceable master netting agreements approximately 66 million fair value financial instruments authoritative guidance fair value measurements establishes threelevel hierarchy ranks quality reliability information used developing fair value estimates hierarchy gives highest priority quoted prices active markets lowest priority unobservable data cases two levels inputs used determine fair value financial instruments level determined based lowest level input considered significant fair value measurement entirety three levels fair value hierarchy summarized follows •level 1inputs based upon quoted prices unadjusted active markets identical assets liabilities accessible measurement date •level 2inputs based upon quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations asset liability derived principally corroborated market data primary inputs observable including forward interest rates yield curves credit risk exchange rates •level 3inputs valuations unobservable based managements estimates assumptions market participants would use pricing asset liability fair values therefore determined using modelbased techniques option pricing models discounted cash flow models tyco international ltd notes consolidated financial statements 13 financial instruments continued investments primarily include us government obligations us government agency securities corporate debt securities available company uses quoted market prices determine fair value investment securities investments included level 1 quoted market prices readily available pricing determinations made based results market approach valuation models using observable market data recently reported trades bid offer information benchmark securities investments included level 2 consist primarily us government agency securities corporate debt securities derivative financial instruments described caption derivative instruments derivative assets liabilities consist principally forward foreign currency exchange contracts interest rate swaps fair values derivative financial instruments derived market approach pricing models take account contractual terms features instrument forward foreign currency rates companys foreign exchange contracts yield curves companys interest rate swaps existing end period valuations adjusted reflect creditworthiness counterparty assets creditworthiness company liabilities adjustments based observable market evidence categorized level 2 exposures derivative financial instruments presented following tables derivative financial instruments material periods presented assets liabilities measured fair value recurring basis following tables present companys assets liabilities measured fair value recurring basis september 24 2010 september 25 2009 level within fair value hierarchy financial assets liabilities classified entirety based lowest level input significant valuation tyco international ltd notes consolidated financial statements 13 financial instruments continued 2010 2009 company significant transfers within fair value hierarchy company 30 billion 30 billion intercompany loans designated permanent nature september 24 2010 september 25 2009 respectively fiscal years ended september 24 2010 september 25 2009 company recorded 24 million nil respectively cumulative translation loss accumulated comprehensive loss related loans 14 commitments contingencies company facility vehicle equipment leases expire various dates year 2027 rental expense leases 375 million 386 million 409 million 2010 2009 2008 respectively company also facility equipment commitments capital leases following schedule minimum lease payments noncancelable leases september 24 2010 millions company also purchase obligations related commitments purchase certain goods services september 24 2010 obligations follows 488 million 2011 6 million 2012 3 million thereafter tyco international ltd notes consolidated financial statements 14 commitments contingencies continued normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows connection separation company entered liability sharing agreement regarding certain legal actions pending tyco prior separation distribution agreement company covidien tyco electronics jointly severally liable full amount judgments resulting actions subject agreement generally relate legacy matters specific business operations companies separation distribution agreement also provides company responsible 27 covidien 42 tyco electronics 31 payments resolve matters costs expenses associated management contingencies shared equally among parties addition agreement company manage control legal matters related assumed contingent liabilities described separation distribution agreement including defense settlement thereof subject certain limitations additionally time separation company covidien tyco electronics agreed allocate responsibility certain legacy tax claims pursuant formula tax sharing agreement see note 6 legacy securities matters previously disclosed company certain officers directors subject number lawsuits alleging violations federal state securities laws related claims since june 2007 company resolved substantially claims although number matters reached final resolution significant previously disclosed settlement 79 million stumpf v tyco international ltd matter class action lawsuit arising tycos july 2000 initial public offering common stock tycom ltd settlement received final court approval august 25 2010 united states district court district new jersey although certain contingencies matter remain outstanding end calendar year 2010 settlement subject liability sharing provisions separation distribution agreement covidien tyco electronics company believes remaining reserve related legacy securities matters sufficient satisfy final resolution matter tyco also party several lawsuits involving disputes former management among affirmative cases brought tyco mr dennis l kozlowski tycos former chief executive officer mr mark swartz former chief financial officer mr frank walsh jr former director connection affirmative actions messrs kozlowski swartz seeking aggregate approximately 128 million allegedly due connection compensation retention arrangements erisa mr walsh made claims alleging tyco required indemnify defense costs settlement amounts paid connection securities lawsuits arising role tyco director tyco intends vigorously defend actions october 2010 us district court southern district new york denied tycos affirmative claims indemnification mr walsh tyco intends appeal decision mr walshs claims tyco remain outstanding tyco international ltd notes consolidated financial statements 14 commitments contingencies continued tyco reserved best estimate probable loss matters although ultimate resolution could differ materially estimates company believe resolution would material adverse effect financial position results operations cash flows environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 24 2010 tyco concluded probable would incur remedial costs range approximately 27 million 85 million september 24 2010 tyco concluded best estimate within range approximately 34 million 18 million included accrued current liabilities 16 million included liabilities companys consolidated balance sheet view companys financial position reserves environmental matters company believes potential payments estimated amounts material adverse effect financial position results operations cash flows tyco recorded asset retirement obligations aros estimated future costs associated legal obligations retire certain assets september 24 2010 september 25 2009 companys aros 10 million 11 million respectively company believes potential payment estimated amounts material adverse effect financial position results operations cash flows asbestos matters company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials cases typically involve product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos attached used asbestoscontaining components manufactured thirdparties case typically names dozens hundreds corporate defendants company observed increase number lawsuits past several years including lawsuits plaintiffs mesotheliomarelated claims large percentage suits presented viable legal claims result dismissed courts companys strategy continues mount vigorous defense aimed unsubstantiated suits dismissed appropriate settling suits trial although large percentage litigated suits dismissed company cannot predict extent successful resolving lawsuits future lawsuits proceeded trial since 2005 company settled one case one case returning adverse jury verdict approximately 77 million included compensatory punitive damages company recently settled matter appeal pending significantly less amount awarded jury september 24 2010 approximately 3500 lawsuits pending company subsidiaries lawsuit typically includes several claims company determined approximately 4700 claims outstanding september 24 2010 amount reflects companys current estimate number active claims made affiliates includes adjustments claims actively prosecuted identify incorrect defendants duplicative actions tyco international ltd notes consolidated financial statements 14 commitments contingencies continued annually company performs detailed analysis assistance outside legal counsel experts update estimated asbestosrelated assets liabilities due high degree uncertainty regarding pattern length time claims made settled litigated company uses multiple estimation methodologies based varying scenarios potential outcomes estimate range loss companys estimate liability corresponding insurance recovery pending future claims defense costs predominantly based claim experience past five years projection covers claims expected filed including related defense costs next seven years undiscounted basis company concluded estimating liability beyond seven year period provide reasonable estimate uncertainties increase significantly projection period lengthens companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers quarterly basis company reevaluates assumptions used perform annual analysis records expense necessary reflect changes estimated liability related insurance asset company performed annual analysis asbestosrelated liabilities insurance assets third quarter 2010 third quarter 2010 company settled higher expected number claims average amounts compared estimates used companys valuation performed fiscal 2009 based companys claim experience past 5 years including impact mentioned increase settlements average settlement amounts fiscal 2010 company increased estimated net liability resulted company recording net charge approximately 52 million third quarter 2010 september 24 2010 companys estimated net liability 106 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 309 million separately asset insurance recoveries 203 million similarly september 25 2009 companys estimated net liability 49 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 240 million separately asset insurance recoveries 191 million estimated insurance asset increased due responsiveness pertinent insurance policies cover portion increased liability amounts recorded company asbestosrelated liabilities insurancerelated assets based currently available information well estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims resolution coverage issues insurance carriers amount available insurance solvency risk respect companys insurance carriers furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries company believes asbestosrelated reserves september 24 2010 appropriate however actual liabilities insurance recoveries could tyco international ltd notes consolidated financial statements 14 commitments contingencies continued significantly higher lower recorded assumptions used companys calculations vary significantly actual results compliance matters previously reported companys periodic filings company received responded various allegations information certain improper payments made companys subsidiaries agents recent years example two subsidiaries companys flow control business italy charged along numerous parties connection milan public prosecutors investigation allegedly improper payments made certain italian entities company reported german authorities potentially improper conduct involving agents retained companys emea water business company since resolved matter german authorities italian matter remains outstanding company reported us department justice doj sec investigative steps remedial measures taken response allegations internal investigations 2005 company informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance foreign corrupt practices act fcpa would continue investigate make periodic progress reports agencies company continue communicate doj sec provide updates baseline review followup investigations including appropriate briefings concerning additional instances potential improper conduct identified company course ongoing compliance activities baseline review completed revealed business practices may comply tyco fcpa requirements february 2010 company initiated discussions doj sec aimed resolving matters active discussions remain ongoing company cannot predict timing resolution outcome cannot estimate range potential loss form penalty may result adverse resolution possible company may required pay material fines consent injunctions future conduct consent imposition compliance monitor suffer criminal civil penalties adverse impacts including subject lawsuits brought private litigants may material adverse effect companys financial position results operations cash flows covidien tyco electronics agreed connection separation cooperate company responses regarding matters judgment required paid settlement cost incurred company connection fcpa investigations matters would subject liability sharing provisions separation distribution agreement assigned liabilities primarily related former healthcare electronics businesses company covidien tyco electronics respectively provides company retain liabilities primarily related continuing operations liabilities primarily related particular segment shared equally among company covidien tyco electronics previously disclosed early 2007 certain former subsidiaries companys flow control business charged german federal cartel office fco engaging anticompetitive practices particular regard hydrant valve street box fittings business company investigated matter determined conduct may violated german antitrust law company cooperating fco ongoing investigation violation company cannot estimate range potential loss may result violation possible tyco international ltd notes consolidated financial statements 14 commitments contingencies continued company may subject civil criminal proceedings may required pay judgments suffer penalties incur settlements amounts may material adverse effect financial position results operations cash flows erisa partial withdrawal liability assessment demand june 8 2007 simplexgrinnell received notice alleging partially withdrawn national automatic sprinkler industry pension fund title iv erisa fund prove employer completely partially withdraws multiemployer pension plan fund employer liable withdrawal liability equal proportionate share plans unfunded vested benefits alleged withdrawal results 1994 labor dispute grinnell fire protection systems simplexgrinnells predecessor road sprinkler fitters local union 669 erisa requires payment withdrawal liability made full quarterly installments commencing upon receipt liability assessment plan plans assessment withdrawal liability generally may challenged arbitration erisa requires quarterly payments must continue made pendency arbitration employer prevails arbitration subsequent appeals quarterly withdrawal liability payments refunded interest funds total withdrawal liability assessment simplexgrinnell approximately 25 million quarterly withdrawal liability payments 11 million 143 million cumulatively paid september 24 2010 ultimate outcome uncertain simplexgrinnell believes strong arguments withdrawal liability owed fund plans vigorously defend funds withdrawal liability assessment matter currently arbitration company made provision contingency believes quarterly payments recoverable broadview security contingency may 14 2010 company acquired broadview security business formerly owned brinks company coal industry retiree health benefit act 1992 amended coal act brinks company majorityowned subsidiaries july 20 1992 including certain legal entities acquired broadview security acquisition jointly severally liable certain brinks companys current former subsidiaries health care coverage obligations provided coal act voluntary employees beneficiary associate veba trust established brinks company pay liabilities although trust may insufficient funds satisfy future obligations time spinoff brinks company broadview security entered agreement brinks company agreed indemnify broadview security liabilities expenses related brinks companys former coal operations including health care coverage obligations brinks company agreed indemnification survives companys acquisition broadview security company evaluated potential liability coal act contingency light known facts including funding veba indemnification provided brinks company concluded accrual necessary due existence indemnification belief brinks company veba able satisfy future obligations coal act tyco international ltd notes consolidated financial statements 14 commitments contingencies continued matters previously reported 2002 secs division enforcement conducted investigation related past accounting practices dealer connect fees adt charged authorized dealers upon purchasing customer accounts investigation related accounting practices employed companys former management discontinued 2003 although company settled sec 2006 number former dealers related parties filed lawsuits company including class action lawsuit filed district court arapahoe county colorado alleging breach contract claims related adts decision terminate certain authorized dealers 2002 2003 february 2010 court granted directed verdict adts favor dismissing number plaintiffs key claims plaintiffs appealed verdict possible time predict final outcome lawsuits company believe claims material adverse effect companys financial position results operations cash flows addition foregoing company subject claims suits including time contractual disputes product general liability claims incidental present former operations acquisitions dispositions respect many claims company either selfinsures maintains insurance thirdparties varying deductibles ultimate outcome matters cannot predicted certainty company believes resolution proceedings whether underlying claims covered insurance material adverse effect companys financial condition results operations cash flows beyond amounts recorded matters income tax mattersee note 6 detailed discussion status companys outstanding income tax audits 15 retirement plans company sponsors number pension plans company measures pension plans fiscal year end following disclosures exclude impact plans immaterial individually aggregate defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based local regulations advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation tyco international ltd notes consolidated financial statements 15 retirement plans continued net periodic benefit cost us nonus defined benefit pension plans 2010 2009 2008 follows millions third quarter 2010 company adopted plan amendments froze pension plan benefits certain defined benefit arrangements united kingdom resulted company recognizing curtailment gain approximately 22 million selling general administrative expenses within consolidated statement operations inactive plans company amortize actuarial gains losses average remaining life expectancy pension plan participants estimated net loss prior service cost us pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 12 million 1 million respectively estimated net loss prior service credit nonus pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 12 million nil respectively tyco international ltd notes consolidated financial statements 15 retirement plans continued change benefit obligations plan assets amounts recognized consolidated balance sheets us nonus defined benefit plans september 24 2010 september 25 2009 follows millions company adopted measurement date provisions authoritative guidance employers accounting defined benefit pension postretirement plans september 27 2008 result tyco measured plan assets benefit obligations september 26 2008 adjusted opening balances accumulated earnings deficit accumulated comprehensive income loss change net periodic benefit cost fair value respectively previously used measurement date august 31 2008 adoption measurement date provisions resulted net decrease accumulated earnings deficit 5 million net income tyco international ltd notes consolidated financial statements 15 retirement plans continued tax benefit 2 million net increase accumulated comprehensive income loss 61 million net income taxes 28 million accumulated benefit obligation us plans september 24 2010 september 25 2009 929 million 862 million respectively accumulated benefit obligation nonus plans september 24 2010 september 25 2009 1366 million 1276 million respectively accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 929 million 657 million respectively september 24 2010 862 million 631 million respectively september 25 2009 accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 1344 million 1006 million respectively september 24 2010 1253 million 919 million respectively september 25 2009 aggregate benefit obligation fair value plan assets us pension plans benefit obligations excess plan assets 930 million 657 million respectively september 24 2010 863 million 631 million respectively september 25 2009 aggregate benefit obligation fair value plan assets nonus pension plans benefit obligations excess plan assets 1365 million 1006 million respectively september 24 2010 1312 million 927 million respectively september 25 2009 tyco international ltd notes consolidated financial statements 15 retirement plans continued determining expected return plan assets company considers relative weighting plan assets class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions companys investment strategy pension plans manage plans goingconcern basis current investment policy maintain adequate level diversification maximizing return assets subject prudent level portfolio risk purpose enhancing security benefits participants well providing adequate liquidity meet immediate future benefit payment requirements addition local regulations local financial considerations factors determining appropriate investment strategy country us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 52 equity securities 44 debt securities 4 asset classes including real estate cash equivalents pension plans following weightedaverage asset allocations although company buy sell securities direct investment pension funds due external investment management certain commingled funds plans may indirectly hold tyco securities aggregate amount securities would considered material relative total fund assets company evaluates defined benefit plans asset portfolios existence significant concentrations risk types investment concentration risks evaluated include limited concentrations single entity industry foreign country individual fund manager september 24 2010 significant concentrations risk companys defined benefit plan assets companys plan assets accounted fair value classified entirety based lowest level input significant fair value measurement companys assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets placement within fair value hierarchy tyco international ltd notes consolidated financial statements 15 retirement plans continued levels companys asset allocations level within fair value hierarchy september 24 2010 presented table companys material defined benefit plans table presents rollforward companys real estate investments measured fair value periodic basis using significant unobservable inputs level 3 september 25 2009 september 24 2010 equity securities consist primarily publicly traded us nonus equities publicly traded securities valued last trade closing price reported active market individual securities traded certain equity securities held within commingled funds valued unitized net asset value nav percentage net asset value determined custodian fund values based fair value underlying net assets owned fund fixed income securities consist primarily government agency securities corporate debt securities mortgage assetbacked securities available fixed income securities valued closing price reported active market individual security traded government agency securities corporate debt securities valued using recent bid prices occasionally mean latest bid ask prices markets less liquid assetbacked securities including mortgage backed securities valued using brokerdealer quotes available quotes available fair value determined utilizing discounted cash flow approach incorporates observable inputs cash flows underlying security structure market information including interest rates bid evaluations comparable securities certain fixed income securities held within commingled funds valued utilizing nav tyco international ltd notes consolidated financial statements 15 retirement plans continued determined custodian fund values based fair value underlying net assets owned fund real estate investments include publicly traded real estate investment trusts reits direct investments commercial residential properties reits valued last trade closing price active market individual securities traded direct real estate properties valued using discounted cash flow models consider longterm lease estimates future rental receipts estimated residual values valuation estimates supplemented thirdparty appraisals periodic basis cash equivalents consist primarily shortterm commercial paper bonds cash cashlike instruments including settlement proceeds due brokers stated cost approximates fair value following table sets forth summary pension plan assets valued using nav equivalent september 24 2010 millions strategy companys investment managers regard investments valued using nav equivalent either match exceed relevant benchmarks associated respective asset category none investments valued using nav equivalent contain redemption restrictions unfunded commitments 2010 company contributed 82 million us nonus pension plans represented companys minimum required contributions pension plans fiscal year 2010 company make voluntary contributions 2010 us nonus pension plans companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates contribute least minimum required pension plans 2011 12 million us plans 52 million nonus plans company also anticipates making voluntary contributions approximately 20 million us plans 2011 tyco international ltd notes consolidated financial statements 15 retirement plans continued benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans nil 1 million 1 million 2010 2009 2008 respectively executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 24 2010 87 million 45 million respectively companys accrued benefit obligations messrs kozlowski swartz september 25 2009 81 million 42 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era subject litigation brought company messrs kozlowski swartz defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 81 million 79 million 84 million 2010 2009 2008 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans material impact 2010 2009 2008 deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation liabilities 108 million 97 million september 24 2010 september 25 2009 respectively deferred compensation expense material 2010 2009 2008 postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits tyco international ltd notes consolidated financial statements 15 retirement plans continued net periodic postretirement benefit cost 2010 2009 2008 follows millions components accrued postretirement benefit obligations substantially unfunded september 24 2010 september 25 2009 follows millions tyco international ltd notes consolidated financial statements 15 retirement plans continued company expects make contributions postretirement benefit plans 6 million 2011 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions measurement purposes 77 80 composite annual rate increase per capita cost covered health care benefits assumed september 24 2010 september 25 2009 respectively september 24 2010 september 25 2009 composite annual rate increase health care benefit costs assumed decrease gradually 46 year 2027 remain level thereafter periods onepercentagepoint change assumed healthcare cost trend rates would following effects millions 16 tyco shareholders equity dividends pursuant swiss law dividend payments made prior january 1 2011 subject swiss withholding taxes unless made form return capital companys registered share capital result company intends first pay dividends form reduction registered share capital least january 1 2011 last dividend payment made registered capital february 2011 company expects make dividend payments form reduction contributed surplus also expected made free swiss withholding taxes march 10 2010 companys shareholders approved annual dividend companys common shares chf 090 per share paid form return capital four installments chf 022 may 2010 chf 022 august 2010 chf 023 november 2010 chf 023 february 2011 installments paid us dollars converted swiss francs usdchf exchange rate effect shortly payment dates first three installments annual dividend paid may 26 2010 august 25 2010 november 23 2010 certain administrative steps need occur effectuate dividend payment approval dividend shareholders establishes dividend swiss law result company recorded accrued dividend chf 428 million march 10 2010 approximated 399 million based exchange rate effect date accrued dividend recorded accrued current liabilities companys consolidated balance sheet march 26 2010 companys consolidated balance sheet amount recorded reduction tyco international ltd notes consolidated financial statements 16 tyco shareholders equity continued common shares reduces par value companys common shares chf 760 chf 670 may 14 2010 company acquired outstanding equity broadview security broadview security shareholders received tyco common stock consideration merger included first installment dividend payments paid may 26 2010 result company recorded accrued dividend chf 32 million may 14 2010 approximately 28 million based exchange rate effect date march 12 2009 companys shareholders approved annual dividend companys common shares chf 093 per share paid form return capital four installments chf 023 chf 023 chf 023 chf 024 may 27 2009 august 26 2009 november 24 2009 february 24 2010 respectively company recorded accrued dividend chf 440 million march 12 2009 approximated 377 million based exchange rate effect date companys consolidated balance sheet amount recorded reduction common shares reduced par value companys common shares chf 853 chf 760 installments paid us dollars converted swiss francs usdchf exchange rate effect shortly payment dates prior change domicile december 4 2008 companys board directors declared quarterly dividend companys common shares 020 per share paid february 2 2009 amount recorded reduction accumulated earnings common stock september 24 2010 companys share capital amounted chf 3683470241 514451151 registered common shares par value chf 716 per share march 12 2011 board directors may increase companys share capital maximum amount chf 1464159140 issuing maximum 204491500 shares addition march 12 2011 share capital company may increased amount exceeding chf 343175292 issue maximum 47929510 shares exercise conversion andor option warrant rights granted connection bonds notes similar instruments including convertible debt instruments ii share capital company may increased amount exceeding chf 343175292 issue maximum 47929510 shares employees persons providing services company although company states par value swiss francs continues use us dollar reporting currency preparing consolidated financial statements change domicile effective march 17 2009 company changed jurisdiction incorporation bermuda canton schaffhausen switzerland connection change domicile pursuant laws switzerland par value companys common shares increased 080 per share 853 swiss francs chf per share 721 based exchange rate effect march 17 2009 change domicile approved special general meeting shareholders held tyco international ltd notes consolidated financial statements 16 tyco shareholders equity continued march 12 2009 following steps occurred connection change domicile result change total shareholders equity 1approximately 21 million shares held directly indirectly treasury cancelled 2the par value common shares company increased 080 chf 853 approximate 1for9 reverse share split followed issuance approximately eight fully paid shares number shares outstanding change domicile reduced share premium increased common shares 3the remaining amount share premium eliminated corresponding increase contributed surplus share repurchase program companys board directors approved 10 billion 2010 share repurchase program 10 billion 2008 share repurchase program 10 billion 2007 share repurchase program september 2010 july 2008 september 2007 respectively fiscal 2010 company repurchased approximately 24 million shares approximately 900 million 2008 share repurchase program reduced amount common shares outstanding decreased dividends declared consolidated statement shareholders equity september 24 2010 following table represents number shares dollar amount repurchases made companys repurchase programs fiscal year remaining amount available repurchase september 24 2010 17 share plans total sharebased compensation cost recognized 2010 2009 120 million 99 million respectively included selling general administrative expenses total sharebased compensation cost recognized 2008 104 million includes 100 million selling general administrative expenses 4 million discontinued operations company recognized related tax benefit associated sharebased compensation arrangements 2010 2009 2008 35 million 25 million 28 million 1 million discontinued operations respectively tyco international ltd notes consolidated financial statements 17 share plans continued 2004 tyco international ltd 2004 stock incentive plan 2004 plan effectively replaced tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan awards effective march 25 2004 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted shares deferred stock units promissory stock stockbased awards collectively awards 2004 plan provides maximum 40 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance ltip plans awarded thereunder january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 march 25 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason including termination ltip plans also available issuance 2004 plan common shares issued pursuant grant full value award restricted stock rsus psus total number common shares remaining available grant decreased margin least 18 per common share issued september 24 2010 approximately 22 million shares available future grant 2004 plan september 24 2010 17 million shares granted 2004 plan ltip plan reserved common shares issuance tycos directors executives managers share options 2010 approximately 03 million shares originally reserved issuance plan became available future grant 2004 plan due expiration forfeiture cancellation september 24 2010 28 million options remained outstanding granted ltip prior termination ltip ii plan broadbased option plan nonofficer employees terms conditions plan similar ltip plan 2010 approximately 1 million shares originally reserved issuance plan became available future grant 2004 plan due expiration forfeiture cancellation september 24 2010 33 million options remained outstanding granted ltip ii prior termination share optionsoptions granted purchase common shares prices equal greater closing market price common shares date option granted conditions vesting determined time grant 2004 plan options generally exercisable equal annual installments period four years generally expire 10 years date grant historically companys practice settle stock option exercises either newly issued shares held treasury grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service period awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based analysis historic implied volatility measures set peer companies average expected tyco international ltd notes consolidated financial statements 17 share plans continued life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well analysis actual share option forfeitures weightedaverage assumptions used blackscholes option pricing model 2010 2009 2008 follows weightedaverage grantdate fair values options granted 2010 2009 2008 918 709 1106 respectively total intrinsic value options exercised 2010 2009 2008 32 million 05 million 16 million respectively related excess cash tax benefit classified financing cash inflow 2010 2009 2008 significant summary option activity september 24 2010 changes year ended presented september 24 2010 47 million total unrecognized compensation cost related nonvested options granted cost expected recognized weightedaverage period 22 fiscal years employee stock purchase planssubstantially fulltime employees companys us subsidiaries employees certain qualified nonus subsidiaries eligible participate employee share purchase plan espp eligible employees authorized payroll deductions made purchase shares company matched portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker espp suspended indefinitely quarter ended september 25 2009 tyco international ltd notes consolidated financial statements 17 share plans continued saye plan eligible employees united kingdom granted options purchase shares end three years service 85 market price time grant options saye plan generally exercisable period three years expire six months date vesting saye plan provided maximum 10 million common shares issued shares purchased saye plan purchased open market saye plan approved november 3 1999 ten year period expired according terms november 3 2009 international benefits oversight committee approved additional grants since last annual grant october 9 2008 applied approval replacement saye plan time summary option activity saye plan september 24 2010 changes year ended presented grantdatefair value option grant estimated using blackscholes option pricing model assumptions expected volatility average expected life riskfree rate well expected annual dividend per share made using methodology previously described share options weightedaverage grantdate fair values options granted saye plan 2009 2008 347 1418 respectively options granted saye plan 2010 total intrinsic value options exercised 2010 2009 2008 1 million 1 million 3 million respectively related excess cash tax benefit classified financing cash inflow 2010 2009 2008 significant september 24 2010 01 million total unrecognized compensation cost related nonvested options granted saye plan cost expected recognized period 1 year restricted share awardsrestricted share awards granted subject certain restrictions conditions vesting determined time grant 2004 plan restrictions award generally lapse upon normal retirement twelve months grant date death disability employee fair market value restricted awards time vesting subject specific performance criteria expensed period vesting restricted share awards vest based upon passage time generally vest period four years fair value restricted share awards determined based closing market price companys shares grant date tyco international ltd notes consolidated financial statements 17 share plans continued restricted share awards vest dependent upon attainment various levels performance equal exceed targeted levels generally vest entirety three years grant date fair value performance share awards determined based monte carlo valuation model compensation expense recognized restricted share awards net estimated forfeitures company generally grants restricted stock units recipients restricted stock units voting rights receive dividend equivalent units recipients performance shares voting rights may receive dividend equivalent units depending terms grant summary activity companys restricted share awards including performance shares september 24 2010 changes year ended presented tables weightedaverage grantdate fair value restricted share awards granted 2010 2009 2008 3423 2856 4027 respectively total fair value restricted share awards vested 2010 2009 2008 54 million 74 million 41 million respectively weightedaverage grantdate fair value performance share awards granted 2010 2009 2008 4027 2784 4611 respectively performance shares vested 2010 2009 2008 september 24 2010 89 million total unrecognized compensation cost related nonvested restricted share awards performance shares cost expected recognized weightedaverage period 20 fiscal years deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment service company distribution made form actual shares similar restricted share grants vest passage time fair value dsus determined based closing market price companys shares grant date amortized expense vesting period recipients dsus right vote receive cash dividends however tyco international ltd notes consolidated financial statements 17 share plans continued right receive dividend equivalent units conditions vesting determined time grant 2004 plan grants made executives generally vested equal annual installments three years dsus granted board directors immediately vested company granted 1 million dsus majority outstanding september 24 2010 weightedaverage grantdate fair value dsus granted 2009 2008 3409 4496 respectively dsu awards granted 2010 total fair value dsus vested 2010 2009 2008 1 million 2 million 2 million respectively september 24 2010 dsus vested 18 accumulated comprehensive income loss components accumulated comprehensive income loss follows millions 1during years ended september 24 2010 september 25 2009 september 26 2008 67 million cumulative translation gain 21 million cumulative translation loss 58 million cumulative translation gain respectively transferred currency translation adjustments result sale foreign entities amounts nil 21 million 58 million respectively included income discontinued operations 2adjustment accumulated deficit earnings recorded correct distribution amount covidien tyco electronics date separations see note 2 3tax effect net investment hedge tyco international ltd notes consolidated financial statements 19 consolidated segment geographic data segment information consistent management reviews businesses makes investing resource allocation decisions assesses operating performance company operates reports financial operating information following five segments •adt worldwide designs sells installs services monitors electronic security systems residential commercial industrial governmental customers addition adt worldwide manufactures certain products related retailer antitheft systems •flow control designs manufactures sells services valves pipes fittings valve automation heat tracing products general process energy mining markets well water wastewater markets •fire protection services designs sells installs services fire detection fire suppression systems commercial industrial governmental customers •electrical metal products designs manufactures sells galvanized steel tubing armored wire cable metal products nonresidential construction electrical fire safety mechanical customers •safety products designs manufactures sells fire suppression electronic security life safety products including fire sprinklers breathing apparatus intrusion security access control video management systems addition safety products manufactures products installed serviced adt worldwide fire protection services tyco also provides general corporate services segments costs reported corporate company time may realign businesses management responsibility within operating segments based considerations opportunity market operating synergies andor fully leverage existing capabilities enhance development future products services first quarter fiscal 2010 manufacturing operations support adt retail business historically included safety products segment transferred adt worldwide segment addition certain smaller businesses transferred segments companys safety products segment companys fire protection services segment asia pacific companys fire protection services segment companys adt worldwide segment emea latin america certain overhead costs transferred corporate companys adt worldwide segment third quarter fiscal 2010 company reclassified certain businesses satisfied criteria presented discontinued operations income discontinued operations consolidated statement operations assets liabilities held sale within consolidated balance sheets see note 2 result realignment business activities discontinued operations segment tyco international ltd notes consolidated financial statements 19 consolidated segment geographic data continued geographic financial information 2009 2008 recast reflect selected information segment presented following tables millions 1revenue operating segment excludes intercompany transactions 1operating loss 2009 includes goodwill intangible asset impairment charges 27 billion total assets segment september 24 2010 september 25 2009 september 26 2008 follows millions tyco international ltd notes consolidated financial statements 19 consolidated segment geographic data continued depreciation amortization capital expenditures segment years ended september 24 2010 september 25 2009 september 26 2008 follows millions net revenue geographic area years ended september 24 2010 september 25 2009 september 26 2008 follows millions 1revenue attributed individual countries based reporting entity records transaction tyco international ltd notes consolidated financial statements 19 consolidated segment geographic data continued longlived assets geographic area september 24 2010 september 25 2009 september 26 2008 follows millions 1longlived assets comprised primarily property plant equipment exclude goodwill intangible assets deferred taxes shared assets first quarter 2011 company realign safety products segment adt worldwide fire protection segments companys existing adt worldwide fire protection segments create two new businesses tyco security solutions tyco fire protection tyco security solutions consist companys adt worldwide segment well manufacturing security products including intrusion security access control video management systems previously manufactured safety products segment tyco fire protection consist fire protection segment well number businesses safety products segment including fire suppression building products life safety products businesses result realignment well planned sale 51 interest companys electrical metal products business see note 25 company three core businesses tyco security solutions tyco fire protection flow control tyco international ltd notes consolidated financial statements 20 supplementary consolidated balance sheet information selected supplementary consolidated balance sheet information september 24 2010 september 25 2009 follows millions 21 inventory inventories consisted following millions inventories recorded lower cost primarily firstin firstout market value 22 property plant equipment property plant equipment consisted following millions 1property capital leases consists primarily buildings 2accumulated amortization capital lease assets 34 million 28 million september 24 2010 september 25 2009 respectively tyco international ltd notes consolidated financial statements 23 summarized quarterly financial data unaudited summarized quarterly financial data years ended september 24 2010 september 25 2009 follows millions except per share data 1loss continuing operations includes goodwill intangible asset impairments 27 billion tyco international ltd notes consolidated financial statements 24 tyco international finance sa tifsa whollyowned subsidiary company public debt securities outstanding see note 11 fully unconditionally guaranteed tyco following tables present condensed consolidating financial information tyco tifsa subsidiaries condensed financial information tyco tifsa standalone basis presented using equity method accounting subsidiaries second quarter 2008 company completed taxfree restructuring involving transfer certain investments tyco tifsa since transactions entirely among whollyowned subsidiaries tyco impact companys consolidated financial position results operations cash flows transactions however result increase tifsas investment subsidiaries 19 billion since transactions among entities common control effects reflected beginning earliest period presented condensed consolidating statement operations year ended september 24 2010 millions tyco international ltd notes consolidated financial statements 24 tyco international finance sa continued condensed consolidating statement operations year ended september 25 2009 millions 24 tyco international finance sa continued condensed consolidating statement operations year ended september 26 2008 millions 24 tyco international finance sa continued condensed consolidating balance sheet september 24 2010 millions 24 tyco international finance sa continued condensed consolidating balance sheet september 25 2009 millions 24 tyco international finance sa continued condensed consolidating statement cash flows year ended september 24 2010 millions 24 tyco international finance sa continued condensed consolidating statement cash flows year ended september 25 2009 millions 24 tyco international finance sa continued condensed consolidating statement cash flows year ended september 26 2008 millions 25 subsequent events september 30 2010 company received necessary consents approval complete sale european water business received net cash proceeds approximately 267 million company expects recognize gain transaction consistent annual equity compensation practices october 12 2010 company granted tyco employees 39 million share options weightedaverage grantdate fair value 913 per share date grant additionally company granted 14 million 06 million restricted stock units performance share units fair value 3729 4117 per share date grant respectively november 9 2010 company announced entered agreement sell 51 interest electrical metal products business affiliate private equity firm clayton dubilier rice llc investor company form newly incorporated holding company atkore hold companys electrical metal products business upon closing tyco expected receive total cash proceeds approximately 720 million anticipates recognizing gain transaction pursuant investment agreement entered connection transaction tyco affiliates agreed sell shares newlycreated class cumulative convertible preferred stock atkore preferred stock investor 306 million preferred stock sold investor initially represent 51 outstanding capital stock asconverted basis atkore immediately following closing terms investment agreement anticipated atkore incur new third party indebtedness 465 million use proceeds part repay approximately 400 million intercompany indebtedness subsidiaries tyco transaction subject satisfaction customary closing conditions expected close first half fiscal 2011 company continue present atkore continuing operations upon completion transaction tycos ownership interest atkore accounted equity method accounting tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules a1 2 financial statements supplementary datasee item 8 3exhibit index 1management contract compensatory plan bsee item 15a3 csee item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd frank sklarsky frank sklarsky executive vice president chief financial officer principal financial officer date november 16 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant november 16 2011 capacities indicated name title edward breen edward breen chairman chief executive officer director principal executive officer frank sklarsky frank sklarsky executive vice president chief financial officer principal financial officer carol anthony davidson carol anthony davidson senior vice president controller chief accounting officer principal accounting officer timothy donahue director brian duperreault director bruce gordon director rajiv l gupta director judith reinsdorf signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report judith reinsdorf judith reinsdorf attorneyinfact tyco international ltd index consolidated financial statements page managements responsibility financial statements reports independent registered public accounting firm consolidated statements operations consolidated balance sheets consolidated statements shareholders equity consolidated statement cash flows notes consolidated financial statements schedule iivaluation qualifying accounts managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior team leading example includes every one tycos global employees well customers suppliers business partners one crucial objectives continuing maintain build public employee shareholder confidence restored tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2011 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls edward breen edward breen chairman chief executive officer frank sklarsky frank sklarsky executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 30 2011 september 24 2010 related consolidated statements operations shareholders equity cash flows three fiscal years period ended september 30 2011 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tyco international ltd subsidiaries september 30 2011 september 24 2010 results operations cash flows three fiscal years period ended september 30 2011 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states companys internal control financial reporting september 30 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated november 16 2011 expressed unqualified opinion companys internal control financial reporting deloitte touche llp new york new york november 16 2011 report independent registered public accounting firm board directors shareholders tyco international ltd audited internal control financial reporting tyco international ltd subsidiaries company september 30 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting september 30 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements financial statement schedule fiscal year ended september 30 2011 company report dated november 16 2011 expressed unqualified opinion financial statements financial statement schedule deloitte touche llp new york new york november 16 2011 tyco international ltd consolidated statements operations years ended september 30 2011 september 24 2010 september 25 2009 millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets september 30 2011 september 24 2010 millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 30 2011 september 24 2010 september 25 2009 millions see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity continued years ended september 30 2011 september 24 2010 september 25 2009 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 30 2011 september 24 2010 september 25 2009 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd corporation organized laws switzerland subsidiaries tyco subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance generally accepted accounting principles united states gaap certain information described article 663663h swiss code obligations presented companys swiss statutory financial statements year ended september 30 2011 unless otherwise indicated references 2011 2010 2009 tycos fiscal years ending september 30 2011 september 24 2010 september 25 2009 respectively first quarter fiscal 2011 company realigned safety products segment adt worldwide fire protection services segments create two new segments tyco security solutions tyco fire protection tyco security solutions consists former adt worldwide segment well portion former safety products segment manufactures security products including intrusion security access control video management systems tyco fire protection consists former fire protection services segment well number businesses former safety products segment including fire suppression life safety products businesses addition various businesses realigned tyco security solutions tyco fire protection see note 21 result realignment well sale majority interest electrical metal products business see note 3 company three core businesses tyco security solutions tyco fire protection tyco flow control revenue related sale electronic tags labels utilized retailer antitheft systems classified revenue product sales reporting periods prior first quarter fiscal 2010 revenue related sale electronic tags labels utilized retailer antitheft systems misclassified service revenue item effect net revenue operating income loss net income loss cash flows changes made previously filed financial statements comparative amounts presented herein effect prior periods material revenue related sale electronic tags labels reflected service revenue 286 million 2009 related cost services 176 million 2009 effective june 29 2007 tyco completed spinoffs covidien te connectivity formerly healthcare electronics businesses respectively separate publicly traded companies 2007 separation form distribution tyco shareholders company 52 53week fiscal year ends last friday september fiscal 2011 53week year ended september 30 2011 fiscal years 2010 2009 52week years principles consolidationtyco conducts business operating subsidiaries company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities vie company power direct significant activities entity obligation absorb losses receive benefits entity may significant intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued acquisition date disposal references segment data companys continuing operations use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies including legal environmental asbestos reserves insurance reserves net realizable value inventories fair values financial instruments estimated contract revenue related costs income taxes tax valuation allowances pension postretirement employee benefit expenses actual results could differ materially estimates revenue recognitionthe company recognizes revenue principally four types transactionssales products sales security systems billings monitoring maintenance services contract sales revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions product returns discounts customers accounted reductions determining sales period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements company assesses revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued company expect situations vsoe available sales security systems services cases arise company would follow selling price hierarchy allocate arrangement consideration revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion extent progress toward completion generally measured based ratio actual cost incurred total estimated cost completion revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimated warranty costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting accounts receivable longterm receivables included retainage provisions 62 million september 30 2011 september 24 2010 44 million 45 million unbilled respectively retainage provisions consist primarily fire protection contracts become due upon contract completion acceptance september 30 2011 retainage provision included 49 million expected collected fiscal 2012 research developmentresearch development expenditures expensed incurred included cost product sales amounted 147 million 131 million 116 million 2011 2010 2009 respectively research development expenses include salaries direct costs incurred building overhead expenses advertisingadvertising costs expensed incurred included selling general administrative expenses amounted 206 million 164 million 131 million 2011 2010 2009 respectively acquisition costsacquisition costs expensed incurred included selling general administrative expenses see note 5 translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars assets liabilities translated us dollars using yearend exchange rates revenue expenses translated average exchange rates effect year foreign currency translation gains losses included component accumulated comprehensive loss shareholders equity gains losses resulting foreign currency transactions including dividends declared swiss francs april 2011 impact foreign currency derivatives related operating activities reflected selling general administrative expenses expense net respectively cash equivalentsall highly liquid investments maturities three months less time purchase considered cash equivalents tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense 2011 2010 2009 695 million 654 million 610 million respectively maintenance repair expenditures charged expense incurred except pooled subscriber systems depreciation calculated using straightline method estimated useful lives related assets follows see discussion depreciation method estimated useful lives related subscriber systems subscriber system assets related deferred revenue accountsthe company considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers residence place business installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses ie commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded noncurrent assets included assets line item within consolidated balance sheets subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets primarily north america related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 160 265 residential subscriber pools 135 360 commercial subscriber pools converts straightline methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe asia related deferred revenue remaining balances written upon customer termination longlived asset impairmentstyco reviews longlived assets including property plant equipment amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur see note 10 performing assessments management relies various factors including operating results business plans economic projections anticipated future cash flows comparable transactions market data inherent uncertainties related factors require judgment applying analysis goodwill indefinitelived intangible assets impairment company performed annual impairment tests goodwill indefinitelived intangible assets first day fourth quarter 2011 testing goodwill impairment company first compares fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using market participants weightedaverage cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill indefinite lived intangible assets consisting primarily trade names franchise rights tested impairment using either relief royalty method excess earnings method dealer amortizable intangible assets netintangible assets primarily include contracts related customer relationships intellectual property certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program acquired contracts related customer relationships recorded contractually determined purchase price first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship estimated useful life dealer intangibles geographical areas comprising approximately 90 net carrying value dealer intangibles 15 years company amortizes dealer intangible assets accelerated basis contracts related customer relationships well intellectual property consisting primarily patents trademarks copyrights unpatented technology amortized straightline basis 4 40 years company evaluates amortization methods remaining useful lives intangible assets periodic basis determine whether events circumstances warrant revision amortization method remaining useful lives investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged accumulated comprehensive loss within shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting reporting period company evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included consolidated statements operations material period presented tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued product warrantythe company records estimated product warranty costs time sale products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty however instances warranty either negotiated contract sold separate component warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage environmental coststyco subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized asbestosrelated contingencies insurance receivablesthe company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs predominantly based claim experience past five years projection covers claims expected filed including related defense costs next seven years undiscounted basis due high degree uncertainty regarding pattern length time claims made settled litigated company uses multiple estimation methodologies based varying scenarios potential outcomes estimate range loss company concluded estimating liability beyond seven year period provide reasonable estimate uncertainties increase significantly projection period lengthens connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return pattern timing future obligation reliably determinable impact discount consolidated balance sheets september 30 2011 september 24 2010 reduce obligation 16 million 21 million respectively company maintains captive insurance company manage certain insurable liabilities captive insurance company holds certain investments escrow account purpose providing collateral companys insurable liabilities see note 9 additionally company records receivables third party insurers recovery determined probable financial instrumentsthe company may use interest rate swaps currency swaps forward option contracts commodity swaps manage risks generally associated interest rate risk foreign exchange risk commodity prices derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly effective offsetting changes fair value underlying hedged item inception hedge expected remain highly effective life hedge contract derivative financial instruments reported consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items related operating activities reported selling general administrative expenses along offsetting transaction gains losses items hedged derivatives used economically hedge dividends declared swiss francs april 2011 reported companys consolidated statements operations part expense net along offsetting transaction gains losses items hedged beginning may 2011 company longer declares dividends swiss francs derivatives used manage exposure changes interest rates reported interest expense along offsetting transaction gains losses items hedged gains losses net investment hedges included cumulative translation adjustment component accumulated comprehensive loss extent effective gains losses derivatives designated cash flow hedges recorded accumulated comprehensive loss reclassified earnings manner matches timing earnings impact hedged transactions company classifies cash flows associated settlement derivatives consistent nature transaction hedged company cash flow hedges 2011 ineffective portion hedges recognized currently earnings noted instruments qualify hedge accounting marked market changes recognized current earnings reclassificationsas result segment realignment prior period segment amounts recast conform current period presentation see note 21 recently adopted accounting pronouncementsin september 2009 financial accounting standards board fasb issued authoritative guidance accounting revenue arrangements multiple deliverables guidance establishes selling price hierarchy determining selling price deliverable selling price used deliverable based vsoe available tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued tpe vsoe available estimated selling price neither vsoe tpe available guidance requires arrangements multiple revenue generating activities performed allocated inception residual method existing accounting guidance eliminated guidance became effective tyco revenue arrangements entered materially modified beginning first quarter fiscal 2011 adoption guidance material impact companys financial position results operations cash flows june 2009 fasb issued authoritative guidance amended existing guidance consolidation vies address elimination concept qualifying special purpose entity guidance also replaces quantitativebased risks rewards calculation determining enterprise controlling financial interest vie approach focused identifying enterprise power direct significant activities vie obligation absorb losses right receive benefits may significant vie guidance became effective tyco first quarter fiscal 2011 companys population vies primarily composed joint ventures material companys consolidated operations financial position results operations cash flows adoption guidance resulted deconsolidation joint venture tyco fire protection segment material impact companys financial position results operations cash flows recently issued accounting pronouncementsin june 2011 fasb issued authoritative guidance presentation comprehensive income guidance amended reporting comprehensive income oci eliminating option present oci part statement changes shareholders equity amendment impact accounting oci presentation companys consolidated financial statements guidance requires items net income oci presented either single continuous statement comprehensive income two separate consecutive statements include total net income components consecutively followed total oci components arrive total comprehensive income guidance must applied retrospectively effective tyco first quarter fiscal 2013 early adoption permitted company currently assessing timing adoption guidance september 2011 fasb issued authoritative guidance expanded enhanced existing disclosures related multiemployer pension postretirement benefit plans amendments require additional quantitative qualitative disclosures provide detailed information including significant multiemployer plans company participates level companys participation contributions financial health indication funded status provide users financial statements better understanding employers involvement multiemployer benefit plans guidance must applied retrospectively effective tyco fiscal 2012 annual period early adoption permitted company currently assessing timing adoption guidance along impact guidance annual disclosures september 2011 fasb issued authoritative guidance amends process testing goodwill impairment guidance permits entity first assess qualitative factors determine whether existence events circumstances leads determination likely defined likelihood fifty percent fair value reporting unit less carrying amount entity determines likely fair value tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued reporting unit less carrying amount performing traditional two step goodwill impairment test unnecessary entity concludes otherwise would required perform first step two step goodwill impairment test carrying amount reporting unit exceeds fair value entity required perform second step goodwill impairment test however entity option bypass qualitative assessment period proceed directly step one impairment test guidance effective tyco interim annual impairment testing beginning first quarter fiscal 2013 early adoption permitted company currently assessing timing adoption guidance 2 2012 separation transaction september 19 2011 company announced board directors approved plan separate company three separate publicly traded companies consisting companys north american residential security business flow control business commercial fire security business 2012 separation expected completed end third calendar quarter 2012 taxfree pro rata distribution equity interest flow control north american residential security business completion proposed separation subject certain conditions including final approval tyco board directors shareholders receipt tax opinions rulings filing effectiveness registration statements sec separation also subject completion necessary financing quarter year ended september 30 2011 company incurred 24 million costs within selling general administrative expenses companys consolidated statement operations primarily related professional fees banking services 3 divestitures company continued assess strategic fit various businesses pursued divestiture certain businesses align longterm strategy fiscal november 9 2010 company announced entered investment agreement sell majority interest electrical metal products business affiliate private equity firm clayton dubilier rice llc investor company formed newly incorporated holding company atkore international group inc atkore hold companys electrical metal products business december 22 2010 transaction closed investor acquired shares newlycreated class cumulative convertible preferred stock atkore preferred stock preferred stock initially represented 51 outstanding capital stock asconverted basis atkore connection closing company received cash proceeds approximately 713 million recorded gain 259 million first quarter 2011 year ended september 30 2011 company recorded net working capital adjustment 11 million reduced gain disposal gain disposal recorded within restructuring asset impairment divestiture gains charges net companys consolidated statements operations tyco international ltd notes consolidated financial statements continued 3 divestitures continued connection sale company determined fair value retained ownership interest atkore implying total equity value atkore using price paid investor preferred stock less expected present value dividends paid preferred stock implied equity value discount rate used determine present value expected dividends calculated taking average stated return preferred stock pursuant agreement atkores estimated cost equity implied equity value allocated companys retained ownership interest arrive fair value companys retained ownership interest company applied discount factor companys allocated implied equity value due lack marketability common stock atkore privately held fair value companys retained ownership interest determined 137 million resulting company recognizing 49 million gain upon deconsolidation first quarter fiscal 2011 included gain sale noted tycos retained ownership interest atkore accounted equity method accounting recorded assets companys consolidated balance sheet september 30 2011 companys proportionate share atkores net income loss recorded within expense net companys consolidated statements operations amounts material company recorded equity loss 9 million year ended september 30 2011 fiscal fourth quarter 2009 company approved plan sell french security business part companys tyco security solutions segment results operations presented continuing operations criteria discontinued operations met second quarter 2010 company completed sale recorded 53 million pretax gain within restructuring asset impairment divestiture gains charges net companys consolidated statements operations fiscal third quarter 2008 company approved plan sell business tyco security solutions segment business classified held sale companys historical consolidated balance sheet second quarter 2009 due change strategy management company decided sell business result business longer satisfied requirements classified held sale company measured business lower carrying amount classified held sale adjusted depreciation amortization expense would recognized business continuously classified held used ii fair value date decision sell made company recorded charge 8 million second quarter 2009 relating amount depreciation amortization expense would recorded asset continuously classified held used discontinued operations fiscal september 30 2010 company sold european water business part companys flow control segment sale completed approximately 264 million cash tyco international ltd notes consolidated financial statements continued 3 divestitures continued proceeds net 7 million cash divested sale pretax gain 172 million recorded largely exempt tax gain recorded income discontinued operations net income taxes companys consolidated statements operations fiscal third quarter 2010 company approved plan sell european water business subsequently closed september 30 2010 discussed fiscal 2011 year ended september 24 2010 business met held sale discontinued operations criteria included discontinued operations periods presented fiscal july 2008 company substantially completed sale infrastructure services business met criteria presented discontinued operations order complete sale remaining infrastructure services businesses earth tech brasil ltda et brasil earth tech uk businesses certain assets china company required obtain consents approvals transfer legal ownership businesses assets fourth quarter 2009 company received necessary consents approvals transfer legal ownership businesses assets received cash proceeds 61 million result fiscal 2009 dispositions net pretax gain 33 million recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 25 2009 net revenue pretax loss income discontinued operations pretax income loss sale discontinued operations income tax benefit expense income discontinued operations net income taxes follows millions tyco international ltd notes consolidated financial statements continued 3 divestitures continued material pending divestitures september 30 2011 balance sheet information material pending divestitures september 24 2010 follows millions fiscal year 2007 tyco completed spinoffs healthcare electronics businesses company used available information develop best estimates certain assets liabilities related 2007 separation limited instances final determination balances made subsequent periods 13 million nil adjustments recorded shareholders equity years ended september 30 2011 september 24 2010 year ended september 25 2009 43 million recorded shareholders equity 9 million related preseparation income tax filing nonus jurisdiction 34 million items reflect immaterial adjustments shareholders equity recorded correct distribution amount date 2007 separation adjustments future impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor te connectivity legal entities certain amended income tax returns periods prior 2007 separation may recorded either shareholders equity consolidated statement operations depending specific item giving rise adjustment divestiture gains charges net 2011 2010 2009 company recorded net gain 230 million net gain 40 million net loss 15 million respectively restructuring asset impairment divestiture gains charges net companys consolidated statements operations connection divestiture writedown fair value less cost sell certain businesses meet criteria discontinued operations net gain year ended september 30 2011 includes gain 248 million net working capital adjustments recognized conjunction sale majority interest companys electrical metal products business discussed net gain year ended september 24 2010 includes 53 million gain recognized upon sale companys french security business discussed tyco international ltd notes consolidated financial statements continued 4 restructuring asset impairment charges net fiscal 2011 company identified pursued opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across companys businesses company expects incur restructuring related charges approximately 125 150 million fiscal 2012 company recorded restructuring asset impairment charges program consolidated statement operations classification follows millions 2011 program restructuring asset impairment charges net year ended september 30 2011 follows millions tyco international ltd notes consolidated financial statements continued 4 restructuring asset impairment charges net continued rollforward reserves september 24 2010 september 30 2011 follows millions restructuring reserves businesses met held sale criteria included liabilities held sale consolidated balance sheets excluded table see note 3 2009 program fiscal 2010 2009 company identified pursued opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across companys businesses 2009 program september 24 2010 company substantially completed 2009 program restructuring asset impairment charges net years ended september 30 2011 september 24 2010 september 25 2009 related 2009 program follows millions tyco international ltd notes consolidated financial statements continued 4 restructuring asset impairment charges net continued restructuring asset impairment charges net incurred cumulative date initiation 2009 program follows millions tyco international ltd notes consolidated financial statements continued 4 restructuring asset impairment charges net continued rollforward reserves september 24 2010 september 30 2011 follows millions restructuring reserves businesses met held sale criteria included liabilities held sale consolidated balance sheets excluded table see note 3 2007 pre2006 programs fiscal 2007 2008 company launched restructuring program across companys segments including corporate organization streamline businesses reduce operational footprint 2007 program company maintained restructuring reserve related 2007 program 17 million 26 million september 30 2011 september 24 2010 respectively company incurred 1 million charges utilized 10 million restructuring reserve balance year ended september 30 2011 addition company continues maintain restructuring reserves related certain programs initiated prior 2006 total amount reserves 14 million september 30 2011 september 24 2010 company incurred 1 million charges utilized 1 million restructuring reserve balance year ended september 30 2011 aggregate remaining reserves related 2007 pre2006 programs primarily relate facility exit costs longterm noncancelable lease obligations expiration dates range 2011 2022 primarily within companys tyco security solutions segment total restructuring reserves september 30 2011 september 24 2010 restructuring reserves related programs included companys consolidated balance sheets follows millions tyco international ltd notes consolidated financial statements continued 5 acquisitions fiscal acquisitions year ended september 30 2011 cash paid acquisitions included continuing operations totaled 656 million net cash acquired primarily related acquisitions oceania capital partners limiteds signature security group signature security group kef holdings ltd kef chemguard inc chemguard signature security group electronic security company operating australia new zealand primarily small business residential markets cash paid signature security group totaled approximately 184 million net cash acquired 2 million companys tyco security solutions segment april 29 2011 june 29 2011 kef closing date companys tyco flow control segment acquired 75 equity interest privatelyheld kef vertically integrated valve manufacturer middle east approximately 295 million net cash acquired 1 million accordance terms conditions kef acquisition agreement beginning first full fiscal quarter following third anniversary kef closing date company exercise call option noncontrolling interest stakeholder exercise put option would require company purchase remaining 25 equity interest greater 100 million multiple kefs average earnings income taxes depreciation amortization ebitda prior twelve consecutive fiscal quarters put option redeemable option noncontrolling interest stakeholder remaining 25 equity interest accounted redeemable noncontrolling interest see note 20 september 1 2011 companys fire protection segment completed acquisition chemguard approximately 130 million cash net cash acquired 1 million chemguard provider firefighting foam concentrates equipment foam systems services specialty chemicals september 15 2011 company agreed acquire visonic ltd visonic global developer manufacturer electronic security systems components approximately 100 million cash transaction expected close first quarter fiscal 2012 following close transaction company intends combine visonic companys tyco security solutions segment acquisition integration related costs acquisition integration related costs expensed incurred year ended september 30 2011 company incurred acquisition costs 6 million primarily connection acquisitions signature security group kef chemguard costs recorded selling general administrative expenses companys consolidated statements operations year ended september 30 2011 company incurred integration costs 33 million primarily connection integration brinks home security holdings inc bhs broadview security tyco security solutions segment costs 31 million recorded within selling general administrative expenses 2 million recorded within cost product sales within companys consolidated statements operations adt account acquisitions year ended september 30 2011 company paid 614 million cash acquire approximately 565000 customer contracts electronic security services