Financial Instruments

The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, investments, accounts payable, debt and derivative financial instruments. The fair value of cash, accounts receivable, and accounts payable approximated book value as of June 24, 2016 and September 25, 2015. The fair value of derivative financial instruments was not material to any of the periods presented. See below for the fair value of cash equivalents and investments and Note 9 for the fair value of debt.

Derivative Instruments

In the normal course of business, Tyco is exposed to market risk arising from changes in currency exchange rates, interest rates and commodity prices. The Company may use derivative financial instruments to manage exposures to foreign currency, interest rate and commodity risks. The Company's objective for utilizing derivative financial instruments is to manage these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not use derivative financial instruments for trading or speculative purposes. As of and during the nine months ended June 24, 2016, the Company did not hold or enter into any commodity derivative instruments or interest rate swaps.

For derivative instruments that are designated and qualified as hedging instruments for accounting purposes, the Company documents and links the relationships between the hedging instruments and hedged items. The Company also assesses and documents at the hedge's inception whether the derivatives used in hedging transactions are effective in offsetting changes in fair values associated with the hedged items. During the quarter ended March 27, 2015, the Company designated its 2025 Euro notes as a net investment hedge of the Company’s investments in certain of its international subsidiaries that use the Euro as their functional currency and intercompany permanent loans in order to reduce the volatility caused by changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar. During both the quarter and nine months ended June 24, 2016, the change in the carrying value due to remeasurement of the 2025 Euro notes resulted in a net loss of $6 million reported in Accumulated other comprehensive loss within the Consolidated Statement of Shareholders' Equity. During the quarter and nine months ended June 26, 2015, the change in the carrying value due to remeasurement of the 2025 Euro notes resulted in a $12 million loss and an $8 million gain, respectively, reported in Accumulated other comprehensive loss on the Consolidated Balance Sheet. This hedge did not result in any hedge ineffectiveness for the quarters and nine months ended June 24, 2016 and June 26, 2015.

Foreign Currency Exposures

As of June 24, 2016 and September 25, 2015, the total gross notional amount of the Company's foreign exchange contracts was $614 million and $365 million, respectively. The fair value of these derivative financial instruments and impact of such changes in the fair value was not material to the Consolidated Balance Sheets as of June 24, 2016 and September 25, 2015 or Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the quarters and nine months ended June 24, 2016 and June 26, 2015.

Counterparty Credit Risk

The use of derivative financial instruments exposes the Company to counterparty credit risk. Tyco has established policies and procedures to limit its exposure to counterparty credit risk, including establishing limits for credit exposure and continually assessing the creditworthiness of counterparties. As a matter of practice, the Company deals with major banks worldwide having strong investment grade long-term credit ratings. To further reduce the risk of loss, the Company generally enters into International Swaps and Derivatives Association master netting agreements with substantially all of its counterparties. The Company's derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by the Company or the counterparties. The Company's exposure to credit risk associated with its derivative instruments is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. The Company does not anticipate any non-performance by any of its counterparties, and the concentration of risk with financial institutions does not present significant credit risk to the Company. The maximum amount of loss that the Company would incur as of June 24, 2016 without giving consideration to the effects of legally enforceable master netting agreements was not material.

Cash Equivalents and Investments

The fair value of cash equivalents approximates carrying value and is included in Level 1.

Investments may include marketable securities such as U.S. government obligations, U.S. government agency and corporate debt securities, equity securities, exchange traded funds or time deposits with banks.

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

Assets Measured at Fair Value on a Recurring Basis

The following table presents the Company's hierarchy for its assets measured at fair value on a recurring basis as of June 24, 2016 and September 25, 2015 ($ in millions):



							Consolidated Balance Sheet Classification
	As of June 24, 2016						Cash and Cash Equivalents		Prepaid Expenses and Other Current Assets		Other Assets
Investment Assets:	Level 1		Level 2		Total		Cash and Cash Equivalents		Prepaid Expenses and Other Current Assets		Other Assets
Cash equivalents	$	81	$	—	$	81	$	81	$	—	$	—
Available-for-sale securities:
Exchange traded funds (fixed income)⁽¹⁾	176		—		176		—		15		161
Exchange traded funds (equity)⁽¹⁾	81		—		81		—		—		81
Trading securities:
Exchange traded funds (equity)	55		—		55		—		55		—
	$	393	$	—	$	393	$	81	$	70	$	242



							Consolidated Balance Sheet Classification
	As of September 25, 2015						Cash and Cash Equivalents		Prepaid Expenses and Other Current Assets		Other Assets
Investment Assets:	Level 1		Level 2		Total		Cash and Cash Equivalents		Prepaid Expenses and Other Current Assets		Other Assets
Cash equivalents	$	909	$	—	$	909	$	909	$	—	$	—
Available-for-sale securities:
Exchange traded funds (fixed income)⁽¹⁾	186		—		186		—		15		171
Exchange traded funds (equity)⁽¹⁾	77		—		77		—		—		77
Trading securities:
Exchange traded funds (equity)	59		—		59		—		59		—
	$	1,231	$	—	$	1,231	$	909	$	74	$	248

⁽¹⁾Classified as restricted investments. See Note 11.

During the quarters ended June 24, 2016 and June 26, 2015, the Company did not have any significant transfers between levels within the fair value hierarchy.

The Company recorded unrealized gains related to available-for-sale securities of $4 million and unrealized losses of $6 million for the quarters ended June 24, 2016 and June 26, 2015, respectively, and unrealized gains of $9 million and unrealized losses of $6 million for the nine months ended June 24, 2016 and June 26, 2015, respectively, within Accumulated other comprehensive loss.

Unrealized gains related to trading securities were nil and $1 million for the quarters ended June 24, 2016 and June 26, 2015, respectively. Unrealized gains were $2 million and $5 million for the nine months ended June 24, 2016 and June 26, 2015, respectively, which are recorded within Other income (expense), net within the Consolidated Statements of Operations.

Other

The Company had $1.3 billion and $1.4 billion of intercompany loans designated as permanent in nature as of June 24, 2016 and September 25, 2015, respectively. Additionally, for the quarters ended June 24, 2016 and June 26, 2015, the Company recorded cumulative translation losses of $9 million and gains of $40 million, respectively, through Accumulated other comprehensive loss related to these loans. For the nine months ended June 24, 2016 and June 26, 2015, the Company recorded cumulative translation losses of $68 million and $105 million, respectively, through Accumulated other comprehensive loss related to these loans.