SEC Comment Letter for Johnson Controls International plc (JCI) (CIK 0000833444) (JCI) — Jul 31, 2006
Johnson Controls International plc (JCI) (CIK 0000833444)
Date: July 31, 2006 · CIK: 0000833444 · Accession: 0000000000-06-035747
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-13836
Letter
Mail Stop 6010 July 31, 2006 VIA U.S. MAIL AND FACSIMILE (609.720.4223) Mr. Christopher J. Coughlin Executive Vice President and Chief Financial Officer Tyco International Ltd. 9 Roszel Road Princeton, New Jersey 08540
Re: Tyco International Ltd. Form 10-K for the fiscal year ended September 30, 2005 Filed December 9, 2005 Form 10-Q for the quarter ly period ended March 31, 2006 File No. 001-13836
Dear Mr. Coughlin:
We have reviewed your filings and have the following comments. We have limited our review to only your financial statements and related disclosures and do not intend to expand our review to other portions of your documents. Wher e indicated, we think you should revise future filings in response to these comments. If you disa gree, we will consider y our explanation as to why our comment is inapplicable or a revision is unnecessary. Please be as detailed as necessary in your explanation. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure. Afte r reviewing this information, we may or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your compliance with the applicable disclosure requir ements and to enhance the overall disclosure in your filings. We look forward to working with you in these respects. We welcome any questions you may have about our comments or on any other aspect of our review. Feel free to call us at the telephone numbers lis ted at the end of this letter.
Mr. Christopher J. Coughlin Tyco International Ltd. July 31, 2006 Page 2 Form 10-K for the Fiscal Year Ended September 30, 2005
Item 9A. Controls and Procedures, page 64
1. We note your disclosure that management c oncluded that your disclosure controls and procedures are effective to provide reasonabl e assurance "that information required to be disclosed in [y]our Exchange Act report s is recorded, processed, summarized and reported as and when required.” The language that is currently in cluded after the word "effective" in your disclosure appears to be superfluous, since the meaning of "disclosure controls and procedures" is established by Rule 13a-15(e) of the Exchange Act. However, if you do not wish to eliminate this la nguage, please revise future filings so that the language that appears after the word "effectiv e" is substantially similar in all material respects to the language that appears in the entire two-sentence defini tion of "disclosure controls and procedures" se t forth in Rule 13a-15(e).
2. With respect to your reference to reasonable assurance, please note that you may also state clearly, if true, that your disclosure controls and procedures are designed to provide reasonable assurance of achieving their object ives and that your principal executive officer and principal financia l officer concluded that your disclosure controls and procedures are effective at that reasonable assu rance level. In the alternative, remove the reference in future filings to the level of assurance of your disclosure controls and procedures. Please refer to Section II.F.4 of Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, SEC Release No. 33-8238, available on our website at <http://www.sec.gov/rules/final/33-8238.htm >.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 34
Contractual Obligations, page 54
3. In future filings please include a column re flecting the total amount of each type of contractual obligation. Please also include in the table in future filings your other long-term liabilities reflected on your balance shee t under U.S. GAAP. Please refer to Item 303(a)(5) of Regulation S-K.