tyco security solutions segment tyco international ltd notes consolidated financial statements continued 5 acquisitions continued fiscal acquisitions year ended september 24 2010 cash paid acquisitions included continuing operations totaled 600 million net cash acquired 137 million primarily related acquisition broadview security net cash paid broadview security totaled 448 million companys tyco security solutions segment year ended september 24 2010 companys flow control segment acquired two brazilian valve companies including hiter industria e comercio de controle termohidraulico ltda hiter valve manufacturer serves variety industries including oil gas chemical petrochemical markets net cash paid brazilian valve companies totaled 104 million companys former electrical metal products segment acquired certain assets business 39 million fire protection segment acquired business 9 million 2010 acquisition integration related costs company incurred approximately 17 million costs directly related acquisition broadview security year ended september 24 2010 addition company recorded 18 million integration costs year ended september 24 2010 acquisition integration costs recorded within selling general administrative expenses companys consolidated statements operations year ended september 24 2010 companys tyco security solutions segment corporate recorded 32 million 3 million respectively acquisition integration costs year ended september 24 2010 addition companys tyco security solutions segment recorded 14 million restructuring expenses conjunction acquisition broadview security recorded within restructuring asset impairments divestiture gains charges net companys consolidated statements operations year ended september 24 2010 adt account acquisitions year ended september 24 2010 company paid 559 million cash acquire approximately 501000 customer contracts electronic security services tyco security solutions segment acquisition broadview security may 14 2010 companys tyco security solutions segment acquired outstanding equity broadview security publicly traded company formerly owned brinks company cashandstock transaction valued approximately 20 billion prior acquisition broadview securitys core business provide security alarm monitoring services residential commercial properties north america terms transaction outstanding share bhs common stock converted right receive 1 1315 cash 07562 tyco common shares shareholders made allcash election 2 10951 tyco common shares shareholders made stock election 3 1275 cash 07666 tyco common shares shareholders made mixed cashstock election failed make election tyco international ltd notes consolidated financial statements continued 5 acquisitions continued fair value calculation consideration transferred calculation consideration transferred acquire bhs follows certain amounts cannot recalculated exact bhs common share amounts presented common share data millions except per share data 1represents fair value bhs stock option restricted stock unit deferred stock unit replacement awards attributable precombination service issued holders awards acquisition fair value determined using blackscholes model stock option tyco international ltd notes consolidated financial statements continued 5 acquisitions continued awards tycos closing stock price restricted deferred stock unit awards fair value outstanding bhs stockbased compensation awards immediately vested effective time acquisition attributed precombination service included consideration transferred addition certain bhs stockbased compensation awards immediately vest upon completion acquisition awards fair value awards attributed precombination service included part consideration transferred fair value attributed postcombination service recognized compensation expense requisite service period postcombination financial statements tyco fair value allocation consideration transferred assets acquired liabilities assumed consideration transferred bhs allocated identifiable assets acquired liabilities assumed acquisition date following amounts represent final determination fair value identifiable assets acquired liabilities assumed millions 1as acquisition date fair value accounts receivable approximated book value included net current assets 32 million accounts receivable gross contractual amount receivable approximately 35 million 3 million expected collected 2included net noncurrent liabilities approximately 456 million deferred tax liabilities recorded liabilities companys consolidated balance sheet 3the goodwill recognized primarily related expected synergies benefits company believes result combining operations bhs operations tyco security solutions goodwill allocated companys tyco security solutions segment none goodwill expected deductible tax purposes tyco international ltd notes consolidated financial statements continued 5 acquisitions continued actual bhs financial results bhs actual results acquisition date may 14 2010 included consolidated statement operations year ended september 24 2010 follows millions supplemental pro forma financial information unaudited supplemental pro forma financial information year ended september 24 2010 september 25 2009 follows millions supplemental pro forma financial information based historical financial information tyco bhs supplemental pro forma financial information period ended september 24 2010 utilized bhs historical financial information fiscal fourth quarter ended december 31 2009 preacquisition period january 1 2010 acquisition date supplemental pro forma financial information reflect primarily following pro forma pretax adjustments •elimination bhs historical intangible asset amortization property plant equipment depreciation expense •elimination bhs historical deferred acquisition costs amortization •elimination bhs historical deferred revenue amortization •additional amortization depreciation expense related fair value identifiable intangible assets property plant equipment acquired •reduction interest income cash used fund acquisition tyco dividends assumed paid bhs shareholders •all pro forma adjustments tax effected using statutory tax rate 39 tyco international ltd notes consolidated financial statements continued 5 acquisitions continued supplemental pro forma financial information year ended september 24 2010 reflect following nonrecurring adjustments •direct acquisition costs primarily relating advisory legal fees integration costs •restructuring charges primarily related employee severance onetime benefit arrangements supplemental pro forma financial information gives effect acquisition considered indicative results would occurred periods presented indicative future results addition supplemental pro forma financial information reflect potential realization cost savings relating integration two companies fiscal acquisitions year ended september 25 2009 cash paid acquisitions included continuing operations totaled 48 million net cash acquired 2 million primarily related acquisition vue technology inc provider radio frequency identification technology 43 million companys tyco security solutions segment acquisition integration related costs year ended september 25 2009 company incur acquisition integration related costs adt account acquisitions year ended september 25 2009 company paid 543 million cash acquire approximately 512000 customer contracts electronic security services tyco security solutions segment 6 expense net expense net 16 million 2011 primarily relates share atkores net loss 9 million accounted equity method accounting decrease receivables due covidien te connectivity tax sharing agreement 7 million see note 7 expense net 75 million 2010 primarily related charge 87 million loss extinguishment debt redemption 6375 public notes due 2011 7 notes due 2028 6875 notes due 2029 see note 12 loss partially offset 8 million gain recorded result increase receivables due covidien te connectivity tax sharing agreement expense net 7 million 2009 primarily related 14 million charge recorded result decrease receivables due covidien te connectivity tax sharing agreement partially offset income 5 million relating gain derivative contracts used economically hedge foreign currency risk related swiss franc denominated dividends tyco international ltd notes consolidated financial statements continued 7 income taxes significant components income tax provision 2011 2010 2009 follows millions nonus income continuing operations income taxes 2119 million 1507 million 119 million 2011 2010 2009 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 30 2011 september 24 2010 september 25 2009 follows millions 1excludes nondeductible charges items broken separately table included nondeductible charges income tax benefit favorable audit resolutions multiple jurisdictions 2011 included nonus net earnings 2010 20 million tax benefit result companys disposition french security business nonrecurring item generating 30 million tax benefit tyco international ltd notes consolidated financial statements continued 7 income taxes continued included nondeductible charges 2009 loss driven goodwill impairment charges 26 billion almost tax benefit available deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 30 2011 september 24 2010 follows millions valuation allowance deferred tax assets 1400 million 1379 million september 30 2011 september 24 2010 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets companys consolidated balance sheets september 30 2011 company 6277 million net operating loss carryforwards certain nonus jurisdictions 5411 million expiration remaining 866 million expire future years 2030 us approximately 1814 million federal 1536 million state net operating loss carryforwards september 30 2011 expire future years 2030 september 30 2011 september 24 2010 tyco unrecognized tax benefits 270 million 318 million respectively 241 million 276 million recognized would affect effective tax rate tyco recognizes interest penalties accrued related unrecognized tax benefits income tax expense tyco accrued interest penalties related unrecognized tax benefits 60 million 63 million september 30 2011 september 24 2010 respectively tyco recognized 4 million 13 million 1 million income tax expense tyco international ltd notes consolidated financial statements continued 7 income taxes continued interest penalties related unrecognized tax benefits september 30 2011 september 24 2010 september 25 2009 respectively rollforward unrecognized tax benefits september 30 2011 september 24 2010 september 25 2009 follows millions many tycos uncertain tax positions relate tax years remain subject audit taxing authorities us federal state local foreign jurisdictions open tax years significant jurisdictions follows based current status income tax audits company believes reasonably possible nil 60 million unrecognized tax benefits may resolved next twelve months tax sharing agreement income tax matters connection spinoffs covidien te connectivity tyco entered tax sharing agreement generally governs covidiens te connectivitys tycos respective rights responsibilities obligations 2007 separation respect taxes including ordinary course business taxes incurred result failure distribution shares covidien te connectivity qualify taxfree distribution us federal income tax purposes within meaning section 355 code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code tyco international ltd notes consolidated financial statements continued 7 income taxes continued tax sharing agreement tyco shares responsibility certain covidiens te connectivitys income tax liabilities result cash payments based sharing formula periods prior including june 29 2007 specifically tyco covidien te connectivity share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens te connectivitys us certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties connection execution tax sharing agreement tyco established net receivable covidien te connectivity representing amount tyco expected receive preseparation uncertain tax positions including amounts owed internal revenue service irs september 30 2011 september 24 2010 respectively aggregate amount net receivable 89 million 114 million respectively 73 million 89 million respectively included assets 16 million 25 million respectively included prepaid expenses current assets consolidated balance sheet tyco also established liabilities representing fair market value share covidiens te connectivitys estimated obligations primarily irs preseparation taxes covered tax sharing agreement september 30 2011 september 24 2010 tyco recorded 387 million 398 million respectively liabilities 49 million 156 million respectively accrued current liabilities year ended september 30 2011 tyco made net cash payment 113 million covidien te connectivity related resolution certain irs audit preseparation tax matters tyco assesses shared tax liabilities related guaranteed liabilities reporting period receivable liability initially recognized offset shareholders equity 2007 year ended september 30 2011 september 24 2010 september 25 2009 tyco recorded expense 7 million income 8 million expense 14 million respectively accordance tax sharing agreement tyco provide payment covidien te connectivity tax sharing agreement shared income tax liabilities settled settlement expected occur audit process applicable taxing authorities completed impacted years cash payments made notwithstanding resolution items certain significant items regarding preseparation shared tax liabilities remain open given nature liabilities maximum amount potential future payments tax sharing agreement determinable cash payments occur reduce guarantor liability payments represent equivalent reduction risk tyco also assesses sufficiency tax sharing agreement guarantee liability quarterly basis increase liability probable cash payments expected made tax sharing agreement exceed recorded balance tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding 2007 separation issues proposed adjustments related years generally subject sharing provisions tax sharing agreement tyco reviewing contesting certain proposed tax adjustments respect adjustments raised irs although company expects resolve substantial number adjustments significant items expected remain open respect audit 1997 2004 years date hereof unlikely tyco able resolve open items primarily involve treatment certain intercompany debt transactions period irs appeals process result tyco may required litigate tyco international ltd notes consolidated financial statements continued 7 income taxes continued matters company assessed obligations tax sharing agreement including respect proposed civil fraud penalties discussed determine recorded liability 436 million sufficient cover indemnifications made company agreement see note 13 however ultimate resolution matters uncertain could result material adverse impact companys financial position results operations cash flows effective tax rate future reporting periods connection aforementioned audits irs proposed civil fraud penalties prior subsidiary distributed te connectivity connection 2007 separation penalties allegedly arise actions former executives taken connection intercompany transfers stock simplex technologies 1998 1999 based statutory guidelines company estimates proposed penalties could range 30 million 50 million preseparation tax liability covered provisions tax sharing agreement also connection irs audits described fourth quarter 2009 company audit management party tax sharing agreement reached settlement agreement irs certain deductions taken tyco covidien te connectivity preseparation tax returns filed periods 2001 2004 settlement material effect companys results operations financial position cash flows notwithstanding settlement mentioned certain significant items related audits periods 1997 2004 remain open additionally company considered potential impact settlement part quarterly assessment guarantee liability concluded adjustment liability needed addition dealing pre 2007 separation tax liabilities three entities party thereto tax sharing agreement contains sharing provisions address contingency 2007 separation internal transactions related 2007 separation may deemed taxable us non us taxing authorities event 2007 separation determined taxable determination result actions taken 2007 separation tyco covidien te connectivity party responsible failure would responsible taxes imposed company result thereof determination result actions taken three companies 2007 separation tyco covidien te connectivity would responsible 27 42 31 respectively taxes imposed companies result determination tax amounts could significant company responsible taxes shared pursuant tax sharing agreements sharing formula addition covidien te connectivity responsible tax liabilities subject tax sharing agreements sharing formula party tax sharing agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party would required pay equally nondefaulting party amounts default addition another party tax sharing agreement responsible portion income tax liability default payment liability taxing authority company could liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances company may obligated pay amounts excess agreedupon share tycos covidiens te connectivitys tax liabilities see note 13 except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries unrecognized tyco international ltd notes consolidated financial statements continued 7 income taxes continued deferred tax liabilities temporary differences related investments subsidiaries since earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries 8 earnings per share first quarter fiscal 2010 company adopted authoritative guidance determining whether instruments granted sharebased payment transactions participating securities company historically issued certain restricted stock awards vest period three years contained nonforfeitable rights dividends treated participating securities types awards last issued fiscal 2006 awards containing rights unvested considered participating securities included computation earnings per share pursuant twoclass method awards vested september 25 2009 result company required compute earnings per share fiscal 2011 2010 using twoclass method unless new awards granted retrospective application guidance impact companys historically reported earnings per share 2009 effects would antidilutive company reported loss continuing operations tyco international ltd notes consolidated financial statements continued 8 earnings per share continued reconciliations basic diluted earnings per share attributable tyco common shareholders 2011 2010 2009 follows millions except per share data 1the twoclass method applicable fiscal years ended september 30 2011 september 24 2010 participating securities vested september 25 2009 2the twoclass method applicable fiscal year ended september 25 2009 effects would antidilutive company reported loss continuing operations period computation diluted earnings per share 2011 excludes effect potential exercise share options purchase approximately 10 million shares excludes restricted share awards nil effect would antidilutive computation diluted earnings per share 2010 2009 excludes effect potential exercise share options purchase approximately 15 million 27 million shares respectively excludes restricted share awards approximately 2 million 5 million shares respectively effect would antidilutive tyco international ltd notes consolidated financial statements continued 9 investments cost fair market value companys availableforsale investments primarily held captive insurance company type security classification companys consolidated balance sheets follows millions september 30 2011 september 24 2010 investments continuous unrealized losses less 12 months 12 months greater september 30 2011 september 24 2010 material company record otherthantemporary impairments years ended 2011 2010 2009 maturities companys investments debt securities september 30 2011 follows millions tyco international ltd notes consolidated financial statements continued 10 goodwill intangible assets fiscal 2011 2010 goodwill annually fiscal fourth quarter frequently triggering events occur company tests goodwill impairment comparing fair value reporting unit carrying amount fair value reporting unit determined utilizing discounted cash flow analysis based companys forecast cash flows discounted using estimated weightedaverage cost capital market participants market approach utilized corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeds fair value goodwill considered potentially impaired determining fair value management relies considers number factors including operating results business plans economic projections including expectations assumptions regarding timing degree economic recovery anticipated future cash flow comparable market transactions extent available market data companys overall market capitalization goodwill impairments result performing companys 2011 2010 annual impairment tests based companys recent annual goodwill impairment assessment performed fourth quarter fiscal 2011 company determined water environmental systems reporting unit within tyco flow control segment limited recoverability goodwill fair value reporting unit exceeded carrying value 69 september 30 2011 water environmental systems goodwill balance 298 million historical performance current expectations resulted fair values goodwill excess carrying values assumptions realized possible future impairment charge may need recorded however possible time determine impairment charge would result charge would material company continue monitor recoverability goodwill first quarter fiscal 2011 company realigned safety products segment adt worldwide fire protection segments create two new segments tyco security solutions tyco fire protection also various businesses realigned tyco security solutions tyco fire protection result realignment business activities balances september 25 2009 recast part realignment company tested related goodwill balances recoverability determined goodwill continued recoverable tyco international ltd notes consolidated financial statements continued 10 goodwill intangible assets continued changes carrying amount goodwill segment 2011 2010 follows millions tyco international ltd notes consolidated financial statements continued 10 goodwill intangible assets continued fiscal 2009 goodwill impairment company began experience decline revenue first quarter 2009 tyco security solutions tyco fire protection segments result slowdown commercial markets including retailer end market well decline sales volume former electrical metal products segment due slowdown nonresidential construction market although company considered concluded factors constitute triggering events first quarter 2009 continued existence conditions second quarter 2009 along downward revisions forecast results restructuring actions weaker industry outlooks caused company conclude sufficient indicators impairment existed certain reporting units mentioned businesses company determined events changes circumstances constituted triggering events following six reporting units europe middle east africa emea security reporting units access control video systems acvs sensormatic retail solutions srs within tyco security solutions segment emea fire reporting units life safety within tyco fire protection segment electrical metal products reporting unit within electrical metal products segment result triggering events company assessed recoverability reporting units longlived assets tyco international ltd notes consolidated financial statements continued 10 goodwill intangible assets continued concluded carrying amounts recoverable march 27 2009 subsequently company performed first step goodwill impairment test reporting units perform first step goodwill impairment test six reporting units triggering events company compared carrying amounts reporting units estimated fair values fair value reporting unit determined utilizing discounted cash flow analysis based forecast cash flows including estimated underlying revenue operating income growth rates discounted using estimated weightedaverage cost capital market participants market approach utilizing observable market data comparable companies similar lines business publicly traded part public private transaction extent available used corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeded fair value goodwill considered potentially impaired determining fair value management relied considered number factors including operating results business plans economic projections including expectations assumptions regarding timing degree economic recovery anticipated future cash flow comparable market transactions extent available market data companys overall market capitalization described company utilized discounted cash flow analysis determining fair value reporting units triggering events occurred based factors described actual anticipated reductions demand reporting units products services well increased risk due economic uncertainty estimates future cash flows used second quarter 2009 discounted cash flow analyses revised downward companys recent test conducted fourth quarter 2008 range weightedaverage cost capital utilized increased reflect increased risk due economic volatility uncertainties related demand companys products services weightedaverage cost capital follows results first step goodwill impairment test indicated potential impairment goodwill six reporting units identified triggering events carrying amounts reporting units exceeded respective fair values result company performed second step goodwill impairment test reporting units second step goodwill impairment test company compared implied fair value reporting unit goodwill carrying amount reporting units goodwill implied fair values goodwill determined allocating fair values reporting unit assets liabilities applicable reporting unit including unrecognized intangible assets reporting unit acquired business combination results second step goodwill impairment test indicated implied goodwill amount less carrying amount goodwill aforementioned reporting units company recorded aggregate noncash impairment charge 26 billion 26 billion aftertax recorded goodwill intangible asset impairments companys consolidated statement operations quarter ended march 27 tyco international ltd notes consolidated financial statements continued 10 goodwill intangible assets continued 2009 specifically company recorded following noncash goodwill impairment charges following reporting units millions fiscal 2011 2010 intangible assets indefinite lived intangible assets consisting primarily trade names tested impairment using relief royalty method indefinite lived intangible asset impairments result performing companys 2011 2010 annual impairment tests following table sets forth gross carrying amount accumulated amortization companys intangible assets september 30 2011 september 24 2010 millions intangible asset amortization expense 2011 2010 2009 623 million 549 million 516 million respectively estimated aggregate amortization expense intangible assets expected approximately 600 million 2012 500 million 2013 425 million 2014 375 million 2015 325 million 2016 tyco international ltd notes consolidated financial statements continued 10 goodwill intangible assets continued fiscal 2009 intangible asset impairment company began experience decline revenue first quarter 2009 tyco security solutions segment due slowdown commercial markets including retailer end market although company considered concluded factors constitute triggering events first quarter 2009 continued existence conditions second quarter 2009 along downward revisions forecast results restructuring actions weaker industry outlooks caused company conclude sufficient indicators impairment existed certain indefinitelived intangible assets deterioration business environment related retailer business tyco security solutions segment resulted lowering managements projections revenues retailer end market second quarter 2009 based factors uncertainties described estimates future cash flows used determining fair value companys sensormatic tradename well franchise rights relating winner sensormatic security corp ssc second quarter 2009 revised downward relative estimates used companys recent test fourth quarter 2008 range discount rates utilized increased reflect increased risk due economic volatility uncertainties related demand companys products services discount rates follows results impairment test indicated tyco security solutions sensormatic tradename winner ssc franchise rights estimated fair values less respective carrying amounts company recorded aggregate noncash impairment charge 64 million 40 million aftertax recorded goodwill intangible asset impairments companys consolidated statement operations quarter ended march 27 2009 specifically company recorded following noncash intangible asset impairment charges reduce carrying amount following indefinitelived intangible assets millions tyco international ltd notes consolidated financial statements continued 11 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans fourth quarter 2002 board directors new senior management adopted policy new loans allowed granted officers company existing loans allowed extended modified loans made companys current executives outstanding loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average rates effect first day preceding 12 months loans generally repayable ten years however earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property maximum amount outstanding programs 21 million september 30 2011 september 24 2010 loans receivable programs well unsecured advances outstanding 21 million september 30 2011 september 24 2010 respectively total outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 28 million september 30 2011 september 24 2010 rate interest charged loans 05 2011 2010 interest income interest bearing loans material periods presented certain loans totaling 1 million september 30 2011 september 30 2010 noninterest bearing company filed civil complaints mr kozlowski former chief financial officer mark swartz breach fiduciary duty wrongful conduct relating alleged abuses companys key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct june 2002 company filed civil complaint frank e walsh jr former director breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging companys acquisition cit group inc cit group december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought sec united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit group acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 october 2010 us district court southern district new york denied tycos affirmative claims recovery damages mr walsh tyco pursuing appeal affirmative matter affirmative matters tyco international ltd notes consolidated financial statements continued 11 related party transactions continued messrs kozlowski swartz subject liability sharing provisions separation distribution agreement separately mr walsh pursuing new york state court claim company asserting entitlement indemnification action subject liability sharing provisions separation distribution agreement 2011 2010 2009 company engaged commercial transactions normal course business companies companys directors employed served officers purchases companies year aggregated less 1 percent consolidated net revenue 12 debt september 30 2011 september 24 2010 follows millions 1675 public notes due 2011 plus 20 million amount shown comprise current portion companys total debt september 24 2010 22 million amount shown comprise current portion companys total debt september 30 2011 fair value carrying amount tycos debt subject fair value disclosure requirements september 30 2011 september 24 2010 4046 million 4065 million respectively company determined fair value debt 4689 million 4730 million september 30 2011 september 24 2010 respectively company utilizes various valuation methodologies determine fair value debt primarily dependent type market companys debt traded available company uses quoted market prices determine fair value debt traded active markets september 30 2011 tyco international ltd notes consolidated financial statements continued 12 debt continued september 24 2010 fair value companys debt actively traded 4689 million 4730 million respectively commercial paper september 30 2011 september 24 2010 tyco international finance sa tifsa companys finance subsidiary commercial paper outstanding credit facilities march 24 2011 tifsa borrower company guarantor entered fouryear senior unsecured credit agreement providing revolving credit commitments aggregate amount 750 million credit agreement connection entering credit agreement tifsa company terminated existing threeyear senior unsecured credit agreement dated june 24 2008 provided revolving credit commitments aggregate amount 500 million credit agreement also reduced lenders commitments existing fiveyear senior unsecured credit agreement dated april 25 2007 aggregate 119 billion 750 million scheduled expire april 2012 result entering credit agreement termination reduction described companys committed revolving credit facilities totaled 15 billion september 30 2011 revolving credit facilities may used working capital expenditures general corporate purposes september 30 2011 september 24 2010 amounts drawn companys revolving credit facilities interest revolving credit facilities variable calculated reference libor alternate base rate fiscal 2011 debt issuancerepayment january 12 2011 tifsa issued 250 million aggregate principal amount 375 notes due january 15 2018 notes 250 million aggregate principal amount 4625 notes due january 15 2023 notes fully unconditionally guaranteed company tifsa received total net proceeds approximately 494 million deducting debt issuance costs approximately 1 million 2018 notes 2 million 2023 notes well debt discount approximately 1 million 2018 notes 2 million 2023 notes net proceeds aforementioned debt issuances along available funds used fund repayment upon maturity companys outstanding 675 notes due february 2011 principal amount 516 million 2018 notes 2023 notes unsecured rank equally tifsas unsecured unsubordinated debt prior january 15 2018 case 2018 notes prior october 15 2022 case 2023 notes tifsa may redeem notes redemption price equal greater principal amount notes series makewhole amount plus case accrued unpaid interest october 15 2022 tifsa may redeem 2023 notes redemption price equal 100 principal amount notes plus accrued unpaid interest holders 2018 notes 2023 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires change control rating event defined indenture tyco international ltd notes consolidated financial statements continued 12 debt continued governing notes debt issuance costs amortized date issuance maturity date series notes interest payable semiannually january 15th july 15th 2018 notes 2023 notes fiscal 2010 debt issuancerepayment may 5 2010 tifsa issued 500 million aggregate principal amount 3375 notes due october 15 2015 fully unconditionally guaranteed company 2015 notes tifsa received net proceeds approximately 495 million deducting debt issuance costs approximately 3 million debt discount approximately 2 million net proceeds along available funds used redeem companys outstanding 6375 notes due october 2011 2015 notes unsecured rank equally tifsas unsecured unsubordinated debt tifsa may redeem 2015 notes time paying greater principal amount notes makewhole amount plus accrued unpaid interest holders 2015 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires occurrence change control rating event defined indenture governing notes debt issuance costs amortized date issuance maturity date interest payable semiannually april 15th october 15th may 28 2010 company redeemed 6375 public notes due 2011 notes 7 notes due 2028 6875 notes due 2029 outstanding time aggregated 878 million principal amount result debt redemption company recorded 87 million charge expense net loss extinguishment debt charge comprised makewhole premium writeoff unamortized debt issuance costs discount related extinguished bonds net loss recognized upon termination associated interest rate swap contracts related 2011 notes october 5 2009 tifsa issued 500 million aggregate principal amount 4125 notes due october 15 2014 fully unconditionally guaranteed company 2014 notes tifsa received net proceeds approximately 495 million deducting debt issuance costs approximately 3 million debt discount approximately 2 million 2014 notes unsecured rank equally tifsas unsecured unsubordinated debt tifsa may redeem 2014 notes time paying greater principal amount notes makewhole amount plus accrued unpaid interest holders 2014 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires change control rating event defined indenture governing notes debt issuance costs amortized date issuance maturity date interest payable semiannually april 15th october 15th fiscal 2009 debt issuancerepayment january 9 2009 tifsa issued 750 million aggregate principal amount 85 notes due january 15 2019 fully unconditionally guaranteed company 2019 notes tyco international ltd notes consolidated financial statements continued 12 debt continued tifsa received net proceeds approximately 745 million underwriting discounts offering expenses approximately 5 million 2019 notes unsecured rank equally tifsas unsecured unsubordinated debt tifsa may redeem 2019 notes time paying greater principal amount notes makewhole amount plus accrued unpaid interest holders 2019 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires change control rating event defined indenture governing notes additionally holders 2019 notes right require company repurchase portion 2019 notes july 15 2014 purchase price equal 100 principal amount notes tendered plus accrued unpaid interest otherwise notes mature january 15 2019 debt issuance costs amortized date issuance earliest redemption date july 15 2014 interest payable semiannually january 15th july 15th january 15 2009 tifsa made payment 215 million extinguish 6125 notes due 2009 matured date additionally november 2008 tifsa made payment 300 million extinguish 6125 notes due 2008 debt information aggregate amounts principal debt including capital leases maturing next five fiscal years thereafter follows millions 3 2012 4 2013 661 2014 506 2015 508 2016 2409 thereafter weightedaverage interest rate total debt 59 63 september 30 2011 september 24 2010 respectively excluding impact interest rate swaps weightedaverage interest rate shortterm debt 68 september 24 2010 public shortterm debt outstanding september 30 2011 september 30 2011 september 24 2010 company swapped aggregate approximately 12 billion 15 billion respectively fixed floating rate debt impact companys interest rate swap agreements reported interest expense net decrease 22 million 2011 net decrease 24 million 2010 net decrease 6 million 2009 connection acquisition kef year ended september 30 2011 company acquired 64 million debt substantially paid september 30 2011 13 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien te connectivity accordance terms separation distribution agreement tax tyco international ltd notes consolidated financial statements continued 13 guarantees continued sharing agreement guarantees primarily relate certain contingent tax liabilities included tax sharing agreement time 2007 separation tyco recorded liability necessary recognize fair value guarantees indemnifications absence observable transactions identical similar guarantees company determined fair value guarantees indemnifications utilizing expected present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using companys incremental borrowing rate liability necessary reflect fair value guarantees indemnifications tax sharing agreement 436 million 554 million companys consolidated balance sheets september 30 2011 september 24 2010 respectively amounts 49 million 156 million included accrued current liabilities remaining amounts liabilities september 30 2011 september 24 2010 respectively 2011 company made net cash payment 113 million covidien te connectivity related resolution certain audit preseparation tax matters guarantees primarily relate certain contingent tax liabilities included tax sharing agreement see note 7 addition tyco historically provided support form financial andor performance guarantees various covidien te connectivity operating entities connection 2007 separation company worked guarantee counterparties cancel assign guarantees covidien te connectivity extent guarantees assigned prior separation date tyco assumed primary liability remaining support companys obligations 4 million included liabilities companys consolidated balance sheets september 30 2011 september 24 2010 respectively offset shareholders equity separation date disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 15 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows september 30 2011 company total outstanding letters credit bank guarantees approximately 724 million company records estimated product warranty costs time sale see note 1 tyco international ltd notes consolidated financial statements continued 13 guarantees continued changes carrying amount companys warranty accrual september 24 2010 september 30 2011 follows millions warranty accruals businesses met held sale criteria included liabilities held sale consolidated balance sheets excluded table see note 3 14 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable accounts payable approximated book value september 30 2011 september 24 2010 fair value derivative financial instruments material periods presented see fair value investments note 12 fair value debt derivative instruments normal course business tyco exposed market risk arising changes currency exchange rates interest rates commodity prices company uses derivative financial instruments manage exposures foreign currency interest rate commodity price risks companys objective utilizing derivative financial instruments manage risks using effective methods eliminate reduce impacts exposures company use derivative financial instruments trading speculative purposes derivative instruments designated qualified hedging instruments accounting purposes company documented linked relationships hedging instruments hedged items company also assessed documented hedges inception whether derivatives used hedging transactions effective offsetting changes fair values associated hedged items hedges result hedge ineffectiveness years ended september 30 2011 september 24 2010 september 25 2009 derivative financial instruments reported consolidated balance sheet fair value changes fair value derivative financial instruments recognized currently companys statement operations exception net investment hedges changes fair value reported cumulative translation component accumulated comprehensive loss extent hedges effective ineffective portion hedge recognized consolidated statement operations derivative financial instruments impact changes fair value derivative financial instruments material consolidated balance sheets september 30 2011 september 24 2010 consolidated statements operations statements cash flows years ended september 30 2011 september 24 2010 september 25 2009 tyco international ltd notes consolidated financial statements continued 14 financial instruments continued foreign currency exposures company manages foreign currency exchange rate risk use derivative financial instruments comprised principally forward contracts foreign currency designated hedging instruments accounting purposes objective derivative instruments minimize income statement impact potential variability cash flows associated intercompany loans accounts receivable accounts payable forecasted transactions denominated certain foreign currencies september 30 2011 september 24 2010 total gross notional amount companys foreign exchange contracts 836 million 860 million respectively effective march 17 2009 tyco changed jurisdiction incorporation bermuda switzerland tyco made final dividend payment form reduction capital february 2011 denominated swiss francs see note 17 company paid dividends us dollars based exchange rate effect shortly payment date fluctuations value us dollar compared swiss franc date dividend approved paid increased decreased us dollar amount required paid company managed potential variability cash flows associated dividend payments entering derivative financial instruments used economic hedges underlying risk beginning may 2011 company makes dividend payments contributed surplus us dollars eliminated need use currency hedges dividend payments company hedges net investment certain foreign operations use foreign exchange forward contracts objective minimize exposure changes value foreign currency denominated net investment aggregate notional amount hedges 224 million 255 million september 30 2011 september 24 2010 respectively changes fair value forward contracts qualifying net investment hedges reported cumulative translation component accumulated comprehensive loss extent hedges effective ineffective portion hedge material companys consolidated statement operations years ended september 30 2011 september 24 2010 september 25 2009 contracts material impact companys consolidated balance sheet september 30 2011 september 24 2010 interest rate exposures company manages interest rate risk use interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes since third quarter 2009 tifsa entering interest rate swap transactions objective managing exposure interest rate risk converting interest rates fixedrate debt variable rates second quarter 2011 tifsa also entered interest rate swaps contracts hedge 155 million notional amount 4125 public notes due 2014 contracts tifsa agrees financial institutions acting principal counterparties exchange specified intervals difference fixed floating interest amounts calculated agreedupon notional principal amount connection maturity 675 public notes second quarter 2011 tifsa settled corresponding interest rate swaps september 30 2011 september 24 2010 total gross notional amount companys interest rate swap contracts 12 billion 15 billion respectively tyco international ltd notes consolidated financial statements continued 14 financial instruments continued commodity exposures fiscal 2011 2010 company entered commodity swaps copper designated hedging instruments accounting purposes swaps material impact companys financial position results operations cash flows counterparty credit risk use derivative financial instruments exposes company counterparty credit risk counterparty fails perform company exposed losses derivative asset position fair value derivative instrument asset counterparty pay company settle contract exposes company credit risk however fair value derivative instrument liability company pay counterparty settle contract therefore counterparty credit risk tyco established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide longterm standard poors moodys credit ratings aa3 higher reduce risk loss company generally enters international swaps derivatives association master agreements substantially counterparties master netting agreements provide protection bankruptcy certain circumstances cases enable receivables payables counterparty offset consolidated balance sheets providing meaningful balance sheet presentation credit exposure companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes september 30 2011 company exposed industry concentration financial institutions well risk loss individual counterparty issuer failed perform obligations contractual terms maximum amount loss company would incur september 30 2011 without giving consideration effects legally enforceable master netting agreements approximately 60 million fair value financial instruments authoritative guidance fair value measurements establishes threelevel hierarchy ranks quality reliability information used developing fair value estimates hierarchy gives highest priority quoted prices active markets lowest priority unobservable data cases two levels inputs used determine fair value financial instruments level determined based lowest level input considered significant fair value measurement entirety three levels fair value hierarchy summarized follows •level 1inputs based upon quoted prices unadjusted active markets identical assets liabilities accessible measurement date •level 2inputs based upon quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations asset liability derived principally tyco international ltd notes consolidated financial statements continued 14 financial instruments continued corroborated market data primary inputs observable including forward interest rates yield curves credit risk exchange rates •level 3inputs valuations unobservable based managements estimates assumptions market participants would use pricing asset liability fair values therefore determined using modelbased techniques option pricing models discounted cash flow models investments primarily include cash equivalents us government obligations us government agency securities corporate debt securities available company uses quoted market prices determine fair value investment securities investments included level 1 quoted market prices readily available pricing determinations made based results market approach valuation models using observable market data recently reported trades bid offer information benchmark securities investments included level 2 consist primarily us government agency securities corporate debt securities derivative financial instruments described caption derivative instruments derivative assets liabilities consist principally forward foreign currency exchange contracts interest rate swaps fair values derivative financial instruments derived market approach pricing models take account contractual terms features instrument forward foreign currency rates companys foreign exchange contracts yield curves companys interest rate swaps existing end period valuations adjusted reflect creditworthiness counterparty assets creditworthiness company liabilities adjustments based observable market evidence categorized level 2 exposures derivative financial instruments presented following tables derivative financial instruments material periods presented assets liabilities measured fair value recurring basis following tables present companys assets liabilities measured fair value recurring basis september 30 2011 september 24 2010 level within fair value hierarchy financial assets liabilities classified entirety based lowest level input significant valuation tyco international ltd notes consolidated financial statements continued 14 financial instruments continued 2011 2010 company significant transfers within fair value hierarchy company 29 billion 30 billion intercompany loans designated permanent nature september 30 2011 september 24 2010 respectively years ended september 30 2011 september 24 2010 september 25 2009 company recorded 16 million cumulative translation gain 24 million cumulative translation loss nil respectively accumulated comprehensive loss related loans 15 commitments contingencies company facility vehicle equipment leases expire various dates year 2027 rental expense leases 367 million 375 million 386 million 2011 2010 2009 respectively company also facility equipment commitments capital leases following schedule minimum lease payments noncancelable leases september 30 2011 millions company also purchase obligations related commitments purchase certain goods services september 30 2011 obligations follows 492 million 2012 32 million 2013 5 million 2014 1 million 2015 tyco international ltd notes consolidated financial statements continued 15 commitments contingencies continued normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows connection 2007 separation company entered liability sharing agreement regarding certain legal actions pending tyco prior 2007 separation distribution agreement company covidien te connectivity jointly severally liable full amount judgments resulting actions subject agreement generally relate legacy matters specific business operations companies substantially legacy matters resolved additionally time 2007 separation company covidien te connectivity agreed allocate responsibility certain legacy tax claims pursuant formula tax sharing agreement number legacy tax claims remain outstanding see note 7 legacy matters fiscal quarter ended december 24 2010 certain contingencies related previously disclosed settlement stumpf v tyco international ltd class action lawsuit elapsed matter subject liability sharing provisions separation distribution agreement covidien te connectivity previously received final court approval settlement result lapsing time periods certain class members state claim company adjusted remaining reserve legacy securities matters recognized net gain 7 million quarter ended december 24 2010 since june 2007 company resolved substantially legacy claims related securities fraud similar matters exception claims related former management mr frank walsh jr former director described tyco party several lawsuits involving disputes former management among affirmative cases brought tyco mr dennis l kozlowski mr mark swartz mr frank walsh jr connection affirmative actions mr kozlowski counterclaims mr swartz demand letters seeking aggregate approximately 138 million allegedly due connection compensation retention arrangements employee retirement income security act erisa respect mr kozlowski december 1 2010 us district court southern district new york ruled favor several companys affirmative claims trial dismissing mr kozlowskis counterclaims pay benefits 1995 respect mr swartz march 3 2011 court granted companys motion summary judgment court ruled issues related damages need resolved trial date set company expects mr kozlowski mr swartz contest decisions result company continue maintain reserve recorded consolidated balance sheet amounts allegedly due compensation retention arrangements erisa appeals process complete although ultimate resolution matters could differ materially estimates company believe resolution would material adverse effect financial position results operations cash flows tyco also brought action mr walsh connection damages suffered tyco arising mr walshs breach fiduciary duties tyco october 2010 us district tyco international ltd notes consolidated financial statements continued 15 commitments contingencies continued court southern district new york denied tycos affirmative claims recovery damages mr walsh tyco pursuing appeal affirmative matter affirmative matters messrs kozlowski swartz subject liability sharing provisions separation distribution agreement separately mr walsh pursuing new york state court claim company asserting entitlement indemnification action subject liability sharing provisions separation distribution agreement environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 30 2011 tyco concluded probable would incur remedial costs range approximately 38 million 86 million september 30 2011 tyco concluded best estimate within range approximately 60 million 18 million included accrued current liabilities 42 million included liabilities companys consolidated balance sheet view companys financial position reserves environmental matters company believes potential payments estimated amounts material adverse effect financial position results operations cash flows asbestos matters company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials cases typically involve product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos attached used asbestoscontaining components manufactured thirdparties case typically names dozens hundreds corporate defendants company observed increase number lawsuits past several years including lawsuits plaintiffs mesotheliomarelated claims large percentage suits presented viable legal claims result dismissed courts companys strategy continues mount vigorous defense aimed unsubstantiated suits dismissed appropriate settling suits trial although large percentage litigated suits dismissed company cannot predict extent successful resolving lawsuits future part companys strategy also entered costsharing agreement entity acquired business several decades ago agreement insurance proceeds policies purchased seller prior acquisition company made available company extent insufficient insurance claims subject agreement parties required share costs although responsibility excess costs gradually transitions company next nine ten years 2022 company ultimately responsible excess costs available insurance policies fully respond company expects insurance policies gained access agreement sufficient cover increased liability resulting arrangement cannot predict whether case september 30 2011 approximately 4500 lawsuits pending company subsidiaries entities company assumed responsibility lawsuit typically tyco international ltd notes consolidated financial statements continued 15 commitments contingencies continued includes several claims company determined approximately 5600 claims outstanding september 30 2011 reflects companys current estimate number viable claims made affiliates entities assumed responsibility connection acquisitions divestitures amount includes adjustments claims actively prosecuted identify incorrect defendants duplicative actions annually companys third quarter company performs analysis assistance outside counsel experts update estimated asbestosrelated assets liabilities due high degree uncertainty regarding pattern length time claims made settled litigated company uses multiple estimation methodologies based varying scenarios potential outcomes estimate range loss companys estimate liability corresponding insurance recovery pending future claims defense costs predominantly based claim experience past five years projection covers claims expected filed including related defense costs next seven years undiscounted basis company concluded estimating liability beyond seven year period provide reasonable estimate uncertainties increase significantly projection period lengthens companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers quarterly basis company reevaluates assumptions used perform annual analysis records expense necessary reflect changes estimated liability related insurance asset september 30 2011 companys estimated net liability 82 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 306 million separately asset insurance recoveries 224 million similarly september 24 2010 companys estimated net liability 106 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 309 million separately asset insurance recoveries 203 million amounts recorded company asbestosrelated liabilities insurancerelated assets based currently available information well estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries company believes asbestosrelated reserves september 30 2011 appropriate however actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results tyco international ltd notes consolidated financial statements continued 15 commitments contingencies continued compliance matters previously reported companys periodic filings company received responded various allegations information certain improper payments made companys subsidiaries agents recent years example two subsidiaries companys flow control business italy charged along numerous parties connection milan public prosecutors investigation allegedly improper payments made certain italian entities fourth quarter 2011 companys subsidiaries acquitted charges company reported doj sec investigative steps remedial measures taken response allegations internal investigations 2005 company informed doj sec retained outside counsel perform companywide baseline review policies controls practices respect compliance fcpa would continue investigate make periodic progress reports agencies company continue communicate doj sec provide updates baseline review followup investigations including appropriate briefings concerning additional instances potential improper conduct identified company course ongoing compliance activities baseline review completed revealed business practices may comply tyco fcpa requirements february 2010 company initiated discussions doj sec aimed resolving matters remain ongoing although company recorded best estimate potential loss related matter possible estimate may differ ultimate loss determined connection resolution matter company may required pay material fines consent injunctions future conduct consent imposition compliance monitor suffer criminal civil penalties adverse impacts including subject lawsuits brought private litigants may material adverse effect companys financial position results operations cash flows covidien te connectivity agreed connection 2007 separation cooperate company responses regarding matters judgment required paid settlement cost incurred company connection fcpa investigation matters would subject liability sharing provisions separation distribution agreement assigned liabilities primarily related former healthcare electronics businesses company covidien te connectivity respectively provides company retain liabilities primarily related continuing operations liabilities primarily related particular segment shared equally among company covidien te connectivity previously disclosed early 2007 certain former subsidiaries companys flow control business charged prior divestiture german federal cartel office fco engaging anticompetitive practices particular regard hydrant valve street box fittings business company investigated matter determined conduct may violated german competition law company cooperating fco ongoing investigation violation following settlement discussions fco company recorded best estimate potential loss related matter however possible estimate may differ ultimate loss determined connection resolution matter company may required pay material fines suffer penalties incur settlements amounts may material adverse effect financial position results operations cash flows tyco international ltd notes consolidated financial statements continued 15 commitments contingencies continued fourth quarter 2011 company concluded best estimate probable loss compliance matters 34 million aggregate company recorded liability accrued current liabilities consolidated balance sheet year ended september 30 2011 due sharing provisions separation distribution agreement company also recorded receivables covidien te connectivity related compliance matters current assets companys consolidated balance sheet september 30 2011 erisa partial withdrawal liability assessment demand june 8 2007 simplexgrinnell received notice alleging partially withdrawn national automatic sprinkler industry pension fund title iv erisa fund prove employer completely partially withdraws multiemployer pension plan fund employer liable withdrawal liability equal proportionate share plans unfunded vested benefits alleged withdrawal results 1994 labor dispute grinnell fire protection systems simplexgrinnells predecessor road sprinkler fitters local union 669 erisa requires payment withdrawal liability made full quarterly installments commencing upon receipt liability assessment plan plans assessment withdrawal liability generally may challenged arbitration erisa requires quarterly payments must continue made pendency arbitration employer prevails arbitration subsequent appeals quarterly withdrawal liability payments refunded interest funds total withdrawal liability assessment simplexgrinnell approximately 25 million quarterly withdrawal liability payments 11 million 187 million cumulatively paid september 30 2011 ultimate outcome uncertain simplexgrinnell believes strong arguments withdrawal liability owed fund plans vigorously defend funds withdrawal liability assessment matter currently arbitration company made provision contingency believes quarterly payments recoverable broadview security contingency may 14 2010 company acquired broadview security business formerly owned brinks company coal industry retiree health benefit act 1992 amended coal act brinks company majorityowned subsidiaries july 20 1992 including certain legal entities acquired broadview security acquisition jointly severally liable certain brinks companys current former subsidiaries health care coverage obligations provided coal act voluntary employees beneficiary associate veba trust established brinks company pay liabilities although trust may insufficient funds satisfy future obligations time spinoff brinks company broadview security entered agreement brinks company agreed indemnify liabilities expenses related brinks companys former coal operations including health care coverage obligations brinks company agreed indemnification survives companys acquisition broadview security company evaluated potential liability coal act contingency light known facts including funding veba indemnification provided brinks company concluded accrual necessary due existence indemnification belief brinks company veba able satisfy future obligations coal act tyco international ltd notes consolidated financial statements continued 15 commitments contingencies continued adt dealer litigation previously reported 2002 secs division enforcement conducted investigation related past accounting practices dealer connect fees adt charged authorized dealers upon purchasing customer accounts investigation related accounting practices employed companys former management discontinued 2003 although company settled sec 2006 number former dealers related parties filed lawsuits company united states countries including class action lawsuit filed district court arapahoe county colorado alleging breach contract claims related adts decision terminate certain authorized dealers 2002 2003 february 2010 court granted directed verdict adts favor dismissing number plaintiffs key claims upon appeal colorado court appeals affirmed verdict adts favor october 2011 possible time predict final outcome colorado lawsuit lawsuits stemming dealer terminations company believe claims material adverse effect companys financial position results operations cash flows matters addition foregoing company subject claims suits including time contractual disputes product general liability claims incidental present former operations acquisitions dispositions respect many claims company either selfinsures maintains insurance thirdparties varying deductibles ultimate outcome matters cannot predicted certainty company believes resolution proceedings whether underlying claims covered insurance material adverse effect companys financial condition results operations cash flows beyond amounts recorded matters income tax matters see note 7 detailed discussion status companys outstanding income tax audits 16 retirement plans company sponsors number pension plans company measures pension plans fiscal year end following disclosures exclude impact plans immaterial individually aggregate defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based local regulations advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation tyco international ltd notes consolidated financial statements continued 16 retirement plans continued net periodic benefit cost us nonus defined benefit pension plans 2011 2010 2009 follows millions fiscal 2011 company froze last remaining active us pension plan fiscal 2010 company adopted plan amendments froze pension plan benefits certain defined benefit arrangements united kingdom resulted company recognizing curtailment gain approximately 22 million selling general administrative expenses within consolidated statement operations inactive plans company amortizes actuarial gains losses average remaining life expectancy pension plan participants estimated net loss prior service cost us pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 14 million nil respectively estimated net loss prior service credit nonus pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 10 million nil respectively tyco international ltd notes consolidated financial statements continued 16 retirement plans continued change benefit obligations plan assets amounts recognized consolidated balance sheets us nonus defined benefit plans september 30 2011 september 24 2010 follows millions company adopted measurement date provisions authoritative guidance employers accounting defined benefit pension postretirement plans september 27 2008 result tyco measured plan assets benefit obligations september 26 2008 adjusted opening balances accumulated earnings deficit accumulated comprehensive income loss change net periodic benefit cost fair value respectively previously used measurement date august 31 2008 adoption measurement date provisions resulted net decrease accumulated earnings deficit 5 million net income tyco international ltd notes consolidated financial statements continued 16 retirement plans continued tax benefit 2 million net increase accumulated comprehensive loss 61 million net income taxes 28 million accumulated benefit obligation us plans september 30 2011 september 24 2010 898 million 929 million respectively accumulated benefit obligation nonus plans september 30 2011 september 24 2010 1300 million 1366 million respectively accumulated benefit obligation fair value plan assets us pension plans accumulated benefit obligations excess plan assets 898 million 581 million respectively september 30 2011 929 million 657 million respectively september 24 2010 accumulated benefit obligation fair value plan assets nonus pension plans accumulated benefit obligations excess plan assets 1275 million 1029 million respectively september 30 2011 1344 million 1006 million respectively september 24 2010 aggregate benefit obligation fair value plan assets us pension plans benefit obligations excess plan assets 898 million 581 million respectively september 30 2011 930 million 657 million respectively september 24 2010 aggregate benefit obligation fair value plan assets nonus pension plans benefit obligations excess plan assets 1292 million 1029 million respectively september 30 2011 1365 million 1006 million respectively september 24 2010 tyco international ltd notes consolidated financial statements continued 16 retirement plans continued determining expected return plan assets company considers relative weighting plan assets asset class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions companys investment strategy pension plans manage plans goingconcern basis current investment policy maintain adequate level diversification maximizing return assets subject prudent level portfolio risk purpose enhancing security benefits participants well providing adequate liquidity meet immediate future benefit payment requirements addition local regulations local financial considerations factors determining appropriate investment strategy country us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 50 equity securities 47 debt securities 3 asset classes including real estate cash equivalents pension plans following weightedaverage asset allocations although company buy sell securities direct investment pension funds due external investment management certain commingled funds plans may indirectly hold tyco securities aggregate amount securities would considered material relative total fund assets company evaluates defined benefit plans asset portfolios existence significant concentrations risk types investment concentration risks evaluated include limited concentrations single entity industry foreign country individual fund manager september 30 2011 significant concentrations risk companys defined benefit plan assets companys plan assets accounted fair value classified entirety based lowest level input significant fair value measurement companys assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets placement within fair value hierarchy levels companys asset allocations level within fair value hierarchy september 30 tyco international ltd notes consolidated financial statements continued 16 retirement plans continued september 24 2010 presented table companys material defined benefit plans table presents rollforward companys real estate investments measured fair value periodic basis using significant unobservable inputs level 3 september 25 2009 september 24 2010 tyco international ltd notes consolidated financial statements continued 16 retirement plans continued table presents rollforward companys real estate investments measured fair value periodic basis using significant unobservable inputs level 3 september 24 2010 september 30 2011 equity securities consist primarily publicly traded us nonus equities publicly traded securities valued last trade closing price reported active market individual securities traded certain equity securities held within commingled funds valued unitized net asset value nav percentage net asset value determined custodian fund values based fair value underlying net assets owned fund fixed income securities consist primarily government agency securities corporate debt securities mortgage assetbacked securities available fixed income securities valued closing price reported active market individual security traded government agency securities corporate debt securities valued using recent bid prices occasionally mean latest bid ask prices markets less liquid assetbacked securities including mortgage backed securities valued using brokerdealer quotes available quotes available fair value determined utilizing discounted cash flow approach incorporates observable inputs cash flows underlying security structure market information including interest rates bid evaluations comparable securities certain fixed income securities held within commingled funds valued unitizing nav determined custodian fund values based fair value underlying net assets owned fund real estate investments include publicly traded real estate investment trusts reits direct investments commercial residential properties reits valued last trade closing price active market individual securities traded direct real estate properties valued using discounted cash flow models consider longterm lease estimates future rental receipts estimated residual values valuation estimates supplemented thirdparty appraisals periodic basis cash equivalents consist primarily shortterm commercial paper bonds cash cashlike instruments including settlement proceeds due brokers stated cost approximates fair value tyco international ltd notes consolidated financial statements continued 16 retirement plans continued following tables set forth summary pension plan assets valued using nav equivalent september 30 2011 september 24 2010 millions strategy companys investment managers regard investments valued using nav equivalent either match exceed relevant benchmarks associated respective asset category none investments valued using nav equivalent contain redemption restrictions unfunded commitments 2011 company contributed 9 million us 69 million nonus pension plans represented companys minimum required contributions pension plans fiscal year 2011 company also made voluntary contributions 15 million us plans 2011 companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates contribute least minimum required pension plans 2012 44 million us plans 60 million nonus plans tyco international ltd notes consolidated financial statements continued 16 retirement plans continued benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans material 2011 2010 2009 executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 30 2011 93 million 48 million respectively companys accrued benefit obligations messrs kozlowski swartz september 24 2010 87 million 45 million respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed messrs kozlowski swartz era subject litigation brought company messrs kozlowski swartz see note 15 defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 82 million 81 million 79 million 2011 2010 2009 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp material 2011 2010 2009 deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation liabilities 118 million 108 million september 30 2011 september 24 2010 respectively deferred compensation expense material 2011 2010 2009 postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits tyco international ltd notes consolidated financial statements continued 16 retirement plans continued employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits net periodic postretirement benefit cost 2011 2010 2009 follows millions tyco international ltd notes consolidated financial statements continued 16 retirement plans continued components accrued postretirement benefit obligations substantially unfunded september 30 2011 september 24 2010 follows millions company expects make contributions postretirement benefit plans 5 million 2012 tyco international ltd notes consolidated financial statements continued 16 retirement plans continued benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions measurement purposes 76 77 composite annual rate increase per capita cost covered health care benefits assumed september 30 2011 september 24 2010 respectively september 30 2011 september 24 2010 composite annual rate increase health care benefit costs assumed decrease gradually 45 46 respectively year 2027 remain level thereafter periods onepercentagepoint change assumed healthcare cost trend rates would following effects millions 17 shareholders equity dividends prior may 2011 company paid dividends form return share capital companys registered share capital payments made free swiss withholding taxes company makes dividend payments contributed surplus equity position swiss statutory accounts payments also made free swiss withholding taxes unlike payments made form reduction registered share capital required denominated swiss francs converted us dollars time payment payments contributed surplus account may effectively denominated us dollars next annual general meeting shareholders board directors intends propose certain changes affecting contributed surplus account swiss statutory balance sheets comply swiss tax regulation swiss law authority declare dividends vested shareholders march 9 2011 companys shareholders approved annual dividend companys common shares 100 per share paid contributed surplus four installments 025 per share result company recorded accrued dividend 468 million march 9 2011 corresponding reduction contributed surplus first installment 025 paid may 25 2011 shareholders record april 29 2011 second installment 025 paid august 24 2011 shareholders record july 29 2011 third installment 025 paid november 17 2011 shareholders record october 28 2011 company records accrued dividend accrued current liabilities companys consolidated balance sheet tyco international ltd notes consolidated financial statements continued 17 shareholders equity continued march 10 2010 companys shareholders approved annual dividend companys common shares 090 swiss francs chf per share paid form return capital four installments chf 022 chf 022 chf 023 chf 023 shareholders record may 14 2010 july 30 2010 october 29 2010 january 28 2011 respectively result company recorded accrued dividend chf 428 million march 10 2010 approximated 399 million based exchange rate effect date accrued dividend recorded accrued current liabilities companys consolidated balance sheet march 26 2010 corresponding reduction common shares reduced par value companys common shares chf 760 chf 670 installments paid us dollars converted swiss francs usdchf exchange rate effect shortly payment dates may 14 2010 company acquired outstanding equity bhs shareholders received tyco common stock consideration merger included first installment dividend payments paid may 26 2010 result company recorded accrued dividend chf 32 million may 14 2010 approximately 28 million based exchange rate effect date march 12 2009 companys shareholders approved annual dividend companys common shares chf 093 per share paid form return capital four installments chf 023 chf 023 chf 023 chf 024 may 27 2009 august 26 2009 november 24 2009 february 24 2010 respectively company recorded accrued dividend chf 440 million march 12 2009 approximated 377 million based exchange rate effect date companys consolidated balance sheet amount recorded reduction common shares reduced par value companys common shares chf 853 chf 760 installments paid us dollars converted swiss francs usdchf exchange rate effect shortly payment dates common stock september 30 2011 companys share capital amounted chf 3258632435 486363050 registered common shares par value chf 670 per share following cancellation 28088101 registered shares approved march 9 2011 annual general meeting march 9 2013 board directors may increase companys share capital maximum amount chf 1628100000 issuing maximum 243000000 shares addition share capital company may increased amount exceeding chf 321127717 issue maximum 47929510 shares exercise conversion andor option warrant rights granted connection bonds notes similar instruments ii share capital company may increased amount exceeding chf 321127717 issue maximum 47929510 shares employees persons providing services company although company states par value swiss francs continues use us dollar reporting currency preparing consolidated financial statements change domicile effective march 17 2009 company changed jurisdiction incorporation bermuda canton schaffhausen switzerland connection change domicile pursuant tyco international ltd notes consolidated financial statements continued 17 shareholders equity continued laws switzerland par value companys common shares increased 080 per share chf 853 per share 721 based exchange rate effect march 17 2009 change domicile approved special general meeting shareholders held march 12 2009 following steps occurred connection change domicile result change total shareholders equity 1approximately 21 million shares held directly indirectly treasury cancelled 2the par value common shares company increased 080 chf 853 approximate 1for9 reverse share split followed issuance approximately eight fully paid shares number shares outstanding change domicile reduced share premium increased common shares 3the remaining amount share premium eliminated corresponding increase contributed surplus share repurchase program companys board directors approved 10 billion 2011 share repurchase program 10 billion 2010 share repurchase program 10 billion 2008 share repurchase program april 2011 september 2010 july 2008 respectively year ended september 30 2011 company repurchased approximately 30 million shares approximately 13 billion programs reduced amount common shares outstanding decreased dividends declared consolidated statement shareholders equity september 30 2011 year ended september 24 2010 company repurchased approximately 24 million shares approximately 900 million 2008 share repurchase program reduced amount common shares outstanding decreased dividends declared consolidated statement shareholders equity september 24 2010 2008 2010 share repurchase programs completed year ended september 30 2011 september 30 2011 approximately 700 million remained outstanding 2011 share repurchase program see note 27 tyco international ltd notes consolidated financial statements continued 18 share plans tyco sharebased compensation cost recognized 2011 2010 2009 110 million 120 million 99 million respectively included selling general administrative expenses company recognized related tax benefit associated sharebased compensation arrangements 2011 2010 2009 31 million 35 million 25 million respectively 2004 tyco international ltd 2004 stock incentive plan 2004 plan effectively replaced tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan awards effective march 25 2004 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted shares deferred stock units promissory stock stockbased awards collectively awards 2004 plan provides maximum 40 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance ltip plans awarded january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 march 25 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason including termination ltip plans also available issuance 2004 plan common shares issued pursuant grant full value award restricted stock rsus psus total number common shares remaining available grant decreased margin least 18 per common share issued september 30 2011 approximately 19 million shares available future grant 2004 plan ltip plan reserved common shares issuance tycos directors executives managers share options 2011 approximately 06 million shares originally reserved issuance plan became available future grant 2004 plan due expiration forfeiture cancellation september 30 2011 03 million options remained outstanding granted ltip prior termination ltip ii plan broadbased option plan nonofficer employees terms conditions plan similar ltip plan 2011 approximately 18 million shares originally reserved issuance plan became available future grant 2004 plan due expiration forfeiture cancellation september 30 2011 10 million options remained