Johnson Controls International Plc — filing identity discrepancy
The supplied filing is for Tyco International Ltd., not Johnson Controls International Plc. The summary below describes the filing provided and should not be attributed to Johnson Controls without verifying the source.
Business context and reporting period
Tyco reported its unaudited fiscal first quarter ended December 27, 2013, compared with the quarter ended December 28, 2012. Its continuing businesses provide fire protection, security and life-safety products and services through NA Installation & Services, ROW Installation & Services, and Global Products. The results are for Tyco after its 2012 spin-offs of ADT and Pentair’s predecessor business.
Financial performance and position
| Metric | Quarter ended Dec. 27, 2013 | Prior comparable quarter |
|---|---|---|
| Net revenue | $2.647 billion | $2.600 billion |
| Organic revenue growth | 1.5% | Not provided on a comparable basis |
| Operating income / margin | $374 million / 14.1% | $235 million / 9.0% |
| Net income attributable to Tyco shareholders | $270 million | $163 million |
| Diluted EPS | $0.57 | $0.34 |
| Operating cash flow | $123 million | $(39) million |
| Cash and cash equivalents | $479 million | $563 million at Sept. 27, 2013 |
| Total debt | $1.623 billion | $1.463 billion at Sept. 27, 2013 |
| Current assets / current liabilities | $4.007 billion / $3.163 billion | $4.067 billion / $3.231 billion at Sept. 27, 2013 |
Product-sales revenue was $1.493 billion and service revenue was $1.154 billion. Operating cash flow improved year over year, while working-capital movements reduced current-quarter operating cash flow by $262 million. Capital expenditures were $92 million; investing cash outflow was $67 million and financing cash outflow was $133 million. Tyco repurchased about $250 million of shares and paid $74 million in dividends. Total debt as a share of total capital was 24.0%, versus 22.3% at fiscal year-end. The filing reports a $1 billion revolving credit facility with no borrowings and $160 million of commercial paper outstanding.
Segment revenue and operating income were: NA Installation & Services, $957 million and $117 million; ROW Installation & Services, $1.125 billion and $125 million; Global Products, $565 million and $86 million. Backlog, including recurring revenue in force and deferred revenue, was $5.380 billion, up 1.0% from September 27, 2013.
Material changes versus the prior period
- Revenue increased 1.8%; organic growth was 1.5%. Acquisitions added $62 million, while foreign exchange reduced revenue by $30 million and divestitures reduced it by $24 million.
- Operating income rose $139 million, but the increase was substantially influenced by unusual items: a $92 million reversal of a former-management compensation liability and a $16 million gain from the CIT tax dispute settlement. Management also cited better segment performance, productivity and restructuring benefits.
- ROW Installation & Services revenue grew 3.2% and Global Products grew 5.8%; NA Installation & Services revenue declined 1.9%, reflecting divestitures and foreign exchange, partly offset by slight organic growth.
- Operating cash flow improved from negative $39 million to positive $123 million. Cash declined $84 million during the quarter, and debt increased $160 million, including commercial paper issuance.
- Comprehensive income attributable to Tyco shareholders was $236 million, including a $37 million foreign-currency translation loss.
Outlook, commentary, risks and unusual items
- Management expected fiscal 2014 restructuring and repositioning charges of approximately $75 million to $100 million combined. A separate note gives expected restructuring charges of $50 million to $75 million, excluding repositioning.
- Fiscal 2014 capital expenditures were expected to exceed fiscal 2013 spending and depreciation expense. Management said cash, operating cash flow and available credit were expected to cover foreseeable operating and business needs.
- Tyco expected approximately $100 million in payments related to Yarway intercompany liabilities and $163 million to settle certain pre-2012 separation tax liabilities. Depending on timing and amounts, it might issue up to $500 million of debt in fiscal 2014.
- The IRS asserted tax deficiencies of $883.3 million plus $154 million in penalties, and an additional approximately $30 million deficiency was expected for certain partnerships. Tyco disputes the claims; the amounts exclude interest. The company warned that an adverse resolution could materially affect financial condition, results and cash flows, including possible disallowance of about $6.6 billion of subsequent-period interest deductions.
- Environmental remediation liabilities were estimated at $74 million, including a $62 million best estimate for the Marinette, Wisconsin site. Asbestos liabilities were $319 million, partly offset by $152 million of insurance assets, for a $167 million net liability; future outcomes depend on uncertain claims, costs and insurance recoveries.
- A Korean ruling on “ordinary wages” could create exposure; the company had made no provision and could not estimate a loss range. It said it did not expect a material adverse effect. Yarway was in Chapter 11 amid asbestos claims.
- Tyco settled the CIT dispute for $60 million cash received, recorded a $16 million gain, and recorded $44 million payable to former separation partners. The $92 million legacy-management liability reversal also materially boosted reported earnings.
Important facts for investors to verify
- Confirm the issuer: the provided 10-Q is Tyco International Ltd., although the request identifies Johnson Controls International Plc.
- Assess earnings excluding the $92 million liability reversal and $16 million CIT gain, and reconcile the filing’s segment and corporate results to reported operating income.
- Track the IRS tax litigation, related tax-sharing obligations and potential effects on later-period deductions and cash flows.
- Review the timing and funding of expected tax and Yarway-related payments, and whether the possible debt issuance materializes.
- Monitor environmental and asbestos claims, insurance recoverability, and the Korean wage-related exposure.
- Compare future cash generation with planned capital spending, dividends, repurchases and restructuring costs; assess working-capital volatility and rising debt.