01—Abstract
Summary
Summary of the 10-Q filed January 29, 2016. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc (JCI) reported its first quarter fiscal year 2016 results, reflecting a period of strategic activity including acquisitions and a pending merger.
While net revenue saw a 4.1% decline year-over-year to $2.38 billiona, this was largely attributed to unfavorable foreign currency impacts and divestitures, with organic revenue remaining flat. Operating income saw a significant increase of 47.2% to $293 million, driven by a substantial gain from an equity investment in its UAE joint venture and a reduction in restructuring charges. The company also announced a definitive agreement to merge with Johnson Controls, Inc., a transaction expected to close in the second half of calendar year 2016, which will result in the combined entity being named Johnson Controls plc.
Key financial movements include a notable decrease in cash and cash equivalents from $1.4 billion to $301 millionb, primarily due to significant debt repayments and share repurchases. The company's debt was also reduced. Despite the revenue decline, the company maintained a strong segment operating income margin of 15.2%.
Investors should note the significant gain from the UAE joint venture, which boosted operating income, and the pending merger with Johnson Controls, Inc., which represents a major strategic development. The company is actively managing its portfolio through divestitures, such as the Australian fire protection business, and strategic acquisitions, like ShopperTrak.
02—Key points
Key Highlights
- Net revenue for the quarter decreased by 4.1% to $2.38 billion, primarily due to foreign currency headwinds and divestitures, while organic revenue remained flat.
- Operating income increased significantly by 47.2% to $293 million, bolstered by a $111 million gain from consolidating the Tyco UAE joint venture and a reduction in restructuring charges.
- The company recorded a substantial loss on debt extinguishment of $168 million related to the redemption of notes.
- Cash and cash equivalents significantly decreased from $1.4 billion to $301 million, driven by debt repayments and share repurchases.
- A definitive merger agreement was signed with Johnson Controls, Inc., with Tyco to be renamed Johnson Controls plc upon completion.
- The company is in the process of divesting its Australian fire protection business.
- Segment operating income increased by $39 million to $362 million, with a notable improvement in segment operating margin to 15.2%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2016, Johnson Controls International plc kept $0.10.
- Revenue$4.70B100.0%
- Cost of revenue−$3.44B73.2%
- Gross profit$1.26B26.8%
- Operating costs−$964.0M20.5%
- Operating income$293.0M6.2%
- Interest, other & tax$157.0M3.3%
- Net income$450.0M9.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2016filed January 29, 2016Financial Statements
Q1 FY2016 against Q1 FY2015
| Line item | Q1 FY2016Q1 FY2015 | Change |
|---|---|---|
| Revenue | $4.70B$2.48B | +89.5% |
| Cost of Revenue | $3.44B$1.02B | +236.5% |
| Gross Profit | $1.26B$1.46B | −13.7% |
| SG&A Expenses | $847.00M$652.00M | +29.9% |
| Operating Income | $293.00M$199.00M | +47.2% |
| Interest Expense | $72.00M$24.00M | +200.0% |
| Net Income | $450.00M$162.00M | +177.8% |
| EPS (Basic) | $0.69$0.39 | +76.9% |
| EPS (Diluted) | $0.69$0.38 | +81.6% |
| Shares Outstanding (Basic) | 647.70M420.00M | +54.2% |
| Shares Outstanding (Diluted) | 652.80M427.00M | +52.9% |
05—Questions
Frequently Asked Questions
What was the primary driver for the increase in operating income?
The significant increase in operating income was primarily driven by a $111 million net gain recognized from the consolidation of the Tyco UAE joint venture after increasing the company's investment in it. Additionally, a reduction in restructuring and repositioning charges contributed to the improved operating income.
What is the status and impact of the planned merger with Johnson Controls, Inc.?
Tyco announced a definitive merger agreement with Johnson Controls, Inc. Upon completion, Tyco will change its name to Johnson Controls plc and trade under the JCI ticker symbol. The transaction is subject to shareholder approvals and other customary closing conditions. A significant portion of the consideration will be cash, financed by debt. This merger represents a major strategic shift for the company.
How has the company's cash position changed, and what were the main reasons?
Cash and cash equivalents decreased substantially from $1.4 billion to $301 million. This reduction was primarily due to significant debt repayments, including the redemption of $242 million in 7.0% notes due 2019 and $462 million in 6.875% notes due 2021, as well as commercial paper repayments. Dividend payments also contributed to the decrease.
Are there any significant legal or tax contingencies that investors should be aware of?
The company is involved in ongoing tax matters, including a tentative resolution with the IRS regarding intercompany debt issues for tax years 1997-2000, which could result in a cash payment of $475 million to $525 million. This payment would be shared with Covidien and TE Connectivity. The company also has ongoing asbestos and environmental matters, with estimated liabilities recorded, but the ultimate outcomes remain subject to estimation and potential future adjustments.
06—Continue