outstanding granted ltip ii prior termination share optionsoptions granted purchase common shares prices equal greater closing market price common shares date option granted conditions vesting determined time grant 2004 plan options generally exercisable equal annual installments period four years generally expire 10 years date grant historically companys practice settle stock option exercises either newly issued shares held treasury tyco international ltd notes consolidated financial statements continued 18 share plans continued grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service period awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based analysis historic implied volatility measures set peer companies average expected life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well analysis actual share option forfeitures weightedaverage assumptions used blackscholes option pricing model 2011 2010 2009 follows weightedaverage grantdate fair values options granted 2011 2010 2009 922 918 709 respectively total intrinsic value options exercised 2011 2010 2009 84 million 32 million 05 million respectively related excess cash tax benefit classified financing cash inflow 2011 2010 2009 material summary option activity september 30 2011 changes year ended presented september 30 2011 44 million total unrecognized compensation cost related nonvested options granted cost expected recognized weightedaverage period 24 fiscal years employee stock purchase plansthe companys employee stock purchase plan espp suspended indefinitely year ended september 25 2009 prior date substantially fulltime employees companys us subsidiaries employees certain qualified nonus tyco international ltd notes consolidated financial statements continued 18 share plans continued subsidiaries eligible participate espp eligible employees authorized payroll deductions made purchase shares company matched portion employee contribution contributing additional 15 employees payroll deduction shares purchased plan purchased open market designated broker saye plan eligible employees united kingdom granted options purchase shares end three years service 85 market price time grant options saye plan generally exercisable period three years expire six months date vesting saye plan provided maximum 10 million common shares issued shares purchased saye plan purchased open market saye plan approved november 3 1999 ten year period expired according terms november 3 2009 international benefits oversight committee approved additional grants since last annual grant october 9 2008 applied approval replacement saye plan time summary option activity saye plan september 30 2011 changes year ended presented grantdatefair value option grant estimated using blackscholes option pricing model assumptions expected volatility average expected life riskfree rate well expected annual dividend per share made using methodology previously described share options weightedaverage grantdate fair values options granted saye plan 2009 347 options granted saye plan 2011 2010 total intrinsic value options exercised 2011 2010 2009 04 million 1 million 1 million respectively related excess cash tax benefit classified financing cash inflow 2011 2010 2009 material september 30 2011 material amount total unrecognized compensation cost related nonvested options granted saye plan cost expected recognized first quarter fiscal year 2012 restricted share awardsrestricted share awards granted subject certain restrictions conditions vesting determined time grant 2004 plan restrictions award generally lapse upon normal retirement twelve months grant date death disability employee tyco international ltd notes consolidated financial statements continued 18 share plans continued fair market value restricted awards time vesting subject specific performance criteria expensed period vesting restricted share awards vest based upon passage time generally vest period four years fair value restricted share awards determined based closing market price companys shares grant date restricted share awards vest dependent upon attainment various levels performance equal exceed targeted levels generally vest entirety three years grant date fair value performance share awards determined based monte carlo valuation model compensation expense recognized restricted share awards net estimated forfeitures company generally grants restricted stock units recipients restricted stock units voting rights receive dividend equivalent units deus recipients performance shares voting rights may receive deus depending terms grant summary activity companys restricted share awards including performance shares september 30 2011 changes year ended presented tables weightedaverage grantdate fair value restricted share awards granted 2011 2010 2009 3790 3423 2856 respectively total fair value restricted share awards vested 2011 2010 2009 62 million 54 million 74 million respectively weightedaverage grantdate fair value performance share awards granted 2011 2010 2009 4137 4027 2784 respectively performance shares vested 2011 2010 2009 september 30 2011 84 million total unrecognized compensation cost related nonvested restricted share awards performance shares cost expected recognized weightedaverage period 22 fiscal years tyco international ltd notes consolidated financial statements continued 18 share plans continued deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment service company distribution made form actual shares similar restricted share grants vest passage time fair value dsus determined based closing market price companys shares grant date amortized expense vesting period recipients dsus right vote receive cash dividends however right receive dividend equivalent units conditions vesting determined time grant 2004 plan grants made executives generally vested equal annual installments three years dsus granted board directors immediately vested company granted 1 million dsus majority outstanding september 30 2011 weightedaverage grantdate fair value dsus granted 2009 3409 dsu awards granted 2011 2010 however participants continue earn deus existing awards total fair value dsus including deus vested 2011 2010 2009 1 million 1 million 2 million respectively september 30 2011 dsus vested 19 accumulated comprehensive loss components accumulated comprehensive loss follows millions 1during years ended september 30 2011 september 24 2010 september 25 2009 164 million cumulative translation gain 67 million cumulative translation gain 21 million cumulative translation loss respectively transferred currency translation tyco international ltd notes consolidated financial statements continued 19 accumulated comprehensive loss continued adjustments result sale foreign entities amounts 126 million nil 21 million respectively included income discontinued operations 2income tax net investment hedge nil year ended september 30 2011 7 million income tax benefit year ended september 24 2010 nil year ended september 25 2009 3adjustment accumulated deficit earnings recorded correct distribution amount covidien te connectivity date separations 2007 20 redeemable noncontrolling interest described note 5 june 29 2011 company acquired 75 ownership interest kef remaining 25 interest held noncontrolling interest stakeholder connection acquisition kef tyco noncontrolling interest stakeholder call put arrangement respectively tyco acquire remaining 25 ownership interest price equal greater 100 million multiple kefs average ebitda prior twelve consecutive fiscal quarters arrangement becomes exercisable beginning first full fiscal quarter following third anniversary kef closing date june 29 2011 noncontrolling interest redemption features arrangement described solely within companys control considered redeemable noncontrolling interests company accretes changes redemption value noncontrolling interest subsidiaries net income loss attributable noncontrolling interest period date issuance earliest redemption date redeemable noncontrolling interest considered temporary equity therefore reported mezzanine section liabilities equity companys consolidated balance sheet greater initial carrying amount increased decreased noncontrolling interests share net income loss redemption value rollforward redeemable noncontrolling interest september 30 2011 follows 21 consolidated segment data segment information consistent management reviews businesses makes investing resource allocation decisions assesses operating performance company time may realign businesses management responsibility within operating segments based considerations opportunity market operating synergies andor fully leverage existing capabilities enhance development future products services first quarter fiscal 2011 company realigned safety products segment adt worldwide fire protection segments create two new segments tyco security solutions tyco international ltd notes consolidated financial statements continued 21 consolidated segment data continued tyco fire protection tyco security solutions consists former adt worldwide segment well portion former safety products segment manufactures security products including intrusion security access control video management systems tyco fire protection consists former fire protection services segment well number businesses former safety products segment including fire suppression life safety products businesses addition various businesses realigned tyco security solutions tyco fire protection result realignment well sale majority interest electrical metal products business see note 3 company operates reports financial operating information following three segments •tyco security solutions designs sells installs services monitors electronic security systems residential educational commercial governmental industrial customers addition tyco security solutions designs manufactures sells security products including intrusion access control video management systems •tyco fire protection designs manufactures sells installs services fire detection fire suppression systems building life safety products commercial industrial governmental customers •tyco flow control designs manufactures sells services valves pipes fittings automation controls valve automation heat tracing products general process energy mining markets well water wastewater markets also provide general corporate services segments costs reported corporate result realignment business activities revenue operating income years ended september 24 2010 september 25 2009 recast selected information segment presented following tables millions 1revenue operating segment excludes intercompany transactions 2fiscal 2011 53week year fiscal years 2010 2009 52week years tyco international ltd notes consolidated financial statements continued 21 consolidated segment data continued 1operating income year ended september 30 2011 included gain net working capital adjustments 248 million related sale majority interest companys electrical metal products business see note 3 total assets segment september 30 2011 september 24 2010 september 25 2009 follows millions depreciation amortization capital expenditures segment years ended september 30 2011 september 24 2010 september 25 2009 follows millions tyco international ltd notes consolidated financial statements continued 21 consolidated segment data continued net revenue geographic area years ended september 30 2011 september 24 2010 september 25 2009 follows millions 1revenue attributed individual countries based reporting entity records transaction 2fiscal 2011 53week year fiscal years 2010 2009 52week years longlived assets geographic area september 30 2011 september 24 2010 september 25 2009 follows millions 1longlived assets comprised primarily property plant equipment exclude goodwill intangible assets deferred taxes shared assets tyco international ltd notes consolidated financial statements continued 22 supplementary consolidated balance sheet information selected supplementary consolidated balance sheet information september 30 2011 september 24 2010 follows millions 23 inventory inventories consisted following millions inventories recorded lower cost primarily firstin firstout market value tyco international ltd notes consolidated financial statements continued 24 property plant equipment property plant equipment consisted following millions 1property capital leases consists primarily buildings 2accumulated amortization capital lease assets 40 million 34 million september 30 2011 september 24 2010 respectively 25 summarized quarterly financial data unaudited summarized quarterly financial data years ended september 30 2011 september 24 2010 follows millions except per share data tyco international ltd notes consolidated financial statements continued 25 summarized quarterly financial data unaudited continued tyco international ltd notes consolidated financial statements continued 26 tyco international finance sa tifsa whollyowned subsidiary company public debt securities outstanding fully unconditionally guaranteed tyco see note 12 following tables present condensed consolidating financial information tyco tifsa subsidiaries condensed financial information tyco tifsa standalone basis presented using equity method accounting subsidiaries year ended september 30 2011 operating results discontinued operations reflected within equity net income subsidiaries caption condensed consolidating statement operations years ended september 24 2010 september 25 2009 immaterial amounts tyco tifsa reflected income discontinued operations net income taxes caption conformed current year presentation herein condensed consolidating statement operations year ended september 30 2011 millions tyco international ltd notes consolidated financial statements continued 26 tyco international finance sa continued condensed consolidating statement operations year ended september 24 2010 millions tyco international ltd notes consolidated financial statements continued 26 tyco international finance sa continued condensed consolidating statement operations year ended september 25 2009 millions tyco international ltd notes consolidated financial statements continued 26 tyco international finance sa continued condensed consolidating balance sheet september 30 2011 millions tyco international ltd notes consolidated financial statements continued 26 tyco international finance sa continued condensed consolidating balance sheet september 24 2010 millions tyco international ltd notes consolidated financial statements continued 26 tyco international finance sa continued condensed consolidating statement cash flows year ended september 30 2011 millions tyco international ltd notes consolidated financial statements continued 26 tyco international finance sa continued condensed consolidating statement cash flows year ended september 24 2010 millions tyco international ltd notes consolidated financial statements continued 26 tyco international finance sa continued condensed consolidating statement cash flows year ended september 25 2009 millions tyco international ltd notes consolidated financial statements continued 27 subsequent events consistent annual equity compensation practices october 12 2011 company granted tyco employees 34 million share options weightedaverage grantdate fair value 1245 per share date grant additionally company granted 11 million 05 million restricted stock units performance share units weightedaverage grantdate fair value 4432 4886 per share date grant respectively november 9 2011 company repurchased approximately 5 million common shares 200 million 1 billion share repurchase program approved board directors april 2011 tyco international ltd schedule iivaluation qualifying accounts millionsitem 15 exhibits financial statement schedules a1 2 financial statements supplementary datasee item 8 3exhibit index 1management contract compensatory plan bsee item 15a3 csee item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd arun nayar arun nayar executive vice president chief financial officer principal financial officer date november 16 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant november 16 2012 capacities indicated name title george r oliver george r oliver chief executive officer director principal executive officer arun nayar arun nayar executive vice president chief financial officer principal financial officer sam eldessouky sam eldessouky senior vice president controller chief accounting officer principal accounting officer edward breen director michael e daniels director frank drendel director brian duperreault director judith reinsdorf signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report judith reinsdorf judith reinsdorf attorneyinfact tyco international ltd index consolidated financial statements managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior management team leading example includes every one tycos global employees well customers suppliers business partners one crucial objectives continuing maintain build public employee shareholder confidence restored tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2012 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls george r oliver george r oliver chief executive officer director arun nayar arun nayar executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 28 2012 september 30 2011 related consolidated statements operations shareholders equity cash flows three fiscal years period ended september 28 2012 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tyco international ltd subsidiaries september 28 2012 september 30 2011 results operations cash flows three fiscal years period ended september 28 2012 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states companys internal control financial reporting september 28 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated november 16 2012 expressed unqualified opinion companys internal control financial reporting deloitte touche llp new york new york november 16 2012 report independent registered public accounting firm board directors shareholders tyco international ltd audited internal control financial reporting tyco international ltd subsidiaries company september 28 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting september 28 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements financial statement schedule fiscal year ended september 28 2012 company report dated november 16 2012 expressed unqualified opinion financial statements financial statement schedule deloitte touche llp new york new york november 16 2012 tyco international ltd consolidated statements operations years ended september 28 2012 september 30 2011 september 24 millions except per share data see notes consolidated financial statements tyco international ltd consolidated balance sheets september 28 2012 september 30 2011 millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 28 2012 september 30 2011 september 24 2010 millions see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity continued years ended september 28 2012 september 30 2011 september 24 2010 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 28 2012 september 30 2011 september 24 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd corporation organized laws switzerland subsidiaries tyco subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance generally accepted accounting principles united states gaap certain information described article 663663h swiss code obligations presented companys swiss statutory financial statements year ended september 28 2012 unless otherwise indicated references 2012 2011 2010 tycos fiscal years ending september 28 2012 september 30 2011 september 24 2010 respectively effective september 28 2012 tyco completed spinoffs adt corporation adt pentair ltd formerly known tyco flow control international ltd tyco flow control formerly north american residential security flow control businesses tyco respectively separate publicly traded companies form distribution tyco shareholders immediately following spinoff pentair inc merged subsidiary tyco flow control taxfree allstock merger pentair ltd pentair succeeding pentair inc independent publicly traded company distribution made september 28 2012 tyco shareholders record september 17 2012 tyco shareholder received 050 common share adt approximately 024 common share pentair tyco common share held record date distribution structured taxfree tyco shareholders except extent cash received lieu fractional shares distributions merger related transactions collectively referred herein 2012 separation result distribution operations tycos former flow control north american residential security businesses classified discontinued operations periods presented giving effect 2012 separation company operates reports financial operating information following three segments north america systems installation services na installation services rest world systems installation services row installation services global products company also provides general corporate services segments reported fourth nonoperating segment corporate effective june 29 2007 tyco completed spinoffs covidien te connectivity formerly healthcare electronics businesses tyco respectively separate publicly traded companies 2007 separation form taxfree distribution tyco shareholders principles consolidationtyco conducts business operating subsidiaries company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities vie company power direct significant activities entity obligation absorb losses receive benefits entity may significant vies company consolidates individually aggregate material impact companys financial position results operations cash flows intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued company 52 53week fiscal year ends last friday september fiscal 2012 2010 52 week years ended september 28 2012 september 24 2010 respectively fiscal 2011 53week year ended september 30 2011 use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies including legal environmental asbestos reserves insurance reserves net realizable value inventories fair values financial instruments estimated contract revenue related costs income taxes tax valuation allowances pension postretirement employee benefit liabilities expenses actual results could differ materially estimates revenue recognitionthe company recognizes revenue principally four types transactionssales products security systems monitoring maintenance services contract sales including installation fire security systems constructionrelated projects revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions product returns discounts customers accounted reductions determining net revenue period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements company assesses revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services company expect situations vsoe available sales security systems services cases arise company would follow selling price hierarchy allocate arrangement consideration transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion extent progress toward completion generally measured based ratio actual cost incurred total estimated cost completion revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimated warranty costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting company recorded retainage receivables 49 million 52 million september 28 2012 september 30 2011 respectively 41 million 44 million unbilled respectively retainage provisions consist primarily fire protection contracts become due upon contract completion acceptance company expects approximately 38 million collected fiscal 2013 reflected within accounts receivable consolidated balance sheet september 28 2012 research developmentresearch development expenditures expensed incurred included cost product sales amounted 145 million 129 million 113 million 2012 2011 2010 respectively related new product development research development expenses include salaries direct costs incurred building overhead expenses advertisingadvertising costs expensed incurred included selling general administrative expenses amounted 39 million 46 million 45 million 2012 2011 2010 respectively acquisition costscosts incurred acquire new businesses new product lines similar assets expensed incurred included selling general administrative expenses see note 5 translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars assets liabilities translated us dollars using periodend exchange rates revenue expenses translated average exchange rates effect period foreign currency translation gains losses included component accumulated comprehensive loss tycos shareholders equity gains losses resulting foreign currency transactions impact foreign currency derivatives related operating activities reflected selling general administrative expenses april 2011 company declared dividends swiss francs foreign exchange gains losses arising reflected expense net companys consolidated statement operations beginning may 2011 company began making dividend payments contributed surplus us dollars tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued cash equivalentsall highly liquid investments original maturities three months less time purchase considered cash equivalents allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense 2012 2011 2010 316 million 323 million 354 million respectively maintenance repair expenditures charged expense incurred except pooled subscriber systems depreciation calculated using straightline method estimated useful lives related assets follows see discussion depreciation method estimated useful lives related subscriber systems subscriber system assets related deferred revenue accountsthe company considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers place business outside north america residence installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses ie commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued exceed deferred revenue deferred costs recorded noncurrent assets included assets line item within consolidated balance sheets subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 135 360 commercial subscriber pools dealer intangibles converts straightline methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program primarily outside north america acquired contracts related customer relationships recorded contractually determined purchase price first six months twelve months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship estimated useful life dealer intangibles ranges 12 15 years company amortizes dealer intangible assets accelerated basis amortizable intangible assets netintangible assets primarily include contracts related customer relationships dealer accounts discussed intellectual property contracts related customer relationships well intellectual property consisting primarily patents trademarks copyrights unpatented technology amortized straightline basis 4 40 years company evaluates amortization methods remaining useful lives intangible assets periodic basis determine whether events circumstances warrant revision amortization method remaining useful lives longlived asset impairmentsthe company reviews longlived assets including property plant equipment amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur see note 9 company performed annual impairment tests goodwill indefinitelived intangible assets first day fourth quarter 2012 performing assessments management relies various factors including operating results business plans economic projections anticipated future cash flows comparable transactions market data inherent uncertainties related factors require judgment applying analysis goodwill indefinitelived intangible assets impairment testing goodwill impairment company first compares fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using market participants weightedaverage cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill indefinitelived intangible assets consisting primarily trade names franchise rights tested impairment using either relief royalty method excess earnings method respectively investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged accumulated comprehensive loss within tyco shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting reporting period company evaluates carrying value investments accounted cost method accounting recorded tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included consolidated statements operations product warrantythe company records estimated product warranty costs time sale products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty however instances warranty either negotiated contract sold separate component warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage environmental coststhe company subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized asbestosrelated contingencies insurance receivablesthe company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials annually companys third quarter company performs analysis assistance outside counsel experts update estimated asbestosrelated assets liabilities addition quarterly basis company reevaluates assumptions used perform annual analysis records expense necessary reflect changes estimated liability related insurance asset companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made future defined period time lookforward period part companys annual valuation process third quarter fiscal 2012 company utilized lookback period three years lookforward period fifteen years except claims made nonoperating subsidiary company pursuing alternatives including negotiated settlement representatives current future asbestos claimants subsidiary see note 14 connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities discounted using riskfree rate return pattern timing future obligation reliably determinable impact discount consolidated balance sheets september 28 2012 september 30 2011 reduce obligation 15 million 16 million respectively company records receivables third party insurers recovery determined probable company maintains captive insurance company manage certain insurable liabilities captive insurance company holds certain investments escrow account purpose providing collateral companys insurable liabilities see note 13 financial instrumentsthe company may use interest rate swaps currency swaps forward option contracts commodity swaps manage risks generally associated interest rate risk foreign exchange risk commodity prices derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly effective offsetting changes fair value underlying hedged item inception hedge expected remain highly effective life hedge contract derivative financial instruments reported consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items related operating activities reported selling general administrative expenses along offsetting transaction gains losses items hedged derivatives used economically hedge dividends declared swiss francs april 2011 reported companys consolidated statements operations part expense net along offsetting transaction gains losses items hedged beginning may 2011 company longer declared dividends swiss francs derivatives used manage exposure changes interest rates reported interest expense along offsetting transaction gains losses items hedged gains losses net investment hedges included cumulative translation adjustment component accumulated comprehensive loss extent effective gains losses derivatives designated cash flow hedges recorded accumulated comprehensive loss reclassified earnings manner matches timing earnings impact hedged transactions company classifies cash flows associated settlement derivatives consistent nature transaction hedged ineffective portion hedges recognized currently earnings noted instruments qualify hedge accounting marked market changes recognized current earnings company cash flow hedges 2012 addition company interest rate swaps commodity swaps net investment hedge outstanding september 28 2012 redeemable noncontrolling interestsnoncontrolling interest redemption features put options solely within companys control considered redeemable noncontrolling tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued interests company accretes changes redemption value noncontrolling interest subsidiaries net income attributable noncontrolling interest period date issuance earliest redemption date redeemable noncontrolling interest considered temporary equity therefore reported mezzanine section liabilities equity companys consolidated balance sheet greater initial carrying amount increased decreased noncontrolling interests share net income loss redemption value reclassificationsas result 2012 separation operations assets liabilities redeemable noncontrolling interest companys former flow control north american residential security businesses classified discontinued operations periods presented furthermore beginning fourth quarter fiscal 2012 company realigned management segment reporting structure accordingly prior period segment amounts recast conform current period presentation see note 19 fourth quarter fiscal 2012 company recorded proportionate share net loss atkore international group inc atkore within equity loss income earnings unconsolidated subsidiaries companys consolidated statement operations previous periods company reflected proportionate share atkores net loss within expense net companys consolidated statement operations amounts material companys equity loss 26 million 12 million nil fiscal 2012 2011 2010 respectively reclassified conform current year presentation recently adopted accounting pronouncementsin september 2011 financial accounting standards board fasb issued authoritative guidance expanded enhanced existing disclosure requirements related multiemployer pension postretirement benefit plans amendments require additional quantitative qualitative disclosures provide detailed information regarding plans including significant multiemployer plans company participates level companys participation contributions respect plans financial health plans indication funded status disclosures intended provide users financial statements better understanding employers involvement multiemployer benefit plans disclosure provisions guidance adopted concurrent pension disclosures associated companys annual valuation process fourth quarter fiscal 2012 company concluded participation individual multiemployer plan significant recently issued accounting pronouncementsin june 2011 fasb issued authoritative guidance presentation comprehensive income guidance amended reporting comprehensive income oci eliminating option present oci part consolidated statement shareholders equity amendment impact accounting oci presentation companys consolidated financial statements guidance requires items net income oci presented either single continuous statement comprehensive income two separate consecutive statements include total net income components consecutively followed total oci components arrive total comprehensive income december 2011 fasb issued authoritative guidance defer effective date aspects guidance relating presentation reclassification adjustments accumulated comprehensive income component guidance must applied retrospectively effective tyco first quarter fiscal 2013 tyco international ltd notes consolidated financial statements continued 1 basis presentation summary significant accounting policies continued september 2011 fasb issued authoritative guidance amends process testing goodwill impairment additionally july 2012 fasb issued authoritative guidance similarly amends process testing indefinitelived intangible assets impairment guidance permits entity first assess qualitative factors determine whether existence events circumstances leads determination likely defined likelihood fifty percent fair value reporting unit indefinitelived intangible asset less carrying amount entity determines likely fair value reporting unit less carrying amount performing traditional two step goodwill impairment test unnecessary entity concludes otherwise would required perform first step two step goodwill impairment test carrying amount reporting unit exceeds fair value entity required perform second step goodwill impairment test entity determines likely fair value indefinitelived intangible asset less carrying amount entity required take action entity concludes otherwise would required perform quantitative impairment test calculating fair value asset comparing carrying amount carrying amount reporting unit exceeds fair value entity shall recognize impairment loss amount equal excess however entity option bypass qualitative assessment period proceed directly quantitative assessment guidance effective tyco interim annual impairment testing beginning first quarter fiscal 2013 2 2012 separation transaction discussed note 1 company completed spinoffs adt tyco flow control formerly north american residential security flow control businesses tyco respectively separate publicly traded companies form distribution tyco shareholders fiscal 2012 company incurred pretax charges 839 million connection activities taken complete effectuate 2012 separation create revised organizational structure company separation charges company presented 561 million 278 million pretax charges within income continuing operations income discontinued operations respectively amounts presented within discontinued operations costs directly related 2012 separation expected provide future benefit company components separation charges incurred within continuing operations discontinued operations consisted following millions tyco international ltd notes consolidated financial statements continued 2 2012 separation transaction continued fiscal 2011 company incurred 24 million separation charges primarily related professional fees presented income discontinued operations consolidated statement operations separation charges classified continuing operations within companys consolidated statement operations follows millions 3 divestitures company continued assess strategic fit various businesses pursued divestiture certain businesses align longterm strategy fiscal september 28 2012 tyco completed 2012 separation presented former north american residential security flow control businesses discontinued operations periods presented company used available information develop best estimates certain assets liabilities related 2012 separation limited instances final determination balances made subsequent periods case working capital cash adjustments specified separation distribution agreements entered among parties final income tax returns filed certain jurisdictions returns include combination tyco adt andor tyco flow control legal entities adjustments expected material recorded tyco shareholders equity subsequent periods finally determined additionally year ended september 28 2012 included 21 million income tax expense associated pre2007 separation tax liabilities recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 28 2012 company reimbursed 8 million pursuant tax sharing agreement 2007 tax sharing agreement entered conjunction 2007 separation recorded income discontinued operations net income taxes companys consolidated statements operations see note 7 fiscal november 9 2010 company announced entered investment agreement sell majority interest electrical metal products business affiliate private equity firm clayton dubilier rice llc cdr company formed newly tyco international ltd notes consolidated financial statements continued 3 divestitures continued incorporated holding company atkore hold companys electrical metal products business december 22 2010 transaction closed cdr acquired shares newlycreated class cumulative convertible preferred stock atkore preferred stock preferred stock initially represented 51 outstanding capital stock asconverted basis atkore connection closing company received cash proceeds approximately 713 million recorded gain 259 million included 33 million cumulative translation gain first quarter fiscal 2011 year ended september 30 2011 company recorded net working capital adjustments 11 million reduced gain disposal gain disposal recorded within restructuring asset impairment divestiture charges gains net companys consolidated statements operations accordance terms conditions agreement cdr entitled quarterly dividend payable cash shares preferred stock discretion atkore since closing transaction atkore elected pay cdrs quarterly dividend shares preferred stock diluted companys ownership atkore september 28 2012 companys ownership percentage approximately 45 tycos retained ownership interest atkore accounted equity method accounting recorded assets companys consolidated balance sheet september 28 2012 september 30 2011 interest 92 million 118 million respectively companys proportionate share atkores net loss recorded within equity loss income earnings unconsolidated subsidiaries companys consolidated statement operations company recorded equity losses 26 million 12 million nil years ended september 28 2012 september 30 2011 september 24 2010 respectively fiscal fourth quarter 2009 company approved plan sell french security business part companys row installation services segment results operations presented continuing operations criteria discontinued operations met second quarter 2010 company completed sale recorded 53 million pretax gain within restructuring asset impairment divestiture charges gains net companys consolidated statements operations tyco international ltd notes consolidated financial statements continued 3 divestitures continued discontinued operations net revenue pretax income discontinued operations pretax separation charges included within discontinued operations pretax income loss sale discontinued operations income tax expense income discontinued operations net income taxes follows millions material pending divestitures september 28 2012 total assets total liabilities redeemable noncontrolling interest discontinued operations september 30 2011 follows millions tyco international ltd notes consolidated financial statements continued 3 divestitures continued matters company used available information develop best estimates certain assets liabilities related 2007 separation limited instances final determination balances made subsequent periods nil 13 million nil adjustments recorded tyco shareholders equity years ended september 28 2012 september 30 2011 september 24 2010 respectively adjustments future impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor te connectivity legal entities certain amended income tax returns periods prior 2007 separation may recorded either tyco shareholders equity consolidated statement operations depending specific item giving rise adjustment divestiture charges gains net 2012 2011 2010 company recorded net loss 14 million net gains 224 million 39 million respectively restructuring asset impairment divestiture charges gains net companys consolidated statements operations connection divestiture writedown fair value less cost sell certain businesses meet criteria discontinued operations net gain year ended september 30 2011 includes gain 248 million net working capital adjustments recognized conjunction sale majority interest companys electrical metal products business discussed net gain year ended september 24 2010 includes 53 million gain recognized upon sale companys french security business discussed 4 restructuring asset impairment charges net fiscal 2012 company identified pursued opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across companys businesses company expects incur restructuring related charges approximately 50 million fiscal 2013 company recorded restructuring asset impairment charges action consolidated statement operations classification follows millions tyco international ltd notes consolidated financial statements continued 4 restructuring asset impairment charges net continued 2012 actions restructuring asset impairment charges net year ended september 28 2012 related 2012 actions follows millions 1includes 6 million charges year ended september 28 2012 related 2012 separation recorded corporate 2includes 20 million 1 million 2 million asset impairment charges recorded na installation services row installation services global products respectively year ended september 28 2012 related 2012 separation includes 4 million restructuring charges recorded corporate year ended september 28 2012 related 2012 separation rollforward reserves september 30 2011 september 28 2012 follows millions restructuring reserves businesses included within liabilities discontinued operations consolidated balance sheets excluded table see note 3 2011 actions fiscal 2011 company identified pursued opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across companys business 2011 actions tyco international ltd notes consolidated financial statements continued 4 restructuring asset impairment charges net continued restructuring asset impairment charges net years ended september 28 2012 september 30 2011 follows millions restructuring asset impairment charges net incurred cumulative date initiation 2011 actions follows millions rollforward reserves september 30 2011 september 28 2012 follows millions restructuring reserves businesses included within liabilities discontinued operations consolidated balance sheets excluded table see note 3 tyco international ltd notes consolidated financial statements continued 4 restructuring asset impairment charges net continued 2009 prior actions company continues maintain restructuring reserves related actions initiated prior fiscal 2011 total amount reserves 48 million 69 million september 28 2012 september 30 2011 respectively company incurred 6 million 10 million 103 million restructuring charges years ended september 28 2012 september 30 2011 september 24 2010 respectively related 2009 prior actions aggregate remaining reserves primarily relate facility exit costs longterm noncancelable lease obligations primarily within companys row installation services segment rollforward reserves september 30 2011 september 28 2012 follows millions restructuring reserves businesses included within liabilities discontinued operations consolidated balance sheets excluded table see note 3 total restructuring reserves september 28 2012 september 30 2011 restructuring reserves related actions included companys consolidated balance sheets follows millions 5 acquisitions year ended september 28 2012 cash paid acquisitions included continuing operations totaled 217 million net cash acquired 17 million significant related acquisition visonic ltd visonic december 6 2011 visonic global developer manufacturer electronic security systems components cash paid visonic totaled approximately 94 million net cash acquired 5 million companys global products segment balance acquisitions year ended september 28 2012 included within companys na row installation services global products segments none material individually aggregate tyco international ltd notes consolidated financial statements continued 5 acquisitions continued company recorded redeemable noncontrolling interest 12 million related acquisition second quarter 2012 net loss adjustments related changes redemption value immaterial year ended september 28 2012 companys redeemable noncontrolling interest balance 12 million nil september 28 2012 september 30 2011 respectively year ended september 30 2011 cash paid acquisitions included continuing operations totaled 353 million net cash acquired 3 million primarily related acquisitions oceania capital partners limiteds signature security group signature security chemguard inc chemguard signature security focused providing electronic security small business residential markets australia new zealand acquired april 29 2011 cash paid signature security totaled approximately 184 million net cash acquired 2 million companys row installation services segment september 1 2011 companys global products segment completed acquisition chemguard approximately 130 million cash net cash acquired 1 million chemguard provider firefighting foam concentrates equipment foam systems services specialty chemicals year ended september 24 2010 cash paid acquisitions included continuing operations totaled 48 million net cash acquired nil companys former electrical metal products segment acquired certain assets business 39 million companys row installation services segment acquired business 9 million may 14 2010 companys former north american residential security segment acquired outstanding equity brinks home security holdings inc bhs broadview security publicly traded company formerly owned brinks company cashandstock transaction valued approximately 20 billion net cash paid broadview security included discontinued operations totaled 448 million net cash acquired 137 million terms transaction outstanding share bhs common stock converted right receive 1 1315 cash 07562 tyco common shares shareholders made allcash election 2 10951 tyco common shares shareholders made stock election 3 1275 cash 07666 tyco common shares shareholders made mixed cashstock election failed make election tyco issued approximately 35 million shares resulting stock consideration approximately 1362 million acquisition integration related costs acquisition integration costs expensed incurred years ended september 28 2012 september 30 2011 september 24 2010 company incurred acquisition integration costs 9 million 5 million nil respectively costs recorded selling general administrative expenses companys consolidated statements operations 6 expense net significant components expense net 2012 2011 2010 follows millions tyco international ltd notes consolidated financial statements continued 7 income taxes significant components income tax provision 2012 2011 2010 follows millions nonus income continuing operations income taxes 198 million 364 million 97 million 2012 2011 2010 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 28 2012 september 30 2011 september 24 2010 follows millions 1excludes nondeductible charges items broken separately table 2012 separation related charges associated early extinguishment debt increased net operating loss carryforward 2012 company expect realize future periods valuation allowance loss carryforward included valuation allowance line table tyco international ltd notes consolidated financial statements continued 7 income taxes continued nondeductible charges 2012 primarily related 2012 separation costs incurred included nondeductible charges 2011 income tax benefit favorable audit resolutions multiple jurisdictions included nonus net earnings 2010 20 million tax benefit result companys disposition french security business nonrecurring item generating 30 million tax benefit deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 28 2012 september 30 2011 follows millions valuation allowance deferred tax assets 1826 million 1149 million september 28 2012 september 30 2011 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions specifically valuation allowance september 28 2012 includes separation related charges associated early extinguishment debt increased net operating loss carryforward company expect realize future periods valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets companys consolidated balance sheets september 28 2012 company 6874 million net operating loss carryforwards certain nonus jurisdictions 6462 million expiration remaining 412 million expire future years 2030 us approximately 727 million federal 470 million state net operating loss carryforwards september 28 2012 expire future years 2030 tyco international ltd notes consolidated financial statements continued 7 income taxes continued september 28 2012 september 30 2011 company unrecognized tax benefits 121 million 145 million respectively 107 million 125 million recognized would affect effective tax rate company recognizes interest penalties accrued related unrecognized tax benefits income tax expense company accrued interest penalties related unrecognized tax benefits 38 million 37 million september 28 2012 september 30 2011 respectively company recognized 3 million 2 million 12 million income tax expense interest penalties related unrecognized tax benefits years ended september 28 2012 september 30 2011 september 24 2010 respectively rollforward unrecognized tax benefits september 28 2012 september 30 2011 september 24 2010 follows millions many tycos uncertain tax positions relate tax years remain subject audit taxing authorities us federal state local foreign jurisdictions open tax years significant jurisdictions follows based current status income tax audits company believes reasonably possible nil 30 million unrecognized tax benefits may resolved next twelve months tax sharing agreements income tax matters connection 2012 2007 separations company entered 2012 2007 tax sharing agreements respectively govern respective rights responsibilities obligations company pentair adt 2012 separation company covidien te tyco international ltd notes consolidated financial statements continued 7 income taxes continued connectivity 2007 separation respect taxes specifically includes ordinary course business taxes incurred result failure distribution shares pentair adt covidien te connectivity qualify taxfree distribution us federal income tax purposes within meaning section 355 internal revenue code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code 2012 tax sharing agreement tyco pentair adt share certain predistribution income tax liabilities arise adjustments made tax authorities adts us tyco flow controls tycos income tax returns ii payments required made tyco respect 2007 tax sharing agreement excluding approximately 175 million pre2012 separation related tax liabilities anticipated paid prior 2012 separation collectively shared tax liabilities tyco responsible first 500 million shared tax liabilities pentair adt share 42 58 respectively next 225 million shared tax liabilities tyco pentair adt share 525 20 275 respectively shared tax liabilities 725 million costs expenses associated management shared tax liabilities generally shared 20 275 525 pentair adt tyco respectively september 28 2012 tyco established liabilities representing fair market value obligations 2012 tax sharing arrangement recorded liabilities companys consolidated balance sheet offset tyco shareholders equity 2007 tax sharing agreement tyco shares responsibility certain covidiens te connectivitys income tax liabilities result cash payments based sharing formula periods prior including june 29 2007 specifically tyco covidien te connectivity share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens te connectivitys us certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties connection execution 2007 tax sharing agreement tyco established net receivable covidien te connectivity representing amount tyco expected receive pre2007 separation uncertain tax positions including amounts owed internal revenue service irs tyco also established liabilities representing fair market value share covidiens te connectivitys estimated obligations primarily irs pre2007 separation taxes covered 2007 tax sharing agreement year ended september 28 2012 tyco made net cash payment 11 million covidien te connectivity related resolution certain irs audit preseparation tax matters tyco assesses shared tax liabilities related guaranteed liabilities related 2012 2007 tax sharing agreements reporting period tyco provide payment pentair adt 2012 tax sharing agreement covidien te connectivity 2007 tax sharing agreement shared income tax liabilities settled settlement expected occur audit process applicable taxing authorities completed impacted years cash payments made due nature unresolved adjustments described next paragraph maximum amount potential future payments 2012 2007 tax sharing agreements determinable cash payments occur reduce guarantor liability payments represent equivalent reduction risk tyco also assesses sufficiency 2012 2007 tax sharing agreements guarantee liabilities quarterly basis increase liability tyco international ltd notes consolidated financial statements continued 7 income taxes continued probable cash payments expected made 2012 2007 tax sharing agreements exceed recorded balance tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding 2007 separation issues proposed adjustments related years generally subject sharing provisions 2007 tax sharing agreement tycos liabilities 2007 tax sharing agreement subject sharing provisions 2012 tax sharing agreement tyco reviewing contesting certain proposed tax adjustments respect adjustments raised irs although tyco resolved substantial number adjustments significant items expected remain open respect audit 1997 2004 years date hereof unlikely tyco able resolve open items primarily involve treatment certain intercompany debt transactions period irs appeals process result tyco expects litigate matters receives requisite statutory notices irs expected occur fiscal 2013 company assessed obligations 2007 tax sharing agreement including respect proposed civil fraud penalties discussed determine recorded liability sufficient cover indemnifications made company agreement absence observable transactions identical similar guarantees company determined fair value guarantees indemnifications utilizing expected present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using companys incremental borrowing rate however ultimate resolution matters uncertain could result material adverse impact companys financial position results operations cash flows effective tax rate future reporting periods connection aforementioned audits irs assessed civil fraud penalty 21 million first quarter fiscal 2013 prior subsidiary distributed te connectivity connection 2007 separation penalties arise actions former executives taken connection intercompany transfers stock simplex technologies 1998 1999 pre2007 separation tax liability covered provisions 2007 tax sharing agreement addition dealing tax liabilities periods prior respective separations 2012 2007 tax sharing agreements contain sharing provisions address contingencies 2012 2007 separations internal transactions related thereto may deemed taxable us non us taxing authorities event 2012 separation determined taxable determination result actions taken 2012 separations tyco adt pentair party responsible failure would responsible taxes imposed company result thereof determination result actions taken tyco adt pentair 2012 separation tyco adt pentair would responsible taxes imposed companies result determination manner proportions described similar provisions exist 2007 tax sharing agreement either 2007 2012 separation internal transactions taken anticipation thereof deemed taxable associated liability could significant company responsible taxes shared pursuant 2012 2007 tax sharing agreements sharing formulas addition pentair tyco international ltd notes consolidated financial statements continued 7 income taxes continued adt covidien te connectivity responsible tax liabilities subject 2012 2007 tax sharing agreements sharing formula respectively 2012 2007 tax sharing agreements provides party agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party agreement would required pay equally nondefaulting party agreement amounts default addition another party 2012 2007 tax sharing agreements responsible portion income tax liability default payment liability taxing authority tyco could legally liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances tyco may obligated pay amounts excess agreedupon share tax liabilities either 2012 2007 tax sharing agreements net receivables liabilities related 2012 2007 tax sharing agreements september 28 2012 september 30 2011 follows millions company recorded income loss conjunction 2012 2007 tax sharing agreements years ended september 28 2012 september 30 2011 september 24 2010 follows millions income tax matters except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries unrecognized tyco international ltd notes consolidated financial statements continued 7 income taxes continued deferred tax liabilities temporary differences related investments subsidiaries since earnings expected permanently reinvested investments essentially permanent duration company concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries 8 earnings per share reconciliations basic diluted earnings per share attributable tyco common shareholders 2012 2011 2010 follows millions except per share data computation diluted earnings per share 2012 excludes effect potential exercise share options purchase approximately 12 million shares excludes restricted share awards 2 million effect would antidilutive computation diluted earnings per share 2011 2010 excludes effect potential exercise share options purchase approximately 10 million 15 million shares respectively excludes restricted share awards approximately nil 2 million shares respectively effect would antidilutive 9 goodwill intangible assets annually fiscal fourth quarter frequently triggering events occur company tests goodwill impairment comparing fair value reporting unit carrying amount connection 2012 separation fourth quarter fiscal 2012 company reorganized new management segment reporting structure part organizational changes company assessed new reporting units conducted valuations determine assignment goodwill new reporting units based estimated relative fair values following relative fair value goodwill allocation company tested goodwill impairment tyco international ltd notes consolidated financial statements continued 9 goodwill intangible assets continued fair value reporting unit determined utilizing discounted cash flow analysis based companys forecast cash flows discounted using estimated weightedaverage cost capital market participants market approach utilized corroborate discounted cash flow analysis performed reporting unit carrying amount reporting unit exceeds fair value goodwill considered potentially impaired determining fair value management relies considers number factors including operating results business plans economic projections anticipated future cash flow comparable market transactions extent available market data companys overall market capitalization goodwill impairments result performing companys 2012 2011 2010 annual impairment tests changes carrying amount goodwill segment 2012 2011 recast result 2012 separation follows millions 1corporate others gross goodwill impairments relate companys former electrical metal products business divested company first quarter fiscal 2011 accordingly gross goodwill impairments nil september 30 2011 intangible assets indefinitelived intangible assets consisting primarily trade names franchise rights tested impairment using relief royalty excess earnings method respectively indefinitelived intangible asset impairments result performing companys 2012 2011 2010 annual impairment tests tyco international ltd notes consolidated financial statements continued 9 goodwill intangible assets continued following table sets forth gross carrying amount accumulated amortization companys intangible assets september 28 2012 september 30 2011 millions intangible asset amortization expense 2012 2011 2010 102 million 98 million 95 million respectively estimated aggregate amortization expense intangible assets expected approximately 98 million 2013 80 million 2014 67 million 2015 62 million 2016 166 million 2017 thereafter 10 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans fourth quarter 2002 board directors new senior management time adopted policy new loans allowed granted officers company existing loans allowed extended modified loans made companys current executives outstanding loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average rates effect first day preceding 12 months loans generally repayable ten years however earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property maximum amount outstanding programs 21 million september 28 2012 september 30 2011 loans receivable programs well unsecured advances outstanding 21 million september 28 2012 september 30 2011 total tyco international ltd notes consolidated financial statements continued 10 related party transactions continued outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 28 million september 28 2012 september 30 2011 rate interest charged loans 07 05 2012 2011 respectively interest income interest bearing loans material periods presented certain loans totaling 1 million september 28 2012 september 30 2011 noninterest bearing company filed civil complaints mr kozlowski former chief financial officer mark swartz frank e walsh jr former director breach fiduciary duty wrongful conduct see note 14 2012 2011 2010 company engaged commercial transactions normal course business companies companys directors employed served officers purchases companies year aggregated less 1 percent consolidated net revenue 11 debt september 28 2012 september 30 2011 follows millions 110 million amount shown comprises current portion companys total debt september 28 2012 21 million amount shown comprises current portion companys total debt september 30 2011 fair value carrying amount tycos debt subject fair value disclosure requirements september 28 2012 september 30 2011 1443 million 4046 million respectively company utilizes various valuation methodologies determine fair value debt tyco international ltd notes consolidated financial statements continued 11 debt continued primarily dependent type market companys debt traded available company uses quoted market prices determine fair value debt traded active markets september 28 2012 september 30 2011 fair value companys debt actively traded 1786 million 4689 million respectively september 28 2012 september 30 2011 companys debt subject fair value disclosure requirements actively traded classified level 1 fair value hierarchy see note 13 details fair value hierarchy fiscal 2012 debt issuancerepayment fourth quarter 2012 connection separation tyco finance subsidiary tyco international finance sa tifsa redeemed various debt securities maturing 2013 2023 issued tifsa andor tyco aggregate principal amount 26 billion set forth millions conjunction debt redemptions company terminated associated interest rate swap contracts related 60 notes due 2013 4125 notes due 2014 result debt redemptions company recorded loss extinguishment debt 453 million recorded within expense net companys consolidated statement operations year ended september 28 2012 charge comprised premium paid tender offers writeoff unamortized debt issuance costs discount related extinguished notes net gain recognized upon termination associated interest rate swap contracts fiscal 2011 debt issuancerepayment january 12 2011 tifsa issued 250 million aggregate principal amount 375 notes due january 15 2018 notes 250 million aggregate principal amount 4625 notes due january 15 2023 notes fully unconditionally guaranteed company tifsa received total net proceeds approximately 494 million deducting debt issuance costs approximately 1 million 2018 notes 2 million 2023 notes well debt discount approximately 1 million 2018 notes 2 million 2023 notes net proceeds aforementioned debt issuances along available funds used fund repayment upon maturity companys outstanding 675 notes due february 2011 principal amount 516 million 2018 notes 2023 notes unsecured rank equally tifsas unsecured unsubordinated debt tyco international ltd notes consolidated financial statements continued 11 debt continued prior january 15 2018 case 2018 notes prior october 15 2022 case 2023 notes tifsa may redeem notes redemption price equal greater principal amount notes series makewhole amount plus case accrued unpaid interest october 15 2022 tifsa may redeem 2023 notes redemption price equal 100 principal amount notes plus accrued unpaid interest holders 2018 notes 2023 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires change control rating event defined indenture governing notes debt issuance costs amortized date issuance maturity date series notes interest payable semiannually january 15th july 15th 2018 notes 2023 notes fiscal 2010 debt issuancerepayment may 5 2010 tifsa issued 500 million aggregate principal amount 3375 notes due october 15 2015 fully unconditionally guaranteed company 2015 notes tifsa received net proceeds approximately 495 million deducting debt issuance costs approximately 3 million debt discount approximately 2 million net proceeds along available funds used redeem companys outstanding 6375 notes due october 2011 2015 notes unsecured rank equally tifsas unsecured unsubordinated debt tifsa may redeem 2015 notes time paying greater principal amount notes makewhole amount plus accrued unpaid interest holders 2015 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires occurrence change control rating event defined indenture governing notes debt issuance costs amortized date issuance maturity date interest payable semiannually april 15th october 15th may 28 2010 company redeemed 6375 public notes due 2011 notes 70 notes due 2028 6875 notes due 2029 outstanding time aggregated 878 million principal amount result debt redemption company recorded 87 million charge expense net loss extinguishment debt charge comprised makewhole premium writeoff unamortized debt issuance costs discount related extinguished bonds net loss recognized upon termination associated interest rate swap contracts related 2011 notes october 5 2009 tifsa issued 500 million aggregate principal amount 4125 notes due october 15 2014 fully unconditionally guaranteed company 2014 notes tifsa received net proceeds approximately 495 million deducting debt issuance costs approximately 3 million debt discount approximately 2 million noted 2014 notes fully redeemed connection 2012 separation tyco international ltd notes consolidated financial statements continued 11 debt continued commercial paper time tifsa may issue commercial paper general corporate purposes maximum aggregate amount unsecured commercial paper notes available issued private placement basis commercial paper program 1 billion september 28 2012 september 28 2012 september 30 2011 tifsa commercial paper outstanding credit facilities april 25 2012 company amended existing fiveyear senior unsecured credit agreement dated april 25 2007 credit agreement extend expiration date facility april 25 2012 september 30 2012 simultaneous extension total commitments 2007 credit agreement facility reduced aggregate 750 million 654 million june 22 2012 company amended 2007 credit agreement reduce lenders commitments 2007 credit agreement aggregate 654 million 500 million 2007 credit agreement terminated september 28 2012 additionally june 22 2012 tifsa borrower company guarantor entered fiveyear senior unsecured credit agreement expiring june 22 2017 providing revolving credit commitments aggregate amount 10 billion 2012 credit agreement connection entering 2012 credit agreement tifsa company terminated existing fouryear senior unsecured credit agreement dated march 24 2011 provided revolving credit commitments aggregate amount 750 million september 28 2012 companys committed revolving credit facility totaled 10 billion revolving credit facility may used working capital expenditures general corporate purposes september 28 2012 september 30 2011 amounts drawn companys revolving credit facilities interest revolving credit facilities variable calculated reference libor alternate base rate debt information aggregate amounts principal public debt maturing next five years thereafter follows nil 2013 nil 2014 nil 2015 258 million 2016 nil 2017 1178 million thereafter weightedaverage interest rate total debt 65 59 september 28 2012 september 30 2011 respectively excluding impact interest rate swaps public shortterm debt outstanding september 28 2012 september 30 2011 september 28 2012 september 30 2011 company swapped aggregate approximately nil 12 billion respectively fixed floating rate debt impact companys interest rate swap agreements reported interest expense net decrease 18 million 22 million 24 million years ended september 28 2012 september 30 2011 september 24 2010 september 28 2012 company terminated interest rate swaps 12 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms tyco international ltd notes consolidated financial statements continued 12 guarantees continued guarantees vary end dates ranging current fiscal year completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien te connectivity adt pentair accordance terms 2007 2012 separation distribution agreements tax sharing agreements guarantees primarily relate certain contingent tax liabilities included tax sharing agreements see note 7 addition tyco historically provided support form financial andor performance guarantees various covidien te connectivity adt tyco flow control operating entities connection 2012 2007 separations company worked guarantee counterparties cancel assign guarantees covidien te connectivity adt pentair appropriate extent guarantees assigned prior separation dates tyco assumed primary liability remaining support companys obligations related 2012 separation 3 million included liabilities companys consolidated balance sheet september 28 2012 offset tyco shareholders equity separation date companys obligations related 2007 separation 3 million 4 million included liabilities companys consolidated balance sheets september 28 2012 september 30 2011 respectively offset tyco shareholders equity separation date disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company reason believe uncertainties would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 14 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows september 28 2012 company total outstanding letters credit bank guarantees approximately 425 million company records estimated product warranty costs time sale see note 1 changes carrying amount companys warranty accrual september 30 2011 september 28 2012 follows millions tyco international ltd notes consolidated financial statements continued 12 guarantees continued warranty accruals businesses met held sale criteria included liabilities held sale consolidated balance sheets excluded table see note 3 13 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable accounts payable approximated book value september 28 2012 september 30 2011 fair value derivative financial instruments material periods presented see fair value investments note 11 fair value debt derivative instruments normal course business tyco exposed market risk arising changes currency exchange rates interest rates commodity prices company uses derivative financial instruments manage exposures foreign currency interest rate risks companys objective utilizing derivative financial instruments manage risks using effective methods eliminate reduce impacts exposures company use derivative financial instruments trading speculative purposes derivative instruments designated qualified hedging instruments accounting purposes company documented linked relationships hedging instruments hedged items company also assessed documented hedges inception whether derivatives used hedging transactions effective offsetting changes fair values associated hedged items hedges result hedge ineffectiveness years ended september 28 2012 september 30 2011 september 24 2010 derivative financial instruments reported consolidated balance sheet fair value changes fair value derivative financial instruments recognized currently companys statement operations exception net investment hedges changes fair value reported cumulative translation component accumulated comprehensive loss extent hedges effective ineffective portion hedge recognized consolidated statement operations derivative financial instruments impact changes fair value derivative financial instruments material consolidated balance sheets september 28 2012 september 30 2011 consolidated statements operations statement cash flows years ended september 28 2012 september 30 2011 september 24 2010 foreign currency exposures company manages foreign currency exchange rate risk use derivative financial instruments comprised principally forward contracts foreign currency designated hedging instruments accounting purposes objective derivative instruments minimize income statement impact potential variability cash flows associated intercompany loans accounts receivable accounts payable forecasted transactions denominated certain foreign currencies september 28 2012 september 30 2011 total gross notional amount companys foreign exchange contracts 225 million 766 million respectively tyco international ltd notes consolidated financial statements continued 13 financial instruments continued effective march 17 2009 tyco changed jurisdiction incorporation bermuda switzerland tyco made final dividend payment form reduction capital february 2011 denominated swiss francs see note 16 company paid dividends us dollars based exchange rate effect shortly payment date fluctuations value us dollar compared swiss franc date dividend approved paid increased decreased us dollar amount required paid company managed potential variability cash flows associated dividend payments entering derivative financial instruments used economic hedges underlying risk beginning may 2011 company makes dividend payments contributed surplus us dollars eliminated need use currency hedges dividend payments prior quarter ended december 30 2011 company hedged net investments certain foreign operations use foreign exchange forward contracts objective minimize exposure changes value foreign currency denominated net investment quarter ended december 30 2011 company terminated net investment hedge accordingly aggregate notional amount hedges nil 224 million september 28 2012 september 30 2011 respectively changes fair value forward contracts qualifying net investment hedges reported cumulative translation component accumulated comprehensive loss extent hedges effective ineffective portion hedge material companys consolidated statement operations years ended september 30 2011 september 24 2010 contracts material impact companys consolidated balance sheet september 30 2011 interest rate exposures company manages interest rate risk use interest rate swap transactions financial institutions acting principal counterparties designated fair value hedges accounting purposes since third quarter 2009 tifsa entering interest rate swap transactions objective managing exposure interest rate risk converting interest rates fixedrate debt variable rates contracts tifsa agrees financial institutions acting principal counterparties exchange specified intervals difference fixed floating interest amounts calculated agreedupon notional principal amount connection debt tenders redemption quarter ended september 28 2012 tifsa settled outstanding interest rate swaps september 28 2012 september 30 2011 total gross notional amount companys interest rate swap contracts nil 12 billion respectively counterparty credit risk use derivative financial instruments exposes company counterparty credit risk counterparty fails perform company exposed losses derivative asset position fair value derivative instrument asset counterparty pay company settle contract exposes company credit risk however fair value derivative instrument liability company pay counterparty settle contract therefore counterparty credit risk tyco established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide strong investment grade longterm credit ratings standard poors tyco international ltd notes consolidated financial statements continued 13 financial instruments continued moodys reduce risk loss company generally enters international swaps derivatives association master agreements substantially counterparties master netting agreements provide protection bankruptcy certain circumstances cases enable receivables payables counterparty offset consolidated balance sheets providing meaningful balance sheet presentation credit exposure companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes september 28 2012 company exposed industry concentration financial institutions well risk loss individual counterparty issuer failed perform obligations contractual terms maximum amount loss company would incur september 28 2012 without giving consideration effects legally enforceable master netting agreements approximately 1 million fair value financial instruments authoritative guidance fair value measurements establishes threelevel hierarchy ranks quality reliability information used developing fair value estimates hierarchy gives highest priority quoted prices active markets lowest priority unobservable data cases two levels inputs used determine fair value financial instruments level determined based lowest level input considered significant fair value measurement entirety three levels fair value hierarchy summarized follows •level 1inputs based upon quoted prices unadjusted active markets identical assets liabilities accessible measurement date •level 2inputs based upon quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations asset liability derived principally corroborated market data primary inputs observable including forward interest rates yield curves credit risk exchange rates •level 3inputs valuations unobservable based managements estimates assumptions market participants would use pricing asset liability fair values therefore determined using modelbased techniques option pricing models discounted cash flow models investments primarily include cash equivalents us government obligations us government agency securities corporate debt securities available company uses quoted market prices determine fair value investment securities investments included level 1 quoted market prices readily available pricing determinations made based results market approach valuation models using observable market data recently reported trades bid offer information tyco international ltd notes consolidated financial statements continued 13 financial instruments continued benchmark securities investments included level 2 consist primarily us government agency securities corporate debt securities following tables present cost fair market value companys availableforsale investments primarily held captive insurance company type security classification companys consolidated balance sheets september 28 2012 september 30 2011 addition following tables present companys assets liabilities measured fair value recurring basis september 28 2012 september 30 2011 level within fair value hierarchy financial assets liabilities classified entirety based lowest level input significant valuation september 28 2012 millions september 30 2011 millions 2012 2011 company significant transfers within fair value hierarchy investments continuous unrealized losses less 12 months 12 months greater september 28 2012 september 30 2011 material company record otherthantemporary impairments years ended 2012 2011 2010 tyco international ltd notes consolidated financial statements continued 13 financial instruments continued maturities companys investments debt securities september 28 2012 follows millions derivative financial instruments described caption derivative instruments derivative assets liabilities consist principally forward foreign currency exchange contracts interest rate swaps fair values derivative financial instruments derived market approach pricing models take account contractual terms features instrument forward foreign currency rates companys foreign exchange contracts yield curves companys interest rate swaps existing end period valuations adjusted reflect creditworthiness counterparty assets creditworthiness company liabilities adjustments based observable market evidence categorized level 2 exposures derivative financial instruments presented derivative financial instruments material periods presented company 20 billion 14 billion intercompany loans designated permanent nature september 28 2012 september 30 2011 respectively years ended september 28 2012 september 30 2011 september 24 2010 company recorded 48 million cumulative translation gain 2 million 34 million cumulative translation losses respectively accumulated comprehensive loss related loans 14 commitments contingencies company facility vehicle equipment leases expire various dates beyond fiscal 2013 rental expense leases 299 million 270 million 292 million 2012 2011 2010 respectively following schedule minimum lease payments noncancelable operating leases september 28 2012 millions tyco international ltd notes consolidated financial statements continued 14 commitments contingencies continued company also purchase obligations related commitments purchase certain goods services september 28 2012 obligations follows 241 million 2013 9 million 2014 3 million 2015 normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows legacy matters related former management company party several lawsuits involving disputes former management including former chief executive officer mr l dennis kozlowski former chief financial officer mr mark swartz former director mr frank walsh jr company filed civil complaints mr kozlowski mr swartz breach fiduciary duty wrongful conduct relating