10-QPeriod: Q1 FY2006

Johnson Controls International plc Quarterly Report for Q1 Ended Dec 30, 2005

Filed February 7, 2006For Securities:JCI

Summary

This report covers the fiscal quarter ended December 30, 2005, for Tyco International Ltd. The company reported net income of $570 million, or $0.28 per diluted share, compared to $730 million, or $0.34 per diluted share, in the same quarter of the prior year. Revenue saw a modest increase to $9.7 billion from $9.6 billion year-over-year, primarily driven by growth in the Electronics and Engineered Products and Services segments. However, operating income declined by 10.6% to $1.225 billion due to increased material costs, unfavorable foreign currency movements, and the adoption of SFAS No. 123R impacting share-based compensation expenses. The company is actively managing its portfolio, with significant progress in divesting its Plastics and Adhesives segment, which was impaired by $275 million due to market conditions. Tyco also announced a significant strategic plan to separate into three independent, publicly traded companies: Tyco Healthcare, Tyco Electronics, and a combined Fire and Security and Engineered Products and Services entity, expected to be completed by early 2007. This separation is a key strategic initiative aimed at unlocking shareholder value and positioning each business for future growth.

Key Highlights

  • 1Net income for the quarter was $570 million, down from $730 million in the prior year's quarter.
  • 2Net revenue increased slightly to $9.7 billion from $9.6 billion year-over-year.
  • 3Operating income decreased by 10.6% to $1.225 billion, impacted by various cost pressures and currency headwinds.
  • 4The company recorded a significant impairment charge of $275 million related to its Plastics, Adhesives, and Ludlow Coated Products businesses, which are designated for divestiture.
  • 5Tyco announced a plan to separate into three independent publicly traded companies, expected to be completed by early calendar 2007.
  • 6Shareholders' equity remained stable at $32.5 billion.
  • 7The company repurchased approximately $216 million of its common shares in the first quarter of 2006.

Frequently Asked Questions

Tyco International announced a major strategic initiative to separate into three independent, publicly traded companies: Tyco Healthcare, Tyco Electronics, and a combined Tyco Fire and Security and Engineered Products and Services entity. This separation is expected to be completed in the first quarter of calendar 2007 and is intended to unlock shareholder value and position each business for greater growth and focus as independent entities. This follows a period of portfolio management, including progress on divesting non-core assets like the Plastics and Adhesives segment.

The decrease in operating income was primarily due to increased material costs in the Electronics and Healthcare segments, unfavorable foreign currency exchange rate movements which negatively impacted revenue and profitability, and the adoption of SFAS No. 123R, 'Share-Based Payment,' which resulted in incremental share-based compensation expense of $48 million in the current quarter. Higher installation costs in commercial security and lower margins in Worldwide Fire Services also contributed.

Tyco has reached a definitive agreement to sell its Plastics, Adhesives, and Ludlow Coated Products businesses for $975 million, with the sale expected to close in the second quarter of fiscal 2006. In preparation for this divestiture, the company recorded a pre-tax impairment charge of $275 million during the quarter to write down these businesses to their fair value less costs to sell, reflecting current market conditions.

Effective October 1, 2005, Tyco adopted SFAS No. 123R, which requires the recognition of share-based compensation costs at fair value. This adoption resulted in incremental share-based compensation expense of $48 million in the quarter ended December 30, 2005. Prior period results were not restated, but the new standard impacts current period operating expenses.