10-QPeriod: Q3 FY2014

Johnson Controls International plc Quarterly Report for Q3 Ended Jun 27, 2014

Filed July 25, 2014For Securities:JCI

Summary

Johnson Controls International plc's (JCI) 10-Q filing for the period ending June 26, 2014, reveals a significant increase in net income, largely driven by the gain from discontinued operations, primarily the sale of its ADT Korea business. Net revenue saw a modest increase year-over-year, with organic growth reflecting contributions from all three operating segments, particularly Global Products. The company also reported improved operating income, benefiting from ongoing productivity initiatives and lower restructuring costs compared to the prior year. Investors should note the substantial gain from discontinued operations, which masks underlying operational performance in continuing segments. The company's strategic divestitures and focus on efficiency are key themes. The significant tax dispute with the IRS remains a notable contingent liability, though management believes its current reserves are appropriate. The company continues to repurchase shares and pay dividends, indicating confidence in its financial position and future prospects.

Financial Highlights

52 data points
Beta

Revenue

$2.66B

58.5% Gross Margin

Net Income

$1.45B

54.5% Net Margin

EPS (Diluted)

$3.11

Total Assets

$12.78B

Cash & Equivalents

$432.00M

Free Cash Flow

$152.00M

Financial Statements
Beta
Revenue$2.66B
Cost of Revenue$1.10B
Gross Profit$1.56B
SG&A Expenses$671.00M
Operating Income$297.00M
Interest Expense$24.00M
Net Income$1.45B
EPS (Basic)$3.17
EPS (Diluted)$3.11
Shares Outstanding (Basic)458.00M
Shares Outstanding (Diluted)466.00M

Key Highlights

  • 1Net income attributable to Tyco common shareholders surged to $1.45 billion for the quarter ended June 27, 2014, a substantial increase from $135 million in the prior year, primarily due to a $1.0 billion gain from the sale of ADT Korea (discontinued operations).
  • 2Net revenue increased by 4.9% to $2.66 billion for the quarter ended June 27, 2014, compared to $2.54 billion in the prior year, with organic revenue growth of 4.2%.
  • 3Operating income for the quarter rose by 82.7% to $296 million, driven by improved segment performance and lower restructuring costs.
  • 4The company completed the sale of its ADT Korea business for $1.93 billion, recognizing a net gain of $1.0 billion.
  • 5Restructuring and asset impairment charges decreased significantly, from $53 million in the prior year's quarter to $17 million in the current quarter.
  • 6The company repurchased approximately 13 million shares for $556 million during the quarter.
  • 7A significant ongoing tax dispute with the IRS concerning intercompany debt transactions remains a material contingent liability, with potential for a significant impact if the IRS prevails.

Frequently Asked Questions

The primary driver of the substantial increase in net income to $1.45 billion is the gain of approximately $1.0 billion recognized from the sale of the ADT Korea business, which is classified as discontinued operations. This significantly boosted the overall net income figure.

The company is actively pursuing restructuring activities and workforce reductions to improve operating efficiencies. Additionally, it has initiated global actions referred to as 'repositioning' to streamline operations. These efforts, along with ongoing productivity initiatives, contributed to the improved operating income and margin.

A significant contingent liability is the ongoing tax dispute with the IRS regarding intercompany debt transactions from 1997-2000. The IRS has asserted substantial additional taxes and penalties, and while Tyco strongly disagrees and is contesting the position, an unfavorable resolution could have a material adverse impact. Additionally, the company is involved in environmental remediation and asbestos-related litigation, though it believes its current accruals and insurance recoveries are adequate.

The company is actively returning capital to shareholders through share repurchases and dividend payments. During the quarter, it repurchased approximately $556 million of its common shares. It also continues to invest in its core businesses and expects its cash position, credit facility, and operating cash flow to be sufficient for its foreseeable needs.