UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended April 1, 2005
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
001-13836
(Commission File Number)
TYCO INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter)
| Bermuda | 98-0390500 | |
| (Jurisdiction of Incorporation) | (I.R.S. Employer Identification Number) |
Second Floor, 90 Pitts Bay Road, Pembroke, HM 08, Bermuda
(Address of Registrant's principal executive offices)
441-292-8674
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o
The number of common shares outstanding as of April 29, 2005 was 2,019,541,848.
TYCO INTERNATIONAL LTD.
INDEX TO FORM 10-Q
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Page |
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|---|---|---|---|
| Part I Financial Information: | |||
| Item 1. Financial Statements | |||
| Consolidated Statements of Income (Unaudited) for the quarter and six months ended April 1, 2005 and March 31, 2004 | 1 | ||
| Consolidated Balance Sheets (Unaudited) as of April 1, 2005 and September 30, 2004 | 2 | ||
| Consolidated Statements of Cash Flows (Unaudited) for the six months ended April 1, 2005 and March 31, 2004 | 3 | ||
| Consolidated Statements of Shareholders' Equity (Unaudited) for the six months ended April 1, 2005 and March 31, 2004 | 4 | ||
| Notes to Consolidated Financial Statements (Unaudited) | 5 | ||
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 32 | ||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 60 | ||
| Item 4. Controls and Procedures | 60 | ||
Part II Other Information: |
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| Item 1. Legal Proceedings | 62 | ||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 67 | ||
| Item 4. Submission of Matters to a Vote of Security Holders | 68 | ||
| Item 6. Exhibits | 69 | ||
| Signatures | 70 | ||
TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in millions, except per share data)
| |
Quarter Ended |
Six Months Ended |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
April 1, 2005 |
March 31, 2004 |
April 1, 2005 |
March 31, 2004 |
|||||||||||
| Revenue from product sales | $ | 8,528 | $ | 7,797 | $ | 16,646 | $ | 15,454 | |||||||
| Service revenue | 1,928 | 2,024 | 3,875 | 4,032 | |||||||||||
| Net revenue | 10,456 | 9,821 | 20,521 | 19,486 | |||||||||||
| Cost of product sales | 5,735 | 5,138 | 11,155 | 10,188 | |||||||||||
| Cost of services | 1,173 | 1,274 | 2,394 | 2,552 | |||||||||||
| Selling, general and administrative expenses | 1,999 | 2,014 | 4,004 | 4,084 | |||||||||||
| Goodwill impairment | 162 | — | 162 | — | |||||||||||
| Restructuring and long-lived asset impairment charges, net | 44 | 52 | 52 | 80 | |||||||||||
| Losses and impairments on divestitures, net | 2 | 85 | 17 | 85 | |||||||||||
| Operating income | 1,341 | 1,258 | 2,737 | 2,497 | |||||||||||
| Interest income | 31 | 14 | 68 | 40 | |||||||||||
| Interest expense | (209 | ) | (226 | ) | (427 | ) | (491 | ) | |||||||
| Other (expense) income, net | (575 | ) | 6 | (736 | ) | (2 | ) | ||||||||
| Income from continuing operations before income taxes and minority interest | 588 | 1,052 | 1,642 | 2,044 | |||||||||||
| Income taxes | (366 | ) | (259 | ) | (676 | ) | (527 | ) | |||||||
| Minority interest | (1 | ) | (5 | ) | (4 | ) | (8 | ) | |||||||
| Income from continuing operations | 221 | 788 | 962 | 1,509 | |||||||||||
| Discontinued operations: | |||||||||||||||
| Loss from discontinued operations, net of income taxes | (2 | ) | (5 | ) | (5 | ) | (7 | ) | |||||||
| Loss on sale of discontinued operations, net of income taxes | (27 | ) | — | (56 | ) | — | |||||||||
| Net income | $ | 192 | $ | 783 | $ | 901 | $ | 1,502 | |||||||
| Basic earnings per share: | |||||||||||||||
| Income from continuing operations | $ | 0.11 | $ | 0.39 | $ | 0.48 | $ | 0.76 | |||||||
| Loss from discontinued operations | — | — | — | (0.01 | ) | ||||||||||
| Loss on sale of discontinued operations | (0.01 | ) | — | (0.03 | ) | — | |||||||||
| Net income | $ | 0.10 | $ | 0.39 | $ | 0.45 | $ | 0.75 | |||||||
Diluted earnings per share: |
|||||||||||||||
| Income from continuing operations | $ | 0.11 | $ | 0.37 | $ | 0.46 | $ | 0.71 | |||||||
| Loss from discontinued operations | — | — | — | (0.01 | ) | ||||||||||
| Loss on sale of discontinued operations | (0.02 | ) | — | (0.03 | ) | — | |||||||||
| Net income | $ | 0.09 | $ | 0.37 | $ | 0.43 | $ | 0.70 | |||||||
Weighted-average number of shares outstanding: |
|||||||||||||||
| Basic | 2,010 | 1,999 | 2,009 | 1,998 | |||||||||||
| Diluted | 2,030 | 2,218 | 2,194 | 2,222 | |||||||||||
See Notes to Consolidated Financial Statements.