Mr. Christopher J. Coughlin Tyco International Ltd. July 31, 2006 Page 3 Consolidated Financial Statements, page 75
Note 4. Discontinued Operations and Divestitures, page 99
4. On page 99 you disclose that you “determine d that the book value of the A&E Products reporting unit was in excess of its estimate d fair value which resulted in a goodwill impairment charge of $162 million.” Based upon this disclosure and the discussion of your goodwill impairment evaluation accounting policy on pages 89 and 49, it is not clear whether you calculate the amount of the goodwill impairment charge based upon the implied fair value of the goodwill. That is, you r disclosure only appears to refer to the first part of the impairment test which compar es the fair value of a reporting unit with its carrying amount, including goodwill. Please respond to the following:
• Tell us how you determined the amount of any goodwill impairment charge included in your financial statements for each of the years in the three year period ended September 30, 2005 and for the six months e nded March 31, 2006. That is, tell us how you determined the implied fair valu e of the goodwill and whether the amount of the impairment represents the excess of the carrying amount of that goodwill over its implied fair value. Please see paragraphs 20 – 21 of SFAS 142. • In light of the fact that goodwill represents approximately 39% of your total assets as of September 30, 2005, please expand your acco unting policy in future filings to explain how you test goodwill for impairment and how you determine the amount of any impairment charge recorded. Please refer to paragraphs 19 – 21 of SFAS 142. • In future filings please revise your disclosu re related to the changes in the carrying amount of goodwill in Note 12 to show th e aggregate amount of goodwill impairment losses recognized in each period. Please see paragraph 45(c)(2) of SFAS 142.
Note 14. Debt, page 113
5. We note that you have $1.2 billion of 2.75% convertible senior debt with a 2008 put option and $750 million of 3.125% convertible senior debt with a 2015 put option. Additionally, you disclose that in 2005 you repurchased $1.2 billion of 2.75% convertible debt for $1.8 billion and $750 million of 3.125% convertible debt for $1.1 billion, resulting in a $1.0 billion loss on the extinguishment of the de bt. Please respond to the following:
• Please tell us and disclose in future fili ngs the significant term s of the convertible debt including conversion, put and call fe atures. See paragraph 4 of SFAS 129. • Please tell us about your evaluation of the features of thes e instruments, including the conversion and put options, to determine wh ether there was any embedded derivative
Mr. Christopher J. Coughlin Tyco International Ltd. July 31, 2006 Page 4 that should be bifurcated under SFAS 133 and EITF 00-19. Please continue this analysis, as applicable, to address whether there is any benefici al conversion feature under EITF 98-5 and 00-27. • Please reconcile your disclosure on page 107 in note 9 with respect to convertible debt due in 2020, and 2021 with your disclo sure in note 14 which only seems to reflect convertible debt due in 2010, 2018 and 2023.
Form 10-Q for the Quarterly Period Ended March 31, 2006
Financial Statement - Note 11. Share Plans, page 21
6. We note on page 23 that the total number of restricted share grants under the 2004 plan increased to 13 million at March 31, 2006 from the 5 million at September 30, 2005 disclosed in your 2005 Form 10-K, represen ting a difference of 8 million. Please reconcile that amount with th e rollforward schedule on page 26 reflecting grants of 6.2 million between October 1, 2005 and March 31, 2006.
7. We note on page 23 that under one employee stock purchase plan, you grant options to purchase shares at the end of three years of se rvice at 85% of the market price at the time of grant. It appears that the number of op tions outstanding under this plan increased by 1 million shares from September 30, 2005. Pleas e revise future filings to provide the disclosures required by paragraphs 64-65 a nd A240-242 of SFAS 123R for this plan, or tell us why you have not provided the additiona l disclosures. Refer to paragraphs12, 13, and A240(b)(1) of SFAS 123R.
8. We note that you issued deferred stock units. Please revise future filings to provide the disclosures required by paragraphs 64-65 a nd A240-242 of SFAS 123R for this plan, or tell us why no additional disclosures are required. For example, see paragraph A240(b)(2) and (c) of SFAS 123R.
9. Please disclose in future filings, as applicable , the total fair value of shares vested during the year. Please see paragr aph A240(c)(2) of SFAS 123R.
Mr. Christopher J. Coughlin Tyco International Ltd. July 31, 2006 Page 5 10. We note that you also issue restricted share awards that vest based upon performance criteria. As indicated in paragraph A240(f) of SFAS 123R , please revise the note in future filings to provide separate disclosure for different types of awards to the extent that the differences in the characteristics of the aw ards make separate disclosure important to an understanding of your share-based compensation.
