10-QPeriod: Q1 FY2007

Johnson Controls International plc Quarterly Report for Q1 Ended Dec 29, 2006

Filed February 6, 2007For Securities:JCI

Summary

Tyco International Ltd. reported a net revenue of $10.33 billion for the quarter ended December 29, 2006, a 7.6% increase compared to the same period in the prior year, primarily driven by broad-based revenue growth across its segments. However, operating income saw a slight decrease to $1.18 billion from $1.22 billion, with operating margins contracting by 1.4 percentage points to 11.4%. This margin compression was attributed to increased separation costs related to the planned three-way split of the company and restructuring charges. The company is actively pursuing this separation, with an expected completion in early calendar Q2 2007, aiming to create three independent, publicly traded entities. Significant litigation and investigations, particularly those stemming from actions of former senior management, continue to pose a risk, with potential for material adverse effects on financial position and cash flows.

Key Highlights

  • 1Net revenue increased by 7.6% to $10.33 billion for the quarter ended December 29, 2006, compared to $9.60 billion in the prior year period.
  • 2Operating income decreased by 3.8% to $1.18 billion from $1.22 billion, and operating margins compressed to 11.4% from 12.8%.
  • 3The company incurred $85 million in separation costs related to its planned three-way split, a significant increase from $8 million in the prior year.
  • 4Restructuring, asset impairment, and divestiture charges increased substantially to $90 million from $15 million, impacting profitability.
  • 5The company is actively working towards separating into three independent publicly traded companies, with an expected completion in early Q2 2007.
  • 6Cash flow from operating activities improved to $844 million from $684 million, but capital expenditures increased significantly to $650 million from $289 million.
  • 7The company repurchased $659 million of its common shares during the quarter, completing a $2.0 billion share repurchase program.

Frequently Asked Questions

For the quarter ended December 29, 2006, Tyco reported net revenue of $10.33 billion, an increase of 7.6% from the prior year. However, operating income decreased to $1.18 billion, and operating margins declined to 11.4% due to higher separation and restructuring costs.

Tyco is progressing with its plan to separate into three independent, publicly traded companies. The company expects this separation to be completed in early the second calendar quarter of 2007. This process is expected to incur significant costs, estimated between $1.2 billion and $1.6 billion after-tax.

The decrease in operating margin was primarily driven by increased separation costs, amounting to $85 million in the current quarter compared to $8 million in the prior year, and higher restructuring, asset impairment, and divestiture charges, which rose to $90 million from $15 million. These factors offset the revenue growth achieved across the company's segments.

The company generated $844 million in cash flow from operating activities, an improvement from the prior year. However, capital expenditures significantly increased to $650 million, reflecting investments in business improvements. Additionally, Tyco repurchased $659 million of its common stock during the quarter, completing a substantial share repurchase program.

Tyco faces ongoing litigation and investigations, particularly those stemming from actions of its former senior management. The company notes that these matters could have a material adverse effect on its financial position, results of operations, or cash flows. They are also subject to ongoing governmental investigations which could lead to fines, penalties, or restrictions on business.