01—Abstract
Summary
Summary of the 10-Q filed July 29, 2016. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc (JCI), formerly Tyco International plc, reported its third-quarter fiscal year 2016 results, highlighting a slight decline in net revenue but a significant increase in income from continuing operations attributable to shareholders, driven by a substantial gain related to the resolution of tax sharing agreement liabilities.
The company is actively preparing for its merger with Johnson Controls, Inc., which is expected to close by October 2016. This strategic merger promises to create a larger, diversified entity with enhanced market presence. Financially, the company saw a 1.6%a decrease in net revenue for the quarter, largely due to unfavorable foreign currency impacts and divestitures, although organic growth was positive at 1.5%.
Despite the revenue dip, operating income saw an increase due to a significant gain from tax settlements and reduced restructuring charges, which offset merger-related costs and divestiture charges. The balance sheet reflects a decrease in cash and cash equivalents compared to the previous fiscal year, while debt levels have also been reduced through strategic repayments. The company maintains a strong focus on liquidity and flexibility to support its ongoing operations and strategic initiatives, including the pending merger.
02—Key points
Key Highlights
- Net revenue for the third quarter of fiscal 2016 decreased by 1.6% to $2.45 billion compared to the prior year period, primarily due to unfavorable foreign currency impacts and divestitures, though organic revenue growth was 1.5%.
- Income from continuing operations attributable to Tyco ordinary shareholders increased significantly to $241 million from $188 million in the prior year quarter, boosted by a $54 million gain from the resolution of tax sharing agreement liabilities.
- Operating income decreased by 6.7% to $236 million, impacted by higher divestiture charges, merger costs, and unfavorable foreign currency impacts, partially offset by lower restructuring and repositioning charges.
- The company is progressing towards its merger with Johnson Controls, Inc., with the transaction expected to close by October 2016, subject to customary closing conditions and shareholder approvals.
- Cash and cash equivalents decreased to $345 million from $1.40 billion in the prior fiscal year-end, reflecting operational needs and strategic outflows.
- Total debt decreased to $2.51 billion from $3.15 billion, driven by debt redemptions and repayments, improving the debt-to-capital ratio.
- Backlog of unfilled orders increased by 4.9% to $4.79 billion, indicating strong future revenue potential across segments.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Johnson Controls International plc kept $0.07.
- Revenue$5.15B100.0%
- Cost of revenue−$3.73B72.4%
- Gross profit$1.42B27.6%
- Operating costs−$1.19B23.0%
- Operating income$236.0M4.6%
- Interest, other & tax$147.0M2.9%
- Net income$383.0M7.4%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed July 29, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $5.15B$2.49B | +107.1% |
| Cost of Revenue | $3.73B$1.02B | +264.1% |
| Gross Profit | $1.42B$1.46B | −2.9% |
| SG&A Expenses | $895.00M$625.00M | +43.2% |
| Operating Income | $236.00M$253.00M | −6.7% |
| Interest Expense | $66.00M$26.00M | +153.8% |
| Net Income | $383.00M$156.00M | +145.5% |
| EPS (Basic) | $0.59$0.37 | +59.5% |
| EPS (Diluted) | $0.59$0.37 | +59.5% |
| Shares Outstanding (Basic) | 644.90M421.00M | +53.2% |
| Shares Outstanding (Diluted) | 649.70M427.00M | +52.2% |
05—Questions
Frequently Asked Questions
What is the impact of the proposed merger with Johnson Controls on the financial results?
The merger with Johnson Controls is a significant strategic event. For the current quarter, the company incurred $19 million in merger costs related to financing, advisory, and professional fees. The financial statements and forward-looking statements reflect ongoing preparations for the merger, and the full benefits, including expected synergies, will be realized post-completion.
How did foreign currency fluctuations affect the company's performance?
Foreign currency exchange rates had an unfavorable impact on net revenue, reducing it by $63 million in the current quarter compared to the prior year. This impact was primarily felt in the ROW Integrated Solutions & Services and Global Products segments.
What was the significant gain recognized in 'Other income (expense), net'?
The company recognized a $54 million gain in 'Other income (expense), net' during the quarter due to the favorable resolution of certain tax sharing agreement liabilities related to the 2007 and 2012 Tax Sharing Agreements, following the final settlement of intercompany debt issues with the IRS.
How is the company managing its debt levels?
The company actively managed its debt by redeeming and repaying significant portions of its long-term debt. Total debt was reduced to $2.51 billion from $3.15 billion, and the debt-to-capital ratio improved, reflecting a stronger balance sheet.
06—Continue