alleged abuses companys key employee loan program relocation program unauthorized bonuses unauthorized payments self dealing transactions improper conduct connection tycos affirmative actions mr kozlowski mr swartz mr kozlowski counterclaims mr swartz separate lawsuit seeking aggregate approximately 140 million allegedly due connection compensation retention arrangements employee retirement income security act erisa mr walsh seeking indemnification legal expenses incurred connection companys affirmative action breaches fiduciary duties respect mr kozlowski december 1 2010 us district court southern district new york ruled favor several companys affirmative claims trial dismissing mr kozlowskis counterclaims pay benefits 1995 prior commencement trial scheduled august 2012 parties reached agreement principle resolve matter mr kozlowski agreeing release company claims monetary amounts related compensation retention arrangements alleged existed company although parties reached agreement principle settlement agreement signed company continue maintain amounts recorded consolidated balance sheet reflect net liability approximately 91 million amounts allegedly due compensation retention arrangements erisa respect mr swartz march 3 2011 us district court southern district new york granted companys motion summary judgment liability affirmative actions ruled issues related damages would need resolved trial second quarter fiscal 2012 company reversed 50 million liability related mr swartzs pay benefits due expiration statute limitations recorded selling general administrative expenses consolidated statement operations may 15 2012 mr swartz filed lawsuit tyco new york state court claiming entitlement monies erisa company removed case us district court southern district new york filed motion dismiss mr swartzs claims multiple reasons including statute limitations expired latest second quarter fiscal 2012 trial determine companys damages mr swartzs breaches fiduciary duty concluded october 17 2012 conclusion trial court ruled company entitled recover monies earned mr swartz connection employment tyco september 1 1995 tyco international ltd notes consolidated financial statements continued 14 commitments contingencies continued june 1 2002 company filed motion requesting entry monetary sum certain judgment conformity courts ruling regarding time period disgorgement connection mr swartzs affirmative claims company court dismissed mr swartzs claims except one claim mr swartz contends entitled reimbursement company taxes paid connection 2002 separation agreement court opined merits claim company intends continue vigorously defend claim respect mr walsh june 2002 company filed civil complaint breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging companys acquisition cit group inc december 17 2002 mr walsh pleaded guilty felony violation new york law supreme court state new york new york county settled civil action violation federal securities laws brought us securities exchange commission sec united states district court southern district new york felony charge civil action brought mr walsh based payment felony charge accused mr walsh intentionally concealing information concerning payment tycos directors shareholders engaged sale tyco securities state new york sec action alleged mr walsh knew registration statement covering sale tyco securities part cit group acquisition contained material misrepresentation concerning fees payable connection acquisition pursuant plea settlement mr walsh paid 20 million restitution tyco december 17 2002 october 2010 us district court southern district new york denied companys affirmative claims recovery damages mr walsh january 2012 united states court appeals second circuit reversed district courts ruling tycos board directors could ratify breaches fiduciary duties owed mr walsh tycos shareholders remanded case district court resolve certain issues relating consequential damages june 20 2012 district court ruled tycos favor entered judgment mr walsh separately mr walsh pursuing new york state court claim company asserting entitlement indemnification judgment company related matter would shared covidien te connectivity agreements governing 2007 separation environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 28 2012 tyco concluded probable would incur remedial costs range approximately 48 million 60 million september 28 2012 tyco concluded best estimate within range approximately 50 million 43 million included accrued current liabilities 7 million included liabilities companys consolidated balance sheet view companys financial position reserves environmental matters company believes potential payments estimated amounts material adverse effect financial position results operations cash flows tyco international ltd notes consolidated financial statements continued 14 commitments contingencies continued asbestos matters company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials cases typically involve product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos attached used asbestoscontaining components manufactured thirdparties case typically names dozens hundreds corporate defendants company observed increase number lawsuits past several years including lawsuits plaintiffs mesotheliomarelated claims large percentage suits presented viable legal claims result dismissed courts companys historical strategy mount vigorous defense aimed unsubstantiated suits dismissed appropriate settling suits trial although large percentage litigated suits dismissed company cannot predict extent successful resolving lawsuits future addition company continues assess strategy resolving asbestos claims due number claims limited amount assets one companys nonoperating subsidiaries company pursuing alternatives subsidiary including negotiated settlement representatives current future asbestos claimants subsidiary company finalized approach company ultimately successful alternative likely assign rights certain insurance assets make cash payment order fully resolve claims subsidiary september 28 2012 company determined approximately 4900 claims pending subsidiaries entities company assumed responsibility connection acquisitions divestitures amount reflects companys current estimate number viable claims made entities includes adjustments claims actively prosecuted identify incorrect defendants duplicative actions company indemnified annually companys third quarter company performs analysis assistance outside counsel experts update estimated asbestosrelated assets liabilities addition quarterly basis company reevaluates assumptions used perform annual analysis records expense necessary reflect changes estimated liability related insurance asset companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made future defined period time lookforward period part companys annual valuation process third quarter fiscal 2012 company determined lookback period three years appropriate five year period company experienced higher consistent level claims activity settlement costs past three years result company believes three year lookback period representative future claim settlement activity five year period previously used company also revised lookforward period seven years fifteen years companys decision revise look forward period primarily based improvements consistency observable data tyco international ltd notes consolidated financial statements continued 14 commitments contingencies continued companys extensive experience asbestos claims since lookforward period originally established 2005 revisions companys lookforward lookback periods apply claims made subsidiary described company pursuing alternatives including negotiated settlement representatives current future asbestos claimants excluding claims company believes make reliable estimate pending future claims beyond seven years company believes valuation pending claims future claims filed next fifteen years produces reasonable estimate asbestos liability records consolidated financial statements undiscounted basis companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers fourth quarter fiscal 2012 company reached agreement one primary insurance carriers asbestos related claims terms settlement company agreed insurance carrier accept lump sum cash payment 97 million respect certain policies reached coverageinplace agreement insurance carrier respect certain claims cash payments received company three equal installments later end first quarter fiscal 2013 first payment received fourth quarter fiscal 2012 connection settlement company also expects terminate costsharing agreement entered entity acquired business several decades ago result access insurance policies responsible liabilities arising asbestos claims made subsidiary acquired agreement terminated first quarter fiscal 2013 upon receipt last three payments result activity described company recorded net charge 108 million quarter ended june 29 2012 september 28 2012 companys estimated net liability 155 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 401 million separately asset insurance recoveries 246 million company believes asbestosrelated liabilities insurancerelated assets september 28 2012 appropriate similarly september 30 2011 companys estimated net liability 84 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 299 million separately asset insurance recoveries 215 million amounts recorded company asbestosrelated liabilities insurancerelated assets based companys strategies resolving asbestos claims currently available information number estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries result actual tyco international ltd notes consolidated financial statements continued 14 commitments contingencies continued liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results compliance matters previously reported companys periodic filings company received responded various allegations information certain improper payments made companys subsidiaries agents recent years september 24 2012 company settled charges related alleged improper payments department justice doj sec agreed pay approximately 26 million fines disgorgement prejudgment interest doj sec company previously reserved fourth quarter fiscal 2011 company expects make payment first quarter fiscal 2013 connection settlement company entered nonprosecution agreement doj subsidiary company longer subsidiary result 2012 separation pleaded guilty one count conspiracy violate foreign corrupt practices act fcpa pursuant nonprosecution agreement company acknowledged number subsidiaries made payments directly indirectly government officials order obtain retain business private stateowned entities falsely inaccurately described payments subsidiaries books records accounts nonprosecution agreement also acknowledges companys timely voluntary complete disclosure doj cooperation dojs investigationincluding global internal investigation concerning bribery related misconductand extensive remediation nonprosecution agreement company also agreed cooperate report periodically doj concerning compliance efforts continue implement enhanced compliance program internal controls designed prevent detect fcpa violations notwithstanding settlement doj sec investigations company may subject allegations fcpa violations future well commercial impacts lost revenue customers decline business company result entry nonprosecution agreement otherwise result compliance matters unable comply provisions nonprosecution agreement may subject additional investigation enforcement doj sec case company could subject material fines injunctions future conduct imposition compliance monitor suffer criminal civil penalties adverse impacts including subject lawsuits brought private litigants could material adverse effect companys business financial condition results operations cash flows covidien te connectivity agreed connection 2007 separation cooperate company responses regarding matters agreed liabilities primarily related former healthcare electronics businesses company would assigned covidien te connectivity respectively result covidien te connectivity agreed contribute approximately 5 million immaterial amounts respectively toward aforementioned 26 million erisa partial withdrawal liability assessment demand june 8 2007 simplexgrinnell received notice alleging partially withdrawn national automatic sprinkler industry pension fund title iv erisa fund prove employer completely partially withdraws multiemployer pension tyco international ltd notes consolidated financial statements continued 14 commitments contingencies continued plan fund employer liable withdrawal liability equal proportionate share plans unfunded vested benefits alleged withdrawal results 1994 labor dispute grinnell fire protection systems simplexgrinnells predecessor road sprinkler fitters local union 669 following adverse arbitration ruling third quarter fiscal 2012 company agreed settle matter recorded charge amount 285 million including accrued interest liability recorded selling general administrative expenses companys consolidated statement operations erisa requires payment withdrawal liability made full quarterly installments commencing upon receipt liability assessment plan result company made 220 million payments june 29 2012 company made remaining 65 million cash payments fourth quarter fiscal 2012 tax litigation tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding 2007 separation issues proposed adjustments related years generally subject sharing provisions tax sharing agreement entered 2007 covidien te connectivity 2007 tax sharing agreement tyco covidien te connectivity share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens te connectivitys us certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties tyco reviewing contesting certain tax adjustments proposed tax authorities respect adjustments raised irs although company resolved substantial number adjustments significant items expected remain open respect audit 1997 2004 years date hereof unlikely tyco able resolve open items primarily involve treatment certain intercompany debt transactions period irs appeals process result tyco expects litigate matters receives requisite statutory notices irs expected occur fiscal 2013 company assessed obligations 2007 tax sharing agreement determined recorded liability sufficient cover indemnifications made company agreement however ultimate resolution matters uncertain could result material adverse impact companys financial position results operations cash flows effective tax rate future reporting periods see note 7 additional information related income tax matters addition foregoing company subject claims suits including time contractual disputes product general liability claims incidental present former operations acquisitions dispositions respect many claims company either selfinsures maintains insurance thirdparties varying deductibles ultimate outcome matters cannot predicted certainty company believes resolution proceedings whether underlying claims covered insurance material adverse effect companys financial condition results operations cash flows beyond amounts recorded matters tyco international ltd notes consolidated financial statements continued 15 retirement plans company sponsors number pension plans company measures pension plans fiscal year end following disclosures exclude impact plans immaterial individually aggregate defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based local regulations advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation net periodic benefit cost material us nonus defined benefit pension plans 2012 2011 2010 follows millions fiscal 2011 company froze last remaining active us pension plan fiscal 2010 company adopted plan amendments froze pension plan benefits certain defined benefit arrangements united kingdom resulted company recognizing curtailment gain approximately 19 million selling general administrative expenses within consolidated statement operations inactive plans company amortizes actuarial gains losses average remaining life expectancy pension plan participants estimated net loss prior service cost material us pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 14 million nil respectively estimated net loss prior service credit material nonus pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 12 million nil respectively tyco international ltd notes consolidated financial statements continued 15 retirement plans continued change benefit obligations plan assets amounts recognized consolidated balance sheets material us nonus defined benefit plans september 28 2012 september 30 2011 follows millions tyco international ltd notes consolidated financial statements continued 15 retirement plans continued accumulated aggregate benefit obligation fair value plan assets accumulated benefit obligations excess plan assets september 28 2012 september 30 2011 follows millions determining expected return plan assets company considers relative weighting plan assets asset class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions companys investment strategy pension plans manage plans goingconcern basis current investment policy maintain adequate level diversification maximizing return assets subject prudent level portfolio risk purpose enhancing security benefits participants well providing adequate liquidity meet tyco international ltd notes consolidated financial statements continued 15 retirement plans continued immediate future benefit payment requirements addition local regulations local financial considerations factors determining appropriate investment strategy country us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 48 equity securities 48 debt securities 4 asset classes pension plans following weightedaverage asset allocations although company buy sell securities direct investment pension funds due external investment management certain commingled funds plans may indirectly hold tyco securities aggregate amount securities would considered material relative total fund assets company evaluates defined benefit plans asset portfolios existence significant concentrations risk types investment concentration risks evaluated include limited concentrations single entity industry foreign country individual fund manager september 28 2012 significant concentrations risk companys defined benefit plan assets companys plan assets accounted fair value classified entirety based lowest level input significant fair value measurement companys assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets placement within fair value hierarchy levels companys asset allocations level within fair value hierarchy september 28 tyco international ltd notes consolidated financial statements continued 15 retirement plans continued september 30 2011 presented table companys material defined benefit plans equity securities consist primarily publicly traded us nonus equities publicly traded securities valued last trade closing price reported active market individual securities traded certain equity securities held within commingled funds valued unitized net asset value nav percentage net asset value determined custodian fund values based fair value underlying net assets owned fund fixed income securities consist primarily government agency securities corporate debt securities mortgage assetbacked securities available fixed income securities valued closing price reported active market individual security traded government agency securities corporate debt securities valued using recent bid prices occasionally mean latest bid ask prices markets less liquid assetbacked securities including mortgage backed securities valued using brokerdealer quotes available quotes available fair value determined utilizing discounted cash flow approach incorporates observable inputs cash flows underlying security structure market information including interest rates bid evaluations comparable securities tyco international ltd notes consolidated financial statements continued 15 retirement plans continued certain fixed income securities held within commingled funds valued unitizing nav determined custodian fund values based fair value underlying net assets owned fund cash equivalents consist primarily shortterm commercial paper bonds cash cashlike instruments including settlement proceeds due brokers stated cost approximates fair value following tables set forth summary pension plan assets valued using nav equivalent september 28 2012 september 30 2011 millions strategy companys investment managers regard investments valued using nav equivalent either match exceed relevant benchmarks associated respective asset category none investments valued using nav equivalent contain redemption restrictions unfunded commitments 2012 company contributed 36 million us 52 million nonus pension plans represented companys minimum required contributions pension plans fiscal year 2012 company make voluntary contributions us nonus plans 2012 companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates contribute least minimum required pension plans 2013 11 million us plans 50 million nonus plans tyco international ltd notes consolidated financial statements continued 15 retirement plans continued benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans material 2012 2011 2010 executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 companys accrued benefit obligations messrs kozlowski swartz september 28 2012 93 million nil respectively companys accrued benefit obligations messrs kozlowski swartz september 30 2011 93 million 48 million respectively second quarter fiscal 2012 company reversed liability related mr swartzs pay benefits due expiration statute limitations recorded selling general administrative expenses companys consolidated statement operations retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed mr kozlowski era subject litigation brought company see note 14 defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 58 million 54 million 57 million 2012 2011 2010 respectively company also maintains unfunded supplemental executive retirement plan serp plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp material 2012 2011 2010 deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation liabilities 103 million 87 million september 28 2012 september 30 2011 respectively deferred compensation expense material 2012 2011 2010 tyco international ltd notes consolidated financial statements continued 15 retirement plans continued postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits net periodic postretirement benefit cost material 2012 2011 2010 companys consolidated balance sheets include unfunded postretirement benefit obligations 40 million 38 million september 28 2012 september 30 2011 respectively within liabilities companys consolidated balance sheets include nil postretirement benefit assets september 28 2012 september 30 2011 addition company recorded net actuarial gain 4 million 8 million within accumulated comprehensive loss september 28 2012 september 30 2011 respectively company expects make contributions postretirement benefit plans 4 million 2013 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions 16 shareholders equity dividends prior may 2011 company paid dividends form return share capital companys registered share capital payments made free swiss withholding taxes company makes dividend payments contributed surplus equity position swiss statutory accounts payments also made free swiss withholding taxes unlike payments made form reduction registered share capital required denominated swiss francs converted us dollars time payment payments contributed surplus account may effectively denominated us dollars swiss law authority declare dividends vested general meeting shareholders march 7 2012 companys shareholders approved cash dividend 050 per share payable shareholders two quarterly installments 025 may 23 2012 august 22 2012 september 17 2012 companys shareholders approved cash dividend 030 per share payable shareholders two quarterly installments 015 november 15 2012 february 20 2013 030 dividend reflects impact 2012 separation companys dividend policy result company recorded accrued dividend 231 million march 7 2012 additional accrued dividend 139 million september 17 2012 within accrued current liabilities corresponding reduction contributed surplus first installment 025 paid may 23 2012 shareholders record april 27 2012 second installment 025 paid august 22 2012 shareholders record july 27 2012 tyco international ltd notes consolidated financial statements continued 16 shareholders equity continued march 9 2011 companys shareholders approved annual dividend companys common shares 100 per share paid contributed surplus four installments 025 per share shareholders record april 29 2011 july 29 2011 october 28 2011 january 27 2012 result company recorded accrued dividend 468 million march 9 2011 within accrued current liabilities corresponding reduction contributed surplus march 10 2010 companys shareholders approved annual dividend companys common shares 090 swiss francs chf per share paid form return capital four installments chf 022 chf 022 chf 023 chf 023 shareholders record may 14 2010 july 30 2010 october 29 2010 january 28 2011 respectively result company recorded accrued dividend chf 428 million march 10 2010 approximated 399 million based exchange rate effect date accrued dividend recorded accrued current liabilities companys consolidated balance sheet march 26 2010 corresponding reduction common shares reduced par value companys common shares chf 760 chf 670 installments paid us dollars converted swiss francs usdchf exchange rate effect shortly payment dates may 14 2010 company acquired outstanding equity bhs shareholders received tyco common stock consideration merger included first installment dividend payments paid may 26 2010 result company recorded accrued dividend chf 32 million may 14 2010 approximately 28 million based exchange rate effect date common stock september 28 2012 companys share capital amounted chf 3258632435 486363050 registered common shares par value chf 670 per share march 9 2013 board directors may increase companys share capital maximum amount chf 1628100000 issuing maximum 243000000 shares addition share capital company may increased amount exceeding chf 321127717 issue maximum 47929510 shares exercise conversion andor option warrant rights granted connection bonds notes similar instruments ii share capital company may increased amount exceeding chf 321127717 issue maximum 47929510 shares employees persons providing services company although company states par value swiss francs continues use us dollar reporting currency preparing consolidated financial statements share repurchase program companys board directors approved 10 billion 2011 share repurchase program 10 billion 2010 share repurchase program 10 billion 2008 share repurchase program april 2011 september 2010 july 2008 respectively share repurchases reduce amount common shares outstanding decrease dividends declared consolidated statement tyco international ltd notes consolidated financial statements continued 16 shareholders equity continued shareholders equity shares repurchased company fiscal year share repurchase program provided 17 share plans tyco sharebased compensation cost recognized 2012 140 million included 81 million selling general administrative expenses 27 million related discontinued operations 28 million separation costs 4 million restructuring charges total sharebased compensation 2011 110 million included 89 million selling general administrative expenses 21 million related discontinued operations total sharebased compensation 2010 120 million included 99 million selling general administrative expenses 21 million related discontinued operations company recognized related tax benefit associated sharebased compensation arrangements 2012 2011 2010 43 million 31 million 35 million 8 million 6 million 6 million included discontinued operations respectively july 12 2012 connection 2012 separation board directors approved conversion outstanding performance share units company restricted stock units based performance achieved june 29 2012 performance share unit converted number restricted stock units ratio determined compensation committee august 2 2012 based review certification performance results june 29 2012 upon vesting resulting restricted stock units award settled stock awards maintained original vesting terms modifications made marketbased condition outstanding performance share units result 2012 separation also constituted modification similar modification described result modification resulted incremental compensation cost 8 million 7 million recorded separation costs 1 million discontinued operations year ended september 28 2012 addition incremental expense recognized quarter related performance achieved june 29 2012 expense totaled 7 million 6 million recorded separation costs 1 million discontinued operations year ended september 28 2012 tyco international ltd notes consolidated financial statements continued 17 share plans continued connection 2012 separation employees outstanding stock option awards converted options acquire stock employees postseparation employer manner designed preserve intrinsic value awards however certain corporate employees terminated employees portion employees stock option awards converted options acquire stock company pentair adt modifications made share options result 2012 separation constituted modification authoritative guidance accounting stock compensation requires comparison fair values stock option awards immediately 2012 separation fair values immediately 2012 separation certain instances fair value immediately 2012 separation higher result modification resulted incremental compensation cost 1 million majority recorded discontinued operations year ended september 28 2012 except changes described material terms stock option awards remained unchanged original grant also connection 2012 separation restricted stock units held tyco employees deferred stock units held tyco directors converted cases restricted stock units company pentair adt cases solely restricted stock units employees postseparation employer modifications designed manner preserve intrinsic value awards except changes described material terms restricted stock units deferred stock units remained unchanged original grant 2004 plan effectively replaced tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan awards effective march 25 2004 plan provided award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted shares deferred stock units promissory stock stockbased awards collectively awards 2004 plan provided maximum 40 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance ltip plans awarded january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 march 25 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason including termination ltip plans also available issuance 2004 plan common shares issued pursuant grant full value award total number common shares remaining available grant decreased margin least 18 per share issued september 28 2012 approximately 10 million shares available grant 2004 plan october 1 2012 plan replaced 2004 plan awards permitted granted 2004 plan ltip plan reserved common shares issuance tycos directors executives managers share options 2012 approximately 01 million shares originally reserved issuance plan became available future grant 2004 plan due expiration tyco international ltd notes consolidated financial statements continued 17 share plans continued forfeiture cancellation september 28 2012 immaterial number options remained outstanding granted ltip prior termination ltip ii plan broadbased option plan nonofficer employees terms conditions plan similar ltip plan 2012 approximately 01 million shares originally reserved issuance plan became available future grant 2004 plan due expiration forfeiture cancellation september 28 2012 02 million options remained outstanding granted ltip ii prior termination september 17 2012 shareholders approved tyco international 2012 stock incentive plan 2012 plan replaces 2004 plan pursuant plan effective october 1 2012 50 million common shares available equitybased awards subject adjustments provided terms 2012 plan additional shares available 2004 plan addition common shares awarded 2004 tyco international ltd stock incentive plan 2004 plan issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason also available issuance 2012 plan common shares issued pursuant grant full value award example restricted stock units performance share units total number common shares remaining available grant decreased 332 shares share optionsoptions granted purchase common shares prices equal greater closing market price common shares date option granted conditions vesting determined time grant options generally exercisable equal annual installments period four years generally expire 10 years date grant historically companys practice settle stock option exercises either newly issued shares held treasury grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service period awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based analysis historic implied volatility measures set peer companies average expected life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well analysis actual share option forfeitures weightedaverage assumptions used blackscholes option pricing model 2012 2011 2010 follows tyco international ltd notes consolidated financial statements continued 17 share plans continued weightedaverage preconversion grantdate fair values options granted 2012 2011 2010 1256 922 918 respectively total intrinsic value options exercised 2012 2011 2010 85 million 84 million 32 million respectively related excess cash tax benefit classified financing cash inflow 2012 2011 2010 material summary option activity september 28 2012 changes year ended presented september 28 2012 26 million total unrecognized compensation cost related unvested options granted cost expected recognized weightedaverage period 25 fiscal years employee stock purchase plansunder uk save earn plan saye plan eligible employees united kingdom granted options purchase shares end three years service 85 market price time grant options saye plan generally exercisable period three years expire six months date vesting saye plan provided maximum 10 million common shares issued shares purchased saye plan purchased open market saye plan approved november 3 1999 ten year period expired according terms november 3 2009 international benefits oversight committee approved additional grants since last annual grant october 9 2008 applied approval replacement saye plan time tyco international ltd notes consolidated financial statements continued 17 share plans continued summary option activity saye plan september 28 2012 changes year ended presented grantdatefair value option grant estimated using blackscholes option pricing model assumptions expected volatility average expected life riskfree rate well expected annual dividend per share made using methodology previously described share options granted saye plan 2012 2011 2010 total intrinsic value options exercised 2012 2011 2010 10 million 04 million 10 million respectively related excess cash tax benefit classified financing cash inflow 2012 2011 2010 material september 28 2012 shares outstanding unrecognized compensation cost related saye plan restricted share awardsrestricted share awards including restricted stock units performance share units granted subject certain restrictions conditions vesting determined time grant restrictions award generally lapse upon normal retirement twelve months grant date death disability employee fair market value restricted awards time vesting subject specific performance criteria expensed period vesting restricted stock units vest based solely upon passage time generally vest period four years fair value restricted stock units determined based closing market price companys shares grant date performance share units restricted share awards vest dependent upon attainment various levels performance equal exceed targeted levels generally vest entirety three years grant date fair value performance share units determined based monte carlo valuation model compensation expense recognized restricted share awards net estimated forfeitures recipients restricted stock units voting rights receive dividend equivalent units deus recipients performance share units voting rights may receive deus depending terms grant tyco international ltd notes consolidated financial statements continued 17 share plans continued summary activity companys restricted stock unit awards september 28 2012 changes year ended presented tables weightedaverage preconversion grantdate fair value restricted stock units granted 2012 2011 2010 4554 3790 3423 respectively total fair value restricted stock units vested 2012 2011 2010 90 million 62 million 54 million respectively vested awards include approximately 2 million shares fully earned delivered september 28 2012 september 28 2012 57 million total unrecognized compensation cost related unvested restricted share awards cost expected recognized weightedaverage period 22 fiscal years summary activity companys performance share unit awards september 28 2012 changes year ended presented table weightedaverage preconversion grantdate fair value performance share units granted 2012 2011 2010 4886 4137 4027 respectively total fair value performance share units vested 2012 25 million performance share units vested 2011 2010 august 2 2012 performance share units converted restricted stock units outstanding shares time moved restricted stock units reporting table granted activity reflects incremental performance share units earned based upon performance achieved june 29 2012 tyco international ltd notes consolidated financial statements continued 17 share plans continued deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment service company distribution made form actual shares oneforone basis similar restricted stock units vest time fair value dsus determined based closing market price companys shares grant date amortized expense vesting period recipients dsus right vote receive cash dividends however right receive dividend equivalent units conditions vesting determined time grant 2004 plan grants made executives generally vested equal annual installments three years dsus granted board directors immediately vested company granted 11 million dsus fully vested delivery approximately 10 million dsus occur six months following september 28 2012 dsu awards granted 2012 2011 2010 however participants continue earn deus existing awards total fair value dsus including deus vested 2012 2011 2010 1 million 1 million 1 million respectively 18 accumulated comprehensive loss components accumulated comprehensive loss follows millions 1during years ended september 28 2012 september 30 2011 september 24 2010 2 million cumulative translation loss 164 million 67 million cumulative translation gains respectively transferred currency translation adjustments result sale foreign tyco international ltd notes consolidated financial statements continued 18 accumulated comprehensive loss continued entities amounts 2 million 126 million nil respectively included income discontinued operations 2income tax net investment hedge 1 million income tax expense year ended september 28 2012 nil year ended september 30 2011 7 million income tax benefit year ended september 24 2010 19 consolidated segment data segment information consistent management reviews businesses make investing resource allocation decisions assesses operating performance connection 2012 separation company realigned management segment reporting structure beginning fourth quarter fiscal 2012 company operates reports financial operating information following three segments •na installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail institutional governmental customers north america •row installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers rest world row regions •global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row installation services segments company also provides general corporate services segments reported fourth nonoperating segment corporate years ended september 30 2011 september 24 2010 corporate includes companys former electrical metal products business divested first quarter fiscal 2011 result 2012 separation net revenue operating income depreciation amortization capital expenditures years ended september 30 2011 september 24 2010 recast tyco international ltd notes consolidated financial statements continued 19 consolidated segment data continued new segment structure selected information segment presented following tables millions 1net revenue operating segment excludes intercompany transactions 2fiscal 2011 53week year fiscal years 2012 2010 52week years 1operating income includes 7 million 100 million years ended september 30 2011 september 24 2010 respectively related companys former electrical metals products business majority interest sold first quarter fiscal 2011 operating income year ended september 30 2011 also included gain net working capital adjustments 248 million related sale see note 3 total assets segment september 28 2012 september 30 2011 september 24 2010 follows millions tyco international ltd notes consolidated financial statements continued 19 consolidated segment data continued depreciation amortization capital expenditures segment years ended september 28 2012 september 30 2011 september 24 2010 follows millions 1amount relates primarily companys former electrical metal products business majority interest sold first quarter 2011 see note 3 net revenue geographic area years ended september 28 2012 september 30 2011 september 24 2010 follows millions 1net revenue attributed individual countries based reporting entity records transaction 2includes us net revenue 4478 million 4630 million 5194 million 2012 2011 2010 respectively 3fiscal 2011 53week year fiscal years 2012 2010 52week years tyco international ltd notes consolidated financial statements continued 19 consolidated segment data continued longlived assets geographic area september 28 2012 september 30 2011 september 24 2010 follows millions 1longlived assets comprised primarily subscriber system assets net property plant equipment net deferred subscriber acquisition costs net dealer intangibles exclude goodwill intangible assets 2includes us longlived assets 856 million 895 million 919 million 2012 2011 2010 respectively 20 supplementary consolidated balance sheet information selected supplementary consolidated balance sheet information september 28 2012 september 30 2011 follows millions tyco international ltd notes consolidated financial statements continued 21 inventory inventories consisted following millions inventories recorded lower cost primarily firstin firstout market value 22 property plant equipment property plant equipment consisted following millions 1property capital leases consists primarily buildings 2accumulated amortization capital lease assets 16 million 26 million september 28 2012 september 30 2011 respectively 23 tyco international finance sa tifsa whollyowned subsidiary company public debt securities outstanding fully unconditionally guaranteed tyco see note 11 following tables present condensed consolidating financial information tyco tifsa subsidiaries condensed financial information tyco tifsa standalone basis presented using equity method accounting subsidiaries result 2012 separation company undertook certain steps fiscal 2012 restructure ownership subsidiaries within tyco specifically company completed transfer certain investments tifsa tyco since transactions entirely among whollyowned subsidiaries tyco impact companys financial position results operations cash flows transactions however result decrease tifsas investment subsidiaries since transactions among entities common control effects reflected beginning earliest period presented resulted net decrease tifsas investment subsidiaries 117 million september 30 2011 tyco international ltd notes consolidated financial statements continued 23 tyco international finance sa continued condensed consolidating statement operations year ended september 28 2012 millions tyco international ltd notes consolidated financial statements continued 23 tyco international finance sa continued condensed consolidating statement operations year ended september 30 2011 millions tyco international ltd notes consolidated financial statements continued 23 tyco international finance sa continued condensed consolidating statement operations year ended september 24 2010 millions tyco international ltd notes consolidated financial statements continued 23 tyco international finance sa continued condensed consolidating balance sheet september 28 2012 millions tyco international ltd notes consolidated financial statements continued 23 tyco international finance sa continued condensed consolidating balance sheet september 30 2011 millions tyco international ltd notes consolidated financial statements continued 23 tyco international finance sa continued condensed consolidating statement cash flows year ended september 28 2012 millions tyco international ltd notes consolidated financial statements continued 23 tyco international finance sa continued condensed consolidating statement cash flows year ended september 30 2011 millions tyco international ltd notes consolidated financial statements continued 23 tyco international finance sa continued condensed consolidating statement cash flows year ended september 24 2010 millions tyco international ltd notes consolidated financial statements continued 24 immaterial corrections fourth quarter 2012 company determined certain aged receivables row installation services segment related security contracts china may collectible formal investigation company determined certain records relating receivables falsified district level employees located one region china company concluded revenue recognition practices related aged receivables dated back fiscal 2008 inappropriate company evaluated concluded identified amounts material previously issued annual interim financial statements including effects presenting adt tyco flow control discontinued operations although management determined amounts individually aggregate material prior periods accordance authoritative accounting literature considering effects prior year misstatements quantifying misstatements current year financial statements included herein adjusted correct impact items company revised previously issued annual interim see supplementary financial informationquarterly financial data financial statements well subsidiaries column companys guarantor financial statements see note 23 financial statement schedule listed index item 15 annual report form 10k reflect certain immaterial adjustments primarily related revenue recognition cost goods sold result adjustments basic diluted earnings per share attributable tyco common shareholders decreased 003 fiscal 2011 impact basic diluted earnings per share attributable tyco common shareholders fiscal 2010 following tables set forth impact corrections companys consolidated statement operations fiscal years ended september 30 2011 september 24 2010 consolidated balance sheet september 30 2011 certain immaterial adjustments relate periods prior fiscal 2010 consequently cumulative effect adjustments 15 million reflected decrease accumulated earnings september 25 2009 companys consolidated statement shareholders equity adjustments effect companys cash flows operating investing financing activities subtotals within consolidated statement cash flows tyco international ltd notes consolidated financial statements continued 24 immaterial corrections continued tyco international ltd supplementary financial information selected quarterly financial data unaudited selected quarterly financial data years ended september 28 2012 september 30 2011 follows millions except per share data 1net revenue excludes 1717 million 1804 million 1796 million 1831 million net revenue related discontinued operations first second third fourth quarters 2012 respectively 2amounts reflect correction certain immaterial adjustments described note 24 consolidated financial statements adjustments reduced net revenue approximately 13 million 9 million 9 million first second third quarters respectively income loss continuing operations basic diluted earnings loss per share attributable tyco common shareholders reduced 11 million 002 4 million 001 first second quarters respectively increasing 5 million 001 third quarter 3loss continuing operations attributable tyco common shareholders includes 453 million loss extinguishment debt recorded connection 2012 separation tyco international ltd supplementary financial information continued selected quarterly financial data unaudited continued 1net revenue excludes 1591 million 1572 million 1710 million 1875 million net revenue related discontinued operations first second third fourth quarters 2011 respectively 2amounts reflect correction certain immaterial adjustments described note 24 consolidated financial statements adjustments reduced net revenue approximately 9 million 9 million 16 million 16 million first second third fourth quarters respectively income loss continuing operations basic diluted earnings per share attributable tyco common shareholders reduced 2 million nil 2 million nil 7 million 002 3 million 001 first second third fourth quarters respectively tyco international ltd schedule iivaluation qualifying accounts millions 1deductions represent uncollectible accounts written net recoveries 2amounts reflect correction certain immaterial adjustments described note 24 consolidated financial statementsitem 15 exhibits financial statement schedules 1 2 financial statements supplementary datasee item 8 b exhibit index 1 management contract compensatory plan 2 see item 15a3 3 see item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd arun nayar arun nayar executive vice president chief financial officer principal financial officer date november 13 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant november 13 2014 capacities indicated name title george r oliver chief executive officer director principal executive officer george r oliver arun nayar executive vice president chief financial officer principal financial officer arun nayar sam eldessouky senior vice president controller chief accounting officer principal accounting officer sam eldessouky name title edward breen director herman e bulls director michael e daniels director frank drendel director brian duperreault director rajiv l gupta director dr brendan r oneill director jürgen tinggren director sandra wijnberg director r david yost director judith reinsdorf signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report judith reinsdorf judith reinsdorf attorneyinfact tyco international ltd index consolidated financial statements managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior management team leading example includes every one tycos global employees well customers suppliers business partners one crucial objectives continuing maintain build public employee shareholder confidence restored tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2014 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent registered public accounting firm internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls george r oliver arun nayar george r oliver chief executive officer director arun nayar executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 26 2014 september 27 2013 related consolidated statements operations comprehensive income shareholders equity cash flows three fiscal years period ended september 26 2014 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tyco international ltd subsidiaries september 26 2014 september 27 2013 results operations cash flows three fiscal years period ended september 26 2014 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states companys internal control financial reporting september 26 2014 based criteria established internal controlintegrated framework 1992 issued committee sponsoring organizations treadway commission report dated november 13 2014 expressed unqualified opinion companys internal control financial reporting deloitte touche llp new york new york november 13 2014 tyco international ltd consolidated statements operations years ended september 26 2014 september 27 2013 september 28 2012 millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements comprehensive income years ended september 26 2014 september 27 2013 september 28 2012 millions see notes consolidated financial statements tyco international ltd consolidated balance sheets september 26 2014 september 27 2013 millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 26 2014 september 27 2013 september 28 2012 millions see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity continued years ended september 26 2014 september 27 2013 september 28 2012 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 26 2014 september 27 2013 september 28 2012 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd corporation organized laws switzerland subsidiaries tyco subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance generally accepted accounting principles united states gaap unless otherwise indicated references 2014 2013 2012 tycos fiscal years ending september 26 2014 september 27 2013 september 28 2012 respectively effective september 28 2012 tyco completed spinoffs adt corporation adt pentair ltd formerly known tyco flow control international ltd tyco flow control formerly north american residential security flow control businesses tyco respectively separate publicly traded companies form distribution tyco shareholders immediately following spinoff pentair inc merged subsidiary tyco flow control taxfree allstock merger pentair ltd pentair succeeding pentair inc independent publicly traded company distribution made september 28 2012 tyco shareholders record september 17 2012 tyco shareholder received 050 common share adt approximately 024 common share pentair tyco common share held record date distribution structured taxfree tyco shareholders except extent cash received lieu fractional shares distributions merger related transactions collectively referred herein 2012 separation result distribution operations tycos former flow control north american residential security businesses classified discontinued operations periods prior 2012 separation company operates reports financial operating information following three segments north america installation services na installation services rest world installation services row installation services global products company also provides general corporate services segments reported fourth nonoperating segment corporate change jurisdiction may 30 2014 tyco entered merger agreement merger agreement tyco international plc newlyformed irish public limited company whollyowned subsidiary tyco ireland merger agreement tyco merge tyco ireland tyco ireland surviving company merger result tyco ireland becoming tycos publiclytraded parent company change jurisdiction organization tyco switzerland ireland tycos shareholders expected receive one ordinary share tyco ireland common share tyco held immediately prior merger upon completion merger tyco ireland expected conduct subsidiaries businesses conducted tyco merger subject certain conditions including shareholder approval received special general meeting shareholders held september 9 2014 merger expected become effective november 2014 reclassifications certain prior period amounts reclassified conform current period presentation discussed third quarter fiscal 2014 company completed sale south korean security business “adt korea” affiliate carlyle group company reclassified operations south korean security business income discontinued operations consolidated statements operations periods presented assets liabilities held sale within consolidated balance sheets september 27 2013 satisfied criteria presented discontinued operation periods see note 3 additional information addition company reclassified several businesses rest world row installation services segment income discontinued operations consolidated statements operations assets liabilities held sale within consolidated balance sheets satisfied criteria presented discontinued operations company expects complete sale businesses end third quarter fiscal 2015 see note 3 additional information principles consolidationtyco conducts business operating subsidiaries company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities vie company power direct significant activities entity obligation absorb losses receive benefits entity may significant vies company consolidates individually aggregate material impact companys tyco international ltd notes consolidated financial statements continued financial position results operations cash flows intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal company 52 53week fiscal year ends last friday september fiscal 2014 2013 2012 52 week years ended september 26 2014 september 27 2013 september 28 2012 respectively use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies including legal environmental asbestos reserves insurance reserves net realizable value inventories fair values financial instruments estimated contract revenue related costs income taxes tax valuation allowances pension postretirement employee benefit liabilities expenses actual results could differ materially estimates revenue recognitionthe company recognizes revenue principally four types transactionssales products security systems monitoring maintenance services contract sales including installation fire security systems constructionrelated projects revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions product returns discounts customers accounted reductions determining net revenue period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements company assesses revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services company expect situations vsoe available sales security systems services cases arise company would follow selling price hierarchy allocate arrangement consideration transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion extent progress toward completion generally measured based ratio actual cost incurred total estimated cost completion revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimated warranty costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting tyco international ltd notes consolidated financial statements continued company recorded retainage receivables 53 million 48 million september 26 2014 september 27 2013 respectively 42 million unbilled periods retainage provisions consist primarily fire protection contracts become due upon contract completion acceptance company expects approximately 41 million collected fiscal 2015 reflected within accounts receivable consolidated balance sheet september 26 2014 research developmentresearch development expenditures expensed incurred included cost product sales amounted 193 million 172 million 145 million fiscal years 2014 2013 2012 respectively related new product development research development expenses include salaries direct costs incurred building overhead expenses advertisingadvertising costs expensed incurred included selling general administrative expenses amounted 48 million 60 million 39 million fiscal years 2014 2013 2012 respectively acquisition costscosts incurred acquire new businesses new product lines similar assets expensed incurred included selling general administrative expenses see note 5 additional information translation foreign currencyfor companys nonus subsidiaries whose books functional currency us dollars assets liabilities translated us dollars using periodend exchange rates revenue expenses translated average exchange rates effect period foreign currency translation gains losses included component accumulated comprehensive loss tycos shareholders equity cash equivalentsall highly liquid investments original maturities three months less considered cash equivalents allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense fiscal years 2014 2013 2012 268 million 287 million 281 million respectively recorded selling general administrative expenses consolidated statement operations maintenance repair expenditures charged expense incurred except pooled subscriber systems depreciated accelerated basis period 15 years depreciation calculated using straightline method estimated useful lives related assets follows see discussion depreciation method estimated useful lives related subscriber systems subscriber system assets dealer intangibles related deferred revenue accountsthe company considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers place business outside north america residence installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses tyco international ltd notes consolidated financial statements continued ie commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded noncurrent assets included assets within consolidated balance sheets subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 140 360 commercial subscriber pools dealer intangibles converts straightline methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program primarily outside north america acquired contracts related customer relationships recorded contractually determined purchase price first 6 months 12 months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship estimated useful life dealer intangibles ranges 12 15 years company amortizes dealer intangible assets accelerated basis amortizable intangible assets netintangible assets primarily include contracts related customer relationships dealer accounts discussed intellectual property contracts related customer relationships well intellectual property consisting primarily patents trademarks copyrights unpatented technology amortized straightline basis 4 40 years company evaluates amortization methods remaining useful lives intangible assets periodic basis determine whether events circumstances warrant revision amortization method remaining useful lives longlived asset impairmentsthe company reviews longlived assets including property plant equipment amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal tyco international ltd notes consolidated financial statements continued goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur see note 8 additional information performing assessments management relies considers number factors including operating results business plans economic projections anticipated future cash flows comparable market transactions extent available market data companys overall market capitalization inherent uncertainties related factors require judgment applying analysis goodwill indefinitelived intangible assets impairment company elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets testing goodwill impairment company first assesses qualitative factors determine whether likely fair value reporting unit less carrying amount company concludes likely fair value reporting unit less carrying amount quantitative fair value test performed based upon company’s recent annual impairment test completed june 30 2014 likely fair value reporting unit less carrying value indefinitelived intangible assets consisting primarily trade names franchise rights tested impairment using either relieffromroyalty method excess earnings method respectively investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses recognized accumulated comprehensive loss within tyco shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings unrealized gains losses recognized income expense net trading securities management determines proper classification investments time purchase reevaluates classifications balance sheet date realized gains losses sales investments recorded income expense net consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting reporting period company evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included equity income loss earnings unconsolidated subsidiaries selling general administrative expenses consolidated statements operations depending nature investment product warrantythe company records estimated product warranty costs time sale products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty however instances warranty either negotiated contract sold separate component warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage environmental coststhe company subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized asbestosrelated contingencies insurance receivablesthe company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates tyco international ltd notes consolidated financial statements continued company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made future defined period time lookforward period quarterly basis company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable quarterly basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers see note 13 additional information insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities workers compensation discounted using riskfree rate return pattern timing future obligation reliably determinable impact discount consolidated balance sheets reduce obligation 17 million 74 million september 26 2014 14 million 58 million september 27 2013 company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage certain insurable liabilities fiscal 2013 portion 2014 captive insurance companies held certain investment accounts purpose providing collateral companys insurable liabilities investment accounts liquidated fiscal 2014 replaced investments see note 12 additional information fair value financial instrumentsauthoritative guidance fair value measurements establishes threelevel hierarchy ranks quality reliability information used developing fair value estimates financial instruments hierarchy gives highest priority quoted prices active markets lowest priority unobservable data cases two levels inputs used determine fair value financial instruments level determined based lowest level input considered significant fair value measurement entirety three levels fair value hierarchy summarized follows • level 1inputs based upon quoted prices unadjusted active markets identical assets liabilities accessible measurement date • level 2inputs based upon quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations asset liability derived principally corroborated market data primary inputs observable including forward interest rates yield curves credit risk exchange rates • level 3inputs valuations unobservable based managements estimates assumptions market participants would use similar inputs pricing asset liability fair values therefore determined using modelbased techniques option pricing models discounted cash flow models financial instrumentsthe company may use interest rate swaps currency swaps forward option contracts commodity swaps manage risks generally associated interest rate risk foreign exchange risk commodity prices derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly effective offsetting changes fair value underlying hedged item inception hedge expected remain highly effective life hedge contract derivative financial instruments reported consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items related operating activities reported selling general administrative expenses along offsetting transaction gains losses items hedged derivatives used manage exposure changes interest rates reported interest expense along offsetting transaction gains losses items hedged gains losses net investment hedges included cumulative translation adjustment component accumulated comprehensive loss extent effective gains losses derivatives tyco international ltd notes consolidated financial statements continued designated cash flow hedges recorded accumulated comprehensive loss reclassified earnings manner matches timing earnings impact hedged transactions company classifies cash flows associated settlement derivatives consistent nature transaction hedged ineffective portion hedges recognized currently earnings instruments qualify hedge accounting marked market changes recognized current earnings see note 12 additional information redeemable noncontrolling interestsnoncontrolling interest redemption features put options solely within companys control considered redeemable noncontrolling interests company accretes changes redemption value noncontrolling interest subsidiaries net income attributable noncontrolling interest period date issuance earliest redemption date redeemable noncontrolling interest considered temporary equity therefore reported mezzanine section liabilities equity companys consolidated balance sheet greater initial carrying amount increased decreased noncontrolling interests share net income loss redemption value recently adopted accounting pronouncementsin january 2013 financial accounting standards board fasb issued authoritative guidance clarifying scope disclosures offsetting assets liabilities guidance clarifies scope disclosures applies derivatives accounted accordance authoritative guidance derivatives hedging including bifurcated embedded derivatives repurchase agreements reverse repurchase agreements securities borrowing securities lending transactions either offset subject enforceable master netting agreement similar agreement guidance applied retrospectively became effective tyco first quarter fiscal 2014 adoption guidance material impact companys disclosures february 2013 fasb issued authoritative guidance reporting amounts reclassified accumulated comprehensive income aoci amendment change current requirements reporting net income comprehensive income oci financial statements guidance requires presentation either face statement net income presented notes significant reclassifications aoci respective line items net income amount reclassified required gaap reclassified net income entirety reporting period amounts required gaap reclassified entirety net income amendment requires crossreference disclosures gaap provide additional detail amounts guidance became effective tyco first quarter fiscal 2014 additional disclosures provided note 15 recently issued accounting pronouncementsin march 2013 fasb issued authoritative guidance resolve diversity practice accounting cumulative translation adjustment cta parent either sells part investment foreign entity longer holds controlling financial interest subsidiary group assets within foreign entity guidance requires parent release cta net income parent ceases controlling financial interest subsidiary group assets within foreign entity results substantially complete liquidation foreign entity sale investment foreign entity results loss controlling financial interest acquirer obtains control acquiree equity interest immediately acquisition date guidance change requirement release pro rata portion cta net income upon partial sale equity method investment foreign entity guidance effective tyco first quarter fiscal 2015 adoption guidance expected significant impact companys disclosures july 2013 fasb issued authoritative guidance presentation unrecognized tax benefit net operating loss “nol” carryforward similar tax loss tax credit carryforward exists guidance requires entity present unrecognized tax benefit portion unrecognized tax benefit financial statements reduction deferred tax asset nol carryforward similar tax loss tax credit carryforward nol carryforward similar tax loss tax credit carryforward available reporting date tax law jurisdiction tax law jurisdiction require entity use entity intend use deferred tax asset purpose unrecognized tax benefit presented financial statements liability combined deferred tax assets guidance effective tyco first fiscal quarter fiscal 2015 company expect guidance significant impact disclosures april 2014 fasb issued authoritative guidance change criteria reporting discontinued operations new guidance disposals representing strategic shift companys operations financial results reported discontinued operations expanded disclosures addition disclosure pretax income attributable disposal significant part organization qualify discontinued operation required guidance effective tyco first quarter fiscal 2016 early adoption permitted company currently assessing impact guidance upon adoption tyco international ltd notes consolidated financial statements continued may 2014 fasb issued authoritative guidance revenue contracts customers provides single comprehensive revenue recognition model apply determining recognize revenue core principle guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services applying new revenue model contracts customers guidance requires five steps applied include 1 identify contracts customer 2 identify performance obligations contract 3 determine transaction price 4 allocate transaction price performance obligations contract 5 recognize revenue entity satisfies performance obligation guidance also requires quantitative qualitative disclosures comprehensive existing revenue standards disclosures intended enable financial statement users understand nature timing uncertainty revenue related cash flow guidance effective tyco first fiscal quarter 2018 early adoption permitted company currently assessing impact guidance upon adoption august 2014 fasb issued authoritative guidance determine company required disclose goingconcern uncertainties financial statements guidance requires management perform interim annual assessments entity’s ability continue going concern within one year date financial statements issued entity must provide certain disclosures conditions events raise substantial doubt entity’s ability continue going concern guidance effective tyco first quarter fiscal 2018 early adoption permitted company currently assessing impact guidance upon adoption 2 2012 separation transaction september 28 2012 company completed spinoffs adt tyco flow control formerly north american residential security flow control businesses tyco respectively separate publicly traded companies form distribution tyco shareholders connection activities taken complete 2012 separation create revised organizational structure company incurred pretax charges separation charges 54 million 61 million 839 million years ended september 26 2014 september 27 2013 september 28 2012 respectively amounts presented within discontinued operations costs directly related 2012 separation expected provide future benefit company components separation charges incurred within continuing operations discontinued operations consisted following millions tyco international ltd notes consolidated financial statements continued pretax separation charges classified continuing operations within companys consolidated statement operations follows millions tyco international ltd notes consolidated financial statements continued 3 divestitures company continued assess strategic fit various businesses pursued divestiture certain businesses align longterm strategy fiscal 2014 may 22 2014 company together whollyowned subsidiary tyco far east holdings ltd “seller” completed sale tyco fire security services korea co ltd subsidiaries formed operated company’s adt korea business affiliate carlyle group transaction took form sale seller stock tyco fire security services korea co ltd aggregate purchase price 193 billion subject customary adjustments set forth stock purchase agreement third quarter fiscal 2014 company recognized gain 10 billion net 212 million charge related indemnification fair value certain tax related matters borne buyer probable paid net gain recorded income discontinued operations net income taxes consolidated statements operations year ended september 26 2014 fourth quarter fiscal 2014 company recorded working capital adjustment reduced net gain 15 million business accounted held sale consolidated balance sheets september 27 2013 results operations presented within discontinued operations consolidated statements operations years ended september 26 2014 september 27 2013 september 28 2012 company intends sell several businesses row installation services segment end third quarter fiscal 2015 businesses accounted held sale consolidated balance sheets september 26 2014 september 27 2013 results operations presented discontinued operations consolidated statements operations years ended september 26 2014 september 27 2013 quarter ended june 27 2014 company recorded 1 million impairment loss related writing net assets fair value march 6 2014 company announced atkore international group incs “atkore” intention redeem company’s remaining common equity stake atkore redemption completed april 9 2014 aggregate cash proceeds 250 million amount may adjusted upward 25 million prior december 31 2014 sale merger atkore sale substantially atkores assets initial public offering atkores stock company recognized net gain 216 million related transaction included equity income loss earnings unconsolidated subsidiaries consolidated statement operations year ended september 26 2014 net gain comprised 227 million gain sale equity investment partially offset 11 million loss companys share loss atkores debt extinguishment undertaken connection redemption fiscal 2013 fourth quarter fiscal 2013 company approved plan sell armored guard business new zealand fire security business fiji row installation services segment sale completed first quarter fiscal 2014 assets liabilities presented separately heldforsale consolidated balance sheets amounts material presentation periods pretax loss approximately 13 million writedown fair value less cost sell recorded restructuring asset impairment charges net companys consolidated statements operations year ended september 27 2013 business presented discontinued operations amounts material consolidated financial statements third quarter fiscal 2013 company completed sale north america guarding business na installation services segment approximately 25 million cash proceeds net 2 million cash divested sale pretax loss writedown fair value less cost sell material business accounted held sale second quarter fiscal 2013 however results operations presented discontinued operations amounts material consolidated financial statements fiscal 2012 september 28 2012 tyco completed 2012 separation presented former north american residential security flow control businesses discontinued operations periods prior completion 2012 separation see note 2 additional information regarding 2012 separation time 2012 separation company used available information develop best estimates certain assets liabilities related separation limited instances final determination balances made subsequent periods case final income tax returns filed certain jurisdictions returns include combination tyco adt andor tyco flow control legal entities tyco international ltd notes consolidated financial statements continued year ended september 27 2013 net increase 1 million recorded within consolidated statement shareholders equity primarily related cash trueup adjustment received pentair third quarter fiscal 2013 offset cash trueup adjustment paid adt first quarter fiscal 2013 adjustments impact filing final income tax returns additional adjustments expected material year ended september 28 2012 company sold fire equipment de mexico sa business part companys global products segment sale completed approximately 1 million cash consideration pretax loss 3 million recorded income discontinued operations net income taxes companys consolidated statements operations discontinued operations components income discontinued operations net income taxes follows millions total assets total liabilities discontinued operations september 26 2014 september 27 2013 follows millions matters company used available information develop best estimates certain assets liabilities related 2007 separation limited instances final determination balances made subsequent periods adjustments recorded tyco shareholders equity years ended september 26 2014 september 27 2013 september 28 2012 adjustments future impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor te connectivity legal entities certain amended income tax returns periods prior 2007 separation may recorded either tyco shareholders equity consolidated statement operations depending specific item giving rise adjustment additionally year ended september 28 2012 included 21 million income tax expense associated pre2007 separation tax liabilities recorded income discontinued operations net income taxes companys consolidated statements operations income tax expense associated pre2007 separation tax tyco international ltd notes consolidated financial statements continued liabilities years ended september 26 2014 september 27 2013 year ended september 28 2012 company reimbursed 8 million pursuant tax sharing agreement entered conjunction 2007 separation 2007 tax sharing agreement recorded income discontinued operations net income taxes companys consolidated statements operations see note 6 additional information divestiture gains charges net 2014 2013 2012 company recorded net gain 2 million net losses 20 million 14 million respectively selling general administrative expenses companys consolidated statements operations net gain year ended september 26 2014 primarily result favorable court judgment relating divested business row installation services segment net loss year ended september 27 2013 primarily resulted writedown fair value less cost sell armored guard business new zealand fire security business fiji row installation services segment net loss year ended september 28 2012 primarily resulted indemnification resulting divestiture companys electrical metal products business 4 restructuring asset impairment charges net fiscal 2014 company identified pursued opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across companys businesses company expects incur restructuring related charges range 75 million 100 million fiscal 2015 include repositioning charges discussed company recorded restructuring asset impairment charges action consolidated statement operations classification follows millions tyco international ltd notes consolidated financial statements continued 2014 actions restructuring asset impairment charges net year ended september 26 2014 related 2014 actions follows millions rollforward reserves related 2014 actions september 27 2013 september 26 2014 follows millions restructuring reserves businesses included within liabilities held sale consolidated balance sheets excluded table see note 3 additional information 2013 actions restructuring asset impairment charges net years ended september 26 2014 september 27 2013 related 2013 actions follows millions tyco international ltd notes consolidated financial statements continued restructuring asset impairment charges net incurred cumulative date initiation 2013 actions follows millions rollforward reserves related 2013 actions september 27 2013 september 26 2014 follows millions restructuring reserves businesses included within liabilities held sale consolidated balance sheets excluded table see note 3 additional information 2012 prior actions company continues maintain restructuring reserves related actions initiated prior fiscal 2013 total amount reserves 38 million 62 million 102 million september 26 2014 september 27 2013 september 28 2012 respectively company recorded 1 million restructuring reversals net 12 million 104 million restructuring charges net utilized 22 million 52 million 89 million year ended september 26 2014 september 27 2013 september 28 2012 respectively related 2012 prior actions aggregate remaining reserves primarily relate facility exit costs longterm noncancelable lease obligations primarily within companys row installation services segment total restructuring reserves september 26 2014 september 27 2013 restructuring reserves related actions included companys consolidated balance sheets follows millions restructuring reserves businesses included within liabilities held sale consolidated balance sheets excluded table see note 3 additional information repositioning company initiated certain global actions designed reduce cost structure improve future profitability streamlining operations better aligning functions company refers repositioning actions may lead future restructuring action years ended september 26 2014 september 27 2013 company recorded repositioning charges 44 million 20 million respectively primarily related professional fees tyco international ltd notes consolidated financial statements continued reflected selling general administrative expenses consolidated statement operations repositioning charges incurred fiscal 2012 5 acquisitions year ended september 26 2014 total consideration acquisitions included continuing operations 66 million comprised 65 million cash paid net cash acquired 1 million 1 million contingent consideration primarily comprised 53 million cash paid net 1 million cash acquired 