1
TYCO INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data)
| |
April 1, 2005 |
September 30, 2004 |
||||||
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 2,940 | $ | 4,467 | ||||
| Accounts receivable, less allowance for doubtful accounts of $487 and $524, respectively | 7,176 | 6,463 | ||||||
| Inventories | 4,747 | 4,365 | ||||||
| Prepaid expenses and other current assets | 2,606 | 2,635 | ||||||
| Assets held for sale | 182 | 615 | ||||||
| Total current assets | 17,651 | 18,545 | ||||||
| Property, plant and equipment, net | 9,649 | 9,635 | ||||||
| Goodwill | 25,488 | 25,510 | ||||||
| Intangible assets, net | 5,200 | 5,335 | ||||||
| Other assets | 4,784 | 4,642 | ||||||
| Total Assets | $ | 62,772 | $ | 63,667 | ||||
| Liabilities and Shareholders' Equity | ||||||||
| Current Liabilities: | ||||||||
| Loans payable and current maturities of long-term debt | $ | 1,913 | $ | 2,116 | ||||
| Accounts payable | 2,929 | 2,698 | ||||||
| Accrued and other current liabilities | 5,606 | 5,815 | ||||||
| Liabilities held for sale | 297 | 523 | ||||||
| Total current liabilities | 10,745 | 11,152 | ||||||
| Long-term debt | 12,497 | 14,617 | ||||||
| Other liabilities | 7,842 | 7,538 | ||||||
| Total Liabilities | 31,084 | 33,307 | ||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Minority interest | 59 | 68 | ||||||
| Shareholders' Equity: | ||||||||
| Common shares, $0.20 par value, 4,000,000,000 shares authorized; 2,018,575,945 and 2,009,867,009 shares outstanding, net of 6,972,281 and 12,864,837 shares owned by subsidiaries, respectively | 404 | 402 | ||||||
| Capital in excess: | ||||||||
| Share premium | 8,433 | 8,315 | ||||||
| Contributed surplus, net | 15,393 | 15,319 | ||||||
| Accumulated earnings | 6,265 | 5,740 | ||||||
| Accumulated other comprehensive income | 1,134 | 516 | ||||||
| Total Shareholders' Equity | 31,629 | 30,292 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 62,772 | $ | 63,667 | ||||
See Notes to Consolidated Financial Statements.
2
TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
| |
Six Months Ended |
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|---|---|---|---|---|---|---|---|---|---|---|
| |
April 1, 2005 |
March 31, 2004 |
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| Cash Flows From Operating Activities: | ||||||||||
| Net income | $ | 901 | $ | 1,502 | ||||||
| Loss from discontinued operations | 61 | 7 | ||||||||
| Income from continuing operations | 962 | 1,509 | ||||||||
| Adjustments to reconcile net cash provided by operating activities: | ||||||||||
| Non-cash restructuring and long-lived asset impairment charges, net | 38 | 14 | ||||||||
| Non-cash losses and impairments on divestitures, net | 13 | 85 | ||||||||
| Goodwill impairment | 162 | — | ||||||||
| Depreciation and amortization | 1,078 | 1,094 | ||||||||
| Deferred income taxes | 139 | 177 | ||||||||
| Provision for losses on accounts receivable and inventory | 131 | 172 | ||||||||
| Loss on the retirement of debt | 729 | 5 | ||||||||
| Other non-cash items | 58 | 37 | ||||||||
| Changes in assets and liabilities, net of the effects of acquisitions and divestitures: | ||||||||||
| Accounts receivable, net | (563 | ) | (73 | ) | ||||||
| Inventories | (373 | ) | (141 | ) | ||||||
| Accounts payable | 160 | (19 | ) | |||||||
| Accrued and other liabilities | (35 | ) | (18 | ) | ||||||
| Other | 19 | (5 | ) | |||||||
| Net cash provided by operating activities | 2,518 | 2,837 | ||||||||
| Cash Flows From Investing Activities: | ||||||||||
| Capital expenditures, net | (612 | ) | (437 | ) | ||||||
| Acquisition of customer accounts (ADT dealer program) | (135 | ) | (131 | ) | ||||||
| Acquisition of businesses, net of cash acquired | (10 | ) | (14 | ) | ||||||
| Purchase accounting and holdback/earn-out liabilities | (24 | ) | (72 | ) | ||||||