11. With respect to your deferred stock units, pl ease provide us with a description of the share-based payment arrangement, including an y substantive terms and conditions of the awards. Please explain how you determine th e actual number of shares that will be distributed to the employee at the end of th e arrangement. Explain how the notional units are tied to the value of Tyco common shares and clarify whether or not payment, at distribution, may be made in cash.
12. Also relating to your deferred stock units, pl ease tell us how you accounted for, valued and classified the awards in your financia l statements. Please cite the accounting literature upon which you relied and explain how that guidance applie s to your facts and circumstances.
As appropriate, please revise future filings and respond to these comments within 10 business days or tell us when you will provide us with a response. Please furnish a letter that keys your responses to our comments and provide s any requested information. Detailed letters greatly facilitate our review. Please understand that we may ha ve additional comments after reviewing your responses to our comments.
We urge all persons who are responsible for th e accuracy and adequacy of the disclosure in the filing to be certain that the filing includes all information re quired under the Securities Exchange Act of 1934 and that they have provi ded all information investors require for an informed investment decision. Since the compa ny and its management are in possession of all facts relating to a company’s disclosure, they are responsible for the acc uracy and adequacy of the disclosures they have made.
In connection with responding to our comment s, please provide, in writing, a statement from the company acknowledging that:
the company is responsible for the adequacy and accuracy of the disclo sure in the filing;
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
Mr. Christopher J. Coughlin Tyco International Ltd. July 31, 2006 Page 6
the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federa l securities laws of the United States.
In addition, please be advise d that the Division of Enfo rcement has access to all information you provide to the sta ff of the Division of Corporati on Finance in our review of your filing or in response to our comments on your filing.
You may contact Kate Tillan, Assistant Chie f Accountant, at (202) 551-3604 or me at (202) 551-3671 if you have any questions regarding these comments.
S i n c e r e l y ,
M a r t i n J a m e s Senior Assistant Chief Accountant
Show Raw Text
Mail Stop 6010
July 31, 2006
VIA U.S. MAIL AND FACSIMILE (609.720.4223)
Mr. Christopher J. Coughlin
Executive Vice President and Chief Financial Officer
Tyco International Ltd.
9 Roszel Road
Princeton, New Jersey 08540
Re: Tyco International Ltd.
Form 10-K for the fiscal year ended September 30, 2005
Filed December 9, 2005
Form 10-Q for the quarter ly period ended March 31, 2006
File No. 001-13836
Dear Mr. Coughlin:
We have reviewed your filings and have the following comments. We have limited our
review to only your financial statements and related disclosures and do not intend to expand our
review to other portions of your documents. Wher e indicated, we think you should revise future
filings in response to these comments. If you disa gree, we will consider y our explanation as to
why our comment is inapplicable or a revision is unnecessary. Please be as detailed as necessary
in your explanation. In some of our comments, we may ask you to provide us with information
so we may better understand your disclosure. Afte r reviewing this information, we may or may
not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your
compliance with the applicable disclosure requir ements and to enhance the overall disclosure in
your filings. We look forward to working with you in these respects. We welcome any
questions you may have about our comments or on any other aspect of our review. Feel free to
call us at the telephone numbers lis ted at the end of this letter.
Mr. Christopher J. Coughlin
Tyco International Ltd.
July 31, 2006 Page 2
Form 10-K for the Fiscal Year Ended September 30, 2005
Item 9A. Controls and Procedures, page 64
1. We note your disclosure that management c oncluded that your disclosure controls and
procedures are effective to provide reasonabl e assurance "that information required to be
disclosed in [y]our Exchange Act report s is recorded, processed, summarized and
reported as and when required.” The language that is currently in cluded after the word
"effective" in your disclosure appears to be superfluous, since the meaning of "disclosure
controls and procedures" is established by Rule 13a-15(e) of the Exchange Act.
However, if you do not wish to eliminate this la nguage, please revise future filings so that
the language that appears after the word "effectiv e" is substantially similar in all material
respects to the language that appears in the entire two-sentence defini tion of "disclosure
controls and procedures" se t forth in Rule 13a-15(e).