1 million contingent consideration acquisition westfire inc westfire november 8 2013 westfire fire protection services company operations united states chile peru provides critical specialhazard suppression detection applications mining telecommunications vertical markets integrated na installation services row installation services segments balance acquisitions year ended september 26 2014 included companys row installation services segment none material individually aggregate quarter ended september 26 2014 company also paid 66 million cash purchase remaining ownership interest joint venture brazil consolidated companys row installation services segment connection tyco’s acquisition remaining ownership interest joint venture company recorded indemnification asset approximately 11 million relating indemnification tyco certain preacquisition tax liabilities accordance purchase agreement year ended september 27 2013 total consideration acquisitions included continuing operations 257 million comprised 229 million cash paid net cash acquired 9 million 28 million consideration primarily contingent successful transfer business license china tyco transfer license occurred first quarter fiscal 2015 cash paid acquisitions primarily related acquisition exacq technologies exacq july 26 2013 companys global products segment exacq developer open architecture video management systems security surveillance applications cash paid exacq totaled approximately 148 million net cash acquired 2 million balance acquisitions year ended september 27 2013 included within companys na installation services row installation services segments none material individually aggregate year ended september 28 2012 cash paid acquisitions included continuing operations totaled 217 million net cash acquired 17 million primarily related acquisition visonic ltd visonic december 6 2011 visonic global developer manufacturer electronic security systems components cash paid visonic totaled approximately 94 million net cash acquired 5 million companys global products segment balance acquisitions year ended september 28 2012 included within companys na row installation services global products segments none material individually aggregate company recorded redeemable noncontrolling interest 12 million related acquisition second quarter 2012 net loss adjustments related changes redemption value immaterial years ended september 26 2014 september 27 2013 companys redeemable noncontrolling interest balance 13 million september 26 2014 12 million september 27 2013 acquisition integration related costs acquisition integration costs expensed incurred years ended september 26 2014 september 27 2013 september 28 2012 company incurred acquisition integration costs 3 million 4 million 9 million respectively costs recorded selling general administrative expenses companys consolidated statements operations tyco international ltd notes consolidated financial statements continued 6 income taxes significant components income tax provision fiscal 2014 2013 2012 follows millions nonus income continuing operations income taxes 11 billion 844 million 87 million fiscal 2014 2013 2012 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 26 2014 september 27 2013 september 28 2012 follows millions 1 excludes nondeductible charges items broken separately table tyco international ltd notes consolidated financial statements continued 2012 separation related charges associated early extinguishment debt increased net operating loss carryforward 2012 company expect realize future periods valuation allowance loss carryforward included valuation allowance line table nondeductible charges fiscal 2013 2012 primarily related separation costs incurred deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 26 2014 september 27 2013 follows millions valuation allowance deferred tax assets 20 billion 19 billion september 26 2014 september 27 2013 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions valuation allowance september 26 2014 september 27 2013 includes separation related charges associated early extinguishment debt increased net operating loss carryforward company expect realize future periods valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets companys consolidated balance sheets september 26 2014 deferred tax assets approximately 140 million relate certain operating loss carryforwards resulting exercise employee stock options restricted stock vestings tax benefit recognized accounted credit additional paidin capital rather reduction income tax provision september 26 2014 company 7713 million net operating loss carryforwards certain nonus jurisdictions 7140 million expiration remaining 573 million expire future years 2034 us approximately 352 million federal 223 million state net operating loss carryforwards september 26 2014 expire future years 2034 september 26 2014 september 27 2013 company unrecognized tax benefits 267 million 256 million respectively 247 million 235 million recognized would affect effective tax rate company recognizes interest penalties related unrecognized tax benefits income tax expense company accrued interest penalties related unrecognized tax benefits 36 million 39 million september 26 2014 september 27 2013 respectively company recognized 1 million 1 million 2 million income tax expense interest penalties related unrecognized tax benefits years ended september 26 2014 september 27 2013 september 28 2012 respectively tyco international ltd notes consolidated financial statements continued rollforward unrecognized tax benefits september 26 2014 september 27 2013 september 28 2012 follows millions certain tycos uncertain tax positions relate tax years remain subject audit taxing authorities us federal state local foreign jurisdictions open tax years significant jurisdictions follows based current status income tax audits company believes reasonably possible nil 20 million unrecognized tax benefits may resolved next twelve months tax sharing agreements income tax matters connection 2012 2007 separations company entered 2012 2007 tax sharing agreements respectively govern respective rights responsibilities obligations tyco pentair adt 2012 separation tyco covidien te connectivity 2007 separation respect taxes specifically includes ordinary course business taxes incurred result failure distribution shares pentair adt covidien te connectivity qualify taxfree distribution us federal income tax purposes within meaning section 355 internal revenue code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code 2012 tax sharing agreement tyco pentair adt share certain predistribution income tax liabilities arise adjustments made tax authorities adts tyco flow controls tycos income tax returns ii payments required made tyco respect 2007 tax sharing agreement excluding approximately 175 million pre2012 separation related tax liabilities anticipated paid prior 2012 separation collectively shared tax liabilities tyco responsible first 500 million shared tax liabilities pentair adt share 42 58 respectively next 225 million shared tax liabilities tyco pentair adt share 525 20 275 respectively shared tax liabilities 725 million costs expenses associated management shared tax liabilities generally shared 20 275 525 pentair adt tyco respectively connection execution 2012 tax sharing arrangement tyco established liabilities representing fair market value obligations recorded liabilities companys consolidated balance sheet offset tyco shareholders equity 2007 tax sharing agreement tyco shares responsibility certain covidiens te connectivitys income tax liabilities result cash payments based sharing formula periods prior including june 29 2007 specifically tyco covidien te connectivity share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens te connectivitys us certain tyco international ltd notes consolidated financial statements continued nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties connection execution 2007 tax sharing agreement tyco established net receivable covidien te connectivity representing amount tyco expected receive pre2007 separation uncertain tax positions including amounts owed internal revenue service irs tyco also established liabilities representing fair market value share covidiens te connectivitys estimated obligations primarily irs pre2007 separation taxes covered 2007 tax sharing agreement year ended september 26 2014 tyco made net cash payment 155 million covidien terms 2007 tax sharing agreement cash exchanged reimbursement parties various payments made irs federal income taxes related audit fiscal years 2005 2007 year ended september 27 2013 tyco made net cash payment 16 million covidien te connectivity related resolution certain irs audit preseparation tax matters tyco assesses shared tax liabilities guarantee liabilities related 2012 2007 tax sharing agreements reporting period tyco provide payment pentair adt 2012 tax sharing agreement covidien te connectivity 2007 tax sharing agreement shared income tax liabilities settled settlement expected occur tax audit legal processes completed impacted years cash payments made due nature unresolved adjustments described next paragraph maximum amount future payments 2012 2007 tax sharing agreements known cash payments occur reduce guarantor liability payments represent equivalent reduction risk tyco also assesses sufficiency 2012 2007 tax sharing agreements guarantee liabilities quarterly basis increase liability probable cash payments expected made 2012 2007 tax sharing agreements exceed recorded balance tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding 2007 separation issues proposed adjustments related years generally subject sharing provisions 2007 tax sharing agreement tycos liabilities 2007 tax sharing agreement subject sharing provisions 2012 tax sharing agreement tyco previously disclosed connection us federal tax audits irs raised number issues proposed tax adjustments periods beginning 1997 tax year although tyco able resolve substantially issues adjustments proposed irs tax years 2007 able resolve matters related treatment certain intercompany debt transactions period result june 20 2013 tyco received notices deficiency irs asserting several tycos former us subsidiaries owe additional taxes 8833 million plus penalties 154 million based audits 1997 2000 tax years tyco subsidiaries existed time addition tyco received final partnership administrative adjustments certain us partnerships owned former us subsidiaries respect additional tax deficiency approximately 30 million expected asserted amounts exclude interest reflect impact subsequent periods irs position described ultimately proved correct irs asserted notices deficiency substantially tycos intercompany debt originated 1997 2000 period treated debt us federal income tax purposes disallowed interest related deductions recognized us income tax returns totaling approximately 29 billion tyco strongly disagrees irs position filed petitions us tax court contesting irs proposed adjustments trial date set february 2016 tyco believes meritorious defenses tax filings irs positions regard matters inconsistent applicable tax laws existing treasury regulations previously reported taxes years question appropriate payments respect matters would required dispute definitively resolved based experience companies could take several years tyco believes income tax reserves liabilities recorded consolidated balance sheet tax sharing agreements continue appropriate however ultimate resolution matters impact resolution uncertain could material impact tycos financial condition results operations cash flows particular irs successful asserting claim would adverse impact interest deductions related intercompany debt subsequent time periods totaling approximately 66 billion also expected disallowed irs noted tyco assessed obligations 2007 tax sharing agreement determine recorded liability sufficient cover indemnifications made agreement absence observable transactions identical similar guarantees tyco determined fair value guarantees indemnifications utilizing expected tyco international ltd notes consolidated financial statements continued present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using tycos incremental borrowing rate however ultimate resolution matters uncertain could result material adverse impact companys financial position results operations cash flows effective tax rate future reporting periods connection aforementioned audits irs assessed civil fraud penalty 21 million first quarter fiscal 2013 prior subsidiary distributed te connectivity connection 2007 separation penalties arise actions former executives taken connection intercompany transfers stock simplex technologies 1998 1999 pre2007 separation tax liability covered provisions 2007 tax sharing agreement addition dealing tax liabilities periods prior respective separations 2012 2007 tax sharing agreements contain sharing provisions address contingencies 2012 2007 separations internal transactions related thereto may deemed taxable us non us taxing authorities event 2012 separation determined taxable determination result actions taken 2012 separations tyco adt pentair party responsible failure would responsible taxes imposed company result thereof determination result actions taken tyco adt pentair 2012 separation tyco adt pentair would responsible taxes imposed companies result determination manner proportions described similar provisions exist 2007 tax sharing agreement either 2007 2012 separation internal transactions taken anticipation thereof deemed taxable associated liability could significant tyco responsible taxes shared pursuant 2012 2007 tax sharing agreements sharing formulas addition pentair adt covidien te connectivity responsible tax liabilities subject 2012 2007 tax sharing agreements sharing formula respectively 2012 2007 tax sharing agreements provides party agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party agreement would required pay equally nondefaulting party agreement amounts default addition another party 2012 2007 tax sharing agreements responsible portion income tax liability default payment liability taxing authority tyco could liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances tyco may obligated pay amounts excess agreedupon share tax liabilities either 2012 2007 tax sharing agreements receivables liabilities related 2012 2007 tax sharing agreements september 26 2014 september 27 2013 follows millions tyco international ltd notes consolidated financial statements continued company recorded expense income conjunction 2012 2007 tax sharing agreements years ended september 26 2014 september 27 2013 september 28 2012 follows millions result 2012 separation equity awards certain employees converted three companies pursuant terms 2012 separation distribution agreement three companies responsible issuing shares upon employee exercise stock option award vesting restricted unit award however 2012 tax sharing agreement provides allowable compensation tax deduction awards claimed employees current employer 2012 tax sharing agreement requires employer claiming tax deduction shares issued companies pay percentage allowable tax deduction company issuing equity 2014 tyco incurred charge 6 million make payments adt pentair based estimated allowable deductions adt pentair shares issued company employees offset income 1 million received adt pentair company shares issued employees resulting net impact approximately 5 million recorded expense net within tycos consolidated statement operations offsetting charge approximately 20 million related finalization audits fiscal years 2005 2007 additionally charge 21 million recorded primarily related finalization various audits 2007 tax sharing agreement 2013 tyco incurred charge 38 million make payments adt pentair based estimated allowable deductions adt pentair shares issued company employees offset income 6 million received adt pentair company shares issued employees resulting net impact approximately 32 million recorded expense net within tycos consolidated statement operations income tax matters except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries deferred tax liabilities temporary differences related investments subsidiaries since earnings expected permanently reinvested investments essentially permanent duration tyco concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries tyco international ltd notes consolidated financial statements continued 7 earnings per share reconciliations basic diluted earnings per share attributable tyco common shareholders years ended september 26 2014 september 27 2013 september 28 2012 follows millions except per share data computation diluted earnings per share years ended september 26 2014 september 27 2013 september 28 2012 excludes effect potential exercise share options purchase approximately 2 million 4 million 12 million shares respectively excludes restricted share awards 2 million 1 million 2 million shares respectively effect would antidilutive tyco international ltd notes consolidated financial statements continued 8 goodwill intangible assets goodwill impairments result performing companys 2014 2013 2012 annual impairment tests changes carrying amount goodwill segment 2014 2013 follows millions intangible assets indefinitelived intangible asset impairments result performing companys 2014 2013 2012 annual impairment tests following table sets forth gross carrying amount accumulated amortization companys intangible assets september 26 2014 september 27 2013 millions intangible asset amortization expense 2014 2013 2012 93 million 95 million 99 million respectively recorded selling general administrative expense consolidated statements operations tyco international ltd notes consolidated financial statements continued estimated aggregate amortization expense intangible assets expected approximately 66 million 2015 62 million 2016 53 million 2017 51 million 2018 208 million 2019 thereafter 9 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans fourth quarter 2002 board directors new senior management time adopted policy new loans allowed granted officers company existing loans allowed extended modified loans made companys current executives outstanding loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average rates effect first day preceding 12 months loans generally repayable 10 years however earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property maximum amount outstanding programs nil 21 million september 26 2014 september 27 2013 loans receivable programs well unsecured advances outstanding nil 21 million september 26 2014 september 27 2013 september 27 2013 total outstanding loans receivable included loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest nil 28 million september 26 2014 september 27 2013 rate interest charged loans 04 2013 interest income interest bearing loans material periods presented certain loans totaling nil 1 million september 26 2014 september 27 2013 noninterest bearing company filed civil complaints mr kozlowski former chief financial officer mark swartz frank e walsh jr former director breach fiduciary duty wrongful conduct company resolved matters see note 13 additional information 2014 2013 2012 company engaged commercial transactions normal course business companies companys directors employed served officers purchases companies year aggregated less 1 consolidated net revenue 10 debt september 26 2014 september 27 2013 follows millions 1 20 million amount shown comprises current portion companys total debt september 26 2014 september 27 2013 tyco international ltd notes consolidated financial statements continued fair value carrying amount tycos debt subject fair value disclosure requirements september 26 2014 september 27 2013 1441 million 1443 million respectively company utilizes various valuation methodologies determine fair value debt primarily dependent type market companys debt traded available company uses quoted market prices determine fair value debt traded active markets september 26 2014 september 27 2013 fair value companys debt actively traded 1670 million 1676 million respectively september 26 2014 september 27 2013 companys debt subject fair value disclosure requirements actively traded classified level 1 fair value hierarchy see note 1 details fair value hierarchy commercial paper time tifsa may issue commercial paper general corporate purposes maximum aggregate amount unsecured commercial paper notes available issued private placement basis commercial paper program 1 billion september 26 2014 september 26 2014 september 27 2013 tifsa commercial paper outstanding fiscal 2014 2013 debt issuancerepayment fiscal years 2014 2013 except issuance commercial paper described material debt issuances repayments fiscal 2012 debt issuancerepayment fourth quarter 2012 connection separation tyco finance subsidiary tyco international finance sa tifsa redeemed various debt securities maturing 2013 2023 issued tifsa andor tyco aggregate principal amount 26 billion set forth millions conjunction debt redemptions company terminated associated interest rate swap contracts related 60 notes due 2013 4125 notes due 2014 result debt redemptions company recorded loss extinguishment debt 453 million recorded within expense net companys consolidated statement operations year ended september 28 2012 charge comprised premium paid tender offers writeoff unamortized debt issuance costs discount related extinguished notes net gain recognized upon termination associated interest rate swap contracts credit facilities june 22 2012 tifsa borrower company guarantor entered fiveyear senior unsecured credit agreement expiring june 22 2017 providing revolving credit commitments aggregate amount 10 billion 2012 credit agreement connection entering 2012 credit agreement tifsa company terminated existing fouryear senior unsecured credit agreement dated march 24 2011 provided revolving credit commitments aggregate amount 750 million additionally companys fiveyear senior unsecured credit agreement dated april 25 2007 amended terminated september 28 2012 result entering 2012 credit agreement companys committed revolving credit facility totaled 10 billion september 26 2014 revolving credit facility may used working capital expenditures general corporate purposes september 26 2014 september 27 2013 amounts drawn tyco international ltd notes consolidated financial statements continued companys revolving credit facilities interest revolving credit facilities variable calculated reference libor alternate base rate debt information aggregate amounts principal public debt maturing next five fiscal years thereafter follows nil 2015 258 million 2016 nil 2017 67 million 2018 364 million 2019 746 million thereafter september 26 2014 weightedaverage interest rate total debt 65 september 27 2013 weightedaverage interest rate total debt excluding impact interest rate swaps 65 public shortterm debt outstanding september 26 2014 september 27 2013 september 28 2012 company terminated interest rate swaps impact companys interest rate swap agreements reported interest expense prior termination net decrease 18 million year ended september 28 2012 11 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging fiscal year 2015 completion transactions would typically triggered event nonperformance companys performance guarantees required would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien te connectivity adt pentair accordance terms 2007 2012 separation distribution agreements tax sharing agreements guarantees primarily relate certain contingent tax liabilities included tax sharing agreements see note 6 additional information addition tyco historically provided support form financial andor performance guarantees various covidien te connectivity adt tyco flow control operating entities connection 2007 2012 separations company worked guarantee counterparties cancel assign guarantees covidien te connectivity adt pentair appropriate extent guarantees assigned prior separation dates tyco assumed primary liability remaining support companys obligations related 2012 separation 3 million included liabilities companys consolidated balance sheets september 26 2014 september 27 2013 offset tyco shareholders equity 2012 separation date companys obligations related 2007 separation 3 million included liabilities companys consolidated balance sheets september 26 2014 september 27 2013 respectively offset tyco shareholders equity 2007 separation date disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company reason believe uncertainties would material adverse effect companys financial position results operations cash flows normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows year ended september 26 2014 tyco replaced available sale investments held collateral companys insurable liabilities letters credit approximately 137 million september 26 2014 september 27 2013 company total outstanding letters credit bank guarantees approximately 662 million 424 million respectively company records estimated product warranty costs time sale see note 1 additional information tyco international ltd notes consolidated financial statements continued changes carrying amount companys warranty accrual september 27 2013 september 26 2014 follows millions warranty accruals businesses included within liabilities held sale consolidated balance sheets excluded table see note 3 additional information 12 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable accounts payable approximated book value september 26 2014 september 27 2013 fair value derivative financial instruments material periods presented see fair value investments note 10 fair value debt derivative instruments normal course business tyco exposed market risk arising changes currency exchange rates interest rates commodity prices company may use derivative financial instruments manage exposures foreign currency commodity interest rate risks companys objective utilizing derivative financial instruments manage risks using effective methods eliminate reduce impacts exposures company use derivative financial instruments trading speculative purposes additionally company derivative instruments designated hedging instruments accounting purposes years ended september 26 2014 september 27 2013 year ended september 28 2012 company terminated interest rate swaps foreign currency exposures company manages foreign currency exchange rate risk use derivative financial instruments comprised principally forward contracts foreign currency designated hedging instruments accounting purposes objective derivative instruments minimize income statement impact potential variability cash flows associated intercompany loans accounts receivable accounts payable forecasted transactions denominated certain foreign currencies september 26 2014 september 27 2013 total gross notional amount companys foreign exchange contracts 258 million 278 million respectively including contracts nil 60 million respectively related south korean security business counterparty credit risk use derivative financial instruments exposes company counterparty credit risk tyco established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide strong investment grade longterm credit ratings reduce risk loss company generally enters international swaps derivatives association master agreements substantially counterparties companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes company anticipate nonperformance counterparties concentration risk financial institutions present significant credit risk company tyco international ltd notes consolidated financial statements continued investments primarily include marketable securities us government obligations us government agency securities corporate debt securities equity securities time deposits banks available company uses quoted market prices determine fair value investment securities investments included level 1 quoted market prices readily available pricing determinations made based results market approach valuation models using observable market data recently reported trades bid offer information benchmark securities investments included level 2 consist primarily us government agency securities corporate debt securities year ended september 26 2014 company liquidated portfolio corporate us government debt securities recorded 1 million gain sale investments related liquidation september 26 2014 company held time deposits original time maturity greater three months 275 million recorded prepaid expenses current assets consolidated balance sheet year ended september 26 2014 company also purchased 62 million trading securities serve partially offset changes market value liabilities unfunded nonqualified defined contribution pension plan securities primarily consist exchange traded equity funds recorded prepaid expenses current assets consolidated balance sheet gains losses recorded income expense net consolidated statement operations year ended september 26 2014 trading securities realized gain nil following tables present cost fair market value companys investments measured fair value type security level classification companys consolidated balance sheets september 26 2014 september 27 2013 september 26 2014 millions september 27 2013 millions 2014 2013 company significant transfers within fair value hierarchy investments continuous unrealized losses less 12 months 12 months greater september 26 2014 september 27 2013 material company record otherthantemporary impairments years 2014 2013 2012 derivative financial instruments fair values companys derivative financial instruments derived market approach pricing models take account contractual terms features instrument forward foreign currency rates companys tyco international ltd notes consolidated financial statements continued foreign exchange contracts valuations adjusted reflect creditworthiness counterparty assets creditworthiness company liabilities adjustments based observable market evidence categorized level 2 exposures derivative financial instruments fair value details presented derivative financial instruments material periods presented addition gain related liquidation companys investment portfolio described year ended september 26 2014 also included 7 million loss sale investment related companys row installation services business company 15 billion 14 billion intercompany loans designated permanent nature september 26 2014 september 27 2013 respectively years ended september 26 2014 september 27 2013 september 28 2012 company recorded cumulative translation loss 28 million gain 3 million gain 48 million respectively accumulated comprehensive loss related loans 13 commitments contingencies company facility vehicle equipment leases expire various dates beyond fiscal 2015 rental expense leases 280 million 284 million 292 million fiscal years 2014 2013 2012 respectively following schedule minimum lease payments noncancelable operating leases september 26 2014 millions company also purchase obligations related commitments purchase certain goods services september 26 2014 obligations follows 375 million 2015 66 million 2016 28 million 2017 1 million 2018 1 million 2019 thereafter normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows legacy matters related former management company party several lawsuits involving disputes former management including former chief executive officer mr l dennis kozlowski former chief financial officer mr mark swartz company filed civil complaints mr kozlowski mr swartz breach fiduciary duty wrongful conduct relating alleged abuses companys key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct connection tycos affirmative actions mr kozlowski mr swartz mr kozlowski counterclaims mr swartz separate lawsuit sought aggregate approximately 140 million allegedly due connection compensation retention arrangements employee retirement income security act erisa respect mr kozlowski first quarter fiscal 2014 parties signed agreement resolving outstanding disputes mr kozlowski mr kozlowski agreeing release company claims monetary amounts related compensation retention arrangements including key employee loan program alleged existed company result first quarter fiscal 2014 company reversed net liability approximately 92 million recorded selling general administrative expenses consolidated statement operations amounts allegedly due additionally company entitled portion proceeds future sale certain assets owned mr kozlowski timing amount tyco international ltd notes consolidated financial statements continued uncertain time quarter ended june 27 2014 company received 4 million recovery sale property owned mr kozlowski recognized reduction selling general administrative expenses respect mr swartz second quarter fiscal 2012 company reversed 50 million liability related mr swartzs pay benefits due expiration statute limitations july 2013 parties reached agreement principle resolve matter mr swartz agreeing release company claims monetary amounts related compensation retention arrangements alleged existed company november 2014 parties executed definitive settlement agreement company received approximately 12 million cash mr swartz portion shared members class action settlement environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 26 2014 tyco concluded probable would incur remedial costs range approximately 38 million 79 million september 26 2014 tyco concluded best estimate within range approximately 42 million 23 million included accrued current liabilities accounts payable 19 million included liabilities companys consolidated balance sheet majority liabilities described relate ongoing remediation efforts facility companys global products segment located marinette wisconsin company acquired 1990 connection acquisition among things ansul product line prior tycos acquisition ansul manufactured arsenicbased agricultural herbicides marinette facility resulted significant arsenic contamination soil groundwater marinette site parts adjoining menominee river ansul engaged ongoing remediation efforts marinette site since 1990 february 2009 entered administrative consent order consent order us environmental protection agency address presence arsenic marinette site agreement ansuls principal obligations contain arsenic contamination site pump treat onsite groundwater dredge treat properly dispose contaminated sediments adjoining river areas monitor contamination levels ongoing basis activities completed consent order since 2009 include installation subsurface barrier wall around facility contain contaminated groundwater installation groundwater extraction treatment system dredging offsite disposal treated river sediment september 26 2014 company concluded remaining remediation monitoring costs related marinette facility range approximately 27 million 54 million companys best estimate within range approximately 30 million 18 million included accrued current liabilities 12 million included liabilities companys consolidated balance sheet years ended september 26 2014 september 27 2013 september 28 2012 company recorded charges nil 100 million 17 million respectively selling general administrative expenses consolidated statement operations although company recorded best estimate costs incur remediate monitor arsenic contamination marinette facility possible technological regulatory enforcement developments results environmental studies factors could change companys expectations respect future charges cash outlays changes could material companys future results operations financial condition cash flows asbestos matters company certain subsidiaries including yarway corporation “yarway” grinnell llc “grinnell” along numerous third parties named defendants personal injury lawsuits based alleged exposure asbestos containing materials 90 cases pending affiliates company filed yarway grinnell typically involved product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos used asbestos containing components claims filed yarway derive yarway’s purported use asbestoscontaining gaskets packing sale distribution steam valves traps alleged manufacture asbestoscontaining expansion joint packing yarway’s alleged manufacture distribution andor sale asbestoscontaining materials ceased 1988 yarway ceased substantially manufacturing distribution sales operations 2003 claims filed grinnell typically allege manufactured sold distributed valves gaskets piping sprinkler systems containing asbestos september 26 2014 company determined approximately 5600 claims pending includes approximately 3200 claims pending yarway amount reflects companys current estimate number viable claims made includes adjustments claims actively prosecuted identify tyco international ltd notes consolidated financial statements continued incorrect defendants duplicative actions company indemnified third parties additionally result yarway bankruptcy filing described claims yarway stayed since april 2013 following table summarizes activity asset liability accounts related asbestos matters year ended september 26 2014 millions yarway previously disclosed april 22 2013 yarway filed voluntary petition relief chapter 11 us bankruptcy code “chapter 11” united states bankruptcy court district delaware “bankruptcy court” result filing continuation commencement asbestosrelated litigation yarway enjoined automatic stay imposed us bankruptcy code yarways goal negotiate obtain approval consummate plan reorganization establishes trust fairly equitably value pay current future yarway asbestos claims exchange funding trust company andor subsidiaries provides permanent injunctive relief protecting company current former affiliates various parties “company protected parties” asbestos claims based products manufactured sold andor distributed yarway october 9 2014 company reached agreement principle yarway official committee asbestos claimants “acc” appointed yarway chapter 11 case representative current yarway asbestos claimants future claimants representative “fcr” appointed yarway chapter 11 case representative future yarway asbestos claimants fund section 524g trust resolution payment current future yarway asbestos claims agreement principle implemented chapter 11 plan yarway resolve potential liability company protected parties pending future derivative personal injury claims related exposure asbestoscontaining products allegedly manufactured distributed andor sold yarway “yarway asbestos claims” chapter 11 plan asbestos settlement trust “yarway trust” conforms provisions section 524g us bankruptcy code established effective date chapter 11 plan company yarway contribute yarway trust total 325 million cash “settlement consideration” includes approximately 100 million relating settlement intercompany amounts allegedly due yarway exchange settlement consideration company protected parties receive benefit release yarway injunction section 524g bankruptcy code permanently enjoining assertion yarway asbestos claims parties agreement principle subject among things negotiation filing chapter 11 plan reorganization yarway incorporating terms agreement “plan” acceptance plan least 75 yarway’s current asbestos claimants voting plan confirmation plan bankruptcy court approval injunction favor company protected parties united states district court district delaware “district court” effective date plan anticipated occur second half fiscal 2015 company yarway pay settlement consideration yarway asbestos claims company protected parties permanently enjoined yarway anticipated become whollyowned subsidiary yarway trust accordingly would longer owned tyco international ltd notes consolidated financial statements continued part consolidated group company unless extended agreement principle expire order confirming plan implementing injunction entered affirmed district court april 30 2015 effective date plan occurred september 15 2016 result agreement principle settle company recorded charge 225 million selling general administrative expenses consolidated statement operations fourth fiscal quarter 2014 result filing voluntary bankruptcy petition third quarter fiscal 2013 company recorded expected loss upon deconsolidation 10 million related yarway chapter 11 filing continues represent company’s best estimate loss claims company continuously assesses sufficiency estimated liability pending future asbestos claims defense costs quarterly basis company evaluates actual experience regarding asbestos claims filed settled dismissed amounts paid settlements recoverability insurance assets data actual experience demonstrate unfavorable discernible trend company performs valuation asbestos related liabilities corresponding insurance assets including comprehensive review underlying assumptions addition company evaluates ability reasonably estimate claim activity beyond current lookforward period order assess whether period appropriate addition claims litigation experience company considers additional qualitative quantitative factors changes legislation legal environment company’s strategy managing claims obtaining insurance including defense strategy health related trends overall population individuals potentially exposed asbestos company evaluates factors determines whether change estimate liability pending future claims defense costs insurance assets warranted fourth quarter fiscal 2014 company concluded unfavorable trend developed actual claim filing activity compared projected claim filing activity established company’s recent valuation accordingly company assistance independent actuarial service providers performed revised valuation asbestosrelated liabilities corresponding insurance assets part revised valuation company assessed whether change lookforward period appropriate taking consideration extensive history experience asbestosrelated claims litigation including experience yarway determined possible make reasonable estimate actuarially determined ultimate risk loss pending unasserted potential future asbestosrelated claims 2056 connection revised valuation company considered recent settlement one insurers calling establishment qualified settlement fund results separate independent actuarial consulting firm report conducted fourth quarter assist company obtaining insurance fully fund estimable asbestosrelated claims excluding yarway claims incurred 2056 independent actuarial service firm calculated total estimated liability asbestosrelated claims company reflects company’s best estimate ultimate risk loss resolve pending future claims excluding yarway claims 2056 company’s reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates conjunction determining total estimated liability company retained independent third party assist valuing insurance assets responsive asbestosrelated claims excluding yarway claims insurance assets represent amounts due company previously settled claims probable reimbursements relating total liability pending unasserted potential future asbestos claims defense costs calculating amount company used estimated asbestos liability pending projected future claims defense costs described also considered amount insurance available solvency risk respect companys insurance carriers resolution insurance coverage issues gaps coverage allocation methodologies terms existing settlement agreements insurance carriers result activity described company recorded net charge addition amounts described yarway 240 million selling general administrative expenses consolidated statement operations quarter ended september 26 2014 although company’s methodology established range estimates reasonably possible outcomes company recorded best estimate within range based upon currently known information companys estimated gross asbestos liability excluding yarway 538 million recorded within companys consolidated balance sheet liability pending future claims related defense costs separately asset insurance recoveries 245 million aforementioned total estimated liability pretax basis discounted timevalue money includes defense costs consistent company’s historical accounting practices tyco international ltd notes consolidated financial statements continued effect change lookforward period reduced income continuing operations income taxes net income approximately 116 million 71 million respectively addition effect change decreased companys basic income continuing operations net income 016 per share decreased companys diluted income continuing operations net income 015 per share amounts recorded company asbestosrelated liabilities insurancerelated assets based companys strategies resolving asbestos claims currently available information number estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims identity defendants resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers many factors closely linked change one variable assumption impact one others single variable assumption predominately influences determination companys asbestosrelated liabilities insurancerelated assets furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries result actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results connection foregoing third quarter fiscal 2014 company resolved disputes certain historical insurers agreed certain insurance proceeds used establish fund qualified settlement fund “qsf” within meaning internal revenue code used resolution asbestos liabilities company yarway asbestos claims intended qsf receive future insurance payments proceeds third party insurers addition fund manage liabilities certain historical operations company addition company expects make cash contributions qsf structure within next 12 months approximately 275 million purchase insurance dedicated expected fully fund liabilities tax matters tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding 2007 separation issues proposed adjustments related years generally subject sharing provisions tax sharing agreement entered 2007 covidien te connectivity 2007 tax sharing agreement tyco covidien te connectivity share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens te connectivitys us certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties tyco previously disclosed connection us federal tax audits irs raised number issues proposed tax adjustments periods beginning 1997 tax year although tyco able resolve substantially issues adjustments proposed irs tax years 2007 able resolve matters related treatment certain intercompany debt transactions period result june 20 2013 tyco received notices deficiency irs asserting several tycos former us subsidiaries owe additional taxes 8833 million plus penalties 154 million based audits 1997 2000 tax years tyco subsidiaries existed time addition tyco received final partnership administrative adjustments certain us partnerships owned former us subsidiaries respect additional tax deficiency approximately 30 million expected asserted amounts exclude interest reflect impact subsequent periods irs position described ultimately proved correct irs asserted notices deficiency substantially tycos intercompany debt originated 1997 2000 period treated debt us federal income tax purposes disallowed interest related deductions recognized us income tax returns totaling approximately 29 billion tyco strongly disagrees irs position filed petitions us tax court contesting irs proposed adjustments trial date set february 2016 tyco believes meritorious defenses tax filings irs positions regard matters inconsistent applicable tax laws existing treasury regulations previously reported taxes years question appropriate payments respect matters would required dispute definitively resolved based experience companies could take several years tyco believes income tax reserves liabilities recorded consolidated balance sheet tax sharing agreements continue appropriate however ultimate resolution matters impact resolution uncertain could material impact tycos financial condition tyco international ltd notes consolidated financial statements continued results operations cash flows particular irs successful asserting claim would adverse impact interest deductions related intercompany debt subsequent time periods totaling approximately 66 billion expected disallowed irs see note 6 additional information related income tax matters fourth quarter fiscal 2012 tyco disclosed improper recording revenue companys row installation services segment related security contracts china company pursued collection insurance policy second fiscal quarter 2014 company recorded 21 million insurance recovery within row installation services segment result settlement insurance carrier insurance recovery recorded selling general administrative expenses consolidated statement operations first quarter fiscal 2014 tyco settled tax dispute former subsidiary cit group inc cit terms settlement agreement tyco received 60 million first quarter 2014 subject sharing provisions 2007 tax sharing agreement result company recorded 16 million gain selling general administrative expenses consolidated statement operations established payables 25 million 19 million due covidien te connectivity respectively december 27 2013 company paid amounts covidien te connectivity second fiscal quarter 2014 simplexgrinnell lp “sg” subsidiary company north america installation services segment named defendant several lawsuits seeking damages sg’s alleged failure pay prevailing wages connection work performed state local municipal projects new york us district court granted sg’s motion summary judgment dismissing plaintiffs’ claims prevailing wages testing inspection work based primarily 2009 opinion new york department labor “dol” testing inspection work would considered covered prevailing wage law prospective basis plaintiffs appealed decision us court appeals second circuit turn asked ny court appeals whether lower court given deference dol’s prospectiveonly application law ny court appeals recently ruled lower court give deference dol based amicus brief submitted dol stated court need given deference result company recorded 10 million charge cost services consolidated statement operations fourth quarter fiscal 2014 sg also defendant two lawsuits related prevailing wages new jersey california sg agreed principle settle california lawsuit approximately 5 million subject court approval company previously reserved november 2014 company received responded recent inquiries us department navy regarding formulation certain aqueous film forming foam afff concentrates company investigating matters ceased selling certain afff foam products pending outcome investigation one afff product removed navy’s qualified products list qpl company communication appropriate governmental authorities investigation also communicating government regarding qualification products time cannot predict outcome inquiries whether result action navy governmental authorities possible company could required pay material fines consent injunctions future conduct experience suspension debarment government contracts suffer criminal civil penalties adverse impacts including subject lawsuits brought private litigants may material adverse effect company’s financial position results operations cash flows addition foregoing company subject claims suits including time contractual disputes product general liability claims incidental present former operations acquisitions dispositions respect many claims company either selfinsures maintains insurance thirdparties varying deductibles ultimate outcome matters cannot predicted certainty company believes resolution proceedings whether underlying claims covered insurance material adverse effect companys financial condition results operations cash flows beyond amounts recorded matters 14 retirement plans company sponsors number pension plans company measures pension plans fiscal year end following disclosures exclude impact plans immaterial individually aggregate tyco international ltd notes consolidated financial statements continued defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based local regulations advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation net periodic benefit cost material us nonus defined benefit pension plans 2014 2013 2012 follows millions fiscal 2011 company froze last remaining active us pension plan inactive plans company amortizes actuarial gains losses average remaining life expectancy pension plan participants estimated net loss material us nonus pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 9 million 14 million respectively tyco international ltd notes consolidated financial statements continued change benefit obligations plan assets amounts recognized consolidated balance sheets material us nonus defined benefit plans september 26 2014 september 27 2013 follows millions accumulated aggregate benefit obligation fair value plan assets accumulated benefit obligations excess plan assets september 26 2014 september 27 2013 follows millions tyco international ltd notes consolidated financial statements continued determining expected return plan assets company considers relative weighting plan assets asset class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions companys investment strategy pension plans manage plans goingconcern basis current investment policy maintain adequate level diversification maximizing return assets subject prudent level portfolio risk purpose enhancing security benefits participants well providing adequate liquidity meet immediate future benefit payment requirements addition local regulations local financial considerations factors determining appropriate investment strategy country us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 51 equity securities 44 debt securities 5 asset classes pension plans following weightedaverage asset allocations although company buy sell securities direct investment pension funds due external investment management certain commingled funds plans may indirectly hold tyco securities aggregate amount securities would considered material relative total fund assets company evaluates defined benefit plans asset portfolios existence significant concentrations risk types investment concentration risks evaluated include limited concentrations single entity industry foreign country individual fund manager september 26 2014 significant concentrations risk companys defined benefit plan assets companys plan assets accounted fair value classified entirety based lowest level input significant fair value measurement companys assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets placement within fair value hierarchy levels companys asset allocations level within fair value hierarchy september 26 2014 september 27 2013 presented table companys material defined benefit plans tyco international ltd notes consolidated financial statements continued equity securities consist primarily publicly traded us nonus equities publicly traded securities valued last trade closing price reported active market individual securities traded certain equity securities held within commingled funds valued unitized net asset value nav percentage net asset value determined custodian fund values based fair value underlying net assets owned fund fixed income securities consist primarily government agency securities corporate debt securities mortgage assetbacked securities available fixed income securities valued closing price reported active market individual security traded government agency securities corporate debt securities valued using recent bid prices occasionally mean latest bid ask prices markets less liquid assetbacked securities including mortgage backed securities valued using brokerdealer quotes available quotes available fair value determined utilizing discounted cash flow approach incorporates observable inputs cash flows underlying security structure market information including interest rates bid evaluations comparable securities certain fixed income securities held within commingled funds valued unitizing nav determined custodian fund values based fair value underlying net assets owned fund cash equivalents consist primarily shortterm commercial paper bonds cash cashlike instruments including settlement proceeds due brokers stated cost approximates fair value tyco international ltd notes consolidated financial statements continued following tables set forth summary pension plan assets valued using nav equivalent september 26 2014 september 27 2013 millions strategy companys investment managers regard investments valued using nav equivalent either match exceed relevant benchmarks associated respective asset category none investments valued using nav equivalent contain redemption restrictions unfunded commitments 2014 company contributed 25 million us 29 million nonus pension plans represented companys minimum required contributions pension plans fiscal year 2014 company make voluntary contributions us nonus plans 2014 companys funding policy make contributions accordance laws customs various countries operates well make voluntary contributions timetotime company anticipates contribute least minimum required pension plans 2015 13 million us plans 23 million nonus plans benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans material 2014 2013 2012 executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 due legal settlements described note 13 company reversed liabilities messrs kozlowski swartz fiscal years 2014 2012 respectively tyco international ltd notes consolidated financial statements continued defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 65 million 63 million 58 million 2014 2013 2012 respectively company maintained unfunded supplemental executive retirement plan serp fiscal years 2012 plan nonqualified restored employer match certain employees lost due irs limits eligible compensation defined contribution plans expense related serp material 2012 serp merged nonqualified deferred compensation plans discussed next paragraph september 28 2012 deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation liabilities 95 million 113 million september 26 2014 september 27 2013 respectively deferred compensation expense material 2014 2013 2012 postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits net periodic postretirement benefit cost material 2014 2013 2012 companys consolidated balance sheets include unfunded postretirement benefit obligations 32 million 33 million september 26 2014 september 27 2013 respectively within liabilities companys consolidated balance sheets include nil postretirement benefit assets september 26 2014 september 27 2013 addition company recorded net actuarial gain 6 million 8 million within accumulated comprehensive loss september 26 2014 september 27 2013 respectively company expects make contributions postretirement benefit plans 3 million 2015 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions 15 shareholders equity comprehensive income dividends company makes dividend payments contributed surplus equity position swiss statutory accounts payments made free swiss withholding taxes effectively denominated us dollars swiss law authority declare dividends vested general meeting shareholders march 5 2014 companys shareholders approved annual cash dividend 072 per common share payment dividend made four quarterly installments 018 may 2014 february 2015 result quarter ended march 28 2014 company recorded accrued dividend 332 million within accrued current liabilities corresponding reduction contributed surplus companys consolidated balance sheet first installment paid may 21 2014 shareholders record april 25 2014 second installment paid august 20 2014 shareholders record july 25 2014 third installment paid november 13 2014 stockholders record october 24 2014 fourth installment paid february 2015 upon closing merger transaction tyco international ltd whollyowned subsidiary tyco ireland expected occur november 2014 companys jurisdiction incorporation change switzerland ireland result authority declare pay dividends vested board directors tyco international ltd notes consolidated financial statements continued timing declaration payment future dividends holders common shares determined companys board directors depend upon many factors including companys financial condition results operations capital requirements companys businesses industry practice relevant factors irish law dividends may paid share repurchases redemptions must generally funded “distributable reserves” tyco ireland immediately following closing merger tyco international ltd tyco ireland creation distributable reserves tyco ireland way capital reduction tyco ireland requires approval irish high court connection seeking court approval company obtained approval shareholders create distributable reserves tyco ireland reduction share premium account tyco ireland approval irish high court expected within approximately six twelve weeks following closing merger tyco international ltd tyco ireland company aware reason irish high court would approve creation distributable reserves however issuance required order matter discretion irish high court event distributable reserves tyco ireland created distributions way dividends share repurchases otherwise permitted irish law exception dividend scheduled paid february 2015 time group created sufficient distributable reserves trading activities march 6 2013 companys shareholders approved cash dividend 064 per share payable shareholders four quarterly installments 016 may 2013 august 2013 november 2013 february 2014 result quarter ended march 29 2013 company recorded accrued dividend 296 million within accrued current liabilities corresponding reduction contributed surplus companys consolidated balance sheet first installment 016 paid may 22 2013 shareholders record april 26 2013 second installment 016 paid august 21 2013 shareholders record july 26 2013 third installment 016 paid november 14 2013 shareholders record october 25 2013 fourth installment 016 paid february 19 2014 shareholders record january 24 2014 march 7 2012 companys shareholders approved cash dividend 050 per share payable shareholders two quarterly installments 025 may 23 2012 august 22 2012 first installment 025 050 dividend paid may 23 2012 shareholders record april 27 2012 second installment 025 050 dividend paid august 22 2012 shareholders record july 27 2012 september 17 2012 companys shareholders approved cash dividend 030 per share payable shareholders two quarterly installments 015 november 15 2012 february 20 2013 030 dividend reflects impact 2012 separation companys dividend policy first installment 015 030 dividend paid november 15 2012 shareholders record october 16 2012 second installment 015 030 dividend paid february 20 2013 shareholders record january 25 2013 result company recorded accrued dividend 231 million march 7 2012 additional accrued dividend 139 million september 17 2012 within accrued current liabilities corresponding reduction contributed surplus companys consolidated balance sheet common stock september 26 2014 companys share capital amounted chf 243181525 486363050 registered common shares par value chf 050 per share march 6 2015 board directors may increase companys share capital maximum amount chf 121500000 issuing maximum 243000000 shares addition share capital company may increased amount exceeding chf 23964755 issue maximum 47929510 shares exercise conversion andor option warrant rights granted connection bonds notes similar instruments ii share capital company may increased amount exceeding chf 23964755 issue maximum 47929510 shares employees persons providing services company although company states par value swiss francs continues use us dollar reporting currency preparing consolidated financial statements march 6 2013 shareholders company approved reduction companys registered share capital chf 3258632435 chf 243181525 reducing par value share chf 670 chf 050 per share correspondingly increasing companys contributed surplus chf 3015450910 reduction registered share capital corresponding increase contributed surplus result changes total shareholders equity recorded year ended september 27 2013 tyco international ltd notes consolidated financial statements continued september 9 2014 shareholders company approved merger company tyco ireland merger expected completed november 2014 upon completion merger company’s authorized share capital 11000000 €40000 divided 1000000000 ordinary shares par value 001 per share 100000000 preferred shares par value 001 per share 40000 ordinary shares par value €100 per share based number company shares outstanding november 7 2014 tyco ireland expected issue 418465546 ordinary shares nominal value 001 per share former shareholders company completion merger constitute company’s outstanding share capital share repurchase program companys board directors approved 1 billion 175 billion 2014 share repurchase programs 600 million 2013 share repurchase program september 2014 march 2014 january 2013 respectively share repurchases reduce amount common shares outstanding decrease dividends declared consolidated statement shareholders equity shares repurchased company fiscal year share repurchase program provided comprehensive income 1 years ended september 26 2014 september 27 2013 september 28 2012 40 million cumulative translation gains 9 million cumulative translation gains 2 million cumulative translation losses tyco international ltd notes consolidated financial statements continued respectively transferred currency translation adjustments result sale foreign entities amounts 40 million nil 2 million respectively included income discontinued operations consolidated statements operations 2 income tax expense net investment hedge 1 million 6 million 1 million years ended september 26 2014 september 27 2013 september 28 2012 3 reclassified net periodic benefit cost see note 14 retirement plans additional information year ended september 26 2014 6 million net actuarial losses transferred amortization net actuarial losses included income discontinued operations consolidated statements operations result sale foreign entities 4 reclassified realized gain loss marketable securities derivative instruments expense net accumulated comprehensive loss components accumulated comprehensive loss follows millions 16 share plans total sharebased compensation cost recognized within continuing discontinued operations 2014 2013 2012 consisted following millions company recognized related tax benefit associated sharebased compensation arrangements 2014 2013 2012 25 million 20 million 43 million nil 8 million included discontinued operations respectively sharebased compensation disclosures recast divestiture south korean security business amounts material connection 2012 separation employees outstanding stock option awards converted options acquire stock employees postseparation employer manner designed preserve intrinsic value awards however certain corporate employees terminated employees portion employees stock option awards converted options acquire stock company pentair adt modifications made share options result 2012 separation constituted modification authoritative guidance accounting stock compensation requires comparison fair values stock option awards immediately 2012 separation fair values immediately 2012 separation certain instances fair value immediately 2012 separation higher result modification resulted incremental compensation cost 1 million tyco international ltd notes consolidated financial statements continued majority recorded discontinued operations within consolidated statement operations year ended september 28 2012 except changes described material terms stock option awards remained unchanged original grant equity awards held employees converted september 28 2012 grant date fair values intrinsic values vested values blackscholes assumptions preconversion basis also connection 2012 separation restricted stock units held tyco employees deferred stock units held tyco directors converted cases restricted stock units company pentair adt cases solely restricted stock units employees postseparation employer modifications designed manner preserve intrinsic value awards except changes described material terms restricted stock units deferred stock units remained unchanged original grant july 12 2012 connection 2012 separation board directors approved conversion outstanding performance share units company restricted stock units based performance achieved june 29 2012 performance share unit converted number restricted stock units ratio determined compensation committee august 2 2012 based review certification performance results june 29 2012 upon vesting resulting restricted stock units award settled stock awards maintained original vesting terms modifications made marketbased condition outstanding performance share units result 2012 separation also constituted modification similar modification described result modification resulted incremental compensation cost 8 million 7 million recorded separation costs 1 million discontinued operations within consolidated statement operations year ended september 28 2012 addition incremental expense recognized quarter performance achieved june 29 2012 expense totaled 7 million 6 million recorded separation costs 1 million discontinued operations within consolidated statement operations year ended september 28 2012 september 17 2012 shareholders approved tyco international 2012 stock incentive plan 2012 plan replaced 2004 tyco international ltd stock incentive plan 2004 plan 2012 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted shares deferred stock units promissory stock stockbased awards collectively awards pursuant 2012 plan effective october 1 2012 50 million common shares available equitybased awards subject adjustments provided terms 2012 plan additional awards may granted 2004 plan addition common shares awarded 2004 plan issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason also available issuance 2012 plan common shares issued pursuant grant full value award example restricted stock units performance share units total number common shares remaining available grant decreased 332 shares 2012 plan september 26 2014 approximately 35 million shares available grant 2012 plan share optionsoptions granted purchase common shares prices equal greater closing market price common shares date option granted conditions vesting determined time grant options generally exercisable equal annual installments period four years generally expire 10 years date grant historically companys practice settle stock option exercises either newly issued shares held treasury grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service period awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based analysis historic implied volatility measures set peer companies average expected life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well analysis actual share option forfeitures weightedaverage assumptions used blackscholes option pricing model 2014 2013 2012 follows tyco international ltd notes consolidated financial statements continued weightedaverage grantdate fair values options granted 2014 2013 2012 1024 721 1256 respectively total intrinsic value options exercised 2014 2013 2012 76 million 73 million 85 million respectively related excess cash tax benefit classified financing cash inflow 2014 2013 2012 material summary option activity september 26 2014 changes year ended presented september 26 2014 30 million total unrecognized compensation cost related unvested options granted cost expected recognized weightedaverage period 25 fiscal years employee stock purchase plansthe tyco employee stock purchase plan espp suspended indefinitely fourth quarter 2009 september 26 2014 approximately 3 million shares available grant espp restricted share awardsrestricted share awards including restricted stock units performance share units granted subject certain restrictions conditions vesting determined time grant restrictions award generally lapse upon normal retirement twelve months grant date death disability employee fair market value restricted awards time vesting subject specific performance criteria expensed period vesting restricted stock units vest based solely upon passage time generally vest period four years fair value restricted stock units determined based closing market price companys shares grant date performance share units restricted share awards vest dependent upon attainment various levels performance equal exceed targeted levels generally vest entirety three years grant date fair value performance share units determined based monte carlo valuation model compensation expense recognized restricted share awards net estimated forfeitures recipients restricted stock units voting rights receive dividend equivalent units deus recipients performance share units voting rights receive deus depending attainment performance levels tyco international ltd notes consolidated financial statements continued summary activity companys restricted stock unit awards september 26 2014 changes year ended presented tables weightedaverage grantdate fair value restricted stock units granted 2014 2013 2012 3873 2766 4554 respectively total fair value restricted stock units vested 2014 2013 2012 79 million 64 million 90 million respectively september 26 2014 37 million total unrecognized compensation cost related unvested restricted share awards cost expected recognized weightedaverage period 25 fiscal years summary activity companys performance share unit awards september 26 2014 changes year ended presented table weightedaverage grantdate fair value performance share units granted 2014 2013 2012 3901 3036 4886 respectively total fair value performance share units vested 2014 2013 2012 22 million 25 million nil august 2 2012 performance share units outstanding converted restricted stock units outstanding shares time moved restricted stock units reporting table september 26 2014 22 million total unrecognized compensation cost related unvested performance share awards cost expected recognized weightedaverage period 18 fiscal years deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment service company distribution made form actual shares oneforone basis similar restricted stock units vest time fair value dsus determined based closing market price companys shares grant date amortized expense vesting period recipients dsus right vote receive cash dividends however right receive dividend equivalent units conditions vesting determined time grant 2004 plan grants made executives generally vested equal annual installments three years dsus granted board directors immediately vested company 11 million dsus outstanding september 28 2012 fully vested 10 million delivered six months following september 28 2012 dsu awards granted 2014 2013 2012 however participants continue earn deus existing awards total fair value dsus including deus vested 2014 2013 2012 nil 1 million respectively tyco international ltd notes consolidated financial statements continued 17 consolidated segment data segment information consistent management reviews businesses make investing resource allocation decisions assesses operating performance company operates reports financial operating information following three segments • na installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail institutional governmental customers north america • row installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers rest world row regions • global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row installation services segments company also provides general corporate services segments reported fourth nonoperating segment corporate selected information segment presented following tables millions 1 net revenue operating segment excludes intercompany transactions 1 operating loss fiscal 2014 includes asbestos related charges 225 million related yarway settlement 240 million related updated valuation performed companys liability asbestos related claims excluding yarway claims partially offset 96 million legacy legal reversal recoveries see note 13 consolidated financial statements tyco international ltd notes consolidated financial statements continued total assets segment september 26 2014 september 27 2013 september 28 2012 follows millions depreciation amortization capital expenditures segment years ended september 26 2014 september 27 2013 september 28 2012 follows millions net revenue geographic area years ended september 26 2014 september 27 2013 september 28 2012 follows millions 1 net revenue attributed individual countries based reporting entity records transaction 2 includes us net revenue 4717 million 4568 million 4478 million 2014 2013 2012 respectively 3 uk represents largest portion net revenue europe middle east africa region net revenue 1262 million 1168 million 1162 million 2014 2013 2012 respectively tyco international ltd notes consolidated financial statements continued longlived assets geographic area september 26 2014 september 27 2013 september 28 2012 follows millions 1 longlived assets comprised primarily subscriber system assets net property plant equipment net deferred subscriber acquisition costs net dealer intangibles exclude goodwill intangible assets 2 includes us longlived assets 836 million 828 million 856 million 2014 2013 2012 respectively 18 supplementary consolidated balance sheet information selected supplementary consolidated balance sheet information september 26 2014 september 27 2013 follows millions tyco international ltd notes consolidated financial statements continued 19 inventory inventories consisted following millions inventories recorded lower cost primarily firstin firstout market value 20 property plant equipment property plant equipment consisted following millions 21 tyco international finance sa tifsa 100 owned subsidiary company public debt securities outstanding fully unconditionally guaranteed tyco see note 10 additional information following tables present condensed consolidating financial information tyco tifsa subsidiaries condensed financial information tyco tifsa standalone basis presented using equity method accounting subsidiaries tyco international ltd notes consolidated financial statements continued condensed consolidating statement operations year ended september 26 2014 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement comprehensive income year ended september 26 2014 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement operations year ended september 27 2013 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement comprehensive income year ended september 27 2013 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement operations year ended september 28 2012 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement comprehensive income year ended september 28 2012 millions tyco international ltd notes consolidated financial statements continued condensed consolidating balance sheet september 26 2014 millions tyco international ltd notes consolidated financial statements continued condensed consolidating balance sheet september 27 2013 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement cash flows year ended september 26 2014 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement cash flows year ended september 27 2013 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement cash flows year ended september 28 2012 millions tyco international ltd notes consolidated financial statements continued 22 subsequent events subsequent september 26 2014 company repurchased approximately 10 million common shares approximately 417 million completed 175 billion share repurchase authority approved companys board directors march 2014 tyco international ltd supplementary financial information selected quarterly financial data unaudited selected quarterly financial data years ended september 26 2014 september 27 2013 follows millions except per share data 1 net revenue excludes 154 million 151 million 85 million 5 million net revenue related discontinued operations first second third fourth quarters 2014 respectively 2 income loss continuing operations attributable tyco common shareholders first quarter fiscal 2014 includes 92 million related legacy legal reversal third quarter 2014 includes 216 million gain sale atkore fourth quarter 2014 includes asbestos related charges 225 million related yarway settlement 240 million related updated valuation performed companys liability asbestos related claims excluding yarway claims 3 income loss discontinued operations net income taxes primarily related adt korea tyco international ltd supplementary financial information continued selected quarterly financial data unaudited continued 1 net revenue excludes 138 million 144 million 141 million 150 million net revenue related discontinued operations first second third fourth quarters 2013 respectively 2 income continuing operations attributable tyco common shareholders second quarter fiscal 2014 includes charge 94 million related environmental remediation costs marinette facility 3 income discontinued operations net income taxes primarily related adt korea tyco international ltd schedule iivaluation qualifying accounts millions 1 deductions represent uncollectible accounts written net recoveriesitem 15 exhibits financial statement schedules omitted applicable required information shown financial statements notes thereto financial statements 50 lessowned companies omitted proportionate share profit income taxes total assets individually less 20 respective consolidated amounts investments companies less 20 consolidated total assets refer note 20 nonconsolidated partiallyowned affiliates notes consolidated financial statements summarized financial data company’s nonconsolidated partiallyowned affiliates matters purposes complying amendments rules governing form s8 securities act 1933 undersigned registrant hereby undertakes follows undertaking shall incorporated reference registrant’s registration statement posteffective amendment form s8 form s4 333210588 registration statements form s8 nos 333213508 333200320 333185004 333107489 333113943 33320031402 insofar indemnification liabilities arising securities act 1933 may permitted directors officers controlling persons registrant pursuant foregoing provisions otherwise registrant advised opinion sec indemnification public policy expressed securities act 1933 therefore unenforceable event claim indemnification liabilities payment registrant expenses incurred paid director officer controlling person registrant successful defense action suit proceeding asserted director officer controlling person connection securities registered registrant unless opinion counsel matter settled controlling precedent submit court appropriate jurisdiction question whether indemnification public policy expressed act governed final adjudication issue signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized johnson controls international plc brian j stief brian j stief executive vice president chief financial officer date november 23 2016 pursuant requirements securities exchange act 1934 report signed november 23 2016 following persons behalf registrant capacities indicated alex molinaroli alex molinaroli chairman chief executive officer principal executive officer brian j stief brian j stief executive vice president chief financial officer principal financial officer suzanne vincent suzanne vincent vice president corporate controller principal accounting officer david p abney david p abney director natalie black natalie black director mike daniels mike daniels director brian duppereault brian duppereault director jeffrey joerres jeffrey joerres director alex molinaroli alex molinaroli director george r oliver george r oliver director jürgen tinggren jürgen tinggren director juan pablo del valle perochena juan pablo del valle perochena director mark p vergnano mark p vergnano director david yost david yost director johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits instruments filed exhibits herewith none longterm debt instruments authorizes issuance debt excess 10 total assets johnson controls inc subsidiaries consolidated basis johnson controls inc agrees furnish copy agreement securities exchange commission upon request management contract compensatory planitem 15 exhibits financial statement schedules omitted applicable required information shown financial statements notes thereto financial statements 50 lessowned companies omitted proportionate share profit income taxes total assets individually less 20 respective consolidated amounts investments companies less 20 consolidated total assets refer note 20 nonconsolidated partiallyowned affiliates notes consolidated financial statements summarized financial data company’s nonconsolidated partiallyowned affiliates item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized johnson controls international plc brian j stief brian j stief executive vice president chief financial officer date november 21 2017 pursuant requirements securities exchange act 1934 report signed november 21 2017 following persons behalf registrant capacities indicated george r oliver george r oliver chairman chief executive officer principal executive officer brian j stief brian j stief