| Divestiture of businesses, net of cash retained by businesses sold | 182 | 99 | ||||||||
| Increase in investments | (116 | ) | (17 | ) | ||||||
| Decrease in restricted cash | 3 | 191 | ||||||||
| Other | (4 | ) | 6 | |||||||
| Net cash used in investing activities | (716 | ) | (375 | ) | ||||||
| Cash Flows From Financing Activities: | ||||||||||
| Net repayment of short-term debt | (1,261 | ) | (2,629 | ) | ||||||
| Proceeds from issuance of long-term debt | — | 2,224 | ||||||||
| Repayment of long-term debt, including debt tenders | (1,896 | ) | (3,125 | ) | ||||||
| Proceeds from exercise of share options | 118 | 59 | ||||||||
| Dividends paid | (225 | ) | (50 | ) | ||||||
| Other | (17 | ) | (21 | ) | ||||||
| Net cash used in financing activities | (3,281 | ) | (3,542 | ) | ||||||
| Effect of currency translation on cash | 48 | 31 | ||||||||
| Cash flows from discontinued operations | (96 | ) | (37 | ) | ||||||
| Net decrease in cash and cash equivalents | (1,527 | ) | (1,086 | ) | ||||||
| Cash and cash equivalents at beginning of period | 4,467 | 4,186 | ||||||||
| Cash and cash equivalents at end of period | $ | 2,940 | $ | 3,100 | ||||||
See Notes to Consolidated Financial Statements.
3
TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Six Months Ended April 1, 2005 and March 31, 2004
(in millions)
| |
Number of Common Shares |
Common Shares $0.20 Par Value |
Share Premium |
Contributed Surplus |
Accumulated Earnings |
Accumulated Other Comprehensive (Loss) Income |
Total |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at September 30, 2003 | 1,998 | $ | 400 | $ | 8,161 | $ | 15,120 | $ | 2,961 | $ | (273 | ) | $ | 26,369 | ||||||||
| Comprehensive income: | ||||||||||||||||||||||
| Net income | 1,502 | 1,502 | ||||||||||||||||||||
| Currency translation | 682 | 682 | ||||||||||||||||||||
| Unrealized gain on marketable securities | 1 | 1 | ||||||||||||||||||||
| Total comprehensive income | $ | 2,185 | ||||||||||||||||||||
| Dividends declared | (50 | ) | (50 | ) | ||||||||||||||||||
| Share options exercised, including tax benefit of $143 | 3 | 1 | 59 | 143 | 203 | |||||||||||||||||
| Compensation expense | 3 | 9 | 9 | |||||||||||||||||||
| Exchange of convertible debt due 2010 | 5 | 5 | ||||||||||||||||||||
| Balance at March 31, 2004 | 2,004 | $ | 401 | $ | 8,220 | $ | 15,277 | $ | 4,413 | $ | 410 | $ | 28,721 | |||||||||
Number of Common Shares |
Common Shares $0.20 Par Value |
Share Premium |
Contributed Surplus |
Accumulated Earnings |
Accumulated Other Comprehensive Income |
Total |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at September 30, 2004 | 2,010 | $ | 402 | $ | 8,315 | $ | 15,319 | $ | 5,740 | $ | 516 | $ | 30,292 | |||||||||
| Comprehensive income: | ||||||||||||||||||||||
| Net income | 901 | 901 | ||||||||||||||||||||
| Currency translation | 639 | 639 | ||||||||||||||||||||
| Minimum pension liability | (21 | ) | (21 | ) | ||||||||||||||||||
| Total comprehensive income | $ | 1,519 | ||||||||||||||||||||
Dividends declared |
(402 |
) |
(402 |
) |
||||||||||||||||||
| Share options exercised, including tax benefit of $29 | 6 | 1 | 117 | 29 | 147 | |||||||||||||||||
| Compensation expense | 2 | 1 | 36 | 37 | ||||||||||||||||||
| Exchange of convertible debt due 2010 | 1 | 9 | 9 | |||||||||||||||||||
| Reporting calendar alignment | 26 | 26 | ||||||||||||||||||||
| Other | 1 | 1 | ||||||||||||||||||||
| Balance at April 1, 2005 | 2,019 | $ | 404 | $ | 8,433 | $ | 15,393 | $ | 6,265 | $ | 1,134 | $ | 31,629 | |||||||||
See Notes to Consolidated Financial Statements.
4
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation—The unaudited Consolidated Financial Statements include the consolidated accounts of Tyco International Ltd., a company organized under the laws of Bermuda, and its subsidiaries (T