2. With respect to your reference to reasonable assurance, please note that you may also
state clearly, if true, that your disclosure controls and procedures are designed to provide
reasonable assurance of achieving their object ives and that your principal executive
officer and principal financia l officer concluded that your disclosure controls and
procedures are effective at that reasonable assu rance level. In the alternative, remove the
reference in future filings to the level of assurance of your disclosure controls and
procedures. Please refer to Section II.F.4 of Management’s Reports on Internal Control
Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic
Reports, SEC Release No. 33-8238, available on our website at
<http://www.sec.gov/rules/final/33-8238.htm >.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, page 34
Contractual Obligations, page 54
3. In future filings please include a column re flecting the total amount of each type of
contractual obligation. Please also include in the table in future filings your other long-term liabilities reflected on your balance shee t under U.S. GAAP. Please refer to Item
303(a)(5) of Regulation S-K.
Mr. Christopher J. Coughlin
Tyco International Ltd.
July 31, 2006 Page 3
Consolidated Financial Statements, page 75
Note 4. Discontinued Operations and Divestitures, page 99
4. On page 99 you disclose that you “determine d that the book value of the A&E Products
reporting unit was in excess of its estimate d fair value which resulted in a goodwill
impairment charge of $162 million.” Based upon this disclosure and the discussion of your goodwill impairment evaluation accounting policy on pages 89 and 49, it is not clear whether you calculate the amount of the goodwill impairment charge based upon the
implied fair value of the goodwill. That is, you r disclosure only appears to refer to the
first part of the impairment test which compar es the fair value of a reporting unit with its
carrying amount, including goodwill. Please respond to the following:
• Tell us how you determined the amount of any goodwill impairment charge included
in your financial statements for each of the years in the three year period ended
September 30, 2005 and for the six months e nded March 31, 2006. That is, tell us
how you determined the implied fair valu e of the goodwill and whether the amount of
the impairment represents the excess of the carrying amount of that goodwill over its
implied fair value. Please see paragraphs 20 – 21 of SFAS 142.
• In light of the fact that goodwill represents approximately 39% of your total assets as
of September 30, 2005, please expand your acco unting policy in future filings to
explain how you test goodwill for impairment and how you determine the amount of any impairment charge recorded. Please refer to paragraphs 19 – 21 of SFAS 142.
• In future filings please revise your disclosu re related to the changes in the carrying
amount of goodwill in Note 12 to show th e aggregate amount of goodwill impairment
losses recognized in each period. Please see paragraph 45(c)(2) of SFAS 142.
Note 14. Debt, page 113
5. We note that you have $1.2 billion of 2.75% convertible senior debt with a 2008 put
option and $750 million of 3.125% convertible senior debt with a 2015 put option. Additionally, you disclose that in 2005 you repurchased $1.2 billion of 2.75% convertible
debt for $1.8 billion and $750 million of 3.125% convertible debt for $1.1 billion,
resulting in a $1.0 billion loss on the extinguishment of the de bt. Please respond to the
following:
• Please tell us and disclose in future fili ngs the significant term s of the convertible
debt including conversion, put and call fe atures. See paragraph 4 of SFAS 129.
• Please tell us about your evaluation of the features of thes e instruments, including the
conversion and put options, to determine wh ether there was any embedded derivative
Mr. Christopher J. Coughlin
Tyco International Ltd.
July 31, 2006 Page 4
that should be bifurcated under SFAS 133 and EITF 00-19. Please continue this
analysis, as applicable, to address whether there is any benefici al conversion feature
under EITF 98-5 and 00-27.
• Please reconcile your disclosure on page 107 in note 9 with respect to convertible
debt due in 2020, and 2021 with your disclo sure in note 14 which only seems to
reflect convertible debt due in 2010, 2018 and 2023.
