10-QPeriod: Q3 FY2013

Johnson Controls International plc Quarterly Report for Q3 Ended Jun 28, 2013

Filed July 26, 2013For Securities:JCI

Summary

Johnson Controls International plc (JCI), formerly Tyco International Ltd., reported its financial results for the third quarter of fiscal year 2013. The company demonstrated modest revenue growth, with net revenue increasing by 0.9% year-over-year to $2.68 billion. This growth was primarily driven by the Global Products segment and supported by acquisitions, though partially offset by a decline in the North America Installation & Services segment. Operating income saw a significant increase of 60.2% to $189 million, largely due to a substantial reduction in asbestos-related charges compared to the prior year period. The company also continued its focus on cost containment and restructuring, which contributed to improved operating efficiencies. Looking ahead, JCI is managing ongoing legal and environmental matters, including a significant IRS tax dispute concerning intercompany debt. The company's liquidity remains adequate, supported by strong cash flow from operations, and it continues to return value to shareholders through dividends and share repurchases, with approximately $500 million remaining under its current share repurchase authorization.

Financial Highlights

52 data points
Beta

Revenue

$2.54B

60.6% Gross Margin

Net Income

$135.00M

5.3% Net Margin

EPS (Diluted)

$0.28

Total Assets

$11.87B

Cash & Equivalents

$455.00M

Free Cash Flow

$214.00M

Financial Statements
Beta
Revenue$2.54B
Cost of Revenue$1.00B
Gross Profit$1.54B
SG&A Expenses$712.00M
Operating Income$162.00M
Interest Expense$26.00M
Net Income$135.00M
EPS (Basic)$0.29
EPS (Diluted)$0.28
Shares Outstanding (Basic)463.00M
Shares Outstanding (Diluted)471.00M

Key Highlights

  • 1Net revenue increased by 0.9% to $2.68 billion for the quarter ended June 28, 2013, compared to $2.655 billion in the prior year.
  • 2Operating income increased significantly by 60.2% to $189 million, primarily driven by a decrease in asbestos-related charges compared to the prior year.
  • 3Restructuring and cost-saving initiatives are ongoing, with the company expecting to incur approximately $125 million in charges in fiscal 2013.
  • 4The company's Global Products segment showed strong revenue growth of 6.6% year-over-year.
  • 5Cash flow from operating activities was $472 million for the nine months ended June 28, 2013, indicating a healthy ability to fund operations.
  • 6The company continues its share repurchase program, with approximately $500 million remaining under the 2013 authorization as of June 28, 2013.
  • 7A significant tax dispute with the IRS regarding intercompany debt from 1997-2000 has been disclosed, with potential material impact.

Frequently Asked Questions

The significant increase in operating income was primarily due to a substantial reduction in asbestos-related charges compared to the same quarter in the prior year. The current quarter recorded $12 million in net asbestos charges, down from $108 million in the prior year's quarter.

The 2012 Separation of ADT and Pentair Flow Control resulted in the classification of those businesses as discontinued operations in all periods presented. It also led to a realignment of the company's reporting segments into NA Installation & Services, ROW Installation & Services, and Global Products, with Corporate and Other as a non-operating segment. This separation has contributed to a smaller corporate footprint and is reflected in changes to segment reporting and corporate expenses.

The company faces several risks and uncertainties, including a significant ongoing tax dispute with the IRS concerning intercompany debt, which could have a material adverse impact. Other matters include environmental remediation costs at the Marinette, Wisconsin facility, ongoing asbestos litigation (with Yarway Corporation filing for Chapter 11 bankruptcy), and legacy legal disputes with former management.

The company's primary source of funds is cash generated from operations. It maintains a commercial paper program, has access to a committed revolving credit facility, and can access equity and debt markets. Management believes its current cash position, available credit, and operating cash flow are sufficient to meet foreseeable operational and business needs, including ongoing share repurchases and dividend payments.