executive vice president chief financial officer principal financial officer suzanne vincent suzanne vincent vice president corporate controller principal accounting officer david p abney david p abney director natalie black natalie black director mike daniels mike daniels director roy dunbar roy dunbar director brian duppereault brian duppereault director juan pablo del valle perochena juan pablo del valle perochena director jürgen tinggren jürgen tinggren director mark p vergnano mark p vergnano director david yost david yost director johnson controls international plc index exhibits 1 2 financial statements supplementary data see item 8 b exhibit index johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits instruments filed exhibits herewith none longterm debt instruments authorizes issuance debt excess 10 total assets johnson controls international plc subsidiaries consolidated basis johnson controls international plc agrees furnish copy agreement securities exchange commission upon request management contract compensatory planitem 15 exhibits financial statement schedules omitted applicable required information shown financial statements notes thereto financial statements 50 lessowned companies omitted proportionate share profit income taxes total assets individually less 20 respective consolidated amounts investments companies less 20 consolidated total assets refer note 20 nonconsolidated partiallyowned affiliates notes consolidated financial statements summarized financial data company’s nonconsolidated partiallyowned affiliates item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized johnson controls international plc brian j stief brian j stief executive vice president chief financial officer date november 20 2018 pursuant requirements securities exchange act 1934 report signed november 20 2018 following persons behalf registrant capacities indicated george r oliver george r oliver chairman chief executive officer principal executive officer brian j stief brian j stief executive vice president chief financial officer principal financial officer robert vanhimbergen robert vanhimbergen vice president corporate controller principal accounting officer jean blackwell jean blackwell director mike daniels mike daniels director roy dunbar roy dunbar director brian duperreault brian duperreault director gretchen r haggerty gretchen r haggerty director simone menne simone menne director juan pablo del valle perochena juan pablo del valle perochena director jürgen tinggren jürgen tinggren director mark p vergnano mark p vergnano director david yost david yost director john young john young director johnson controls international plc index exhibits 1 2 financial statements supplementary data see item 8 b exhibit index johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits instruments filed exhibits herewith none longterm debt instruments authorizes issuance debt excess 10 total assets johnson controls international plc subsidiaries consolidated basis johnson controls international plc agrees furnish copy agreement securities exchange commission upon request management contract compensatory planitem 15 exhibits financial statement schedules omitted applicable required information shown financial statements notes thereto financial statements 50 lessowned companies omitted proportionate share profit income taxes total assets individually less 20 respective consolidated amounts investments companies less 20 consolidated total assets refer note 20 nonconsolidated partiallyowned affiliates notes consolidated financial statements summarized financial data company’s nonconsolidated partiallyowned affiliates fiscal 2019 2018 fourth quarter fiscal 2020 company early adopted sec release 33 10786 among things modified significance test required sec regulation sx rule 102w changing income test use lower measure significance based income continuing operations taxes revenue modified income test none company’s nonconsolidated partiallyowned affiliates either individually aggregate considered significant subsidiaries item 16 form 10k summary applicable johnson controls international plc index exhibits 1 2 financial statements supplementary data see item 8 b exhibit index johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed november 16 2020 following persons behalf registrant capacities indicated george r oliver george r oliver chairman chief executive officer principal executive officer brian j stief brian j stief vice chairman chief financial officer principal financial officer robert vanhimbergen robert vanhimbergen vice president corporate controller principal accounting officer jean blackwell jean blackwell director pierre cohade pierre cohade director mike daniels mike daniels director juan pablo del valle perochena juan pablo del valle perochena director roy dunbar roy dunbar director gretchen r haggerty gretchen r haggerty director simone menne simone menne director jürgen tinggren jürgen tinggren director mark p vergnano mark p vergnano director david yost david yost director john young john young directornanitem 15 exhibits financial statement schedules 1 2 financial statements supplementary datasee item 8 b exhibit index 1 management contract compensatory plan 2 see item 15a3 3 see item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international ltd arun nayar arun nayar executive vice president chief financial officer principal financial officer date november 14 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant november 14 2013 capacities indicated name title george r oliver chief executive officer director principal executive officer george r oliver arun nayar executive vice president chief financial officer principal financial officer arun nayar sam eldessouky senior vice president controller chief accounting officer principal accounting officer sam eldessouky edward breen director michael e daniels director frank drendel director brian duperreault director name title rajiv l gupta director john krol director dr brendan r oneill director sandra wijnberg director r david yost director judith reinsdorf signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report judith reinsdorf judith reinsdorf attorneyinfact tyco international ltd index consolidated financial statements managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior management team leading example includes every one tycos global employees well customers suppliers business partners one crucial objectives continuing maintain build public employee shareholder confidence restored tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2013 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent auditors internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls george r oliver arun nayar george r oliver chief executive officer director arun nayar executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international ltd audited accompanying consolidated balance sheets tyco international ltd subsidiaries company september 27 2013 september 28 2012 related consolidated statements operations comprehensive income shareholders equity cash flows three fiscal years period ended september 27 2013 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tyco international ltd subsidiaries september 27 2013 september 28 2012 results operations cash flows three fiscal years period ended september 27 2013 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states companys internal control financial reporting september 27 2013 based criteria established internal controlintegrated framework 1992 issued committee sponsoring organizations treadway commission report dated november 14 2013 expressed unqualified opinion companys internal control financial reporting deloitte touche llp new york new york november 14 2013 report independent registered public accounting firm board directors shareholders tyco international ltd audited internal control financial reporting tyco international ltd subsidiaries company september 27 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting september 27 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements financial statement schedule fiscal year ended september 27 2013 company report dated november 14 2013 expressed unqualified opinion financial statements financial statement schedule deloitte touche llp new york new york november 14 2013 tyco international ltd consolidated statements operations years ended september 27 2013 september 28 2012 september 30 2011 millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements comprehensive income years ended september 27 2013 september 28 2012 september 30 2011 millions see notes consolidated financial statements tyco international ltd consolidated balance sheets september 27 2013 september 28 2012 millions except per share data see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity years ended september 27 2013 september 28 2012 september 30 2011 millions see notes consolidated financial statements tyco international ltd consolidated statements shareholders equity continued years ended september 27 2013 september 28 2012 september 30 2011 millions see notes consolidated financial statements tyco international ltd consolidated statements cash flows years ended september 27 2013 september 28 2012 september 30 2011 millions see notes consolidated financial statements tyco international ltd notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international ltd corporation organized laws switzerland subsidiaries tyco subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance generally accepted accounting principles united states gaap certain information described article 663663h swiss code obligations presented companys swiss statutory financial statements year ended september 27 2013 unless otherwise indicated references 2013 2012 2011 tycos fiscal years ending september 27 2013 september 28 2012 september 30 2011 respectively effective september 28 2012 tyco completed spinoffs adt corporation adt pentair ltd formerly known tyco flow control international ltd tyco flow control formerly north american residential security flow control businesses tyco respectively separate publicly traded companies form distribution tyco shareholders immediately following spinoff pentair inc merged subsidiary tyco flow control taxfree allstock merger pentair ltd pentair succeeding pentair inc independent publicly traded company distribution made september 28 2012 tyco shareholders record september 17 2012 tyco shareholder received 050 common share adt approximately 024 common share pentair tyco common share held record date distribution structured taxfree tyco shareholders except extent cash received lieu fractional shares distributions merger related transactions collectively referred herein 2012 separation result distribution operations tycos former flow control north american residential security businesses classified discontinued operations periods prior 2012 separation giving effect 2012 separation company operates reports financial operating information following three segments north america installation services na installation services rest world installation services row installation services global products company also provides general corporate services segments reported fourth nonoperating segment corporate effective june 29 2007 tyco completed spinoffs covidien te connectivity formerly healthcare electronics businesses tyco respectively separate publicly traded companies 2007 separation form taxfree distribution tyco shareholders reporting periods prior first quarter fiscal 2013 certain costs product sales misclassified costs services impact previously reported net revenue operating income continuing operations net income earnings per share cash flow company evaluated concluded identified amounts material previously filed annual interim financial statements effects prior periods material although material corrections made relevant periods presented financial statements included herein corrections resulted reductions cost services corresponding increases cost product sales 679 million 651 million years ended september 28 2012 september 30 2011 respectively principles consolidationtyco conducts business operating subsidiaries company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities vie company power direct significant activities entity obligation absorb losses receive benefits entity may significant vies company consolidates individually aggregate material impact companys financial position results operations cash flows intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal company 52 53week fiscal year ends last friday september fiscal 2013 2012 52 week years ended september 27 2013 september 28 2012 respectively fiscal 2011 53week year ended september 30 2011 use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges allowances doubtful accounts receivable estimates future cash flows tyco international ltd notes consolidated financial statements continued associated asset impairments useful lives depreciation amortization loss contingencies including legal environmental asbestos reserves insurance reserves net realizable value inventories fair values financial instruments estimated contract revenue related costs income taxes tax valuation allowances pension postretirement employee benefit liabilities expenses actual results could differ materially estimates revenue recognitionthe company recognizes revenue principally four types transactionssales products security systems monitoring maintenance services contract sales including installation fire security systems constructionrelated projects revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions product returns discounts customers accounted reductions determining net revenue period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements company assesses revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services company expect situations vsoe available sales security systems services cases arise company would follow selling price hierarchy allocate arrangement consideration transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion extent progress toward completion generally measured based ratio actual cost incurred total estimated cost completion revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated losses made period become determinable estimated warranty costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting company recorded retainage receivables 48 million 49 million september 27 2013 september 28 2012 respectively 41 million unbilled periods retainage provisions consist primarily fire protection contracts become due upon contract completion acceptance company expects approximately 36 million collected fiscal 2014 reflected within accounts receivable consolidated balance sheet september 27 2013 research developmentresearch development expenditures expensed incurred included cost product sales amounted 174 million 145 million 129 million 2013 2012 2011 respectively related new product development research development expenses include salaries direct costs incurred building overhead expenses tyco international ltd notes consolidated financial statements continued advertisingadvertising costs expensed incurred included selling general administrative expenses amounted 60 million 39 million 46 million 2013 2012 2011 respectively acquisition costscosts incurred acquire new businesses new product lines similar assets expensed incurred included selling general administrative expenses see note 5 translation foreign currencyfor companys nonus subsidiaries account functional currency us dollars assets liabilities translated us dollars using periodend exchange rates revenue expenses translated average exchange rates effect period foreign currency translation gains losses included component accumulated comprehensive loss tycos shareholders equity gains losses resulting foreign currency transactions impact foreign currency derivatives related operating activities reflected selling general administrative expenses april 2011 company declared dividends swiss francs foreign exchange gains losses arising reflected expense net companys consolidated statement operations beginning may 2011 company began making dividend payments contributed surplus us dollars cash equivalentsall highly liquid investments original maturities three months less time purchase considered cash equivalents allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense 2013 2012 2011 328 million 316 million 323 million respectively maintenance repair expenditures charged expense incurred except pooled subscriber systems depreciation calculated using straightline method estimated useful lives related assets follows see discussion depreciation method estimated useful lives related subscriber systems subscriber system assets dealer intangibles related deferred revenue accountsthe company considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company retains ownership security system assets customers place business outside north america residence installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses ie commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded noncurrent assets included assets line item within consolidated balance sheets subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave tyco international ltd notes consolidated financial statements continued similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 135 360 commercial subscriber pools dealer intangibles converts straightline methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program primarily outside north america acquired contracts related customer relationships recorded contractually determined purchase price first 6 months 12 months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship estimated useful life dealer intangibles ranges 12 15 years company amortizes dealer intangible assets accelerated basis amortizable intangible assets netintangible assets primarily include contracts related customer relationships dealer accounts discussed intellectual property contracts related customer relationships well intellectual property consisting primarily patents trademarks copyrights unpatented technology amortized straightline basis 4 40 years company evaluates amortization methods remaining useful lives intangible assets periodic basis determine whether events circumstances warrant revision amortization method remaining useful lives longlived asset impairmentsthe company reviews longlived assets including property plant equipment amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur see note 8 company performed annual impairment tests goodwill indefinitelived intangible assets first day fourth quarter 2013 performing assessments management relies considers number factors including operating results business plans economic projections anticipated future cash flows comparable market transactions extent available market data companys overall market capitalization inherent uncertainties related factors require judgment applying analysis goodwill indefinitelived intangible assets impairment testing goodwill impairment company first compares fair value reporting unit carrying amount fair value goodwill impairment test determined utilizing discounted cash flow analysis based companys future budgets discounted using market participants weightedaverage cost capital market indicators terminal year cash flows valuation methods used corroborate discounted cash flow method carrying amount reporting unit exceeds fair value goodwill considered potentially impaired tests performed measure amount impairment loss second step goodwill impairment test company compares implied fair value reporting units goodwill carrying amount reporting units goodwill carrying amount reporting units goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess carrying amount goodwill implied fair value implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including intangible assets tyco international ltd notes consolidated financial statements continued reporting unit acquired business combination excess fair value reporting unit amounts assigned assets liabilities represents implied fair value goodwill indefinitelived intangible assets consisting primarily trade names franchise rights tested impairment using either relieffromroyalty method excess earnings method respectively investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses credited charged accumulated comprehensive loss within tyco shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings management determines proper classification investments debt obligations fixed maturities equity securities readily determinable market value time purchase reevaluates classifications balance sheet date realized gains losses sales investments included consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting reporting period company evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included consolidated statements operations product warrantythe company records estimated product warranty costs time sale products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty however instances warranty either negotiated contract sold separate component warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage environmental coststhe company subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized asbestosrelated contingencies insurance receivablesthe company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made future defined period time lookforward period quarterly basis company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy company also evaluates recoverability insurance receivable quarterly basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated tyco international ltd notes consolidated financial statements continued liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers see note 13 insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities workers compensation discounted using riskfree rate return pattern timing future obligation reliably determinable impact discount consolidated balance sheets reduce obligation 14 million 58 million september 27 2013 15 million 58 million september 28 2012 company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage certain insurable liabilities captive insurance companies hold certain investment accounts purpose providing collateral companys insurable liabilities see note 12 fair value financial instrumentsauthoritative guidance fair value measurements establishes threelevel hierarchy ranks quality reliability information used developing fair value estimates hierarchy gives highest priority quoted prices active markets lowest priority unobservable data cases two levels inputs used determine fair value financial instruments level determined based lowest level input considered significant fair value measurement entirety three levels fair value hierarchy summarized follows • level 1inputs based upon quoted prices unadjusted active markets identical assets liabilities accessible measurement date • level 2inputs based upon quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations asset liability derived principally corroborated market data primary inputs observable including forward interest rates yield curves credit risk exchange rates • level 3inputs valuations unobservable based managements estimates assumptions market participants would use pricing asset liability fair values therefore determined using modelbased techniques option pricing models discounted cash flow models financial instrumentsthe company may use interest rate swaps currency swaps forward option contracts commodity swaps manage risks generally associated interest rate risk foreign exchange risk commodity prices derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly effective offsetting changes fair value underlying hedged item inception hedge expected remain highly effective life hedge contract derivative financial instruments reported consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items related operating activities reported selling general administrative expenses along offsetting transaction gains losses items hedged derivatives used economically hedge dividends declared swiss francs april 2011 reported companys consolidated statements operations part expense net along offsetting transaction gains losses items hedged beginning may 2011 company longer declared dividends swiss francs derivatives used manage exposure changes interest rates reported interest expense along offsetting transaction gains losses items hedged gains losses net investment hedges included cumulative translation adjustment component accumulated comprehensive loss extent effective gains losses derivatives designated cash flow hedges recorded accumulated comprehensive loss reclassified earnings manner matches timing earnings impact hedged transactions company classifies cash flows associated settlement derivatives consistent nature transaction hedged ineffective portion hedges recognized currently earnings noted instruments qualify hedge accounting marked market changes recognized current earnings see note 12 tyco international ltd notes consolidated financial statements continued redeemable noncontrolling interestsnoncontrolling interest redemption features put options solely within companys control considered redeemable noncontrolling interests company accretes changes redemption value noncontrolling interest subsidiaries net income attributable noncontrolling interest period date issuance earliest redemption date redeemable noncontrolling interest considered temporary equity therefore reported mezzanine section liabilities equity companys consolidated balance sheet greater initial carrying amount increased decreased noncontrolling interests share net income loss redemption value recently adopted accounting pronouncementsin june 2011 financial accounting standards board fasb issued authoritative guidance presentation comprehensive income guidance amended reporting comprehensive income oci eliminating option present oci part consolidated statement shareholders equity amendment impact accounting oci presentation companys consolidated financial statements guidance requires items net income oci presented either single continuous statement comprehensive income two separate consecutive statements include total net income components consecutively followed total oci components arrive total comprehensive income december 2011 fasb issued authoritative guidance defer effective date aspects guidance relating presentation reclassification adjustments accumulated comprehensive income aoci component guidance relates presentation reclassification adjustments became effective tyco first quarter fiscal 2013 applied retrospectively prior periods see note 15 september 2011 fasb issued authoritative guidance amends process testing goodwill impairment additionally july 2012 fasb issued authoritative guidance similarly amended process testing indefinitelived intangible assets impairment guidance permits entity first assess qualitative factors determine whether existence events circumstances leads determination likely defined likelihood fifty percent fair value reporting unit indefinitelived intangible asset less carrying amount entity determines likely fair value reporting unit less carrying amount performing traditional two step goodwill impairment test unnecessary entity concludes otherwise would required perform first step two step goodwill impairment test carrying amount reporting unit exceeds fair value entity required perform second step goodwill impairment test entity determines likely fair value indefinitelived intangible asset less carrying amount entity required take action entity concludes otherwise would required perform quantitative impairment test calculating fair value asset comparing carrying amount carrying amount asset exceeds fair value entity shall recognize impairment loss amount equal excess however entity option bypass qualitative assessment period proceed directly quantitative assessment guidance became effective tyco interim impairment testing beginning first quarter fiscal 2013 recently issued accounting pronouncementsin january 2013 fasb issued authoritative guidance clarifying scope disclosures offsetting assets liabilities guidance clarifies scope disclosures applies derivatives accounted accordance authoritative guidance derivatives hedging including bifurcated embedded derivatives repurchase agreements reverse repurchase agreements securities borrowing securities lending transactions either offset subject enforceable master netting agreement similar agreement guidance applied retrospectively effective tyco first fiscal quarter fiscal 2014 company expect guidance significant impact disclosures february 2013 fasb issued authoritative guidance reporting amounts reclassified aoci amendment change current requirements reporting net income oci financial statements guidance requires presentation either face statement net income presented notes significant reclassifications aoci respective line items net income amount reclassified required us gaap reclassified net income entirety reporting period amounts required us gaap reclassified entirety net income amendment requires crossreference disclosures us gaap provide additional detail amounts guidance effective tyco first quarter fiscal 2014 company expect guidance significant impact disclosures march 2013 fasb issued authoritative guidance accounting cumulative translation adjustment cta parent either sells part investment foreign entity longer holds controlling financial interest subsidiary group assets within foreign entity guidance requires parent release cta net income parent ceases controlling financial interest subsidiary group assets within foreign entity results substantially complete liquidation foreign entity sale investment foreign entity tyco international ltd notes consolidated financial statements continued results loss controlling financial interest acquirer obtains control acquiree equity interest immediately acquisition date guidance change requirement release pro rata portion cta net income upon partial sale equity method investment foreign entity guidance effective tyco first quarter fiscal 2015 early adoption permitted company currently assessing timing adoption along impact guidance upon adoption july 2013 fasb issued authoritative guidance presentation unrecognized tax benefit net operating loss “nol” carryforward similar tax loss tax credit carryforward exists guidance requires entity present unrecognized tax benefit portion unrecognized tax benefit financial statements reduction deferred tax asset nol carryforward similar tax loss tax credit carryforward nol carryforward similar tax loss tax credit carryforward available reporting date tax law jurisdiction tax law jurisdiction require entity use entity intend use deferred tax asset purpose unrecognized tax benefit presented financial statements liability combined deferred tax assets guidance require additional recurring disclosures effective tyco first fiscal quarter fiscal 2015 company currently assessing impact guidance upon adoption 2 2012 separation transaction september 28 2012 company completed spinoffs adt tyco flow control formerly north american residential security flow control businesses tyco respectively separate publicly traded companies form distribution tyco shareholders connection activities taken complete 2012 separation create revised organizational structure company incurred pretax charges separation charges 61 million 839 million years ended september 27 2013 september 28 2012 respectively amounts presented within discontinued operations costs directly related 2012 separation expected provide future benefit company components separation charges incurred within continuing operations discontinued operations consisted following millions fiscal 2011 company incurred 24 million separation charges primarily related professional fees presented income discontinued operations consolidated statement operations tyco international ltd notes consolidated financial statements continued separation charges classified continuing operations within companys consolidated statement operations follows millions 3 divestitures company continued assess strategic fit various businesses pursued divestiture certain businesses align longterm strategy fiscal 2013 fourth quarter fiscal 2013 company approved plan sell armored guard business new zealand fire security business fiji row installation services segment however september 27 2013 sale completed assets liabilities presented separately heldforsale consolidated balance sheets amounts material presentation periods pretax loss approximately 13 million writedown fair value less cost sell recorded restructuring asset impairment divestiture charges gains net companys consolidated statements operations year ended september 27 2013 business presented discontinued operations amounts material consolidated financial statements company expects complete transaction first quarter fiscal 2014 third quarter fiscal 2013 company completed sale north america guarding business na installation services segment approximately 25 million cash proceeds net 2 million cash divested sale pretax loss writedown fair value less cost sell material business accounted held sale second quarter fiscal 2013 presented held sale september 28 2012 however results operations presented discontinued operations amounts material consolidated financial statements september 28 2012 total assets divested 35 million included prepaid expenses current assets total liabilities divested 8 million included accrued current liabilities accompanying consolidated balance sheet assets liabilities presented separately consolidated balance sheets amounts material fiscal 2012 september 28 2012 tyco completed 2012 separation presented former north american residential security flow control businesses discontinued operations periods prior completion 2012 separation see note 2 additional information regarding 2012 separation time 2012 separation company used available information develop best estimates certain assets liabilities related separation limited instances final determination balances made subsequent periods case final income tax returns filed certain jurisdictions returns include combination tyco adt andor tyco flow control legal entities year ended september 27 2013 net increase 1 million recorded within consolidated statement shareholders equity primarily related cash trueup adjustment received pentair third quarter fiscal 2013 offset cash trueup adjustment paid adt first quarter fiscal 2013 adjustments impact filing final income tax returns additional adjustments expected material year ended september 28 2012 company sold fire equipment de mexico sa business part companys global products segment sale completed approximately 1 million cash consideration pretax loss 3 million recorded income discontinued operations net income taxes companys consolidated statements operations tyco international ltd notes consolidated financial statements continued fiscal 2011 november 9 2010 company announced entered investment agreement sell majority interest electrical metal products business affiliate private equity firm clayton dubilier rice llc cdr company formed newly incorporated holding company atkore hold companys electrical metal products business december 22 2010 transaction closed cdr acquired shares newlycreated class cumulative convertible preferred stock atkore preferred stock preferred stock initially represented 51 outstanding capital stock asconverted basis atkore connection closing company received cash proceeds approximately 713 million recorded gain 259 million included 33 million cumulative translation gain first quarter fiscal 2011 year ended september 30 2011 company recorded net working capital adjustments 11 million reduced gain disposal gain disposal recorded within restructuring asset impairment divestiture charges gains net companys consolidated statements operations accordance terms conditions agreement cdr entitled quarterly dividend payable cash shares preferred stock discretion atkore since closing transaction atkore elected pay cdrs quarterly dividend shares preferred stock diluted companys ownership atkore september 27 2013 companys ownership percentage approximately 42 tycos retained ownership interest atkore accounted equity method accounting recorded assets companys consolidated balance sheet september 27 2013 september 28 2012 interest 44 million 92 million respectively companys proportionate share atkores net loss recorded within equity loss earnings unconsolidated subsidiaries companys consolidated statement operations company recorded equity losses 48 million 26 million 12 million years ended september 27 2013 september 28 2012 september 30 2011 respectively discontinued operations components income discontinued operations net income taxes follows millions matters company used available information develop best estimates certain assets liabilities related 2007 separation limited instances final determination balances made subsequent periods nil years ended september 27 2013 september 28 2012 13 million september 30 2011 adjustments recorded tyco shareholders equity adjustments future impact filing final income tax returns certain jurisdictions returns include combination tyco covidien andor te connectivity legal entities certain amended income tax returns periods prior 2007 separation may recorded either tyco shareholders equity consolidated statement operations depending specific item giving rise adjustment additionally year ended september 28 2012 included 21 million years ended september 27 2013 september 30 2011 included nil income tax expense associated pre2007 separation tax liabilities recorded income discontinued operations net income taxes companys consolidated statements operations year ended september 28 2012 company reimbursed 8 million pursuant tax sharing agreement 2007 tax sharing agreement entered conjunction 2007 separation recorded income discontinued operations net income taxes companys consolidated statements operations see note 6 divestiture charges gains net 2013 2012 2011 company recorded net losses 20 million 14 million net gain 224 million respectively restructuring asset impairment divestiture charges gains net companys consolidated statements operations net loss year ended september 27 2013 primarily resulted writedown fair tyco international ltd notes consolidated financial statements continued value less cost sell armored guard business new zealand fire security business fiji row installation services segment net loss year ended september 28 2012 primarily resulted indemnification resulting divestiture companys electrical metal products business net gain year ended september 30 2011 includes gain 248 million net working capital adjustments recognized conjunction sale majority interest companys electrical metal products business discussed 4 restructuring asset impairment charges net fiscal 2013 company identified pursued opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across companys businesses company expects incur restructuring related charges range 50 million 75 million fiscal 2014 include repositioning charges discussed company recorded restructuring asset impairment charges action consolidated statement operations classification follows millions 2013 actions restructuring asset impairment charges net year ended september 27 2013 related 2013 actions follows millions rollforward reserves september 28 2012 september 27 2013 follows millions tyco international ltd notes consolidated financial statements continued 2012 actions restructuring asset impairment charges net years ended september 27 2013 september 28 2012 related 2012 actions follows millions 1 includes 6 million charges year ended september 28 2012 related 2012 separation recorded corporate 2 includes 20 million 1 million 2 million asset impairment charges recorded na installation services row installation services global products respectively year ended september 28 2012 related 2012 separation includes 4 million restructuring charges recorded corporate year ended september 28 2012 related 2012 separation restructuring asset impairment charges net incurred cumulative date initiation 2012 actions follows millions rollforward reserves september 28 2012 september 27 2013 follows millions 2011 prior actions company continues maintain restructuring reserves related actions initiated prior fiscal 2012 total amount reserves 48 million 65 million september 27 2013 september 28 2012 respectively tyco international ltd notes consolidated financial statements continued company incurred 12 million 10 million 78 million restructuring charges net utilized 30 million 64 million 90 million year ended september 27 2013 september 28 2012 september 30 2011 respectively related 2011 prior actions aggregate remaining reserves primarily relate facility exit costs longterm noncancelable lease obligations primarily within companys row installation services segment total restructuring reserves september 27 2013 september 28 2012 restructuring reserves related actions included companys consolidated balance sheets follows millions repositioning company initiated certain global actions designed reduce cost structure improve future profitability streamlining operations better aligning functions company refers repositioning actions may lead future restructuring action year ended september 27 2013 company recorded repositioning charges 20 million primarily related professional fees reflected selling general administrative expenses consolidated statement operations repositioning charges incurred fiscal 2012 2011 5 acquisitions year ended september 27 2013 total consideration acquisitions included continuing operations 257 million comprised 229 million cash paid net cash acquired 9 million 28 million consideration primarily contingent successful transfer business license china tyco cash paid acquisitions primarily related acquisition exacq technologies exacq july 26 2013 companys global products segment exacq developer open architecture video management systems security surveillance applications cash paid exacq totaled approximately 148 million net cash acquired 2 million balance acquisitions year ended september 27 2013 included within companys na installation services row installation services segments none material individually aggregate year ended september 28 2012 cash paid acquisitions included continuing operations totaled 217 million net cash acquired 17 million primarily related acquisition visonic ltd visonic december 6 2011 visonic global developer manufacturer electronic security systems components cash paid visonic totaled approximately 94 million net cash acquired 5 million companys global products segment balance acquisitions year ended september 28 2012 included within companys na row installation services global products segments none material individually aggregate company recorded redeemable noncontrolling interest 12 million related acquisition second quarter 2012 net loss adjustments related changes redemption value immaterial years ended september 27 2013 september 28 2012 companys redeemable noncontrolling interest balance 12 million september 27 2013 september 28 2012 year ended september 30 2011 cash paid acquisitions included continuing operations totaled 353 million net cash acquired 3 million primarily related acquisitions oceania capital partners limiteds signature security group signature security chemguard inc chemguard signature security focused providing electronic security small business residential markets australia new zealand acquired april 29 2011 cash paid signature security totaled approximately 184 million net cash acquired 2 million companys row installation services segment september 1 2011 companys global products segment completed acquisition chemguard approximately 130 million cash net cash acquired 1 million chemguard provider firefighting foam concentrates equipment foam systems services specialty chemicals balance tyco international ltd notes consolidated financial statements continued acquisitions year ended september 30 2011 included within companys na row installation services global products segments none material individually aggregate acquisition integration related costs acquisition integration costs expensed incurred years ended september 27 2013 september 28 2012 september 30 2011 company incurred acquisition integration costs 4 million 9 million 5 million respectively costs recorded selling general administrative expenses companys consolidated statements operations 6 income taxes significant components income tax provision 2013 2012 2011 follows millions nonus income continuing operations income taxes 955 million 198 million 364 million 2013 2012 2011 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 27 2013 september 28 2012 september 30 2011 follows millions 1 excludes nondeductible charges items broken separately table tyco international ltd notes consolidated financial statements continued 2012 separation related charges associated early extinguishment debt increased net operating loss carryforward 2012 company expect realize future periods valuation allowance loss carryforward included valuation allowance line table nondeductible charges 2013 2012 primarily related separation costs incurred included nondeductible charges 2011 income tax benefit favorable audit resolutions multiple jurisdictions deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 27 2013 september 28 2012 follows millions valuation allowance deferred tax assets 20 billion 18 billion september 27 2013 september 28 2012 respectively relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions specifically valuation allowance september 27 2013 september 28 2012 includes separation related charges associated early extinguishment debt increased net operating loss carryforward company expect realize future periods valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets companys consolidated balance sheets september 27 2013 deferred tax assets approximately 95 million relate certain operating loss carryforwards resulting exercise employee stock options restricted stock vestings tax benefit recognized accounted credit additional paidin capital rather reduction income tax provision september 27 2013 company 7592 million net operating loss carryforwards certain nonus jurisdictions 6959 million expiration remaining 633 million expire future years 2031 us approximately 810 million federal 467 million state net operating loss carryforwards september 27 2013 expire future years 2033 september 27 2013 september 28 2012 company unrecognized tax benefits 257 million 121 million respectively 236 million 107 million recognized would affect effective tax rate company recognizes interest penalties accrued related unrecognized tax benefits income tax expense company accrued interest penalties related unrecognized tax benefits 41 million 38 million september 27 2013 september 28 2012 respectively company recognized 2 million 3 million 2 million income tax expense tyco international ltd notes consolidated financial statements continued interest penalties related unrecognized tax benefits years ended september 27 2013 september 28 2012 september 30 2011 respectively rollforward unrecognized tax benefits september 27 2013 september 28 2012 september 30 2011 follows millions certain tycos uncertain tax positions relate tax years remain subject audit taxing authorities us federal state local foreign jurisdictions open tax years significant jurisdictions follows based current status income tax audits company believes reasonably possible nil 30 million unrecognized tax benefits may resolved next twelve months tax sharing agreements income tax matters connection 2012 2007 separations company entered 2012 2007 tax sharing agreements respectively govern respective rights responsibilities obligations tyco pentair adt 2012 separation tyco covidien te connectivity 2007 separation respect taxes specifically includes ordinary course business taxes incurred result failure distribution shares pentair adt covidien te connectivity qualify taxfree distribution us federal income tax purposes within meaning section 355 internal revenue code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code 2012 tax sharing agreement tyco pentair adt share certain predistribution income tax liabilities arise adjustments made tax authorities adts tyco flow controls tycos income tax returns ii payments required made tyco respect 2007 tax sharing agreement excluding approximately 175 million pre2012 separation related tax liabilities anticipated paid prior 2012 separation collectively shared tax liabilities tyco responsible first 500 million shared tax liabilities pentair adt share 42 58 respectively next 225 million shared tax liabilities tyco pentair adt share 525 20 275 respectively shared tax liabilities 725 million costs expenses associated management shared tax liabilities generally shared 20 275 525 pentair adt tyco respectively connection execution 2012 tax sharing arrangement tyco established liabilities representing fair market value obligations recorded liabilities companys consolidated balance sheet offset tyco shareholders equity tyco international ltd notes consolidated financial statements continued 2007 tax sharing agreement tyco shares responsibility certain covidiens te connectivitys income tax liabilities result cash payments based sharing formula periods prior including june 29 2007 specifically tyco covidien te connectivity share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens te connectivitys us certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties connection execution 2007 tax sharing agreement tyco established net receivable covidien te connectivity representing amount tyco expected receive pre2007 separation uncertain tax positions including amounts owed internal revenue service irs tyco also established liabilities representing fair market value share covidiens te connectivitys estimated obligations primarily irs pre2007 separation taxes covered 2007 tax sharing agreement year ended september 27 2013 tyco made net cash payment 16 million covidien te connectivity related resolution certain irs audit preseparation tax matters tyco assesses shared tax liabilities related guaranteed liabilities related 2012 2007 tax sharing agreements reporting period tyco provide payment pentair adt 2012 tax sharing agreement covidien te connectivity 2007 tax sharing agreement shared income tax liabilities settled settlement expected occur tax audit legal processes completed impacted years cash payments made due nature unresolved adjustments described next paragraph maximum amount future payments 2012 2007 tax sharing agreements known cash payments occur reduce guarantor liability payments represent equivalent reduction risk tyco also assesses sufficiency 2012 2007 tax sharing agreements guarantee liabilities quarterly basis increase liability probable cash payments expected made 2012 2007 tax sharing agreements exceed recorded balance tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding 2007 separation issues proposed adjustments related years generally subject sharing provisions 2007 tax sharing agreement tycos liabilities 2007 tax sharing agreement subject sharing provisions 2012 tax sharing agreement tyco previously disclosed connection us federal tax audits irs raised number issues proposed tax adjustments periods beginning 1997 tax year although tyco able resolve substantially issues adjustments proposed irs tax years 2007 able resolve matters related treatment certain intercompany debt transactions period result june 20 2013 tyco received notices deficiency irs asserting several tycos former us subsidiaries owe additional taxes 8833 million plus penalties 154 million based audits 1997 2000 tax years tyco subsidiaries existed time addition tyco received final partnership administrative adjustments certain us partnerships owned former us subsidiaries respect additional tax deficiency approximately 30 million expected asserted amounts exclude interest reflect impact subsequent periods irs position described ultimately proved correct irs asserted notices deficiency substantially tycos intercompany debt originated 1997 2000 period treated debt us federal income tax purposes disallowed interest related deductions recognized us income tax returns totaling approximately 29 billion tyco strongly disagrees irs position filed petitions us tax court contesting irs proposed adjustments tyco believes meritorious defenses tax filings irs positions regard matters inconsistent applicable tax laws existing treasury regulations previously reported taxes years question appropriate payments respect matters would required dispute definitively resolved based experience companies could take several years tyco believes income tax reserves liabilities recorded consolidated balance sheet tax sharing agreements continue appropriate however ultimate resolution matters impact resolution uncertain could material impact tycos financial condition results operations cash flows particular irs successful asserting claim would adverse impact interest deductions related intercompany debt subsequent time periods totaling approximately 66 billion also expected disallowed irs noted tyco assessed obligations 2007 tax sharing agreement determine recorded liability sufficient cover indemnifications made agreement absence observable transactions identical similar guarantees tyco determined fair value guarantees indemnifications utilizing expected tyco international ltd notes consolidated financial statements continued present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using tycos incremental borrowing rate however ultimate resolution matters uncertain could result material adverse impact companys financial position results operations cash flows effective tax rate future reporting periods connection aforementioned audits irs assessed civil fraud penalty 21 million first quarter fiscal 2013 prior subsidiary distributed te connectivity connection 2007 separation penalties arise actions former executives taken connection intercompany transfers stock simplex technologies 1998 1999 pre2007 separation tax liability covered provisions 2007 tax sharing agreement addition dealing tax liabilities periods prior respective separations 2012 2007 tax sharing agreements contain sharing provisions address contingencies 2012 2007 separations internal transactions related thereto may deemed taxable us non us taxing authorities event 2012 separation determined taxable determination result actions taken 2012 separations tyco adt pentair party responsible failure would responsible taxes imposed company result thereof determination result actions taken tyco adt pentair 2012 separation tyco adt pentair would responsible taxes imposed companies result determination manner proportions described similar provisions exist 2007 tax sharing agreement either 2007 2012 separation internal transactions taken anticipation thereof deemed taxable associated liability could significant tyco responsible taxes shared pursuant 2012 2007 tax sharing agreements sharing formulas addition pentair adt covidien te connectivity responsible tax liabilities subject 2012 2007 tax sharing agreements sharing formula respectively 2012 2007 tax sharing agreements provides party agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party agreement would required pay equally nondefaulting party agreement amounts default addition another party 2012 2007 tax sharing agreements responsible portion income tax liability default payment liability taxing authority tyco could liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances tyco may obligated pay amounts excess agreedupon share tax liabilities either 2012 2007 tax sharing agreements receivables liabilities related 2012 2007 tax sharing agreements september 27 2013 september 28 2012 follows millions tyco international ltd notes consolidated financial statements continued company recorded income loss conjunction 2012 2007 tax sharing agreements years ended september 27 2013 september 28 2012 september 30 2011 follows millions result 2012 separation equity awards certain employees converted three companies pursuant terms 2012 separation distribution agreement three companies responsible issuing shares upon employee exercise stock option award vesting restricted unit award however 2012 tax sharing agreement provides allowable compensation tax deduction awards claimed employees current employer 2012 tax sharing agreement requires employer claiming tax deduction shares issued companies pay percentage allowable tax deduction company issuing equity 2013 tyco incurred charge 38 million make payments adt pentair based estimated allowable deductions adt pentair shares issued company employees offset income 6 million received adt pentair company shares issued employees resulting net impact approximately 32 million recorded expense net within tycos consolidated statement operations income tax matters except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries deferred tax liabilities temporary differences related investments subsidiaries since earnings expected permanently reinvested investments essentially permanent duration tyco concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries 7 earnings per share reconciliations basic diluted earnings per share attributable tyco common shareholders 2013 2012 2011 follows millions except per share data computation diluted earnings per share 2013 2012 2011excludes effect potential exercise share options purchase approximately 4 million 12 million 10 million shares respectively excludes restricted share awards 1 million 2 million nil shares respectively effect would antidilutive tyco international ltd notes consolidated financial statements continued 8 goodwill intangible assets goodwill impairments result performing companys 2013 2012 2011 annual impairment tests changes carrying amount goodwill segment 2013 2012 follows millions intangible assets indefinitelived intangible asset impairments result performing companys 2013 2012 2011 annual impairment tests following table sets forth gross carrying amount accumulated amortization companys intangible assets september 27 2013 september 28 2012 millions intangible asset amortization expense 2013 2012 2011 99 million 102 million 98 million respectively tyco international ltd notes consolidated financial statements continued estimated aggregate amortization expense intangible assets expected approximately 92 million 2014 74 million 2015 67 million 2016 58 million 2017 214 million 2018 thereafter 9 related party transactions company amounts due related loans advances issued employees prior years companys key employee loan program relocation programs advances made executives loans provided employees companys key employee loan program discontinued except outstanding loans payment taxes upon vesting shares granted restricted share ownership plans fourth quarter 2002 board directors new senior management time adopted policy new loans allowed granted officers company existing loans allowed extended modified loans made companys current executives outstanding loans collateralized bear interest payable annually rate based sixmonth libor calculated annually average rates effect first day preceding 12 months loans generally repayable 10 years however earlier payments required certain circumstances employee terminated addition company made mortgage loans certain employees employee relocation programs loans generally payable 15 years collateralized underlying property maximum amount outstanding programs 21 million september 27 2013 september 28 2012 loans receivable programs well unsecured advances outstanding 21 million september 27 2013 september 28 2012 total outstanding loans receivable includes loans l dennis kozlowski companys former chairman chief executive officer june 2002 amount outstanding loans plus accrued interest 28 million september 27 2013 september 28 2012 rate interest charged loans 04 07 2013 2012 respectively interest income interest bearing loans material periods presented certain loans totaling 1 million september 27 2013 september 28 2012 noninterest bearing company filed civil complaints mr kozlowski former chief financial officer mark swartz frank e walsh jr former director breach fiduciary duty wrongful conduct see note 13 2013 2012 2011 company engaged commercial transactions normal course business companies companys directors employed served officers purchases companies year aggregated less 1 consolidated net revenue 10 debt september 27 2013 september 28 2012 follows millions 1 20 million amount shown comprises current portion companys total debt september 27 2013 2 10 million amount shown comprises current portion companys total debt september 28 2012 tyco international ltd notes consolidated financial statements continued fair value carrying amount tycos debt subject fair value disclosure requirements september 27 2013 september 28 2012 1443 million periods company utilizes various valuation methodologies determine fair value debt primarily dependent type market companys debt traded available company uses quoted market prices determine fair value debt traded active markets september 27 2013 september 28 2012 fair value companys debt actively traded 1676 million 1786 million respectively september 27 2013 september 28 2012 companys debt subject fair value disclosure requirements actively traded classified level 1 fair value hierarchy see note 1 details fair value hierarchy fiscal 2013 debt issuancerepayment material debt issuances repayments 2013 fiscal 2012 debt issuancerepayment fourth quarter 2012 connection separation tyco finance subsidiary tyco international finance sa tifsa redeemed various debt securities maturing 2013 2023 issued tifsa andor tyco aggregate principal amount 26 billion set forth millions conjunction debt redemptions company terminated associated interest rate swap contracts related 60 notes due 2013 4125 notes due 2014 result debt redemptions company recorded loss extinguishment debt 453 million recorded within expense net companys consolidated statement operations year ended september 28 2012 charge comprised premium paid tender offers writeoff unamortized debt issuance costs discount related extinguished notes net gain recognized upon termination associated interest rate swap contracts fiscal 2011 debt issuancerepayment january 12 2011 tifsa issued 250 million aggregate principal amount 375 notes due january 15 2018 notes 250 million aggregate principal amount 4625 notes due january 15 2023 notes fully unconditionally guaranteed company tifsa received total net proceeds approximately 494 million deducting debt issuance costs approximately 1 million 2018 notes 2 million 2023 notes well debt discount approximately 1 million 2018 notes 2 million 2023 notes net proceeds aforementioned debt issuances along available funds used fund repayment upon maturity companys outstanding 675 notes due february 2011 principal amount 516 million 2018 notes 2023 notes unsecured rank equally tifsas unsecured unsubordinated debt prior january 15 2018 case 2018 notes prior october 15 2022 case 2023 notes tifsa may redeem notes redemption price equal greater principal amount notes series makewhole amount plus case accrued unpaid interest october 15 2022 tifsa may redeem 2023 notes redemption price equal 100 principal amount notes plus accrued unpaid interest holders 2018 notes 2023 notes right require tifsa repurchase portion notes purchase price equal 101 principal amount notes repurchased plus accrued unpaid interest upon occurrence change control triggering event requires change control rating event defined indenture governing notes debt issuance costs amortized date issuance maturity tyco international ltd notes consolidated financial statements continued date series notes interest payable semiannually january 15th july 15th 2018 notes 2023 notes commercial paper time tifsa may issue commercial paper general corporate purposes maximum aggregate amount unsecured commercial paper notes available issued private placement basis commercial paper program 1 billion september 27 2013 september 27 2013 september 28 2012 tifsa commercial paper outstanding credit facilities june 22 2012 tifsa borrower company guarantor entered fiveyear senior unsecured credit agreement expiring june 22 2017 providing revolving credit commitments aggregate amount 10 billion 2012 credit agreement connection entering 2012 credit agreement tifsa company terminated existing fouryear senior unsecured credit agreement dated march 24 2011 provided revolving credit commitments aggregate amount 750 million additionally companys fiveyear senior unsecured credit agreement dated april 25 2007 amended terminated september 28 2012 result entering 2012 credit agreement terminations described companys committed revolving credit facility totaled 10 billion september 27 2013 revolving credit facility may used working capital expenditures general corporate purposes september 27 2013 september 28 2012 amounts drawn companys revolving credit facilities interest revolving credit facilities variable calculated reference libor alternate base rate debt information aggregate amounts principal public debt maturing next five years thereafter follows nil 2014 nil 2015 258 million 2016 nil 2017 67 million 2018 1111 million thereafter september 27 2013 weightedaverage interest rate total debt 65 september 28 2012 weightedaverage interest rate total debt excluding impact interest rate swaps 65 public shortterm debt outstanding september 27 2013 september 28 2012 september 28 2012 company terminated interest rate swaps impact companys interest rate swap agreements reported interest expense prior termination net decrease 18 million 22 million years ended september 28 2012 september 30 2011 respectively 11 guarantees certain companys business segments guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions guarantees would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco covidien te connectivity adt pentair accordance terms 2007 2012 separation distribution agreements tax sharing agreements guarantees primarily relate certain contingent tax liabilities included tax sharing agreements see note 6 addition tyco historically provided support form financial andor performance guarantees various covidien te connectivity adt tyco flow control operating entities connection 2012 2007 separations company worked guarantee counterparties cancel assign guarantees covidien te connectivity adt pentair appropriate extent guarantees assigned prior separation dates tyco assumed primary liability remaining support companys obligations related 2012 separation 3 million included liabilities companys consolidated balance sheets september 27 2013 september 28 2012 offset tyco shareholders equity 2012 separation date companys obligations related 2007 separation 3 million 3 million included liabilities companys consolidated balance sheets september 27 2013 september 28 2012 respectively offset tyco shareholders equity 2007 separation date tyco international ltd notes consolidated financial statements continued disposing assets businesses company often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company reason believe uncertainties would material adverse effect companys financial position results operations cash flows normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows september 27 2013 company total outstanding letters credit bank guarantees approximately 424 million company records estimated product warranty costs time sale see note 1 changes carrying amount companys warranty accrual september 28 2012 september 27 2013 follows millions 12 financial instruments companys financial instruments consist primarily cash equivalents accounts receivable investments accounts payable debt derivative financial instruments fair value cash equivalents accounts receivable accounts payable approximated book value september 27 2013 september 28 2012 fair value derivative financial instruments material periods presented see fair value investments note 10 fair value debt derivative instruments normal course business tyco exposed market risk arising changes currency exchange rates interest rates commodity prices company may use derivative financial instruments manage exposures foreign currency commodity interest rate risks companys objective utilizing derivative financial instruments manage risks using effective methods eliminate reduce impacts exposures company use derivative financial instruments trading speculative purposes derivative instruments designated qualified hedging instruments accounting purposes company documented linked relationships hedging instruments hedged items company also assessed documented hedges inception whether derivatives used hedging transactions effective offsetting changes fair values associated hedged items hedges result hedge ineffectiveness years ended september 27 2013 september 28 2012 september 30 2011 derivative financial instruments reported consolidated balance sheet fair value changes fair value derivative financial instruments recognized currently companys statement operations exception net investment hedges changes fair value reported cumulative translation component accumulated comprehensive loss extent hedges effective ineffective portion hedge recognized consolidated statement operations derivative financial instruments impact changes fair value derivative financial instruments material consolidated balance sheets september 27 2013 september 28 2012 consolidated statements operations statement cash flows years ended september 27 2013 september 28 2012 september 30 2011 tyco international ltd notes consolidated financial statements continued foreign currency exposures company manages foreign currency exchange rate risk use derivative financial instruments comprised principally forward contracts foreign currency designated hedging instruments accounting purposes objective derivative instruments minimize income statement impact potential variability cash flows associated intercompany loans accounts receivable accounts payable forecasted transactions denominated certain foreign currencies september 27 2013 september 28 2012 total gross notional amount companys foreign exchange contracts 278 million 225 million respectively effective march 17 2009 tyco changed jurisdiction incorporation bermuda switzerland tyco made final dividend payment form reduction capital february 2011 denominated swiss francs see note 15 company paid dividends us dollars based exchange rate effect shortly payment date fluctuations value us dollar compared swiss franc date dividend approved paid increased decreased us dollar amount required paid company managed potential variability cash flows associated dividend payments entering derivative financial instruments used economic hedges underlying risk beginning may 2011 company makes dividend payments contributed surplus us dollars eliminated need use currency hedges dividend payments counterparty credit risk use derivative financial instruments exposes company counterparty credit risk counterparty fails perform company exposed losses derivative asset position fair value derivative instrument asset counterparty pay company settle contract exposes company credit risk however fair value derivative instrument liability company pay counterparty settle contract therefore counterparty credit risk tyco established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide strong investment grade longterm credit ratings standard poors moodys reduce risk loss company generally enters international swaps derivatives association master agreements substantially counterparties master netting agreements provide protection bankruptcy certain circumstances cases enable receivables payables counterparty offset consolidated balance sheets providing meaningful balance sheet presentation credit exposure companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes september 27 2013 company exposed industry concentration financial institutions well risk loss individual counterparty issuer failed perform obligations contractual terms maximum amount loss company would incur september 27 2013 without giving consideration effects legally enforceable master netting agreements approximately 4 million investments primarily include cash equivalents us government obligations us government agency securities corporate debt securities available company uses quoted market prices determine fair value investment securities investments included level 1 quoted market prices readily available pricing determinations made based results market approach valuation models using observable market data recently reported trades bid offer information benchmark securities investments included level 2 consist primarily us government agency securities corporate debt securities financial assets liabilities classified entirety based lowest level input significant valuation following tables present cost fair market value companys availableforsale investments primarily held companys captive insurance companies type security classification companys consolidated balance sheets september 27 2013 september 28 2012 addition following tables present companys assets liabilities measured fair value recurring basis september 27 2013 september 28 2012 level within fair value hierarchy tyco international ltd notes consolidated financial statements continued september 27 2013 millions september 28 2012 millions 2013 2012 company significant transfers within fair value hierarchy investments continuous unrealized losses less 12 months 12 months greater september 27 2013 september 28 2012 material company record otherthantemporary impairments years ended 2013 2012 2011 maturities companys investments debt securities september 27 2013 follows millions derivative financial instruments fair values companys derivative financial instruments derived market approach pricing models take account contractual terms features instrument forward foreign currency rates companys foreign exchange contracts yield curves companys interest rate swaps existing end period valuations adjusted reflect creditworthiness counterparty assets creditworthiness company liabilities adjustments based observable market evidence categorized level 2 exposures derivative financial instruments fair value details presented derivative financial instruments material periods presented company 20 billion intercompany loans designated permanent nature september 27 2013 september 28 2012 years ended september 27 2013 september 28 2012 september 30 2011 company recorded cumulative translation gain 3 million 48 million cumulative translation loss 2 million respectively accumulated comprehensive loss related loans tyco international ltd notes consolidated financial statements continued 13 commitments contingencies company facility vehicle equipment leases expire various dates beyond fiscal 2014 rental expense leases 293 million 299 million 270 million 2013 2012 2011 respectively following schedule minimum lease payments noncancelable operating leases september 27 2013 millions company also purchase obligations related commitments purchase certain goods services september 27 2013 obligations follows 334 million 2014 64 million 2015 42 million 2016 21 million 2017 20 million 2019 thereafter normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows legacy matters related former management company party several lawsuits involving disputes former management including former chief executive officer mr l dennis kozlowski former chief financial officer mr mark swartz company filed civil complaints mr kozlowski mr swartz breach fiduciary duty wrongful conduct relating alleged abuses companys key employee loan program relocation program unauthorized bonuses unauthorized payments selfdealing transactions improper conduct connection tycos affirmative actions mr kozlowski mr swartz mr kozlowski counterclaims mr swartz separate lawsuit sought aggregate approximately 140 million allegedly due connection compensation retention arrangements employee retirement income security act erisa former director mr frank walsh jr sought indemnification legal expenses incurred connection companys affirmative action breaches fiduciary duties respect mr kozlowski december 1 2010 us district court southern district new york ruled favor several companys affirmative claims trial dismissing mr kozlowskis counterclaims pay benefits 1995 prior commencement trial parties reached agreement principle resolve matter mr kozlowski agreeing release company claims monetary amounts related compensation retention arrangements alleged existed company although parties reached agreement principle settlement agreement signed company continue maintain amounts recorded consolidated balance sheet reflect net liability approximately 91 million amounts allegedly due compensation retention arrangements erisa respect mr swartz march 3 2011 us district court southern district new york granted companys motion summary judgment liability affirmative actions ruled issues related damages would need resolved trial second quarter fiscal 2012 company reversed 50 million liability related mr swartzs pay benefits due expiration statute limitations recorded selling general administrative expenses consolidated statement operations may 15 2012 mr swartz filed lawsuit tyco new york state court claiming entitlement monies erisa company removed case us district court southern district new york filed motion dismiss mr swartzs claims multiple reasons including statute limitations expired latest second quarter fiscal 2012 trial determine companys damages mr swartzs breaches fiduciary duty concluded october 17 2012 conclusion trial court ruled company entitled recover monies earned mr swartz connection employment tyco september 1 1995 june 1 2002 company filed motion requesting entry monetary sum certain judgment conformity courts ruling regarding time period disgorgement motion tyco international ltd notes consolidated financial statements continued also requested interest related monies mr swartz found unlawfully taken company march 2013 court entered order awarding companys request interest connection mr swartzs affirmative claims company court dismissed mr swartzs claims except one claim mr swartz contends entitled reimbursement company taxes paid connection 2002 separation agreement july 2013 parties reached agreement principle resolve matter mr swartz agreeing release company claims monetary amounts related compensation retention arrangements alleged existed company although parties reached agreement principle final settlement agreement yet executed respect mr walsh june 2002 company filed civil complaint breach fiduciary duty inducing breaches fiduciary duty related wrongful conduct involving 20 million payment tyco 10 million paid mr walsh balance paid charity mr walsh trustee payment purportedly made mr walshs assistance arranging companys acquisition cit group inc separately mr walsh filed new york state court claim company asserting entitlement indemnification march 2013 mr walsh company entered settlement agreement resolving claims related lawsuits payments made either party environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required cleanup interpretation applicable laws regulations alternative cleanup methods september 27 2013 tyco concluded probable would incur remedial costs range approximately 74 million 162 million september 27 2013 tyco concluded best estimate within range approximately 105 million 82 million included accrued current liabilities accounts payable 23 million included liabilities companys consolidated balance sheet majority liabilities described relate ongoing remediation efforts facility companys global products segment located marinette wisconsin company acquired 1990 connection acquisition among things ansul product line prior tycos acquisition ansul manufactured arsenicbased agricultural herbicides marinette facility resulted significant arsenic contamination soil groundwater marinette site parts adjoining menominee river ansul engaged ongoing remediation efforts marinette site since 1990 february 2009 entered administrative consent order consent order us environmental protection agency address presence arsenic marinette site agreement ansuls principal obligations contain arsenic contamination site pump treat onsite groundwater dredge treat properly dispose contaminated sediments adjoining river areas monitor contamination levels ongoing basis activities completed consent order since 2009 include installation subsurface barrier wall around facility contain contaminated groundwater installation groundwater extraction treatment system dredging offsite disposal treated river sediment result treatability studies concluded second quarter fiscal 2013 company became aware additional river sediment beyond originally planned would require treatment consent order river sediment remediation caused company increase agreed upon remedial activities fall 2013 order achieve compliance consent order first quarter fiscal 2014 deadline completing remediation extended december 31 2013 company intends complete activities required consent order within extended timeframe result increased level remediation required company recorded approximately 100 million selling general administrative expenses consolidated statement operations first half year ended september 27 2013 september 27 2013 company concluded remaining remediation monitoring costs related marinette facility range approximately 62 million 137 million companys best estimate within range approximately 93 million 79 million included accrued current liabilities accounts payable 14 million included liabilities companys consolidated balance sheet company recorded 17 million 11 million years ended september 28 2012 september 30 2011 respectively within selling general administrative expenses consolidated statement operations since fiscal 2009 year company received consent order company incurred environmental remediation costs net insurance recoveries 132 million although company recorded best estimate costs incur remediate monitor arsenic contamination marinette facility possible technological regulatory enforcement developments results environmental studies factors could change companys expectations respect future charges cash outlays changes could material companys future results operations financial condition cash flows tyco international ltd notes consolidated financial statements continued asbestos matters company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestos containing materials cases typically involve product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos attached used asbestos containing components manufactured third parties case typically names dozens hundreds corporate defendants company observed increase number lawsuits past several years including lawsuits plaintiffs mesothelioma related claims large percentage suits presented viable legal claims result dismissed courts companys historical strategy mount vigorous defense aimed unsubstantiated suits dismissed appropriate settling suits trial although large percentage litigated suits dismissed company cannot predict extent successful resolving lawsuits future addition company continues assess strategy resolving asbestos claims due number claims limited amount assets held yarway corporation yarway one companys indirect subsidiaries april 22 2013 yarway filed voluntary petition relief chapter 11 us bankruptcy code united states bankruptcy court district delaware result filing asbestos claims yarway stayed pending confirmation plan reorganization bankruptcy court yarways goal negotiate obtain approval consummate plan reorganization establishes appropriately funded trust provide fair equitable payment legitimate current future yarway asbestos claims accompanied appropriate injunctive relief permanently protecting yarway certain protected parties asbestos claims arising products manufactured sold andor distributed yarway upon confirmation plan reorganization company expects deconsolidate yarway result filing voluntary petition year company recorded expected loss upon deconsolidation 10 million related yarway bankruptcy petition although terms yarways plan reorganization unknown time company expect material adverse effect companys results operations financial condition liquidity september 27 2013 company determined approximately 5200 claims pending subsidiaries entities company assumed responsibility connection acquisitions divestitures amount reflects companys current estimate number viable claims made entities includes adjustments claims actively prosecuted identify incorrect defendants duplicative actions company indemnified companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made future defined period time lookforward period quarterly basis company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense strategy also evaluates recoverability insurance receivable quarterly basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted third quarter