10-KPeriod: FY2008

Johnson Controls International plc Annual Report, Year Ended Sep 26, 2008

Filed November 19, 2008For Securities:JCI

Summary

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 billion 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.

Financial Highlights

53 data points
Beta

Revenue

$19.73B

35.2% Gross Margin

Net Income

$1.55B

7.9% Net Margin

EPS (Diluted)

$3.19

Total Assets

$28.80B

Cash & Equivalents

$1.52B

Free Cash Flow

-$912.00M

Financial Statements
Beta
Revenue$19.73B
Cost of Revenue$12.78B
Gross Profit$6.95B
R&D Expenses$125.00M
SG&A Expenses$4.82B
Operating Income$1.90B
Interest Expense$396.00M
Net Income$1.55B
EPS (Basic)$3.21
EPS (Diluted)$3.19
Shares Outstanding (Basic)484.00M
Shares Outstanding (Diluted)488.00M

Key Highlights

  • 1Achieved 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.
  • 2Significantly 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.
  • 3Continued strategic portfolio management by divesting several non-core businesses and completing strategic acquisitions, notably within the ADT Worldwide segment.
  • 4Announced 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.
  • 5Experienced increased customer attrition rates in the ADT Worldwide business, averaging 12.9% in 2008, a slight rise from 2007, which could impact recurring revenue.
  • 6Identified a material weakness in internal control over financial reporting related to income tax accounting, with ongoing remediation efforts to address control deficiencies.
  • 7Reported a backlog of $9.7 billion at fiscal year-end 2008, indicating a healthy pipeline of future business across its segments.

Frequently Asked Questions

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.

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.

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.

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%.