What is the main reason for this 8-K filing?

This 8-K filing is primarily to report Tyco International Ltd.'s fourth quarter and full fiscal year 2006 financial results and to disclose significant findings from an internal review of its historical stock option grant practices, which will require a restatement of prior period financial results.

What specifically were the issues with the stock option grants?

The company found that between October 1999 and early 2002, there were instances of incomplete documentation for stock option grants, leading to difficulties in precisely determining the appropriate measurement date under APB 25. This, along with unintentional misapplication of accounting principles and a lack of adequate control procedures, resulted in errors in accounting for these stock-based compensation expenses.

How much financial impact do these errors have?

The aggregate pre-tax compensation expense that should have been recorded for prior periods is approximately $281 million. Of this, $252 million relates to stock option accounting errors and $29 million relates to an error in a UK employee stock purchase program. The after-tax impact is approximately $191 million.

Which fiscal periods are affected by these accounting errors?

While the errors primarily stem from periods prior to fiscal year 2005, the identified expenses do relate to grants awarded prior to the end of 2002. Specifically, $17 million pre-tax relates to fiscal year 2005, and $66 million pre-tax relates to fiscal year 2004. None of the identified amount relates to fiscal year 2006.

JCI 8-K: Earnings & Results

Summary

This 8-K filing from Tyco International Ltd. (now Johnson Controls International plc, as the filing date predates the name change) on November 15, 2006, primarily addresses the company's fourth-quarter fiscal year 2006 results and significant findings from an internal review of its historical stock option grant practices. The company announced its financial results for the quarter and year ending September 29, 2006. Investors should note that the core of the filing concerns the identification of accounting errors related to stock option grants and an employee stock purchase program. These errors, primarily stemming from incomplete documentation, unintentional misapplication of accounting principles, and inadequate control procedures between 1999 and early 2002, will necessitate a restatement of prior period financial results. The company has quantified the aggregate impact of these identified errors. Approximately $252 million pre-tax ($171 million after-tax) relates to stock option accounting errors, and an additional $29 million pre-tax ($20 million after-tax) pertains to an employee stock purchase program error. The total pre-tax adjustment is approximately $281 million ($191 million after-tax). While these errors are primarily from periods prior to fiscal year 2005, a portion impacts fiscal years 2004 and 2005. Management has discussed these findings with the Audit Committee and independent auditors, and the company intends to reflect these adjustments in its fiscal year 2006 Form 10-K filing.

Key Highlights

1Tyco International Ltd. reported its fourth quarter and full fiscal year 2006 results.
2An internal review of historical stock option grant practices (October 1999 - June 2006) has identified accounting errors.
3Errors were primarily due to incomplete documentation, unintentional misapplication of GAAP, and inadequate control procedures between 1999 and early 2002.
4The company will restate prior period financial results to account for these stock option-related errors.
5Aggregate pre-tax compensation expense related to stock options not properly recorded is approximately $252 million.
6An additional $29 million pre-tax expense relates to an error in the UK employee stock purchase program.
7The total identified pre-tax expense adjustment is approximately $281 million ($191 million after-tax) for prior periods.

Johnson Controls International plc 8-K Report, Financial Results (Nov 15, 2006)

Summary

Key Highlights

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