Form 10-Q for the Quarterly Period Ended March 31, 2006
Financial Statement - Note 11. Share Plans, page 21
6. We note on page 23 that the total number of restricted share grants under the 2004 plan
increased to 13 million at March 31, 2006 from the 5 million at September 30, 2005 disclosed in your 2005 Form 10-K, represen ting a difference of 8 million. Please
reconcile that amount with th e rollforward schedule on page 26 reflecting grants of 6.2
million between October 1, 2005 and March 31, 2006.
7. We note on page 23 that under one employee stock purchase plan, you grant options to
purchase shares at the end of three years of se rvice at 85% of the market price at the time
of grant. It appears that the number of op tions outstanding under this plan increased by 1
million shares from September 30, 2005. Pleas e revise future filings to provide the
disclosures required by paragraphs 64-65 a nd A240-242 of SFAS 123R for this plan, or
tell us why you have not provided the additiona l disclosures. Refer to paragraphs12, 13,
and A240(b)(1) of SFAS 123R.
8. We note that you issued deferred stock units. Please revise future filings to provide the
disclosures required by paragraphs 64-65 a nd A240-242 of SFAS 123R for this plan, or
tell us why no additional disclosures are required. For example, see paragraph
A240(b)(2) and (c) of SFAS 123R.
9. Please disclose in future filings, as applicable , the total fair value of shares vested during
the year. Please see paragr aph A240(c)(2) of SFAS 123R.
Mr. Christopher J. Coughlin
Tyco International Ltd.
July 31, 2006 Page 5
10. We note that you also issue restricted share awards that vest based upon performance criteria. As indicated in paragraph A240(f) of SFAS 123R , please revise the note in
future filings to provide separate disclosure for different types of awards to the extent that the differences in the characteristics of the aw ards make separate disclosure important to
an understanding of your share-based compensation.
11. With respect to your deferred stock units, pl ease provide us with a description of the
share-based payment arrangement, including an y substantive terms and conditions of the
awards. Please explain how you determine th e actual number of shares that will be
distributed to the employee at the end of th e arrangement. Explain how the notional units
are tied to the value of Tyco common shares and clarify whether or not payment, at
distribution, may be made in cash.
12. Also relating to your deferred stock units, pl ease tell us how you accounted for, valued
and classified the awards in your financia l statements. Please cite the accounting
literature upon which you relied and explain how that guidance applie s to your facts and
circumstances.
As appropriate, please revise future filings and respond to these comments within 10
business days or tell us when you will provide us with a response. Please furnish a letter that
keys your responses to our comments and provide s any requested information. Detailed letters
greatly facilitate our review. Please understand that we may ha ve additional comments after
reviewing your responses to our comments.
We urge all persons who are responsible for th e accuracy and adequacy of the disclosure
in the filing to be certain that the filing includes all information re quired under the Securities
Exchange Act of 1934 and that they have provi ded all information investors require for an
informed investment decision. Since the compa ny and its management are in possession of all
facts relating to a company’s disclosure, they are responsible for the acc uracy and adequacy of
the disclosures they have made.
In connection with responding to our comment s, please provide, in writing, a statement
from the company acknowledging that:
the company is responsible for the adequacy and accuracy of the disclo sure in the filing;
staff comments or changes to disclosure in response to staff comments do not foreclose
the Commission from taking any action with respect to the filing; and
Mr. Christopher J. Coughlin
Tyco International Ltd.
July 31, 2006 Page 6
the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federa l securities laws of the United States.
In addition, please be advise d that the Division of Enfo rcement has access to all
information you provide to the sta ff of the Division of Corporati on Finance in our review of your
filing or in response to our comments on your filing.
You may contact Kate Tillan, Assistant Chie f Accountant, at (202) 551-3604 or me at
(202) 551-3671 if you have any questions regarding these comments.
S i n c e r e l y ,
M a r t i n J a m e s
Senior Assistant Chief Accountant