fiscal 2012 company determined lookback period three years appropriate five year period company experienced higher consistent level claims activity settlement costs past three years company also revised lookforward period seven years fifteen years 2027 companys decision revise lookforward period primarily based improvements consistency observable data companys extensive experience asbestos claims since lookforward period originally established 2005 revisions companys lookforward lookback periods applied claims made yarway excluding claims company believed could make reliable estimate pending future claims beyond seven years company believed valuation pending claims future claims filed 2027 produced reasonable estimate asbestos liability recorded consolidated financial statements undiscounted basis effect change companys lookback lookforward periods reduced income continuing operations income taxes net income approximately 90 million 55 million respectively addition effect change increased companys basic diluted loss continuing operations 012 per share decreased companys basic diluted net income 012 per share tyco international ltd notes consolidated financial statements continued companys estimate asbestos related insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers fourth quarter fiscal 2012 company reached agreement one primary insurance carriers asbestos related claims terms settlement company agreed insurance carrier accept lump sum cash payment 97 million respect certain policies reached coverageinplace agreement insurance carrier respect certain claims upon receipt payments insurance carrier first quarter fiscal 2013 company terminated costsharing agreement entered entity acquired business several decades ago result access insurance policies responsible liabilities arising asbestos claims made subsidiary acquired september 27 2013 companys estimated net liability 169 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 321 million separately asset insurance recoveries 152 million company believes asbestos related liabilities insurance related assets september 27 2013 appropriate similarly september 28 2012 companys estimated net liability 155 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 401 million separately asset insurance recoveries 246 million net liabilities reflected companys consolidated balance sheet represent companys best estimates probable losses lookforward periods described reasonably possible losses incurred claims made subsequent lookforward periods however due inherent uncertainty lack reliable trend data predicting losses beyond 2027 company unable reasonably estimate amount losses beyond date accordingly accrual recorded costs may incurred claims may made subsequent 2027 respect claims made yarway company unable reasonably estimate losses beyond accrued uncertain impact yarways reorganization plan chapter 11 bankruptcy code company however company expect impact materially adverse financial condition results operations liquidity amounts recorded company asbestosrelated liabilities insurancerelated assets based companys strategies resolving asbestos claims currently available information number estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers many factors closely linked change one variable assumption impact one others single variable assumption predominately influences determination companys asbestosrelated liabilities insurancerelated assets furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries result actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results compliance matters previously reported companys periodic filings fourth fiscal quarter 2012 company settled department justice doj sec charges related alleged improper payments made companys subsidiaries agents recent years agreed pay approximately 26 million fines disgorgement prejudgment interest doj sec company previously reserved fourth quarter fiscal 2011 company paid doj approximately 13 million first quarter fiscal 2013 paid approximately 13 million sec third quarter fiscal 2013 covidien te connectivity agreed connection 2007 separation cooperate company responses regarding matters agreed liabilities primarily related former healthcare electronics businesses company would assigned covidien te connectivity respectively result covidien te connectivity agreed contribute approximately 5 million immaterial amounts respectively toward aforementioned 26 million tax litigation tyco international ltd notes consolidated financial statements continued tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding 2007 separation issues proposed adjustments related years generally subject sharing provisions tax sharing agreement entered 2007 covidien te connectivity 2007 tax sharing agreement tyco covidien te connectivity share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos covidiens te connectivitys us certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties tyco previously disclosed connection us federal tax audits irs raised number issues proposed tax adjustments periods beginning 1997 tax year although tyco able resolve substantially issues adjustments proposed irs tax years 2007 able resolve matters related treatment certain intercompany debt transactions period result june 20 2013 tyco received notices deficiency irs asserting several tycos former us subsidiaries owe additional taxes 8833 million plus penalties 154 million based audits 1997 2000 tax years tyco subsidiaries existed time addition tyco received final partnership administrative adjustments certain us partnerships owned former us subsidiaries respect additional tax deficiency approximately 30 million expected asserted amounts exclude interest reflect impact subsequent periods irs position described ultimately proved correct irs asserted notices deficiency substantially tycos intercompany debt originated 1997 2000 period treated debt us federal income tax purposes disallowed interest related deductions recognized us income tax returns totaling approximately 29 billion tyco strongly disagrees irs position filed petitions us tax court contesting irs proposed adjustments tyco believes meritorious defenses tax filings irs positions regard matters inconsistent applicable tax laws existing treasury regulations previously reported taxes years question appropriate payments respect matters would required dispute definitively resolved based experience companies could take several years tyco believes income tax reserves liabilities recorded consolidated balance sheet tax sharing agreements continue appropriate however ultimate resolution matters impact resolution uncertain could material impact tycos financial condition results operations cash flows particular irs successful asserting claim would adverse impact interest deductions related intercompany debt subsequent time periods totaling approximately 66 billion expected disallowed irs see note 6 additional information related income tax matters third quarter fiscal 2013 adverse judgment entered united states district court district colorado regarding insurance claim made behalf sonitrol corporation former subsidiary company insurance coverage damages arising burglary fire occurring warehouse monitored sonitrol december 2002 judgment reversed district courts prior finding sonitrols actions type conduct uninsurable based public policy grounds result company reversed insurance receivable 265 million within selling general administrative expenses consolidated statement operations quarter ended june 28 2013 company appealing district courts ruling united states circuit court tenth circuit retry underlying damages action sonitrol colorado state court addition foregoing company subject claims suits including time contractual disputes product general liability claims incidental present former operations acquisitions dispositions respect many claims company either selfinsures maintains insurance thirdparties varying deductibles ultimate outcome matters cannot predicted certainty company believes resolution proceedings whether underlying claims covered insurance material adverse effect companys financial condition results operations cash flows beyond amounts recorded matters 14 retirement plans company sponsors number pension plans company measures pension plans fiscal year end following disclosures exclude impact plans immaterial individually aggregate tyco international ltd notes consolidated financial statements continued defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based local regulations advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation net periodic benefit cost material us nonus defined benefit pension plans 2013 2012 2011 follows millions fiscal 2011 company froze last remaining active us pension plan inactive plans company amortizes actuarial gains losses average remaining life expectancy pension plan participants estimated net loss material us pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 9 million estimated net loss material nonus pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 13 million tyco international ltd notes consolidated financial statements continued change benefit obligations plan assets amounts recognized consolidated balance sheets material us nonus defined benefit plans september 27 2013 september 28 2012 follows millions tyco international ltd notes consolidated financial statements continued accumulated aggregate benefit obligation fair value plan assets accumulated benefit obligations excess plan assets september 27 2013 september 28 2012 follows millions determining expected return plan assets company considers relative weighting plan assets asset class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions companys investment strategy pension plans manage plans goingconcern basis current investment policy maintain adequate level diversification maximizing return assets subject prudent level portfolio risk purpose enhancing security benefits participants well providing adequate liquidity meet immediate future benefit payment requirements addition local regulations local financial considerations factors determining appropriate investment strategy country us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 49 equity securities 47 debt securities 4 asset classes pension plans following weightedaverage asset allocations although company buy sell securities direct investment pension funds due external investment management certain commingled funds plans may indirectly hold tyco securities aggregate amount securities would considered material relative total fund assets company evaluates defined benefit plans asset portfolios existence significant concentrations risk types investment concentration risks evaluated include limited concentrations single entity industry foreign country individual fund manager september 27 2013 significant concentrations risk companys defined benefit plan assets companys plan assets accounted fair value classified entirety based lowest level input significant fair value measurement companys assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets placement within fair value hierarchy levels companys asset allocations level within fair value hierarchy september 27 2013 september 28 2012 presented table companys material defined benefit plans tyco international ltd notes consolidated financial statements continued equity securities consist primarily publicly traded us nonus equities publicly traded securities valued last trade closing price reported active market individual securities traded certain equity securities held within commingled funds valued unitized net asset value nav percentage net asset value determined custodian fund values based fair value underlying net assets owned fund fixed income securities consist primarily government agency securities corporate debt securities mortgage assetbacked securities available fixed income securities valued closing price reported active market individual security traded government agency securities corporate debt securities valued using recent bid prices occasionally mean latest bid ask prices markets less liquid assetbacked securities including mortgage backed securities valued using brokerdealer quotes available quotes available fair value determined utilizing discounted cash flow approach incorporates observable inputs cash flows underlying security structure market information including interest rates bid evaluations comparable securities certain fixed income securities held within commingled funds valued unitizing nav determined custodian fund values based fair value underlying net assets owned fund cash equivalents consist primarily shortterm commercial paper bonds cash cashlike instruments including settlement proceeds due brokers stated cost approximates fair value tyco international ltd notes consolidated financial statements continued following tables set forth summary pension plan assets valued using nav equivalent september 27 2013 september 28 2012 millions strategy companys investment managers regard investments valued using nav equivalent either match exceed relevant benchmarks associated respective asset category none investments valued using nav equivalent contain redemption restrictions unfunded commitments 2013 company contributed 9 million us 47 million nonus pension plans represented companys minimum required contributions pension plans fiscal year 2012 company make voluntary contributions us nonus plans 2013 companys funding policy make contributions accordance laws customs various countries operates well make discretionary voluntary contributions timetotime company anticipates contribute least minimum required pension plans 2014 25 million us plans 35 million nonus plans benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans material 2013 2012 2011 executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime benefits commencing normal retirement age 65 second quarter fiscal 2012 company reversed liability related mr swartzs pay benefits due expiration statute limitations recorded tyco international ltd notes consolidated financial statements continued selling general administrative expenses companys consolidated statement operations companys accrued benefit obligation mr kozlowski september 27 2013 93 million companys accrued benefit obligations messrs kozlowski swartz september 28 2012 93 million nil respectively retirement benefits available earlier ages alternative forms benefits elected variations would actuarially equivalent fixed lifetime benefit starting age 65 amounts owed mr kozlowski era subject litigation brought company see note 13 defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 63 million 58 million 54 million 2013 2012 2011 respectively company maintained unfunded supplemental executive retirement plan serp fiscal years 2012 2011 plan nonqualified restores employer match certain employees lose due irs limits eligible compensation defined contribution plans expense related serp material 2012 2011 serp merged nonqualified deferred compensation plans discussed next paragraph september 28 2012 deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation liabilities 113 million 103 million september 27 2013 september 28 2012 respectively deferred compensation expense material 2013 2012 2011 postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits net periodic postretirement benefit cost material 2013 2012 2011 companys consolidated balance sheets include unfunded postretirement benefit obligations 33 million 40 million september 27 2013 september 28 2012 respectively within liabilities companys consolidated balance sheets include nil postretirement benefit assets september 27 2013 september 28 2012 addition company recorded net actuarial gain 8 million 4 million within accumulated comprehensive loss september 27 2013 september 28 2012 respectively company expects make contributions postretirement benefit plans 3 million 2014 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions 15 shareholders equity comprehensive income dividends prior may 2011 company paid dividends form return share capital companys registered share capital payments made free swiss withholding taxes company makes dividend payments contributed surplus equity position swiss statutory accounts payments also made free swiss withholding taxes unlike payments made form reduction registered share capital required denominated swiss francs converted us dollars time payment payments contributed surplus account may effectively denominated us dollars swiss law authority declare dividends vested general meeting shareholders march 6 2013 companys shareholders approved cash dividend 064 per share payable shareholders four quarterly installments tyco international ltd notes consolidated financial statements continued 016 may 2013 august 2013 november 2013 february 2014 result quarter ended march 29 2013 company recorded accrued dividend 296 million within accrued current liabilities corresponding reduction contributed surplus companys consolidated balance sheet first installment 016 paid may 22 2013 shareholders record april 26 2013 second installment 016 paid august 21 2013 shareholders record july 26 2013 third installment 016 paid november 14 2013 shareholders record october 25 2013 march 7 2012 companys shareholders approved cash dividend 050 per share payable shareholders two quarterly installments 025 may 23 2012 august 22 2012 september 17 2012 companys shareholders approved cash dividend 030 per share payable shareholders two quarterly installments 015 november 15 2012 february 20 2013 030 dividend reflects impact 2012 separation companys dividend policy result company recorded accrued dividend 231 million march 7 2012 additional accrued dividend 139 million september 17 2012 within accrued current liabilities corresponding reduction contributed surplus first installment 025 paid may 23 2012 shareholders record april 27 2012 second installment 025 paid august 22 2012 shareholders record july 27 2012 first installment 015 030 dividend paid november 15 2012 shareholders record october 16 2012 second installment 015 030 dividend paid february 20 2013 shareholders record january 25 2013 march 9 2011 companys shareholders approved annual dividend companys common shares 100 per share paid contributed surplus four installments 025 per share shareholders record april 29 2011 july 29 2011 october 28 2011 january 27 2012 result company recorded accrued dividend 468 million march 9 2011 within accrued current liabilities corresponding reduction contributed surplus common stock september 27 2013 companys share capital amounted chf 243181525 486363050 registered common shares par value chf 050 per share march 6 2015 board directors may increase companys share capital maximum amount chf 121500000 issuing maximum 243000000 shares addition share capital company may increased amount exceeding chf 23964755 issue maximum 47929510 shares exercise conversion andor option warrant rights granted connection bonds notes similar instruments ii share capital company may increased amount exceeding chf 23964755 issue maximum 47929510 shares employees persons providing services company although company states par value swiss francs continues use us dollar reporting currency preparing consolidated financial statements march 6 2013 shareholders company approved reduction companys registered share capital chf 3258632435 chf 243181525 reducing par value share chf 670 chf 050 per share correspondingly increasing companys contributed surplus chf 3015450910 reduction registered share capital corresponding increase contributed surplus intended provide company flexibility making distributions shareholders may 13 2013 notice period required accordance swiss law expired amendment companys articles association filed swiss commercial register may 15 2013 result reduction registered share capital corresponding increase contributed surplus result changes total shareholders equity recorded year ended september 27 2013 share repurchase program companys board directors approved 600 million 2013 share repurchase program 10 billion 2011 share repurchase program 10 billion 2010 share repurchase program january 2013 april 2011 september 2010 respectively share repurchases reduce amount common shares outstanding decrease dividends declared consolidated statement shareholders equity shares repurchased company fiscal year share repurchase program provided tyco international ltd notes consolidated financial statements continued comprehensive income 1 years ended september 27 2013 september 28 2012 september 30 2011 9 million cumulative translation gains 2 million cumulative translation loss 164 million cumulative translation gains respectively transferred currency translation adjustments result sale foreign entities amounts nil 2 million 126 million respectively included income discontinued operations 2 income tax net investment hedge 6 million income tax expense year ended september 27 2013 1 million income tax expense year ended september 28 2012 nil year ended september 30 2011 tyco international ltd notes consolidated financial statements continued accumulated comprehensive loss components accumulated comprehensive loss follows millions 16 share plans total sharebased compensation cost recognized within continuing discontinued operations 2013 2012 2011 consisted following millions company recognized related tax benefit associated sharebased compensation arrangements 2013 2012 2011 20 million 43 million 31 million nil 8 million 6 million included discontinued operations respectively connection 2012 separation employees outstanding stock option awards converted options acquire stock employees postseparation employer manner designed preserve intrinsic value awards however certain corporate employees terminated employees portion employees stock option awards converted options acquire stock company pentair adt modifications made share options result 2012 separation constituted modification authoritative guidance accounting stock compensation requires comparison fair values stock option awards immediately 2012 separation fair values immediately 2012 separation certain instances fair value immediately 2012 separation higher result modification resulted incremental compensation cost 1 million majority recorded discontinued operations year ended september 28 2012 except changes described material terms stock option awards remained unchanged original grant equity awards held employees converted september 28 2012 2011 grant date fair values intrinsic values vested values blackscholes assumptions preconversion basis also connection 2012 separation restricted stock units held tyco employees deferred stock units held tyco directors converted cases restricted stock units company pentair adt cases solely restricted stock units employees postseparation employer modifications designed manner preserve intrinsic value awards except changes described material terms restricted stock units deferred stock units remained unchanged original grant july 12 2012 connection 2012 separation board directors approved conversion outstanding performance share units company restricted stock units based performance achieved tyco international ltd notes consolidated financial statements continued june 29 2012 performance share unit converted number restricted stock units ratio determined compensation committee august 2 2012 based review certification performance results june 29 2012 upon vesting resulting restricted stock units award settled stock awards maintained original vesting terms modifications made marketbased condition outstanding performance share units result 2012 separation also constituted modification similar modification described result modification resulted incremental compensation cost 8 million 7 million recorded separation costs 1 million discontinued operations year ended september 28 2012 addition incremental expense recognized quarter related performance achieved june 29 2012 expense totaled 7 million 6 million recorded separation costs 1 million discontinued operations year ended september 28 2012 september 17 2012 shareholders approved tyco international 2012 stock incentive plan 2012 plan replaces 2004 tyco international ltd stock incentive plan 2004 plan 2012 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted shares deferred stock units promissory stock stockbased awards collectively awards pursuant 2012 plan effective october 1 2012 50 million common shares available equitybased awards subject adjustments provided terms 2012 plan additional shares available 2004 plan addition common shares awarded 2004 plan issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason also available issuance 2012 plan common shares issued pursuant grant full value award example restricted stock units performance share units total number common shares remaining available grant decreased 332 shares september 27 2013 approximately 40 million shares available grant 2012 plan 2004 plan effectively replaced tyco international ltd long term incentive plan amended may 12 1999 ltip plan tyco international ltd long term incentive plan ii ltip ii plan awards effective march 25 2004 plan provided award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted shares deferred stock units promissory stock stockbased awards collectively awards september 27 2013 immaterial number stock units remained outstanding granted ltip ii prior termination 2004 plan provided maximum 40 million common shares issued awards subject adjustment provided terms 2004 plan addition common shares approved companys shareholders issuance ltip plans awarded january 1 2004 reduced number common shares related awards made ltip plans january 1 2004 march 25 2004 date 2004 plan approved shareholders awarded issued owing expiration forfeiture cancellation return company settlement cash lieu common shares january 1 2004 longer available reason including termination ltip plans available issuance 2004 plan subsequently available issuance 2012 plan common shares issued pursuant grant full value award total number common shares remaining available grant decreased margin least 18 per share issued october 1 2012 plan replaced 2004 plan awards permitted granted 2004 plan share optionsoptions granted purchase common shares prices equal greater closing market price common shares date option granted conditions vesting determined time grant options generally exercisable equal annual installments period four years generally expire 10 years date grant historically companys practice settle stock option exercises either newly issued shares held treasury grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service period awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based analysis historic implied volatility measures set peer companies average expected life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well analysis actual share option forfeitures weighted tyco international ltd notes consolidated financial statements continued average assumptions used blackscholes option pricing model 2013 2012 2011 follows weightedaverage grantdate fair values options granted 2013 2012 2011 721 1256 922 respectively total intrinsic value options exercised 2013 2012 2011 73 million 85 million 84 million respectively related excess cash tax benefit classified financing cash inflow 2013 2012 2011 material summary option activity september 27 2013 changes year ended presented september 27 2013 32 million total unrecognized compensation cost related unvested options granted cost expected recognized weightedaverage period 24 fiscal years employee stock purchase planstyco employee stock purchase plan espp suspended indefinitely fourth quarter 2009 september 27 2013 approximately 3 million shares available grant espp restricted share awardsrestricted share awards including restricted stock units performance share units granted subject certain restrictions conditions vesting determined time grant restrictions award generally lapse upon normal retirement twelve months grant date death disability employee fair market value restricted awards time vesting subject specific performance criteria expensed period vesting restricted stock units vest based solely upon passage time generally vest period four years fair value restricted stock units determined based closing market price companys shares grant date performance share units restricted share awards vest dependent upon attainment various levels performance equal exceed targeted levels generally vest entirety three years grant date fair value performance share units determined based monte carlo valuation model compensation expense recognized restricted share awards net estimated forfeitures recipients restricted stock units voting rights receive dividend equivalent units deus recipients performance share units voting rights may receive deus depending terms grant tyco international ltd notes consolidated financial statements continued summary activity companys restricted stock unit awards september 27 2013 changes year ended presented tables weightedaverage grantdate fair value restricted stock units granted 2013 2012 2011 2766 4554 3790 respectively total fair value restricted stock units vested 2013 2012 2011 64 million 90 million 62 million respectively september 27 2013 47 million total unrecognized compensation cost related unvested restricted share awards cost expected recognized weightedaverage period 21 fiscal years summary activity companys performance share unit awards september 27 2013 changes year ended presented table weightedaverage grantdate fair value performance share units granted 2013 2012 2011 3036 4886 4137 respectively total fair value performance share units vested 2013 2012 2011 nil 25 million nil august 2 2012 performance share units converted restricted stock units outstanding shares time moved restricted stock units reporting table september 27 2013 15 million total unrecognized compensation cost related unvested performance share awards cost expected recognized weightedaverage period 20 fiscal years deferred stock unitsdeferred stock units dsus notional units tied value tyco common shares distribution deferred termination employment service company distribution made form actual shares oneforone basis similar restricted stock units vest time fair value dsus determined based closing market price companys shares grant date amortized expense vesting period recipients dsus right vote receive cash dividends however right receive dividend equivalent units conditions vesting determined time grant 2004 plan grants made executives generally vested equal annual installments three years dsus granted board directors immediately vested company 11 million dsus outstanding september 28 2012 fully vested 10 million delivered six months following september 28 2012 dsu awards granted 2013 2012 2011 however participants continue earn deus existing awards total fair value dsus including deus vested 2013 2012 2011 nil 1 million 1 million respectively tyco international ltd notes consolidated financial statements continued 17 consolidated segment data segment information consistent management reviews businesses make investing resource allocation decisions assesses operating performance connection 2012 separation company realigned management segment reporting structure beginning fourth quarter fiscal 2012 company operates reports financial operating information following three segments • na installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail institutional governmental customers north america • row installation services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers rest world row regions • global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row installation services segments company also provides general corporate services segments reported fourth nonoperating segment corporate years ended september 30 2011 corporate includes companys former electrical metal products business divested first quarter fiscal 2011 result 2012 separation net revenue operating income depreciation amortization capital expenditures year ended september 30 2011 recast new segment structure selected information segment presented following tables millions 1 net revenue operating segment excludes intercompany transactions 2 fiscal 2011 53week year fiscal years 2013 2012 52week years 1 operating income includes 7 million year ended september 30 2011 related companys former electrical metals products business majority interest sold first quarter fiscal 2011 operating income year ended september 30 2011 also included gain net working capital adjustments 248 million related sale see note 3 tyco international ltd notes consolidated financial statements continued total assets segment september 27 2013 september 28 2012 september 30 2011 follows millions depreciation amortization capital expenditures segment years ended september 27 2013 september 28 2012 september 30 2011 follows millions net revenue geographic area years ended september 27 2013 september 28 2012 september 30 2011 follows millions 1 net revenue attributed individual countries based reporting entity records transaction 2 includes us net revenue 4568 million 4478 million 4630 million 2013 2012 2011 respectively 3 uk represents largest portion net revenue europe middle east africa region net revenue 1168 million 1162 million 1187 million 2013 2012 2011 respectively 4 fiscal 2011 53week year fiscal years 2013 2012 52week years tyco international ltd notes consolidated financial statements continued longlived assets geographic area september 27 2013 september 28 2012 september 30 2011 follows millions 1 longlived assets comprised primarily subscriber system assets net property plant equipment net deferred subscriber acquisition costs net dealer intangibles exclude goodwill intangible assets 2 includes us longlived assets 828 million 856 million 895 million 2013 2012 2011 respectively 18 supplementary consolidated balance sheet information selected supplementary consolidated balance sheet information september 27 2013 september 28 2012 follows millions tyco international ltd notes consolidated financial statements continued 19 inventory inventories consisted following millions inventories recorded lower cost primarily firstin firstout market value 20 property plant equipment property plant equipment consisted following millions 21 tyco international finance sa tifsa 100 owned subsidiary company public debt securities outstanding fully unconditionally guaranteed tyco see note 10 following tables present condensed consolidating financial information tyco tifsa subsidiaries condensed financial information tyco tifsa standalone basis presented using equity method accounting subsidiaries fiscal 2013 company transferred certain investments subsidiaries tyco tifsa impact company’s financial position results operations cash flows transactions entirely among whollyowned subsidiaries tyco transactions increased tifsa’s investment subsidiaries among entities common control effects reflected beginning earliest period presented resulted net increase tifsa’s investment subsidiaries 3063 million september 28 2012 result 2012 separation company undertook certain steps fiscal 2012 restructure ownership subsidiaries within tyco specifically company completed transfer certain investments tifsa tyco since transactions entirely among whollyowned subsidiaries tyco impact companys financial position results operations cash flows transactions however result decrease tifsas investment subsidiaries since transactions among entities common control effects reflected beginning earliest period presented resulted net decrease tifsas investment subsidiaries 117 million september 30 2011 tyco international ltd notes consolidated financial statements continued condensed consolidating statement operations year ended september 27 2013 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement comprehensive income year ended september 27 2013 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement operations year ended september 28 2012 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement comprehensive income year ended september 28 2012 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement operations year ended september 30 2011 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement comprehensive income year ended september 30 2011 millions tyco international ltd notes consolidated financial statements continued condensed consolidating balance sheet september 27 2013 millions tyco international ltd notes consolidated financial statements continued condensed consolidating balance sheet september 28 2012 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement cash flows year ended september 27 2013 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement cash flows year ended september 28 2012 millions tyco international ltd notes consolidated financial statements continued condensed consolidating statement cash flows year ended september 30 2011 millions tyco international ltd notes consolidated financial statements continued 22 subsequent events november 8 2013 company acquired westfire inc fire protection services company operations united states chile peru westfire provides critical specialhazard suppression detection applications mining telecommunications vertical markets integrated na installation services row installation services segments november 11 2013 companys board directors approved cash dividend 072 per common share 008 per common share increase subject shareholder approval annual general meeting march 2014 tyco international ltd supplementary financial information selected quarterly financial data unaudited selected quarterly financial data years ended september 27 2013 september 28 2012 follows millions except per share data tyco international ltd supplementary financial information continued selected quarterly financial data unaudited continued 1 net revenue excludes 1717 million 1804 million 1796 million 1831 million net revenue related discontinued operations first second third fourth quarters 2012 respectively 2 loss continuing operations attributable tyco common shareholders includes 453 million loss extinguishment debt recorded connection 2012 separation tyco international ltd schedule iivaluation qualifying accounts millions 1 deductions represent uncollectible accounts written net recoveriesitem 15 exhibits financial statement schedules 1 2 financial statements supplementary datasee item 8 b exhibit index 1 management contract compensatory plan 2 see item 15a3 3 see item 15a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized tyco international plc arun nayar arun nayar executive vice president chief financial officer principal financial officer date november 13 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant november 13 2015 capacities indicated name title george r oliver chief executive officer director principal executive officer george r oliver arun nayar executive vice president chief financial officer principal financial officer arun nayar sam eldessouky senior vice president controller chief accounting officer principal accounting officer sam eldessouky name title edward breen director herman e bulls director michael e daniels director frank drendel director brian duperreault director rajiv l gupta director dr brendan r oneill director jürgen tinggren director sandra wijnberg director r david yost director judith reinsdorf signing name hereto sign document behalf noted individuals pursuant powers attorney duly executed individuals filed exhibit 241 report judith reinsdorf judith reinsdorf attorneyinfact tyco international plc index consolidated financial statements managements responsibility financial statements discussion managements responsibility responsible preparation integrity fair presentation consolidated financial statements related information appearing report take responsibilities seriously committed recognized leader governance controls clarity transparency financial statements committed making honesty integrity transparency hallmarks run tyco believe succeed todays environment requires compliance laws regulationsit requires culture based upon highest levels integrity ethical values expected behavior starts board directors senior management team leading example includes every one tycos global employees well customers suppliers business partners one crucial objectives continuing maintain build public employee shareholder confidence restored tyco believe accomplished first issuing financial information related disclosures accurate complete transparent investors well informed second supporting leadership culture based ethic uncompromising integrity accountability third recruiting training retaining highperformance individuals highest ethical standards take full responsibility meeting objective maintain appropriate accounting standards disclosure controls devote full commitment necessary resources items dedication governance controls financial reporting throughout 2015 continued maintain enhance internal controls financial reporting disclosures corporate governance practices believe strong control environment dynamic process therefore intend continue devote necessary resources maintain improve internal controls corporate governance audit committee meets regularly separately management deloitte touche llp independent registered public accounting firm internal auditors discuss financial reports controls auditing board audit committee committed excellence governance financial reporting controls george r oliver arun nayar george r oliver chief executive officer director arun nayar executive vice president chief financial officer report independent registered public accounting firm board directors shareholders tyco international plc audited accompanying consolidated balance sheets tyco international plc subsidiaries company formerly known tyco international ltd subsidiaries september 25 2015 september 26 2014 related consolidated statements operations comprehensive income shareholders equity cash flows three fiscal years period ended september 25 2015 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tyco international plc subsidiaries september 25 2015 september 26 2014 results operations cash flows three fiscal years period ended september 25 2015 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states companys internal control financial reporting september 25 2015 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated november 13 2015 expressed unqualified opinion companys internal control financial reporting deloitte touche llp new york new york november 13 2015 tyco international plc consolidated statements operations years ended september 25 2015 september 26 2014 september 27 2013 millions except per share data see notes consolidated financial statements tyco international plc consolidated statements comprehensive income years ended september 25 2015 september 26 2014 september 27 2013 millions see notes consolidated financial statements tyco international plc consolidated balance sheets september 25 2015 september 26 2014 millions except per share data see notes consolidated financial statements tyco international plc consolidated statements shareholders equity years ended september 25 2015 september 26 2014 september 27 2013 millions see notes consolidated financial statements tyco international plc consolidated statements shareholders equity continued years ended september 25 2015 september 26 2014 september 27 2013 millions see notes consolidated financial statements tyco international plc consolidated statements cash flows years ended september 25 2015 september 26 2014 september 27 2013 millions see notes consolidated financial statements tyco international plc notes consolidated financial statements 1 basis presentation summary significant accounting policies basis presentationthe consolidated financial statements include consolidated accounts tyco international plc corporation organized laws ireland subsidiaries tyco subsidiaries hereinafter collectively referred company tyco financial statements prepared united states dollars usd accordance generally accepted accounting principles united states gaap unless otherwise indicated references 2015 2014 2013 tycos fiscal years ending september 25 2015 september 26 2014 september 27 2013 respectively effective september 28 2012 tyco completed spinoffs adt corporation adt pentair ltd formerly known tyco flow control international ltd tyco flow control formerly north american residential security flow control businesses tyco respectively separate publicly traded companies form distribution tyco shareholders immediately following spinoff pentair inc merged subsidiary tyco flow control taxfree allstock merger pentair ltd pentair succeeding pentair inc independent publicly traded company distribution made september 28 2012 tyco shareholders record september 17 2012 tyco shareholder received 050 ordinary share adt approximately 024 common share pentair tyco common share held record date distribution structured taxfree tyco shareholders except extent cash received lieu fractional shares distributions merger related transactions collectively referred herein 2012 separation effective june 29 2007 company completed spinoffs covidien subsequently acquired medtronic plc te connectivity formerly healthcare electronics businesses tyco respectively separate public traded companies 2007 separation form taxfree distribution tyco shareholders fourth quarter fiscal 2015 company changed name north america installation services rest world installation services segments north america integrated solutions services rest world integrated solutions services respectively segment reporting structure consistent management reviews businesses makes investing resource decisions assesses operating performance name changes better reflect companys focus providing technology solutions encompass mix products services consultation tailored unique needs customer changes made current segment structure underlying financial data comprise segment result name changes impact previously disclosed segment information company operates reports financial operating information following three segments north america integrated solutions services na integrated solutions services rest world integrated solutions services row integrated solutions services global products company also provides general corporate services segments reported fourth nonoperating segment corporate change jurisdiction may 30 2014 tyco entered merger agreement merger agreement tyco international plc newlyformed irish public limited company whollyowned subsidiary tyco ireland merger agreement tyco merged tyco ireland tyco ireland surviving company resulted tyco ireland becoming tycos publiclytraded parent company changed jurisdiction organization tyco switzerland ireland tycos shareholders received one ordinary share tyco ireland ordinary share tyco held immediately prior redomicile ireland redomicile ireland became effective november 17 2014 reclassifications certain prior period amounts reclassified conform current period presentation company completed sale several row integrated solutions services businesses third quarter fiscal 2015 assets liabilities related row integrated solutions services businesses classified held sale september 26 2014 results operations two businesses included discontinued operations periods presented criteria presented discontinued operation satisfied third business company expects complete sale another row integrated solutions services businesses first half fiscal 2016 assets liabilities business classified held sale results operations presented discontinued operations periods presented see note 3 principles consolidationtyco conducts business operating subsidiaries company consolidates companies owns controls fifty percent voting shares ability control similar rights also company consolidates variable interest entities vie company power direct tyco international plc notes consolidated financial statements continued significant activities entity obligation absorb losses receive benefits entity may significant vies company consolidates individually aggregate material impact companys financial position results operations cash flows intercompany transactions eliminated results companies acquired disposed year included consolidated financial statements effective date acquisition date disposal company 52 53week fiscal year ends last friday september fiscal 2015 2014 2013 52 week years ended september 25 2015 september 26 2014 september 27 2013 respectively fiscal 2016 53week year end september 30 2016 use estimatesthe preparation consolidated financial statements conformity gaap requires management make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses significant estimates consolidated financial statements include restructuring charges allowances doubtful accounts receivable estimates future cash flows associated asset impairments useful lives depreciation amortization loss contingencies including legal environmental asbestos reserves insurance reserves net realizable value inventories fair values financial instruments estimated contract revenue related costs income taxes tax valuation allowances pension postretirement employee benefit liabilities expenses actual results could differ materially estimates revenue recognitionthe company recognizes revenue principally four types transactionssales products security systems monitoring maintenance services contract sales including installation fire security systems constructionrelated projects revenue sales products recognized time title risks rewards ownership pass generally products reach freeonboard shipping point sales price fixed determinable collection reasonably assured provisions certain rebates sales incentives trade promotions product returns discounts customers accounted reductions determining net revenue period related sales recorded provisions based terms arrangements direct indirect market participants rebates estimated based sales terms historical experience trend analysis sales security monitoring systems may multiple elements including equipment installation monitoring services maintenance agreements company assesses revenue arrangements determine appropriate units accounting ownership system transferred customer deliverable provided arrangement considered separate unit accounting revenues associated sale equipment related installations recognized delivery installation customer acceptance completed revenue monitoring maintenance services recognized services rendered amounts assigned unit accounting based allocation total arrangement consideration using hierarchy estimated selling price deliverables selling price used deliverable based vendor specific objective evidence vsoe available third party evidence tpe vsoe available estimated selling price neither vsoe tpe available revenue recognized equipment installation limited lesser allocated amounts estimated selling price hierarchy noncontingent upfront consideration received time installation since collection future amounts arrangement customer contingent upon delivery monitoring maintenance services company expect situations vsoe available sales security systems services cases arise company would follow selling price hierarchy allocate arrangement consideration transactions company retains ownership subscriber system asset fees monitoring maintenance services recognized straightline basis contract term nonrefundable fees received connection initiation monitoring contract along associated direct incremental selling costs deferred amortized estimated life customer relationship revenue sale services recognized services rendered customer billings services yet rendered deferred recognized revenue services rendered associated deferred revenue included current liabilities longterm liabilities appropriate contract sales installation fire protection systems large security intruder systems constructionrelated projects recorded primarily percentageofcompletion method profits recognized contracts process based upon estimated contract revenue related total cost project completion extent progress toward completion generally measured based ratio actual cost incurred total estimated cost completion revisions cost estimates contracts progress effect increasing decreasing profits period provisions anticipated tyco international plc notes consolidated financial statements continued losses made period become determinable estimated warranty costs included total estimated contract costs accrued construction period respective contracts percentageofcompletion accounting company recorded retainage receivables 54 million 53 million september 25 2015 september 26 2014 respectively 45 million 42 million unbilled respectively retainage provisions consist primarily fire protection contracts become due upon contract completion acceptance company expects approximately 42 million collected fiscal 2016 reflected accounts receivable within consolidated balance sheet september 25 2015 research developmentresearch development expenditures expensed incurred included cost product sales within consolidated statements operations amounted 212 million 193 million 172 million fiscal years 2015 2014 2013 respectively related new product development research development expenses include salaries direct costs incurred building overhead expenses advertisingadvertising costs expensed incurred included selling general administrative expenses within consolidated statements operations amounted 22 million 48 million 60 million fiscal years 2015 2014 2013 respectively acquisition costscosts incurred acquire new businesses new product lines similar assets expensed incurred included selling general administrative expenses within consolidated statements operations see note 5 translation foreign currencyfor companys nonus subsidiaries whose books functional currency us dollars assets liabilities translated us dollars using periodend exchange rates revenue expenses translated average exchange rates effect period foreign currency translation gains losses included component accumulated comprehensive loss within consolidated statement shareholders equity cash equivalentsall highly liquid investments original maturities three months less considered cash equivalents allowance doubtful accountsthe allowance doubtful accounts receivable reflects best estimate probable losses inherent tycos receivable portfolio determined basis historical experience specific allowances known troubled accounts currently available evidence inventoriesinventories recorded lower cost primarily firstin firstout market value property plant equipment netproperty plant equipment net recorded cost less accumulated depreciation expense fiscal years 2015 2014 2013 254 million 267 million 285 million respectively recorded cost product sales cost services selling general administrative expenses within consolidated statement operations maintenance repair expenditures charged expense incurred except pooled subscriber systems depreciated accelerated basis period 15 years depreciation calculated using straightline method estimated useful lives related assets follows see discussion depreciation method estimated useful lives related subscriber systems subscriber system assets dealer intangibles related deferred revenue accountsthe company considers assets related acquisition new customers electronic security business three asset categories internally generated residential subscriber systems outside north america internally generated commercial subscriber systems collectively referred subscriber system assets customer accounts acquired adt dealer program primarily outside north america referred dealer intangibles subscriber system assets include installed property plant equipment tyco retains ownership deferred costs directly related customer acquisition system installation subscriber system assets represent capitalized equipment eg security control panels touchpad motion detectors window sensors equipment installation costs associated electronic security monitoring arrangements company tyco international plc notes consolidated financial statements continued retains ownership security system assets customers place business outside north america residence installation costs represent costs incurred prepare asset intended use company pays property taxes subscriber system assets upon customer termination may retrieve assets embody probable future economic benefit generate future monitoring revenue company costs related subscriber system equipment installation categorized property plant equipment rather deferred costs deferred costs associated subscriber system assets represent direct incremental selling expenses commissions related acquiring customer commissions related upfront consideration paid customers connection establishment monitoring arrangement determined based percentage upfront fees exceed deferred revenue deferred costs recorded noncurrent assets included assets within consolidated balance sheets subscriber system assets deferred revenue resulting customer acquisition accounted expected life subscriber certain geographical areas company large number customers behave similar manner time company accounts subscriber system assets related deferred revenue using pools separate pools components subscriber system assets related deferred revenue based month year acquisition company depreciates pooled subscriber system assets related deferred revenue using accelerated method lives 15 years accelerated method utilizes declining balance rates based geographical area ranging 140 360 commercial subscriber pools dealer intangibles converts straightline methodology resulting depreciation charge greater accelerated method company uses straightline method 14year life nonpooled subscriber system assets primarily europe latin america asia related deferred revenue remaining balances written upon customer termination certain contracts related customer relationships result purchasing residential security monitoring contracts external network independent dealers operate adt dealer program primarily outside north america acquired contracts related customer relationships recorded contractually determined purchase price first 6 months 12 months certain circumstances purchase customer contract cancellation monitoring service including result customer payment delinquencies results chargeback company dealer full amount contract purchase price company records amount charged back dealer reduction previously recorded intangible asset intangible assets arising adt dealer program described amortized pools determined month year contract acquisition accelerated basis period pattern economic benefit expected obtained customer relationship estimated useful life dealer intangibles ranges 12 15 years company amortizes dealer intangible assets accelerated basis amortizable intangible assets netintangible assets primarily include contracts related customer relationships dealer accounts discussed intellectual property contracts related customer relationships well intellectual property consisting primarily patents trademarks copyrights unpatented technology amortized straightline basis 4 40 years company evaluates amortization methods remaining useful lives intangible assets periodic basis determine whether events circumstances warrant revision amortization method remaining useful lives longlived asset impairmentsthe company reviews longlived assets including property plant equipment amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount asset may fully recoverable tyco performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use tyco groups assets liabilities lowest level cash flows separately identified impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill indefinitelived intangible asset impairmentsgoodwill indefinitelived intangible assets assessed impairment annually frequently triggering events occur see note 8 performing assessments management relies considers number factors including operating results business plans economic projections anticipated future cash flows comparable market transactions extent available market data companys overall market capitalization inherent uncertainties related factors require judgment applying tyco international plc notes consolidated financial statements continued analysis goodwill indefinitelived intangible assets impairment company elected make first day fourth quarter annual impairment assessment date goodwill indefinitelived intangible assets testing goodwill impairment company first assesses qualitative factors determine whether likely fair value reporting unit less carrying amount company concludes likely fair value reporting unit less carrying amount quantitative fair value test performed based upon company’s recent annual impairment test completed june 29 2015 likely fair value reporting unit less carrying value indefinitelived intangible assets consisting primarily trade names franchise rights tested impairment using either relieffromroyalty method excess earnings method respectively investmentsthe company invests debt equity securities longterm investments marketable equity securities represent less twenty percent ownership marked market end accounting period unrealized gains losses recognized accumulated comprehensive loss within consolidated statement shareholders equity available sale securities unless unrealized loss deemed temporary case loss charged earnings unrealized gains losses recognized income expense net trading securities management determines proper classification investments time purchase reevaluates classifications balance sheet date realized gains losses sales investments recorded income expense net within consolidated statements operations equity investments company ability exercise significant influence readily determinable market value accounted cost method accounting reporting period company evaluates carrying value investments accounted cost method accounting recorded lower cost estimated net realizable value equity investments company exerts significant influence operating financial policies control equity method accounting used companys share net income losses equity investments included equity income loss earnings unconsolidated subsidiaries selling general administrative expenses within consolidated statements operations depending nature investment see note 11 product warrantythe company records estimated product warranty costs time sale products warranted defects material workmanship properly used intended purpose installed correctly appropriately maintained generally product warranties implicit sale however customer may purchase extended warranty however instances warranty either negotiated contract sold separate component warranty liability determined based historical information past experience product failure rates number units repaired estimated cost material labor certain instances estimated property damage see note 10 environmental coststhe company subject laws regulations relating protecting environment tyco provides expenses associated environmental remediation obligations amounts probable reasonably estimated see note 12 income taxesdeferred tax liabilities assets recognized expected future tax consequences events reflected consolidated financial statements deferred tax liabilities assets determined based differences book tax bases particular assets liabilities operating loss carryforwards using tax rates effect years differences expected reverse valuation allowance provided offset deferred tax assets based upon available evidence including consideration tax planning strategies morelikelythannot deferred tax assets realized see note 6 asbestosrelated contingencies insurance receivablesthe company certain subsidiaries along numerous companies named defendants personal injury lawsuits based alleged exposure asbestoscontaining materials companys estimate liability corresponding insurance recovery pending future claims defense costs based companys historical claim experience estimates number resolution cost potential future claims may filed companys legal strategy resolving claims also impacts estimates company considers various trends developments evaluating period time lookback period historical claim settlement experience used estimate value claims reasonably projected made future defined period time lookforward period periodic basis company assesses sufficiency estimated liability pending future claims defense costs evaluating actual experience regarding claims filed settled dismissed amounts paid settlements addition claims settlement experience company considers additional quantitative qualitative factors changes legislation legal environment companys defense tyco international plc notes consolidated financial statements continued strategy company also evaluates recoverability insurance receivable periodic basis company evaluates factors determines whether change estimate liability pending future claims defense costs insurance receivable warranted connection recognition liabilities asbestosrelated matters company records asbestosrelated insurance recoveries probable companys estimate asbestosrelated insurance recoveries represents estimated amounts due company previously paid settled claims probable reimbursements relating estimated liability pending future claims determining amount insurance recoverable company considers number factors including available insurance allocation methodologies solvency creditworthiness insurers see note 12 insurable liabilitiesthe company records liabilities workers compensation product general auto liabilities determination liabilities related expenses dependent claims experience liabilities claims incurred yet reported estimated utilizing actuarial valuations based upon historical claims experience certain insurable liabilities workers compensation discounted using riskfree rate return pattern timing future obligation reliably determinable impact discount consolidated balance sheets reduce obligation 14 million 67 million september 25 2015 17 million 74 million september 26 2014 company records receivables third party insurers recovery determined probable company maintains captive insurance companies manage certain insurable liabilities fiscal 2013 portion 2014 captive insurance companies held certain investment accounts purpose providing collateral companys insurable liabilities investment accounts liquidated fiscal 2014 see note 10 fair value financial instrumentsauthoritative guidance fair value measurements establishes threelevel hierarchy ranks quality reliability information used developing fair value estimates financial instruments hierarchy gives highest priority quoted prices active markets lowest priority unobservable data cases two levels inputs used determine fair value financial instruments level determined based lowest level input considered significant fair value measurement entirety three levels fair value hierarchy summarized follows • level 1inputs based upon quoted prices unadjusted active markets identical assets liabilities accessible measurement date • level 2inputs based upon quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations asset liability derived principally corroborated market data primary inputs observable including forward interest rates yield curves credit risk exchange rates • level 3inputs valuations unobservable based managements estimates assumptions market participants would use similar inputs pricing asset liability fair values therefore determined using modelbased techniques option pricing models discounted cash flow models financial instrumentsthe company may use interest rate swaps currency swaps forward option contracts commodity swaps manage risks generally associated interest rate risk foreign exchange risk commodity prices derivatives used hedging purposes designated effective hedge identified risk exposure inception contract accordingly changes fair value derivative contract highly effective offsetting changes fair value underlying hedged item inception hedge expected remain highly effective life hedge contract derivative financial instruments reported within consolidated balance sheets fair value derivatives used economically hedge foreign currency denominated balance sheet items related operating activities reported selling general administrative expenses along offsetting transaction gains losses items hedged derivatives used manage exposure changes interest rates reported interest expense along offsetting transaction gains losses items hedged within consolidated statements operations gains losses net investment hedges included cumulative translation adjustment cta component accumulated comprehensive loss extent effective within consolidated statement shareholders equity gains losses derivatives designated cash flow hedges recorded accumulated comprehensive loss within consolidated statement shareholders equity reclassified earnings manner matches timing earnings impact hedged transactions company classifies cash flows associated settlement derivatives consistent nature transaction hedged ineffective portion hedges recognized currently earnings instruments qualify hedge accounting marked market changes recognized current earnings see note 11 tyco international plc notes consolidated financial statements continued redeemable noncontrolling interestsnoncontrolling interest redemption features put options solely within companys control considered redeemable noncontrolling interests company accretes changes redemption value noncontrolling interest subsidiaries net income attributable noncontrolling interest period date issuance earliest redemption date redeemable noncontrolling interest considered temporary equity therefore reported mezzanine section liabilities equity companys consolidated balance sheet greater initial carrying amount increased decreased noncontrolling interests share net income loss redemption value recently adopted accounting pronouncements march 2013 financial accounting standards board fasb issued authoritative guidance resolve diversity practice accounting cta parent either sells part investment foreign entity longer holds controlling financial interest subsidiary group assets within foreign entity guidance requires parent release cta net income parent ceases controlling financial interest subsidiary group assets within foreign entity results substantially complete liquidation foreign entity sale investment foreign entity results loss controlling financial interest acquirer obtains control acquiree equity interest immediately acquisition date guidance change requirement release pro rata portion cta net income upon partial sale equity method investment foreign entity guidance became effective tyco first quarter fiscal 2015 adoption guidance applied prospective basis material impact companys financial position results operations cash flows july 2013 fasb issued authoritative guidance presentation unrecognized tax benefit net operating loss “nol” carryforward similar tax loss tax credit carryforward exists guidance requires entity present unrecognized tax benefit portion unrecognized tax benefit financial statements reduction deferred tax asset nol carryforward similar tax loss tax credit carryforward nol carryforward similar tax loss tax credit carryforward available reporting date tax law jurisdiction tax law jurisdiction require entity use entity intend use deferred tax asset purpose unrecognized tax benefit presented financial statements liability combined deferred tax assets guidance require additional recurring disclosures became effective tyco first fiscal quarter fiscal 2015 adoption guidance applied prospective basis material impact companys financial position results operations cash flows recently issued accounting pronouncements april 2014 fasb issued authoritative guidance change criteria reporting discontinued operations new guidance disposals representing strategic shift major effect companys operations financial results reported discontinued operations expanded disclosures addition disclosure pretax income attributable disposal significant part organization qualify discontinued operation required guidance effective tyco first quarter fiscal 2016 adoption new guidance first quarter fiscal 2016 may impact presentation disclosure future components classified held sale completed disposals may 2014 fasb issued authoritative guidance revenue contracts customers provides single comprehensive revenue recognition model apply determining recognize revenue core principle guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services applying new revenue model contracts customers guidance requires five steps applied include 1 identify contracts customer 2 identify performance obligations contract 3 determine transaction price 4 allocate transaction price performance obligations contract 5 recognize revenue entity satisfies performance obligation guidance also requires quantitative qualitative disclosures comprehensive existing revenue standards disclosures intended enable financial statement users understand nature timing uncertainty revenue related cash flow new standard allows retrospective prospective methods adoption august 2015 fasb issued authoritative guidance defer effective date guidance tyco first quarter fiscal 2019 early adoption permitted beginning first quarter fiscal 2018 company currently process determining adoption method well assessing impact guidance upon adoption may 2015 fasb issued authoritative guidance intended improve existing disclosure requirements shortduration contracts insurance entities issue contracts guidance requires additional information disclosed liability unpaid claims claim adjustment expenses increase transparency significant tyco international plc notes consolidated financial statements continued estimates made measuring liabilities guidance effective tyco first quarter fiscal 2017 early adoption permitted company currently assessing impact guidance upon adoption july 2015 fasb issued authoritative guidance goal simplify existing guidance entity must measure inventory lower cost market new guidance inventory “measured lower cost net realizable value” apply inventory measured using lastin firstout retail method net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation guidance effective tyco first quarter fiscal 2017 early adoption permitted prospective basis company currently assessing impact guidance upon adoption september 2015 fasb issued authoritative guidance intent reduce cost complexity financial reporting recognizing adjustments provisional amounts connection business combination guidance eliminates requirement restate prior period financial statements requires entities present separately face income statement disclose notes portion amount recorded currentperiod earnings line item would recorded previous reporting periods adjustment provisional amounts recognized acquisition date guidance effective tyco first quarter fiscal 2017 early adoption permitted prospective basis company currently assessing impact guidance upon adoption 2 2012 separation transaction september 28 2012 company completed spinoffs adt tyco flow control formerly north american residential security flow control businesses tyco respectively separate publicly traded companies form distribution tyco shareholders connection activities taken complete 2012 separation create revised organizational structure company incurred pretax charges separation charges 2 million 54 million 61 million years ended september 25 2015 september 26 2014 september 27 2013 respectively amounts presented within discontinued operations costs directly related 2012 separation expected provide future benefit company components separation charges incurred within continuing operations discontinued operations consisted following millions tyco international plc notes consolidated financial statements continued pretax separation charges classified continuing operations within companys consolidated statement operations follows millions 3 divestitures company continued assess strategic fit various businesses pursued divestiture certain businesses align longterm strategy fiscal 2015 fourth quarter fiscal 2015 company approved plan sell business within global products segment however september 25 2015 sale completed assets liabilities presented separately held sale within consolidated balance sheets amounts material presentation periods pretax loss approximately 17 million writedown fair value less cost sell recorded selling general administrative expenses within company’s consolidated statements operations year ended september 25 2015 business presented discontinued operations amounts material consolidated financial statements company expects complete transaction first half fiscal 2016 third quarter fiscal 2015 company completed sale several businesses row integrated solutions services segment recorded loss sale 26 million loss income discontinued operations net taxes within consolidated statements operations year ended september 25 2015 businesses accounted held sale within consolidated balance sheet september 26 2014 results operations presented within discontinued operations within consolidated statements operations years ended september 25 2015 september 26 2014 september 27 2013 addition third quarter fiscal 2015 company completed sale business row integrated solutions services segment meet criteria classified discontinued operation thus results operations included continuing operations within consolidated financial statements company recorded loss 18 million selling general administrative expenses within consolidated statements operations year ended september 25 2015 business presented held sale september 26 2014 second quarter fiscal 2015 company concluded another business row integrated solutions services segment intends sell met criteria classified held sale business accounted held sale within consolidated balance sheets september 25 2015 september 26 2014 results operations presented discontinued operations within consolidated statements operations years ended september 25 2015 september 26 2014 september 27 2013 company expects complete sale business first half fiscal 2016 fiscal 2014 may 22 2014 company together whollyowned subsidiary tyco far east holdings ltd “seller” completed sale tyco fire security services korea co ltd subsidiaries formed operated company’s adt korea business affiliate carlyle group transaction took form sale seller stock tyco fire security services korea co ltd aggregate purchase price 193 billion subject customary adjustments set forth stock purchase agreement third quarter fiscal 2014 company recognized gain 10 billion net 212 million charge related indemnification fair value certain tax related matters borne buyer probable paid net gain recorded loss income discontinued operations net income taxes within consolidated statements operations year ended september 26 2014 liability recorded liabilities within consolidated balance sheet fourth quarter fiscal 2014 company recorded working capital adjustment reduced net gain 15 million business accounted held sale within consolidated balance sheet september 27 2013 results operations tyco international plc notes consolidated financial statements continued presented within discontinued operations within consolidated statements operations years ended september 26 2014 september 27 2013 april 9 2014 atkore international group inc “atkore” redeemed company’s remaining common equity stake atkore aggregate cash proceeds 250 million company recognized net gain 216 million related transaction included equity income loss earnings unconsolidated subsidiaries within consolidated statement operations year ended september 26 2014 net gain comprised 227 million gain sale equity investment partially offset 11 million loss companys share loss atkores debt extinguishment undertaken connection redemption fiscal 2013 fourth quarter fiscal 2013 company approved plan sell armored guard business new zealand fire security business fiji row integrated solutions services segment sale completed first quarter fiscal 2014 assets liabilities presented separately held sale within consolidated balance sheets amounts material presentation periods pretax loss approximately 13 million writedown fair value less cost sell recorded selling general administrative expenses within consolidated statements operations year ended september 27 2013 business presented discontinued operations amounts material consolidated financial statements third quarter fiscal 2013 company completed sale north america guarding business na integrated solutions services segment approximately 25 million cash proceeds net 2 million cash divested sale pretax loss writedown fair value less cost sell material business accounted held sale second quarter fiscal 2013 however results operations presented discontinued operations amounts material consolidated financial statements divestiture charges gains net 2015 2014 2013 company recorded net loss 31 million net gain 2 million net loss 20 million respectively selling general administrative expenses within companys consolidated statements operations net loss year ended september 25 2015 primarily related writedown fair value less cost sell business within companys global products segment presented discontinued operations amounts material divestiture business within companys row integrated solutions services segment meet criteria presented discontinued operations net gain year ended september 26 2014 primarily result favorable court judgment relating divested business companys row integrated solutions services segment net loss year ended september 27 2013 primarily resulted writedown fair value less cost sell armored guard business new zealand fire security business fiji companys row integrated solutions services segment discontinued operations components loss income discontinued operations net income taxes follows millions tyco international plc notes consolidated financial statements continued total assets total liabilities held sale september 25 2015 september 26 2014 follows millions 4 restructuring asset impairment charges net fiscal 2015 company identified pursued opportunities cost savings restructuring activities workforce reductions improve operating efficiencies across companys businesses company expects incur restructuring related charges 50 million 75 million fiscal 2016 include repositioning charges discussed company recorded restructuring asset impairment charges action consolidated statement operations classification follows millions tyco international plc notes consolidated financial statements continued 2015 actions restructuring asset impairment charges net year ended september 25 2015 related 2015 actions follows millions rollforward reserves related 2015 actions september 26 2014 september 25 2015 follows millions restructuring reserves businesses included liabilities held sale within consolidated balance sheets excluded table see note 3 2014 actions restructuring asset impairment charges net years ended september 25 2015 september 26 2014 related 2014 actions follows millions tyco international plc notes consolidated financial statements continued restructuring asset impairment charges net incurred cumulative date initiation 2014 actions follows millions rollforward reserves related 2014 actions september 26 2014 september 25 2015 follows millions restructuring reserves businesses included liabilities held sale within consolidated balance sheets excluded table see note 3 2013 prior actions company continues maintain restructuring reserves related actions initiated prior fiscal 2013 total amount reserves 34 million 70 million september 25 2015 september 26 2014 respectively company recorded 1 million net reversals 5 million restructuring charges net 111 million restructuring charges net utilized 27 million 62 million 81 million years ended september 25 2015 september 26 2014 september 27 2013 respectively related 2013 prior actions remaining change reserve years ended september 25 2015 september 26 2014 september 27 2013 relates currency translation aggregate remaining reserves relate employee severance benefits well facility exit costs longterm noncancelable lease obligations primarily within companys na row integrated solutions services businesses total restructuring reserves september 25 2015 september 26 2014 restructuring reserves related actions included companys consolidated balance sheets follows millions restructuring reserves businesses included liabilities held sale within consolidated balance sheets excluded table see note 3 repositioning company initiated certain global actions designed reduce cost structure improve future profitability streamlining operations better aligning functions company refers repositioning actions may lead future restructuring action years ended september 25 2015 september 26 2014 september 27 2013 company recorded repositioning charges 113 million 44 million 20 million respectively primarily related tyco international plc notes consolidated financial statements continued professional fees reflected selling general administrative expenses within consolidated statement operations 5 acquisitions year ended september 25 2015 total consideration acquisitions