Jul 29 2010
- Diluted EPS from continuing operations before special items increased 24% in the quarter
- Revenue and operating margins improve sequentially across all business segments
- Company has repurchased 15.8 million shares for $575 million under existing $1 billion share repurchase program
- Acquisition of Broadview Security completed; integration of Broadview into ADT business on track
- Tyco reaches definitive agreement to divest Flow Control's European Waterworks business
(Income and EPS amounts are attributable to Tyco common shareholders)
($ millions, except per-share amounts)
Tyco International Ltd. (NYSE: TYC) today reported $0.50 in diluted earnings per share (EPS) from continuing operations for the fiscal third quarter of 2010 and diluted EPS from continuing operations before special items of $0.72 per share. Revenue in the quarter was $4.3 billion with organic revenue flat year-over-year.
Cash from operating activities was $660 million and free cash flow was $352 million. These amounts included $64 million of cash outflows related to restructuring activities, acquisition related costs and legacy legal settlements.
"Our results for the quarter reflect the continued strength of our recurring and service revenue base, improving order trends and operating margin improvement across all of our business segments," said Tyco Chairman and Chief Executive Officer Ed Breen. "With the acquisition of Broadview Security, the planned separation of our Electrical and Metal Products business, and the sale of our European Waterworks business, we continue to focus our portfolio around our core security, fire and flow control platforms, positioning Tyco for consistent future growth."
Organic revenue, free cash flow and operating income, operating margin, income and diluted EPS from continuing operations before special items are non-GAAP financial measures and are described below. For a reconciliation of these non-GAAP measures, see the attached tables. Additional schedules as well as Third Quarter Review slides can be found at www.tyco.com on the Investor Relations portion of Tyco's website. Certain tables in this press release contain the symbol "-", where the percentage change is not meaningful.
SEGMENT RESULTS
The financial results presented in the tables below are in accordance with GAAP unless otherwise indicated. Beginning in the first quarter of fiscal 2010, certain businesses and overhead costs were realigned, resulting in changes to historical segment performance. The revenue and operating income results shown below have been adjusted to reflect these changes. All dollar amounts are pre-tax and stated in millions. All comparisons are to the fiscal third quarter of 2009 unless otherwise indicated.
ADT Worldwide
ADT's results for the third quarter include Broadview Security, which became part of ADT following the completion of Tyco's acquisition of the business on May 14, 2010. Revenue of $1.8 billion increased 5% in the quarter with organic revenue growth of 3%. Recurring revenue grew 4% organically on a global basis. Systems installation and service revenue was flat as growth in the Asia-Pacific and Latin America regions was offset by continued softness in North America and Europe. The Broadview acquisition contributed $54 million of revenue in the quarter.
Operating income was $222 million in the quarter and the operating margin was 12.2%. Special items of $53 million resulted primarily from restructuring activities and acquisition costs. Operating income before special items of $275 million increased $38 million and included a $12 million benefit related to certain pension plan changes and an $8 million operating loss reflecting the purchase accounting impact of the Broadview transaction. The operating margin before special items improved 150 basis points to 15.1%. The operating margin improvement resulted from growth in ADT's higher-margin recurring revenue business, the benefit of restructuring activities and cost containment actions as well as improved productivity and mix in the systems installation business.
Flow Control
Revenue of $849 million declined 2% in the quarter with an organic revenue decline of 7%. A 16% growth in Thermal Controls and an 11% growth in Water was more than offset by a 17% decline in the Valves business. Orders grew 4% year over year excluding the impact of foreign currency. Backlog of $1.5 billion decreased 3% on a quarter sequential basis, excluding currency.
Operating income was $113 million in the quarter and the operating margin was 13.3%. Special items of $6 million resulted from restructuring activities. Operating income before special items was $119 million and the operating margin was 14.0%. The benefits of cost-containment actions and restructuring activities were more than offset by the impact of volume declines.
As announced separately today, Tyco has reached a definitive agreement to sell its European Waterworks business in a transaction expected to close by the end of the fiscal year. Revenue from the Waterworks business of $82 million in the third quarter of 2010 and $89 million in the third quarter of 2009 along with operating income of $7 million in both periods are now included in discontinued operations.
Fire Protection Services
Revenue of $822 million declined 4% in the quarter with an organic revenue decline of 6%. Growth of 2% in service revenue was more than offset by a 13% decline in installation revenue. Backlog of $1.2 billion increased 5% on a quarter sequential basis, excluding the impact of foreign currency.
Operating income was $80 million in the quarter and the operating margin was 9.7%. Operating income before special items was $85 million and included a $7 million benefit related to certain pension plan changes. The operating margin before special items improved 190 basis points to 10.3% as the benefit of the pension plan changes and cost-containment actions more than offset the decline in revenue.
Safety Products
Revenue of $389 million increased 5% in the quarter. Organic revenue grew 7% due to higher volume in Electronic Security and Life Safety.
Operating income was $63 million in the quarter and the operating margin was 16.2%. Operating income before special items was $65 million and the operating margin before special items improved 3.5 percentage points to 16.7% due to increased volume and the benefit of cost-containment actions and restructuring activities.
Electrical and Metal Products
Revenue of $390 million increased 22% in the quarter with organic revenue growth of 15%. The revenue increase was driven by better pricing for both steel and copper products.
Operating income was $40 million in the quarter. Operating income before special items of $41 million increased $47 million, primarily due to better steel spreads. The operating margin before special items was 10.5%.
OTHER ITEMS
- Corporate expense was $143 million in the quarter and included special items of $1 million. Corporate expense also included a charge of $52 million for certain legal reserves.
- The effective tax rate for the quarter before special items was 5.8%.
- Restructuring and acquisition-related charges totaled $65 million in the quarter, including $37 million related to the Broadview acquisition.
- During the third quarter and through July 28, 2010, the company has repurchased 15.8 million shares for $575 million under the $1 billion share repurchase program. The program has a remaining authorization of $325 million.
- During the quarter, the company issued $500 million of 5-year bonds at 3.375%. Additionally, the company redeemed approximately $875 million of debt resulting in an $87 million loss on extinguishment of debt, which is included in special items.