01—Abstract
Summary
Summary of the 10-K filed November 19, 2008. Cited figures are marked; the original filing is the authoritative source.
Tyco International Ltd. for the fiscal year ended September 26, 2008, reported strong revenue growth across its diversified segments, including ADT Worldwide, Flow Control, and Electrical and Metal Products.
The company highlighted improved operating income, largely driven by favorable segment performance and lower corporate expenses, despite a significant class action settlement charge in the prior year that heavily impacted 2007 results. Tyco continued its portfolio refinement strategy, divesting non-core businesses while also making strategic acquisitions, particularly within its ADT Worldwide segment, to bolster capabilities. Despite macroeconomic headwinds like currency fluctuations and weakening construction markets, Tyco demonstrated resilience.
The company is actively managing its liquidity and capital structure, with a new $1.0 billiona share repurchase program initiated. However, investors should note the disclosed material weakness in internal controls over financial reporting, specifically related to income tax accounting, which management is actively working to remediate. The company's outlook for fiscal 2009 indicates potential challenges from U.S. dollar appreciation and declining commodity prices impacting margins.
02—Key points
Key Highlights
- Achieved a 9.3% increase in net revenue year-over-year, reaching $20.2 billion, driven by strong performance in ADT Worldwide, Flow Control, and Electrical and Metal Products segments.
- Significantly improved operating income to $1.94 billion from an operating loss of $1.73 billion in the prior year, benefiting from segment growth and a reduction in corporate expenses, including a prior year class action settlement charge.
- Continued strategic portfolio management by divesting several non-core businesses and completing strategic acquisitions, notably within the ADT Worldwide segment.
- Announced a new $1.0 billion share repurchase program, demonstrating commitment to returning capital to shareholders, following the completion of a prior $1.0 billion repurchase program.
- Experienced increased customer attrition rates in the ADT Worldwide business, averaging 12.9% in 2008, a slight rise from 2007, which could impact recurring revenue.
- Identified a material weakness in internal control over financial reporting related to income tax accounting, with ongoing remediation efforts to address control deficiencies.
- Reported a backlog of $9.7 billion at fiscal year-end 2008, indicating a healthy pipeline of future business across its segments.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Johnson Controls International plc kept $0.08.
- Revenue$19.73B100.0%
- Cost of revenue−$12.78B64.8%
- Gross profit$6.95B35.2%
- Operating costs−$5.06B25.6%
- Operating income$1.90B9.6%
- Interest, other & tax−$343.0M1.7%
- Net income$1.55B7.9%
Where FY2008 revenue went
$19.73B- Cost of revenue: $12.78B, 65% of revenue
- SG&A: $4.82B, 24% of revenue
- Net income: $1.55B, 7.9% of revenue
- R&D: $125.0M, 0.6% of revenue
- Other operating costs: $108.0M, 0.5% of revenue
- Interest, other & tax: $343.0M, 1.7% of revenue
Kept 7.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed November 19, 2008Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $19.73B$18.48B | +6.8% |
| Cost of Revenue | $12.78B$8.49B | +50.4% |
| Gross Profit | $6.95B$9.98B | −30.3% |
| R&D Expenses | $125.00M— | — |
| SG&A Expenses | $4.82B$4.78B | +1.0% |
| Operating Income | $1.90B-$1.73B | +209.5% |
| Interest Expense | $396.00M$313.00M | +26.5% |
| Net Income | $1.55B-$1.74B | +189.2% |
| EPS (Basic) | $3.21$-3.52 | +191.2% |
| EPS (Diluted) | $3.19$-3.52 | +190.6% |
| Shares Outstanding (Basic) | 484.00M495.00M | −2.2% |
| Shares Outstanding (Diluted) | 488.00M495.00M | −1.4% |
05—Questions
Frequently Asked Questions
What were the main drivers of Tyco's revenue growth in fiscal year 2008?
Tyco's revenue grew by 9.3% to $20.2 billion, driven by strong performance across its key segments. The Flow Control segment saw volume growth due to strong industrial end markets and project growth in valves. ADT Worldwide experienced growth across all geographic regions and an increase in its North American recurring revenue base. The Electrical and Metal Products segment benefited from selling price increases, partially offset by a decrease in volume.
What is the company's financial position regarding debt and liquidity?
Tyco's total debt was $4.3 billion at September 26, 2008, representing 22% of its capitalization. The company has access to $1.75 billion in revolving credit facilities, though $60 million of commitments were impacted by Lehman Brothers' bankruptcy. Despite this, Tyco believes it has sufficient liquidity to meet its foreseeable needs through operating cash flows and available credit lines.
What are the key risks and challenges facing Tyco in the near future?
Key risks include the potential negative impact of U.S. dollar appreciation on its significant non-U.S. revenue, declining operating margins in the Electrical and Metal Products segment due to falling steel and copper prices, and continued weakness in commercial construction impacting the ADT Worldwide segment. The company also disclosed a material weakness in income tax accounting controls that requires ongoing remediation.
How did the company's segments perform in terms of profitability?
Profitability varied across segments. ADT Worldwide saw operating income increase by 8.1%, with operating margin improving slightly to 11.4%. Flow Control showed significant improvement, with operating income up 35.2% and operating margin reaching 14.0%. Fire Protection Services' operating income increased by 24.4%, with margins improving to 9.0%. Electrical and Metal Products experienced a substantial jump in operating income (up 115.1%) due to favorable product spreads, while Safety Products saw a modest 3.6% increase in operating income, with margins slightly declining to 14.7%.
06—Continue