included continuing operations 588 million comprised 583 million cash paid net cash acquired 28 million 5 million contingent consideration 12 acquisitions largest individual acquisition industrial safety technologies international ist global leader gas flame detection operations europe middle east china us total consideration paid 327 million net 5 million cash acquired purchase price ist allocated follows 67 million assets 137 million goodwill 143 million intangible assets assumption 15 million liabilities addition fourth quarter fiscal 2015 company acquired footfall global retail intelligence company experian plc total consideration paid 58 million net 2 million cash acquired ist integrated global products segment footfall integrated na integrated solutions services row integrated solutions services segments balance acquisitions year ended september 25 2015 included companys row integrated solutions services global products segments none material individually aggregate determination fair value certain assets liabilities relating acquisitions made first nine months fiscal 2015 finalized material adjustment preliminary purchase price allocations final determination fair value certain assets liabilities relating footfall acquisition remains subject change based final valuations assets acquired liabilities assumed company expect finalization matter material effect purchase price allocation expected completed within fiscal 2016 year ended september 26 2014 total consideration acquisitions included continuing operations 66 million comprised 65 million cash paid net cash acquired 1 million 1 million contingent consideration primarily comprised 53 million cash paid net 1 million cash acquired 1 million contingent consideration acquisition westfire inc westfire november 8 2013 westfire fire protection services company operations united states chile peru provides critical specialhazard suppression detection applications mining telecommunications vertical markets integrated na integrated solutions services row integrated solutions services segments balance acquisitions year ended september 26 2014 included companys row integrated solutions services segment none material individually aggregate year ended september 26 2014 company also paid 66 million cash purchase remaining ownership interest joint venture brazil consolidated companys row integrated solutions services segment connection tyco’s acquisition remaining ownership interest joint venture company recorded indemnification asset approximately 11 million relating indemnification tyco certain preacquisition tax liabilities accordance purchase agreement year ended september 27 2013 total consideration acquisitions included continuing operations 257 million comprised 229 million cash paid net cash acquired 9 million 28 million consideration primarily contingent successful transfer business license china tyco transfer license occurred first quarter fiscal 2015 company made payments approximately 23 million year ended september 25 2015 cash paid acquisitions primarily related acquisition exacq technologies exacq july 26 2013 companys global products segment exacq developer open architecture video management systems security surveillance applications cash paid exacq totaled approximately 148 million net cash acquired 2 million balance acquisitions year ended september 27 2013 included within companys na row integrated solutions services segments none material individually aggregate acquisition integration related costs acquisition integration costs expensed incurred years ended september 25 2015 september 26 2014 september 27 2013 company incurred acquisition integration costs 5 million 3 million 4 million respectively costs recorded selling general administrative expenses within consolidated statements operations tyco international plc notes consolidated financial statements continued 6 income taxes significant components income tax provision fiscal 2015 2014 2013 follows millions nonus income continuing operations income taxes 866 million 11 billion 844 million fiscal 2015 2014 2013 respectively reconciliation us federal income taxes statutory rate companys provision income taxes continuing operations years ended september 25 2015 september 26 2014 september 27 2013 follows millions 1 excludes nondeductible charges items broken separately table nondeductible charges fiscal 2013 primarily related separation costs incurred tyco international plc notes consolidated financial statements continued deferred income taxes result temporary differences amount assets liabilities recognized financial reporting tax purposes components net deferred income tax asset september 25 2015 september 26 2014 follows millions valuation allowance deferred tax assets 20 billion september 25 2015 september 26 2014 relates principally uncertainty utilization certain deferred tax assets primarily tax loss credit carryforwards various jurisdictions valuation allowance september 25 2015 september 26 2014 includes separation related charges associated early extinguishment debt increased net operating loss carryforward company expect realize future periods valuation allowance calculated recorded company determined morelikelythannot portion deferred tax assets would realized company believes generate sufficient future taxable income realize tax benefits related remaining net deferred tax assets within companys consolidated balance sheets september 25 2015 company 8167 million net operating loss carryforwards certain nonus jurisdictions 7381 million expiration remaining 786 million expire future years 2035 us approximately 342 million federal 563 million state net operating loss carryforwards september 25 2015 expire future years 2035 september 25 2015 company’s deferred tax asset related excess interest deductions expiration 213 million presented within tax loss carryforwards line table accordingly company reclassified deferred tax asset 99 million september 26 2014 comparative purposes presented within deferred tax assets fiscal 2014 september 25 2015 deferred tax assets approximately 162 million relate certain operating loss carryforwards resulting exercise employee stock options restricted stock vestings tax benefit recognized accounted credit additional paidin capital rather reduction income tax provision amount presented within tax loss carryforwards line table september 26 2014 company presented item within deferred tax liabilities table accordingly company reclassified 140 million deferred tax liabilities september 26 2014 tax loss carryforwards line table comparative purposes september 25 2015 september 26 2014 company unrecognized tax benefits 302 million 267 million respectively 284 million 247 million recognized would affect effective tax rate company recognizes interest penalties related unrecognized tax benefits income tax expense company accrued interest penalties related unrecognized tax benefits 40 million 36 million september 25 2015 september 26 2014 respectively company recognized 1 million income tax expense interest penalties related tyco international plc notes consolidated financial statements continued unrecognized tax benefits years ended september 25 2015 september 26 2014 september 27 2013 respectively rollforward unrecognized tax benefits september 25 2015 september 26 2014 september 27 2013 follows millions certain tycos uncertain tax positions relate tax years remain subject audit taxing authorities us federal state local foreign jurisdictions open tax years significant jurisdictions follows based current status income tax audits company believes unrecognized tax benefits may resolved next twelve months expected material tax sharing agreement income tax matters connection 2012 2007 separations tyco entered 2012 2007 tax sharing agreements respectively govern respective rights responsibilities obligations tyco pentair adt 2012 separation ii tyco medtronic formerly covidien plc te connectivity 2007 separation respect taxes specifically includes taxes ordinary course business taxes incurred result failure respective distributions qualify taxfree us federal income tax purposes within meaning section 355 internal revenue code certain internal transactions undertaken anticipation spinoffs qualify taxfavored treatment code 2012 tax sharing agreement tyco pentair adt share certain predistribution income tax liabilities arise adjustments made tax authorities adts tyco flow controls tycos income tax returns ii payments required made tyco respect 2007 tax sharing agreement excluding approximately 175 million pre2012 separation related tax liabilities collectively shared tax liabilities tyco responsible first 500 million shared tax liabilities pentair adt share 42 58 respectively next 225 million shared tax liabilities tyco pentair adt share 525 20 275 respectively shared tax liabilities 725 million costs expenses associated management shared tax liabilities generally shared 20 275 525 pentair adt tyco respectively connection execution 2012 tax sharing arrangement tyco established liabilities representing fair market value obligations recorded liabilities within consolidated balance sheet offset tyco shareholders equity tyco international plc notes consolidated financial statements continued 2007 tax sharing agreement tyco shares responsibility certain tycos medtronics te connectivitys income tax liabilities result cash payments based sharing formula periods prior including june 29 2007 specifically tyco medtronic te connectivity share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos medtronics te connectivitys us certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties connection execution 2007 tax sharing agreement tyco established net receivable medtronic te connectivity representing amount tyco expected receive pre2007 separation uncertain tax positions including amounts owed internal revenue service irs tyco also established liabilities representing fair market value share medtronics te connectivitys estimated obligations primarily irs pre2007 separation taxes covered 2007 tax sharing agreement year ended september 25 2015 tyco made net cash payment 4 million medtronic te connectivity related resolution certain preseparation tax matters years prior 2007 year ended september 26 2014 tyco made net cash payment 155 million medtronic terms 2007 tax sharing agreement cash exchanged reimbursement parties various payments made irs federal income taxes related audit fiscal years 2005 2007 year ended september 27 2013 tyco made net cash payment 16 million medtronic te connectivity related resolution certain irs audit preseparation tax matters tyco assesses shared tax liabilities related guaranteed liabilities related 2012 2007 tax sharing agreements reporting period tyco provide payment pentair adt 2012 tax sharing agreement medtronic te connectivity 2007 tax sharing agreement shared income tax liabilities settled settlement expected occur tax audit legal processes completed impacted years cash payments made due nature unresolved adjustments described next paragraph maximum amount future payments 2012 2007 tax sharing agreements known cash payments occur reduce guarantor liability represent equivalent reduction risk tyco also assesses sufficiency 2012 2007 tax sharing agreements guarantee liabilities quarterly basis increase liability probable cash payments expected made exceed recorded balance tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding 2007 separation issues proposed adjustments related years generally subject sharing provisions 2007 tax sharing agreement tycos liabilities 2007 tax sharing agreement subject sharing provisions 2012 tax sharing agreement tyco previously disclosed connection us federal tax audits irs raised number issues proposed tax adjustments periods beginning 1997 tax year although tyco able resolve substantially issues adjustments proposed irs tax years 2007 able resolve matters related treatment certain intercompany debt transactions period result june 20 2013 tyco received notices deficiency irs asserting several tycos former us subsidiaries owe additional taxes 8833 million plus penalties 154 million based audits 1997 2000 tax years tyco subsidiaries existed time addition tyco received final partnership administrative adjustments certain us partnerships owned former us subsidiaries respect additional tax deficiency approximately 30 million asserted amounts exclude interest reflect impact subsequent periods irs position described ultimately proved correct irs asserted notices deficiency substantially tycos intercompany debt originated 1997 2000 period treated debt us federal income tax purposes disallowed interest related deductions recognized us income tax returns totaling approximately 29 billion tyco strongly disagrees irs position filed petitions us tax court contesting irs proposed adjustments trial date set october 2016 tyco believes meritorious defenses tax filings irs positions regard matters inconsistent applicable tax laws existing treasury regulations previously reported taxes years question appropriate payments respect matters would required dispute definitively resolved based experience companies could take several years tyco believes income tax reserves liabilities recorded within consolidated balance sheet tax sharing agreements continue appropriate however ultimate resolution matters impact resolution uncertain could material impact tycos financial condition results operations cash flows particular irs successful asserting claim would adverse impact interest deductions related intercompany debt subsequent time periods totaling approximately 66 billion expected disallowed irs tyco international plc notes consolidated financial statements continued noted tyco assessed obligations 2007 tax sharing agreement determine recorded liability sufficient cover indemnifications made agreement absence observable transactions identical similar guarantees tyco determined fair value guarantees indemnifications utilizing expected present value measurement techniques significant assumptions utilized determine fair value included determining range potential outcomes assigning probability weighting potential outcome estimating anticipated timing resolution probability weighted outcomes discounted using tycos incremental borrowing rate however ultimate resolution matters uncertain could result material adverse impact companys financial position results operations cash flows effective tax rate future reporting periods addition dealing tax liabilities periods prior respective separations 2012 2007 tax sharing agreements contain sharing provisions address contingencies 2012 2007 separations internal transactions related thereto may deemed taxable us non us taxing authorities event 2012 separation determined taxable determination result actions taken 2012 separations tyco adt pentair party responsible failure would responsible taxes imposed company result thereof determination result actions taken tyco adt pentair 2012 separation tyco adt pentair would responsible taxes imposed companies result determination manner proportions described similar provisions exist 2007 tax sharing agreement either 2007 2012 separation internal transactions taken anticipation thereof deemed taxable associated liability could significant tyco responsible taxes shared pursuant 2012 2007 tax sharing agreements sharing formulas addition pentair adt medtronic te connectivity responsible tax liabilities subject 2012 2007 tax sharing agreements sharing formula 2012 2007 tax sharing agreements provides party agreement default obligation another party pay share distribution taxes arise result partys fault nondefaulting party agreement would required pay equally nondefaulting party agreement amounts default addition another party 2012 2007 tax sharing agreements responsible portion income tax liability default payment liability taxing authority tyco could liable applicable tax law liabilities required make additional tax payments accordingly certain circumstances tyco may obligated pay amounts excess agreedupon share tax liabilities either 2012 2007 tax sharing agreements receivables liabilities related 2012 2007 tax sharing agreements september 25 2015 september 26 2014 follows millions tyco international plc notes consolidated financial statements continued company recorded expense income conjunction 2012 2007 tax sharing agreements years ended september 25 2015 september 26 2014 september 27 2013 follows millions result 2012 separation equity awards certain employees converted three companies pursuant terms 2012 separation distribution agreement three companies responsible issuing shares upon employee exercise stock option award vesting restricted unit award however 2012 tax sharing agreement provides allowable compensation tax deduction awards claimed employees current employer 2012 tax sharing agreement requires employer claiming tax deduction shares issued companies pay percentage allowable tax deduction company issuing equity 2015 tyco incurred charge 4 million make payments adt pentair based estimated allowable deductions adt pentair shares issued company employees offset income 2 million received adt pentair company shares issued employees resulting net impact approximately 2 million recorded expense net within consolidated statement operations additionally charge 5 million recorded expense net within consolidated statement operations primarily related finalization various audits 2007 tax sharing agreement 2014 tyco incurred charge 6 million make payments adt pentair based estimated allowable deductions adt pentair shares issued company employees offset income 1 million received adt pentair company shares issued employees resulting net impact approximately 5 million recorded expense net within consolidated statement operations offsetting charge approximately 20 million recorded expense net within consolidated statement operations related finalization audits fiscal years 2005 2007 2012 tax sharing agreement additionally charge 21 million recorded expense net within consolidated statement operations primarily related finalization various audits 2007 tax sharing agreement 2013 tyco incurred charge 38 million make payments adt pentair based estimated allowable deductions adt pentair shares issued company employees offset income 6 million received adt pentair company shares issued employees resulting net impact approximately 32 million recorded expense net within consolidated statement operations income tax matters except earnings currently distributed additional material provision made us nonus income taxes undistributed earnings subsidiaries deferred tax liabilities temporary differences related investments subsidiaries since earnings expected permanently reinvested investments essentially permanent duration tyco concluded additional tax liability arise result distribution earnings liability could arise amounts distributed subsidiaries ultimately disposed practicable estimate additional income taxes related permanently reinvested earnings basis differences related investments subsidiaries tyco international plc notes consolidated financial statements continued 7 earnings per share reconciliations basic diluted earnings per share attributable tyco ordinary shareholders years ended september 25 2015 september 26 2014 september 27 2013 follows millions except per share data computation diluted earnings per share years ended september 25 2015 september 26 2014 september 27 2013 excludes effect potential exercise share options purchase approximately 3 million 2 million 4 million shares respectively excludes restricted share awards 1 million 2 million 1 million shares respectively effect would antidilutive 8 goodwill intangible assets goodwill impairments resulting companys 2015 2014 2013 annual impairment tests changes carrying amount goodwill segment 2015 2014 follows millions tyco international plc notes consolidated financial statements continued intangible assets indefinitelived intangible asset impairments resulting companys 2015 2014 2013 annual impairment tests following table sets forth gross carrying amount accumulated amortization companys intangible assets september 25 2015 september 26 2014 millions intangible asset amortization expense 2015 2014 2013 88 million 91 million 94 million respectively recorded cost services selling general administrative expenses within consolidated statements operations estimated aggregate amortization expense intangible assets expected approximately 88 million 2016 83 million 2017 77 million 2018 71 million 2019 246 million 2020 thereafter 9 debt carrying value companys debt september 25 2015 september 26 2014 follows millions 1 19 million 20 million current portion companys total debt september 25 2015 september 26 2014 respectively included 2 september 14 2015 company tifsa announced redemption outstanding 242 million aggregate principal amount 70 notes due 2019 462 million aggregate principal amount 6875 notes due 2021 classified current within consolidated balance sheet september 25 2015 october 14 2015 tifsa completed redemption see note 21 tyco international plc notes consolidated financial statements continued fair value carrying amount tycos debt subject fair value disclosure requirements september 25 2015 september 26 2014 3126 million 1441 million respectively company utilizes various valuation methodologies determine fair value debt primarily dependent type market companys debt traded available company uses quoted market prices determine fair value debt traded active markets september 25 2015 september 26 2014 fair value companys debt actively traded 3291 million 1670 million respectively september 25 2015 september 26 2014 companys debt subject fair value disclosure requirements actively traded classified level 1 fair value hierarchy see note 1 details fair value hierarchy commercial paper time tifsa may issue commercial paper general corporate purposes maximum aggregate amount unsecured commercial paper notes available issued private placement basis commercial paper program 15 billion september 25 2015 september 25 2015 september 26 2014 tifsa commercial paper outstanding fiscal 2015 debt issuancerepayment february 25 2015 tifsa issued €500 million aggregate principal amount 1375 notes due february 25 2025 euro notes fully unconditionally guaranteed company tyco fire security finance sca tifsca tifsa received total net proceeds approximately 563 million deducting debt issuance costs approximately 5 million debt discount approximately 1 million net proceeds made available general corporate purposes euro notes tifsa’s senior unsecured obligations rank equally right payment existing future senior debt senior subordinated indebtedness tifsa may incur euro notes designated net investment hedge see note 11 september 14 2015 tifsa issued 750 million aggregate principal amount 39 notes due february 14 2026 notes 750 million aggregate principal amount 5125 notes due september 14 2045 notes fully unconditionally guaranteed company tifsca tifsa received total net proceeds approximately 1477 million deducting debt issuance costs approximately 6 million 2026 notes 8 million 2045 notes well debt discount approximately 5 million 2026 notes 4 million 2045 notes 2026 notes 2045 notes tifsas senior unsecured obligations rank equally right payment existing future senior debt senior subordinated indebtedness tifsa may incur august 11 2015 tifsa notified holders 85 notes due 2019 notes would redeem entire 364 million aggregate principal amount september 16 2015 tifsa paid cash 445 million complete redemption resulting loss extinguishment debt 81 million loss represents makewhole premium related 2019 notes recorded expense net within consolidated statements operations redemption funded portion net proceeds 2015 debt issuances described credit facilities august 7 2015 tifsa entered amended restated fiveyear senior unsecured credit agreement aggregate amount 15 billion “2015 credit agreement” 2015 credit agreement amends restates tifsas existing fiveyear senior unsecured credit agreement dated june 22 2012 “2012 credit agreement” provided revolving credit commitments aggregate amount 10 billion scheduled expire june 22 2017 result entering 2015 credit agreement companys committed revolving credit facility totaled 15 billion september 25 2015 revolving credit facility may used working capital expenditures general corporate purposes september 25 2015 september 26 2014 amounts drawn companys revolving credit facilities interest revolving credit facilities variable calculated reference libor alternate base rate tifsas revolving credit facility contains customary terms conditions financial covenants limit ratio companys debt earnings interest taxes depreciation amortization limit ability incur subsidiary debt grant liens property indentures contain customary covenants including limits negative pledges subsidiary debt saleleaseback transactions none covenants considered restrictive companys business tyco international plc notes consolidated financial statements continued debt information aggregate amounts principal public debt maturing next five fiscal years thereafter follows 962 million 2016 nil 2017 67 million 2018 nil 2019 nil 2020 2101 million thereafter september 25 2015 weightedaverage interest rate total debt 438 september 26 2014 weightedaverage interest rate total debt 65 10 guarantees certain companys subsidiaries business segment level guaranteed performance thirdparties provided financial guarantees uncompleted work financial commitments terms guarantees vary end dates ranging current fiscal year completion transactions would typically triggered event nonperformance performance guarantees required would material effect companys financial position results operations cash flows certain guarantees indemnifications extended among tyco medtronic te connectivity adt pentair accordance terms 2007 2012 separation distribution agreements tax sharing agreements guarantees primarily relate certain contingent tax liabilities included tax sharing agreements see note 6 addition tyco historically provided support form financial andor performance guarantees various medtronic te connectivity adt tyco flow control operating entities connection 2007 2012 separations company worked guarantee counterparties cancel assign guarantees medtronic te connectivity adt pentair appropriate extent guarantees assigned prior separation dates tyco remained guarantor typically indemnified former subsidiary companys obligations related 2012 separation 3 million included liabilities within companys consolidated balance sheets september 25 2015 september 26 2014 offset tyco shareholders equity 2012 separation date companys obligations related 2007 separation 3 million included liabilities within companys consolidated balance sheets september 25 2015 september 26 2014 offset tyco shareholders equity 2007 separation date disposing assets businesses company subsidiaries often provides representations warranties andor indemnities cover various risks including example unknown damage assets environmental risks involved sale real estate liability investigate remediate environmental contamination waste disposal sites manufacturing facilities unidentified tax liabilities legal fees related periods prior disposition company reason believe contingencies realized would material adverse effect companys financial position results operations cash flows company recorded liabilities known indemnifications included part environmental liabilities see note 12 details environmental matters normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows year ended september 26 2014 tyco replaced available sale investments held collateral companys insurable liabilities letters credit september 25 2015 september 26 2014 company total outstanding letters credit bank guarantees approximately 581 million 662 million respectively company records estimated product warranty costs time sale see note 1 changes carrying amount companys warranty accrual september 26 2014 september 25 2015 follows millions tyco international plc notes consolidated financial statements continued warranty accruals businesses included liabilities held sale within consolidated balance sheets excluded table see note 3 11 financial instruments companys financial instruments consist primarily cash equivalents time deposits accounts receivable investments accounts payable debt derivative financial instruments fair value cash accounts receivable accounts payable approximated book value september 25 2015 september 26 2014 fair value derivative financial instruments material periods presented see fair value cash equivalents time deposits investments note 9 fair value debt derivative instruments normal course business tyco exposed market risk arising changes currency exchange rates interest rates commodity prices company may use derivative financial instruments manage exposures foreign currency commodity interest rate risks companys objective utilizing derivative financial instruments manage risks using effective methods eliminate reduce impacts exposures company use derivative financial instruments trading speculative purposes year ended september 25 2015 september 26 2014 september 27 2013 company hold enter commodity derivative instruments interest rate swaps derivative instruments designated qualified hedging instruments accounting purposes company documents links relationships hedging instruments hedged items company also assesses documents hedges inception whether derivatives used hedging transactions effective offsetting changes fair values associated hedged items quarter ended march 27 2015 company designated 2025 euro notes net investment hedge company’s investments certain international subsidiaries use euro functional currency intercompany permanent loans order reduce volatility caused changes foreign currency exchange rates euro respect us dollar year ended september 25 2015 change carrying value due remeasurement 2025 euro notes resulted 9 million gain reported accumulated comprehensive loss within consolidated statement shareholders equity hedge result hedge ineffectiveness year ended september 25 2015 years ended september 26 2014 september 27 2013 company derivative instruments designated qualified hedging instruments accounting purposes foreign currency exposures september 25 2015 september 26 2014 total gross notional amount companys foreign exchange contracts 365 million 258 million respectively fair value derivative financial instruments impact changes fair value material consolidated balance sheets september 25 2015 september 26 2014 consolidated statements operations consolidated statements cash flows years ended september 25 2015 september 26 2014 september 27 2013 counterparty credit risk use derivative financial instruments exposes company counterparty credit risk tyco established policies procedures limit potential counterparty credit risk including establishing limits credit exposure continually assessing creditworthiness counterparties matter practice company deals major banks worldwide strong investment grade longterm credit ratings reduce risk loss company generally enters international swaps derivatives association master netting agreements substantially counterparties companys derivative contracts contain credit risk related contingent features require collateral security furnished company counterparties companys exposure credit risk associated derivative instruments measured individual counterparty basis well groups counterparties share similar attributes company anticipate nonperformance counterparties concentration risk financial institutions present significant credit risk company cash equivalents investments fair value cash equivalents approximates carrying value included level 1 tyco international plc notes consolidated financial statements continued investments may include marketable securities us government obligations us government agency corporate debt securities equity securities exchange traded funds time deposits banks available company uses quoted market prices determine fair value investment securities investments included level 1 quoted market prices readily available pricing determinations made based results market approach valuation models using observable market data recently reported trades bid offer information benchmark securities investments included level 2 consist primarily us government agency securities corporate debt securities assets measured fair value recurring basis following tables present companys hierarchy assets measured fair value recurring basis september 25 2015 september 26 2014 millions 1 classified restricted investments see note 12 details asbestos 2015 2014 company significant transfers levels within fair value hierarchy company recorded unrealized loss 14 million year ended september 25 2015 related availableforsale securities company hold availableforsale securities september 26 2014 unrealized gains losses related trading securities material years ended september 25 2015 september 26 2014 investments continuous unrealized losses less 12 months 12 months greater september 25 2015 september 26 2014 material company record otherthantemporary impairments fiscal years 2015 2014 2013 year ended september 26 2014 included 7 million loss sale investment related companys row integrated solutions services business company 14 billion 15 billion intercompany loans designated permanent nature september 25 2015 september 26 2014 respectively additionally years ended september 25 2015 september 26 2014 september 27 2013 company recorded cumulative translation loss 161 million loss 28 tyco international plc notes consolidated financial statements continued million gain 3 million respectively accumulated comprehensive loss within consolidated statement shareholders equity related loans 12 commitments contingencies company facility vehicle equipment leases expire various dates beyond fiscal 2016 rental expense leases 261 million 279 million 284 million fiscal years 2015 2014 2013 respectively following schedule minimum lease payments noncancelable operating leases september 25 2015 millions company also purchase obligations related commitments purchase certain goods services september 25 2015 obligations follows 353 million 2016 44 million 2017 2 million 2018 nil 2019 nil 2020 thereafter normal course business company liable contract completion product performance opinion management obligations significantly affect companys financial position results operations cash flows legacy matters related former management recent years company settled several lawsuits involving disputes former management respect dennis kozlowski companys former chief executive officer first quarter fiscal 2014 parties signed agreement resolving outstanding disputes mr kozlowski agreeing release company claims monetary amounts related compensation retention arrangements result first quarter fiscal 2014 company reversed noncash net liability approximately 92 million recorded selling general administrative expenses within consolidated statement operations amounts allegedly due pursuant settlement agreement tyco entitled portion proceeds future sale certain assets owned mr kozlowski timing amount uncertain quarter ended june 27 2014 company received 6 million recovery sale property owned mr kozlowski 2 million shared pursuant terms legacy class action lawsuit resulting net recovery 4 million company recorded selling general administrative expenses within consolidated statement operations quarter ended june 26 2015 company received approximately 4 million cash sale property owned mr kozlowski 2 million shared pursuant terms legacy class action lawsuit resulting net recovery 2 million company recorded selling general administrative expenses within consolidated statement operations cash received classified restricted respect mark swartz companys former chief financial officer november 2014 parties reached definitive agreement resolve outstanding disputes mr swartz agreeing release company claims monetary amounts related compensation retention arrangements alleged existed company first quarter fiscal 2015 company also received approximately 12 million cash mr swartz 5 million shared pursuant terms legacy class action lawsuit resulting net recovery 7 million company recorded selling general administrative expenses within consolidated statement operations cash received classified restricted environmental matters tyco involved various stages investigation cleanup related environmental remediation matters number sites ultimate cost site cleanup difficult predict given uncertainties regarding extent required tyco international plc notes consolidated financial statements continued cleanup interpretation applicable laws regulations alternative cleanup methods september 25 2015 tyco concluded probable would incur remedial costs range approximately 23 million 72 million september 25 2015 tyco concluded best estimate within range approximately 33 million 11 million included accrued current liabilities 22 million included liabilities companys consolidated balance sheet majority liabilities described relate ongoing remediation efforts facility companys global products segment located marinette wisconsin company acquired 1990 connection acquisition among things ansul product line prior tycos acquisition ansul manufactured arsenicbased agricultural herbicides marinette facility resulted significant arsenic contamination soil groundwater marinette site parts adjoining menominee river ansul engaged ongoing remediation efforts marinette site since 1990 february 2009 entered administrative consent order consent order us environmental protection agency address presence arsenic marinette site agreement ansuls principal obligations contain arsenic contamination site pump treat onsite groundwater dredge treat properly dispose contaminated sediments adjoining river areas monitor contamination levels ongoing basis activities completed consent order since 2009 include installation subsurface barrier wall around facility contain contaminated groundwater installation groundwater extraction treatment system dredging offsite disposal treated river sediment september 25 2015 company concluded remaining remediation monitoring costs related marinette facility range approximately 14 million 46 million companys best estimate within range approximately 23 million 9 million included accrued current liabilities 14 million included liabilities companys consolidated balance sheet years ended september 25 2015 september 26 2014 september 27 2013 company recorded charges nil 100 million respectively selling general administrative expenses within consolidated statement operations although company recorded best estimate costs incur remediate monitor arsenic contamination marinette facility possible technological regulatory enforcement developments results environmental studies factors could change companys expectations respect future charges cash outlays changes could material companys future results operations financial condition cash flows asbestos matters company certain subsidiaries including grinnell llc “grinnell” along numerous third parties named defendants personal injury lawsuits based alleged exposure asbestos containing materials substantially cases pending affiliates company filed grinnell typically involved product liability claims based primarily allegations manufacture sale distribution industrial products either contained asbestos used asbestos containing components third quarter fiscal 2014 company grinnell resolved disputes certain historical insurers agreed certain insurance proceeds would used establish fund qualified settlement fund “qsf” within meaning internal revenue code would used resolution primarily grinnell asbestos liabilities intended qsf receive future insurance payments proceeds third party insurers addition fund manage liabilities certain historical operations company primarily related grinnell january 9 2015 company completed series restructuring transactions related establishment funding dedicated structure pursuant subsidiary company acquired assets grinnell transferred cash assets totaling approximately 278 million including 22 million received qsf quarter ended december 26 2014 historic thirdparty insurers settlement coverage disputes structure part restructuring subsidiaries structure assumed certain liabilities related historic grinnell scott figgie operations including historical grinnell asbestos liabilities subsidiaries purchased additional insurance whollyowned subsidiary structure order supplement enhance existing insurance assets structure qsf fully fund historic grinnell asbestos liabilities provide efficient streamlined management claims related thereto company consolidates qualified settlement fund related entities established purpose managing resolving liabilities described although entities dedicated structure serve specific purpose managing certain liabilities entity structure whollyowned indirect subsidiary company therefore required consolidated gaap september 25 2015 company determined approximately 3300 claims pending subsidiaries primarily grinnell amount reflects companys current estimate number viable claims made tyco international plc notes consolidated financial statements continued grinnell includes adjustments claims actively prosecuted identify incorrect defendants duplicative actions company indemnified third parties result conclusion yarway bankruptcy addressed separately yarway corporation longer subsidiary company august 2015 longer consolidated september 25 2015 companys estimated asbestos related net liability recorded within companys consolidated balance sheet 28 million net liability consolidated balance sheet comprised liability pending future claims related defense costs 515 million 23 million recorded accrued current liabilities 492 million recorded liabilities company also maintains separate cash investment assets within consolidated balance sheet 487 million 38 million recorded prepaid expenses current assets 449 million recorded assets include 11 million cash 263 million investments designated restricted company believes asbestos related liabilities insurance related assets september 25 2015 appropriate september 26 2014 companys estimated net liability included claims companys former yarway subsidiary 608 million recorded within companys consolidated balance sheet liability pending future claims related defense costs 853 million separately asset insurance recoveries 245 million company periodically assesses sufficiency estimated liability pending future asbestos claims defense costs periodic basis company dedicated structure referred evaluates actual experience regarding asbestos claims filed settled dismissed amounts paid settlements recoverability insurance assets data actual experience demonstrate significant unfavorable discernible trend company performs valuation asbestos related liabilities corresponding insurance assets including comprehensive review underlying assumptions addition company evaluates ability reasonably estimate claim activity beyond current lookforward period 2056 order assess whether period continues appropriate addition claims litigation experience company considers additional qualitative quantitative factors changes legislation legal environment company’s strategy managing claims obtaining insurance including defense strategy health related trends overall population individuals potentially exposed asbestos company evaluates factors determines whether change estimate liability pending future claims defense costs insurance assets warranted fourth quarter fiscal 2014 company concluded unfavorable trend developed actual claim filing activity compared projected claim filing activity established company’s recent valuation accordingly company assistance independent actuarial service providers performed revised valuation asbestosrelated liabilities corresponding insurance assets part revised valuation company assessed whether change lookforward period appropriate taking consideration extensive history experience asbestosrelated claims litigation determined possible make reasonable estimate actuarially determined ultimate risk loss pending unasserted potential future asbestosrelated claims 2056 connection revised valuation company considered recent settlement one insurers calling establishment qualified settlement fund results separate independent actuarial consulting firm report conducted fourth quarter assist company obtaining insurance fully fund estimable asbestosrelated claims excluding yarway claims incurred 2056 independent actuarial service firm calculated total estimated liability asbestosrelated claims company reflects company’s best estimate ultimate risk loss resolve pending future claims excluding yarway claims 2056 company’s reasonable best estimate actuarially determined time period asbestosrelated claims filed company affiliates fiscal 2014 conjunction determining total estimated liability company retained independent third party assist valuing insurance assets responsive asbestosrelated claims excluding yarway claims insurance assets represent amounts due company previously settled claims probable reimbursements relating total liability pending unasserted potential future asbestos claims defense costs calculating amount company used estimated asbestos liability pending projected future claims defense costs described also considered amount insurance available solvency risk respect companys insurance carriers resolution insurance coverage issues gaps coverage allocation methodologies terms existing settlement agreements insurance carriers result activity described company recorded net charge 240 million selling general administrative expenses within consolidated statement operations quarter ended september 26 2014 although company’s methodology established range estimates reasonably possible outcomes company tyco international plc notes consolidated financial statements continued recorded best estimate within range based upon currently known information companys estimated gross asbestos liability 538 million recorded within companys consolidated balance sheet liability pending future claims related defense costs separately asset insurance recoveries 245 million aforementioned total estimated liability pretax basis discounted timevalue money includes defense costs consistent company’s historical accounting practices effect change lookforward period reduced income continuing operations income taxes net income fiscal 2014 approximately 116 million 71 million respectively addition effect change decreased companys basic income continuing operations net income 016 per share decreased companys diluted income continuing operations net income 015 per share amounts recorded company asbestosrelated liabilities insurancerelated assets based companys strategies resolving asbestos claims currently available information number estimates assumptions key variables assumptions include number type new claims filed year average cost resolution claims identity defendants resolution coverage issues insurance carriers amount insurance solvency risk respect companys insurance carriers many factors closely linked change one variable assumption impact one others single variable assumption predominately influences determination companys asbestosrelated liabilities insurancerelated assets furthermore predictions respect variables subject greater uncertainty later portion projection period factors may affect companys liability cash payments asbestosrelated matters include uncertainties surrounding litigation process jurisdiction case reforms state federal tort legislation applicability insurance policies among subsidiaries result actual liabilities insurance recoveries could significantly higher lower recorded assumptions used companys calculations vary significantly actual results yarway previously disclosed april 22 2013 yarway corporation former indirect whollyowned subsidiary company filed voluntary petition relief chapter 11 us bankruptcy code “chapter 11” united states bankruptcy court district delaware “bankruptcy court” october 9 2014 company reached agreement yarway various representatives asbestos claimants held purported hold asbestosrelated claims yarway fund section 524g trust “yarway trust” resolution payment current future yarway asbestos claims resolve potential liability company current former affiliates various parties “company protected parties” pending future derivative personal injury claims related exposure asbestoscontaining products allegedly manufactured distributed andor sold yarway “yarway asbestos claims” result agreement settle company recorded charge 225 million selling general administrative expenses within consolidated statement operations fourth quarter fiscal 2014 april 8 2015 bankruptcy court issued order confirming yarway’s chapter 11 plan july 14 2015 united states district court district delaware affirmed bankruptcy courts confirmation order august 19 2015 chapter 11 plan became effective company contributed approximately 325 million cash yarway trust company protected parties received benefit release yarway injunction section 524g bankruptcy code permanently enjoining assertion yarway asbestos claims parties result effectiveness chapter 11 plan ownership yarway corporation transferred yarway trust longer consolidated subsidiary company result voluntary bankruptcy petition third quarter fiscal 2013 company recorded expected loss upon deconsolidation 10 million related yarway chapter 11 filing represented companys best estimate loss time upon deconsolidation company recorded additional 4 million loss selling general administrative expenses within companys consolidated statement operations year ended september 25 2015 tax matters tyco subsidiaries income tax returns examined periodically various tax authorities connection examinations tax authorities including irs raised issues proposed tax adjustments particular respect years preceding 2007 separation issues proposed adjustments related years generally subject sharing provisions tax sharing agreement entered 2007 medtronic te connectivity 2007 tax sharing agreement tyco medtronic te connectivity share 27 42 31 respectively shared income tax liabilities arise adjustments made tax authorities tycos medtronics te connectivitys us tyco international plc notes consolidated financial statements continued certain nonus income tax returns costs expenses associated management shared tax liabilities generally shared equally among parties tyco previously disclosed connection us federal tax audits irs raised number issues proposed tax adjustments periods beginning 1997 tax year although tyco able resolve substantially issues adjustments proposed irs tax years 2007 able resolve matters related treatment certain intercompany debt transactions period result june 20 2013 tyco received notices deficiency irs asserting several tycos former us subsidiaries owe additional taxes 8833 million plus penalties 154 million based audits 1997 2000 tax years tyco subsidiaries existed time addition tyco received final partnership administrative adjustments certain us partnerships owned former us subsidiaries respect additional tax deficiency approximately 30 million asserted amounts exclude interest reflect impact subsequent periods irs position described ultimately proved correct irs asserted notices deficiency substantially tycos intercompany debt originated 1997 2000 period treated debt us federal income tax purposes disallowed interest related deductions recognized us income tax returns totaling approximately 29 billion tyco strongly disagrees irs position filed petitions us tax court contesting irs proposed adjustments trial date set october 2016 tyco believes meritorious defenses tax filings irs positions regard matters inconsistent applicable tax laws existing treasury regulations previously reported taxes years question appropriate payments respect matters would required dispute definitively resolved based experience companies could take several years tyco believes income tax reserves liabilities recorded within consolidated balance sheet tax sharing agreements continue appropriate however ultimate resolution matters impact resolution uncertain could material impact tycos financial condition results operations cash flows particular irs successful asserting claim would adverse impact interest deductions related intercompany debt subsequent time periods totaling approximately 66 billion expected disallowed irs see note 6 matters previously disclosed simplexgrinnell lp “sg” subsidiary company north america integrated solutions services segment named defendant lawsuits several jurisdictions seeking damages sg’s alleged failure pay prevailing wages payrelated claims first quarter fiscal 2015 company recorded total approximately 17 million charges related lawsuits recorded cost services within consolidated statement operations quarter ended march 27 2015 company agreed principle settle outstanding lawsuits total approximately 14 million addition foregoing company subject claims suits including time contractual disputes product general liability claims incidental present former operations acquisitions dispositions respect many claims company either selfinsures maintains insurance thirdparties varying deductibles ultimate outcome matters cannot predicted certainty company believes resolution proceedings whether underlying claims covered insurance material adverse effect companys financial condition results operations cash flows beyond amounts recorded matters tyco international plc notes consolidated financial statements continued 13 retirement plans company sponsors number pension plans company measures pension plans fiscal year end following disclosures exclude impact plans immaterial individually aggregate defined benefit pension plansthe company number noncontributory contributory defined benefit retirement plans covering certain us nonus employees designed accordance conditions practices countries concerned net periodic pension benefit cost based periodic actuarial valuations use projected unit credit method calculation charged consolidated statements operations systematic basis expected average remaining service lives current participants contribution amounts determined based local regulations advice professionally qualified actuaries countries concerned benefits defined benefit plans based various factors years service compensation net periodic benefit cost material us nonus defined benefit pension plans 2015 2014 2013 follows millions estimated net loss material us nonus pension benefit plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year expected 13 million 16 million respectively inactive plans company amortizes actuarial gains losses average remaining life expectancy pension plan participants tyco international plc notes consolidated financial statements continued change benefit obligations plan assets amounts recognized within consolidated balance sheets material us nonus defined benefit plans september 25 2015 september 26 2014 follows millions tyco international plc notes consolidated financial statements continued accumulated aggregate benefit obligation fair value plan assets accumulated benefit obligations excess plan assets september 25 2015 september 26 2014 follows millions determining expected return plan assets company considers relative weighting plan assets asset class historical performance asset classes longterm periods asset class performance expectations well current future economic conditions companys investment strategy pension plans manage plans goingconcern basis current investment policy maintain adequate level diversification maximizing return assets subject prudent level portfolio risk purpose enhancing security benefits participants well providing adequate liquidity meet immediate future benefit payment requirements addition local regulations local financial considerations factors determining appropriate investment strategy country us pension plans policy targets 60 allocation equity securities 40 allocation debt securities various asset allocation strategies place nonus pension plans weightedaverage target allocation 51 equity securities 44 debt securities 5 asset classes pension plans following weightedaverage asset allocations although company buy sell securities direct investment pension funds due external investment management certain commingled funds plans may indirectly hold tyco securities aggregate amount securities would considered material relative total fund assets company evaluates defined benefit plans asset portfolios existence significant concentrations risk types investment concentration risks evaluated include limited concentrations single entity industry foreign country individual fund manager september 25 2015 significant concentrations risk companys defined benefit plan assets tyco international plc notes consolidated financial statements continued companys plan assets accounted fair value classified entirety based lowest level input significant fair value measurement companys assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets placement within fair value hierarchy levels companys asset allocations level within fair value hierarchy september 25 2015 september 26 2014 presented table companys material defined benefit plans equity securities consist primarily publicly traded us nonus equities publicly traded securities valued last trade closing price reported active market individual securities traded certain equity securities held within commingled funds valued unitized net asset value nav percentage net asset value determined custodian fund values based fair value underlying net assets owned fund fixed income securities consist primarily government agency securities corporate debt securities mortgage assetbacked securities available fixed income securities valued closing price reported active market individual security traded government agency securities corporate debt securities valued using recent bid prices occasionally mean latest bid ask prices markets less liquid assetbacked securities including mortgage backed securities valued using brokerdealer quotes available quotes available fair value determined utilizing discounted cash flow approach incorporates observable inputs cash flows underlying security structure market information including interest rates bid evaluations comparable securities certain fixed income securities held within commingled funds valued unitizing nav determined custodian fund values based fair value underlying net assets owned fund cash equivalents consist primarily shortterm commercial paper bonds cash cashlike instruments including settlement proceeds due brokers stated cost approximates fair value tyco international plc notes consolidated financial statements continued following tables set forth summary pension plan assets valued using nav equivalent september 25 2015 september 26 2014 millions strategy companys investment managers regard investments valued using nav equivalent either match exceed relevant benchmarks associated respective asset category none investments valued using nav equivalent contain redemption restrictions unfunded commitments 2015 company contributed 13 million us 21 million nonus pension plans represented companys minimum required contributions pension plans fiscal year 2015 company make voluntary contributions us nonus plans 2015 companys funding policy make contributions accordance laws customs various countries operates well make voluntary contributions timetotime company anticipates contribute least minimum required pension plans 2016 3 million us plans 26 million nonus plans benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions company also participates number multiemployer defined benefit plans behalf certain employees pension expense related multiemployer plans material 2015 2014 2013 executive retirement arrangementsmessrs kozlowski swartz participated individual executive retirement arrangements maintained tyco era messrs kozlowski swartz would fixed lifetime tyco international plc notes consolidated financial statements continued benefits commencing normal retirement age 65 due legal settlements described note 12 company reversed liabilities messrs kozlowski swartz fiscal years 2014 2012 respectively defined contribution retirement plansthe company maintains several defined contribution retirement plans include 401k matching programs well qualified nonqualified profit sharing share bonus retirement plans expense defined contribution plans computed percentage participants compensation 61 million 65 million 63 million 2015 2014 2013 respectively deferred compensation plansthe company nonqualified deferred compensation plans permit eligible employees defer portion compensation record keeping account set participant chooses variety measurement funds deemed investment accounts measurement funds correspond number funds companys 401k plans account balance fluctuates investment returns funds deferred compensation liabilities 85 million 95 million september 25 2015 september 26 2014 respectively deferred compensation expense material 2015 2014 2013 postretirement benefit plansthe company generally provide postretirement benefits pensions employees however certain acquired operations provide benefits employees eligible date acquisition small number us canadian operations provide ongoing eligibility benefits net periodic postretirement benefit cost material 2015 2014 2013 companys consolidated balance sheets include unfunded postretirement benefit obligations 26 million 32 million september 25 2015 september 26 2014 respectively within liabilities companys consolidated balance sheets include nil postretirement benefit assets september 25 2015 september 26 2014 addition company recorded net actuarial gain 8 million 6 million accumulated comprehensive loss within consolidated statement shareholders equity september 25 2015 september 26 2014 respectively company expects make contributions postretirement benefit plans 3 million 2016 benefit payments including amounts paid corporate assets reflecting future expected service appropriate expected paid follows millions 14 shareholders equity comprehensive income dividends authority declare pay dividends vested board directors timing declaration payment future dividends holders companys ordinary shares determined companys board directors depend upon many factors including companys financial condition results operations capital requirements companys businesses industry practice relevant factors irish law dividends may paid share repurchases redemptions must generally funded “distributable reserves” creation distributable reserves accomplished way capital reduction irish high court approved december 18 2014 september 3 2015 company declared quarterly dividend 0205 per share paid november 12 2015 shareholders record october 23 2015 june 4 2015 company declared quarterly dividend 0205 per share paid august 19 2015 shareholders record july 24 2015 march 4 2015 company declared quarterly dividend 0205 per share paid may 20 2015 shareholders record april 24 2015 company presented dividends declared 86 million quarters ended march 27 2015 june 26 2015 reduction additional paid capital within company’s consolidated shareholders’ equity quarter ended september 25 2015 company corrected presentation present dividends declared second third tyco international plc notes consolidated financial statements continued fourth quarters fiscal 2015 subsequent redomicile ireland reduction accumulated earnings within consolidated statement shareholder’s equity conform presentation standalone statutory financial statements prepared irish gaap irish companies act 2014 permit dividends paid share capital including share premium reclassification effect net revenue operating income loss net income loss cash flows total equity company reclass presentation dividends declared periods ending march 27 2015 june 26 2015 company files quarterly reports form 10q periods ending march 25 2016 june 24 2016 respectively prior change domicile ireland company made dividend payments contributed surplus equity position swiss statutory accounts swiss law authority declare dividends vested general meeting shareholders march 5 2014 companys shareholders approved annual cash dividend 072 per ordinary share payment dividend made four quarterly installments 018 may 2014 february 2015 result quarter ended march 28 2014 company recorded accrued dividend 332 million within accrued current liabilities corresponding reduction contributed surplus within companys consolidated balance sheet first installment paid may 21 2014 shareholders record april 25 2014 second installment paid august 20 2014 shareholders record july 25 2014 third installment paid november 13 2014 stockholders record october 24 2014 fourth installment paid february 18 2015 shareholders record january 23 2015 march 6 2013 companys shareholders approved cash dividend 064 per share payable shareholders four quarterly installments 016 may 2013 february 2014 result quarter ended march 29 2013 company recorded accrued dividend 296 million within accrued current liabilities corresponding reduction contributed surplus within companys consolidated balance sheet first installment 016 paid may 22 2013 shareholders record april 26 2013 second installment 016 paid august 21 2013 shareholders record july 26 2013 third installment 016 paid november 14 2013 shareholders record october 25 2013 fourth installment 016 paid february 19 2014 shareholders record january 24 2014 authorized share capital september 25 2015 companys authorized share capital amounted 11000000 €40000 divided 1000000000 ordinary shares par value 001 per share 100000000 preferred shares par value 001 per share 40000 ordinary shares par value €100 per share authorized share capital includes 40000 ordinary shares par value €100 per share order satisfy statutory requirements incorporation irish public limited companies tyco ireland may issue shares subject maximum prescribed authorized share capital contained memorandum association connection redomicile ireland company canceled outstanding treasury shares including shares held subsidiaries offsetting reduction additional paid capital september 26 2014 companys share capital amounted chf 243181525 486363050 registered ordinary shares par value chf 050 per share although company stated par value swiss francs used us dollar reporting currency preparing consolidated financial statements issued share capital company issued one authorized ordinary share exchange ordinary share tyco switzerland former shareholders tyco switzerland ordinary shares issued effective time redomicile ireland issued fully paidup nonassessable tyco international plc notes consolidated financial statements continued share repurchase program companys board directors approved 1 billion 175 billion 2014 share repurchase programs 600 million 2013 share repurchase program september 2014 march 2014 january 2013 respectively share repurchases reduce amount ordinary shares outstanding decrease dividends declared within consolidated statement shareholders equity shares repurchased company fiscal year share repurchase program provided comprehensive income 1 includes 9 million gain related net investment hedge year ended september 25 2015 company hold net investment hedge fiscal years 2014 2013 2 years ended september 25 2015 september 26 2014 september 27 2013 1 million cumulative translation losses 40 million cumulative translation gains 9 million cumulative translation gains respectively transferred currency translation adjustments result sale foreign entities amounts loss 1 million gain 40 million nil respectively included loss income discontinued operations net income taxes within consolidated statements operations 3 income tax expense related previously held net investment hedges nil 1 million 6 million years ended september 25 2015 september 26 2014 september 27 2013 4 reclassified net periodic benefit cost see note 13 year ended september 26 2014 6 million net actuarial losses transferred amortization net actuarial losses included loss income discontinued operations net income taxes within consolidated statements operations result sale foreign entities 5 sold loss gain reclassified realized loss gain marketable securities derivative instruments recorded expense net within consolidated statements operations tyco international plc notes consolidated financial statements continued accumulated comprehensive loss components accumulated comprehensive loss follows millions 15 share plans total sharebased compensation cost recognized 2015 2014 2013 consisted following millions company recognized related tax benefit associated sharebased compensation arrangements 2015 2014 2013 18 million 25 million 20 million respectively september 17 2012 shareholders approved tyco international plc 2012 share incentive plan 2012 plan replaced 2004 tyco international ltd stock incentive plan 2004 plan 2012 plan provides award stock options stock appreciation rights annual performance bonuses long term performance awards restricted units restricted shares deferred stock units promissory stock stockbased awards collectively awards pursuant 2012 plan effective october 1 2012 50 million ordinary shares available equitybased awards subject adjustments provided terms 2012 plan additional awards may granted 2004 plan addition ordinary shares awarded 2004 plan issued owing expiration forfeiture cancellation return company settlement cash lieu ordinary shares january 1 2004 longer available reason also available issuance 2012 plan ordinary shares issued pursuant grant full value award example restricted stock units performance share units total number ordinary shares remaining available grant decreased 332 shares 2012 plan september 25 2015 approximately 32 million shares available grant 2012 plan share optionsoptions granted purchase ordinary shares prices equal greater closing market price ordinary shares date option granted conditions vesting determined time grant tyco international plc notes consolidated financial statements continued options generally exercisable equal annual installments period four years generally expire 10 years date grant historically companys practice settle stock option exercises either newly issued shares held treasury grantdate fair value option grant estimated using blackscholes option pricing model fair value amortized straightline basis requisite service period awards generally vesting period use valuation model requires management make certain assumptions respect selected model inputs expected volatility calculated based analysis historic implied volatility measures set peer companies average expected life based contractual term option expected employee exercise postvesting employment termination behavior riskfree interest rate based us treasury zerocoupon issues remaining term equal expected life assumed date grant compensation expense recognized net estimated forfeitures estimated based voluntary termination behavior well analysis actual share option forfeitures weightedaverage assumptions used blackscholes option pricing model 2015 2014 2013 follows weightedaverage grantdate fair values options granted 2015 2014 2013 1129 1024 721 respectively total intrinsic value options exercised 2015 2014 2013 66 million 76 million 73 million respectively related excess cash tax benefit classified financing cash inflow 2015 2014 2013 material summary option activity september 25 2015 changes year ended presented september 25 2015 27 million total unrecognized compensation cost related unvested options granted cost expected recognized weightedaverage period 26 fiscal years employee stock purchase plansthe tyco employee stock purchase plan espp suspended indefinitely fourth quarter 2009 september 25 2015 approximately 3 million shares available grant espp restricted share awardsrestricted share awards including restricted stock units performance share units granted subject certain restrictions conditions vesting determined time grant restrictions award generally lapse upon normal retirement twelve months grant date death disability employee fair market value restricted awards time vesting subject specific performance criteria expensed period vesting restricted stock units vest based solely upon passage time generally vest period four years fair value restricted stock units determined based closing market price companys shares grant date performance share units restricted share awards vest dependent upon attainment tyco international plc notes consolidated financial statements continued various levels performance equal exceed targeted levels generally vest entirety end three year performance period number shares ultimately vest vary 0 200 target depending level achievement performance criteria fair value performance share units determined based monte carlo valuation model compensation expense recognized restricted share awards net estimated forfeitures recipients restricted stock units voting rights receive dividend equivalent units deus recipients performance share units voting rights receive deus depending attainment performance levels summary activity companys restricted stock unit awards september 25 2015 changes year ended presented tables weightedaverage grantdate fair value restricted stock units granted 2015 2014 2013 4231 3873 2766 respectively total fair value restricted stock units vested 2015 2014 2013 39 million 79 million 64 million respectively september 25 2015 31 million total unrecognized compensation cost related unvested restricted share awards cost expected recognized weightedaverage period 26 fiscal years summary activity companys performance share unit awards september 25 2015 changes year ended presented table weightedaverage grantdate fair value performance share units granted 2015 2014 2013 4291 3901 3036 respectively total fair value performance share units vested 2015 2014 2013 25 million nil respectively vested awards include shares fully earned delivered september 25 2015 final determination number shares issued respect award based achievement predefined performance metrics made companys compensation human resources committee board directors september 25 2015 19 million total unrecognized compensation cost related unvested performance share awards cost expected recognized weightedaverage period 19 fiscal years deferred stock unitsdeferred stock units dsus notional units tied value tyco ordinary shares distribution deferred termination employment service company distribution made form actual shares oneforone basis similar restricted stock units vest time fair value dsus determined based closing market price companys shares grant date amortized expense vesting period recipients dsus right vote receive cash dividends however right receive dividend equivalent units conditions vesting determined time grant 2004 plan grants made executives generally vested equal annual installments three years dsus granted board directors immediately vested tyco international plc notes consolidated financial statements continued dsu awards granted 2015 2014 2013 however participants continue earn deus existing awards total fair value dsus including deus vested 2015 2014 2013 material 16 consolidated segment data fourth quarter fiscal 2015 company changed name north america installation services rest world installation services segments north america integrated solutions services rest world integrated solutions services respectively segment reporting structure consistent management reviews businesses makes investing resource decisions assesses operating performance name changes better reflect companys focus providing technology solutions encompass mix products services consultation tailored unique needs customer changes made current segment structure underlying financial data comprise segment result name changes impact previously disclosed segment information company operates reports financial operating information following three segments • na integrated solutions services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail small business institutional governmental customers north america • row integrated solutions services designs sells installs services monitors electronic security systems fire detection suppression systems commercial industrial retail residential small business institutional governmental customers rest world row regions • global products designs manufactures sells fire protection security life safety products including intrusion security antitheft devices breathing apparatus access control video management systems commercial industrial retail residential small business institutional governmental customers worldwide including products installed serviced na row integrated solutions services segments company also provides general corporate services segments reported fourth nonoperating segment corporate selected information segment presented following tables millions 1 net revenue segment excludes intercompany transactions 1 operating loss fiscal 2014 includes asbestos related charges 225 million related yarway settlement 240 million related updated valuation performed companys liability asbestos related claims excluding yarway claims partially offset 96 million legacy legal reversal recoveries see note 12 details asbestos legacy legal matters tyco international plc notes consolidated financial statements continued total assets segment september 25 2015 september 26 2014 september 27 2013 follows millions depreciation amortization capital expenditures segment years ended september 25 2015 september 26 2014 september 27 2013 follows millions net revenue geographic area years ended september 25 2015 september 26 2014 september 27 2013 follows millions 1 net revenue attributed individual countries based jurisdiction formation reporting entity records transaction 2 includes us net revenue 4822 million 4717 million 4568 million 2015 2014 2013 respectively 3 uk represents largest portion net revenue europe middle east africa region net revenue 1140 million 1262 million 1168 million 2015 2014 2013 respectively tyco international plc notes consolidated financial statements continued longlived assets geographic area september 25 2015 september 26 2014 september 27 2013 follows millions 1 longlived assets comprised primarily subscriber system assets net property plant equipment net deferred subscriber acquisition costs net dealer intangibles exclude goodwill intangible assets 2 includes us longlived assets 801 million 836 million 828 million 2015 2014 2013 respectively 17 supplementary consolidated balance sheet information selected supplementary consolidated balance sheet information september 25 2015 september 26 2014 follows millions 18 inventory inventories consisted following millions inventories recorded lower cost primarily firstin firstout market value tyco international plc notes consolidated financial statements continued 19 property plant equipment property plant equipment consisted following millions 20 tyco international finance sa tifsa 100 owned subsidiary company public debt securities outstanding fully unconditionally guaranteed tyco fire security finance sca tifsca wholly owned subsidiary tyco parent company tifsa see note 9 following tables present condensed consolidating financial information tyco tifsca tifsa subsidiaries condensed financial information tyco tifsca tifsa standalone basis presented using equity method accounting subsidiaries tyco international plc notes consolidated financial statements continued condensed consolidating statement operations year ended september 25 2015 millions tyco international plc notes consolidated financial statements continued condensed consolidating statement comprehensive income year ended september 25 2015 millions tyco international plc notes consolidated financial statements continued condensed consolidating statement operations year ended september 26 2014 millions tyco international plc notes consolidated financial statements continued condensed consolidating statement comprehensive income year ended september 26 2014 millions tyco international plc notes consolidated financial statements continued condensed consolidating statement operations year ended september 27 2013 millions tyco international plc notes consolidated financial statements continued condensed consolidating statement comprehensive income year ended september 27 2013 millions tyco international plc notes consolidated financial statements continued condensed consolidating balance sheet september 25 2015 millions tyco international plc notes consolidated financial statements continued condensed consolidating balance sheet september 26 2014 millions tyco international plc notes consolidated financial statements continued condensed consolidating statement cash flows year ended september 25 2015 millions tyco international plc notes consolidated financial statements continued condensed consolidating statement cash flows year ended september 26 2014 millions tyco international plc notes consolidated financial statements continued condensed consolidating statement cash flows year ended september 27 2013 millions tyco international plc notes consolidated financial statements continued 21 subsequent events september 14 2015 company tifsa announced redemption outstanding 242 million aggregate principal amount 70 notes due 2019 462 million aggregate principal amount 6875 notes due 2021 october 14 2015 tifsa paid cash 876 million complete redemption result company expects record charge 168 million expense net first quarter fiscal 2016 loss extinguishment debt charge comprised makewhole premium writeoff unamortized premium debt issuance costs related extinguished notes october 15 2015 company repaid maturity 258 million aggregate principal amount 3375 notes due 2015 matured date october 12 2015 company made annual equity compensation grant granted tyco employees 26 million share options weightedaverage grantdate fair value 718 per share date grant additionally company granted 05 million 06 million restricted stock units performance share units weightedaverage grantdate fair value 3608 3716 per share date grant respectively tyco international plc supplementary financial information selected quarterly financial data unaudited selected quarterly financial data years ended september 25 2015 september 26 2014 follows millions except per share data 1 net revenue excludes 5 million 5 million 5 million nil net revenue related discontinued operations first second third fourth quarters 2015 respectively 2 income continuing operations attributable tyco ordinary shareholders fourth quarter fiscal 2015 includes 81 million loss extinguishment debt tyco international plc supplementary financial information continued selected quarterly financial data unaudited continued 1 net revenue excludes 158 million 152 million 87 million 6 million net revenue related discontinued operations first second third fourth quarters 2014 respectively 2 income loss continuing operations attributable tyco ordinary shareholders first quarter fiscal 2014 includes 92 million related legacy legal reversal third quarter 2014 includes 216 million gain sale atkore fourth quarter 2014 includes asbestos related charges 225 million related yarway settlement 240 million related updated valuation performed companys liability asbestos related claims excluding yarway claims 3 income loss discontinued operations net income taxes third quarter 2014 primarily related sale adt korea tyco international plc schedule iivaluation qualifying accounts millions 1 deductions represent uncollectible accounts written net recoveriesnanitem 15 exhibits financial statement schedules omitted applicable required information shown financial statements notes thereto financial statements 50 lessowned companies omitted proportionate share profit income taxes total assets individually less 20 respective consolidated amounts investments companies less 20 consolidated total assets refer note 20 nonconsolidated partiallyowned affiliates notes consolidated financial statements summarized financial data company’s nonconsolidated partiallyowned affiliates item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed november 21 2019 following persons behalf registrant capacities indicated george r oliver george r oliver chairman chief executive officer principal executive officer brian j stief brian j stief vice chairman chief financial officer principal financial officer robert vanhimbergen robert vanhimbergen vice president corporate controller principal accounting officer jean blackwell jean blackwell director pierre cohade pierre cohade director mike daniels mike daniels director juan pablo del valle perochena juan pablo del valle perochena director roy dunbar roy dunbar director gretchen r haggerty gretchen r haggerty director simone menne simone menne director jürgen tinggren jürgen tinggren director mark p vergnano mark p vergnano director david yost david yost director john young john young director johnson controls international plc index exhibits 1 2 financial statements supplementary data see item 8 b exhibit index johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits johnson controls international plc index exhibits