Tyco reports Q1 $719million income
Feb 04, 2004
Income from continuing operations increased 27% to $719 Million - cash flow from operating activities of $1.0 Billion; free cash flow of $736 MillionTyco International Ltd. (NYSE: TYC; BSX: TYC) yesterday reported diluted GAAP earnings per share (EPS) of $0.34 for the first quarter of 2004, an increase of 21 percent compared with EPS from continuing operations of $0.28 in the first quarter of 2003. The company reported revenue of $9.7 billion for the quarter, up 9 percent compared with $8.9 billion a year ago, with foreign currency contributing 7 percentage points of the increase. Income from continuing operations increased 27 percent to $719 million from $566 million in the same period last year. Cash flow from operating activities totaled $1.0 billion in the first quarter of 2004. Free cash flow was $736 million in the quarter, up $600 million from the same period last year. Free cash flow is a non-GAAP financial measure and is described below. For a reconciliation of cash flow from operating activities to free cash flow, see the attached table."We had a good first quarter, driven primarily by strong revenue and operating income in our Electronics and Healthcare segments and improved operating profit in our Fire & Security segment," said Tyco Chairman and Chief Executive Officer Ed Breen. "We also had significantly improved free cash flow versus a year ago, demonstrating the quality of the progress we've made over the past year. We're off to a solid start in 2004, and we have a great deal of work and opportunity ahead of us as we continue to improve operating margins and transform Tyco into a world-class operating company." HIGHLIGHTS FROM THE QUARTER* Led by a 6 percent increase at Healthcare and a 3 percent increase at Electronics, the company's organic revenue growth was 2 percent. Organic revenue is a non-GAAP financial measure and is described below. For a reconciliation, see the attached table. * The operating margin at Fire & Security improved by six-tenths of a percentage point due mostly to productivity improvements in Worldwide Security and Safety Products.* Electronics backlog increased more than $300 million, or 16 percent sequentially, and the quarterly book-to-bill ratio increased to 1.06.* Debt was reduced by $2.1 billion to $18.9 billion, and the company had cash on hand of $2.8 billion. The debt-to-capitalization ratio was 40.4 percent at the end of the first quarter of 2004, compared with 44.3 percent last quarter. * The company replaced $3.5 billion of credit facilities with $2.5 billion of new credit facilities with significantly improved terms and conditions. RESTRUCTURING PROGRAM UPDATETyco announced a $390 million restructuring program in the fourth quarter of 2003 to consolidate facilities and improve operating margins. Continued progress was made in the execution of this plan, with the closure of 47 facilities and a staffing reduction of about 1,200 employees. In the quarter, the total charge related to this program was $51 million and the company realized $13 million of savings.SEGMENT RESULTS The financial results presented in the tables below are in accordance with GAAP. All dollar amounts are pre-tax and stated in millions. All comparisons are to the quarter ended Dec. 31, 2002, unless otherwise indicated. During the quarter, the company transferred the Precision Interconnect business ($152 million of annual revenue and $22 million of operating income in 2003) from the Healthcare to the Electronics segment. The results for the Tyco Global Network (TGN) have been moved from the Electronics segment to Corporate. Results for the previous periods shown in the tables below have been adjusted to reflect these moves.Fire & Security Revenue increased $203 million, with foreign currency contributing $195 million of the increase. Higher demand in the commercial security market was partially offset by continuing weakness in non-residential construction. The improvement in operating income and the operating margin was due to productivity savings at Worldwide Security and Safety Products, which more than offset the weakness in the Worldwide Fire business. Performance improved in Continental Europe Security, where the business essentially broke even for the quarter.Electronics Revenue increased $275 million, with foreign currency contributing $188 million. In the connector and cable assembly businesses, revenue increased 15 percent, with foreign currency contributing nine percentage points of this increase. Revenue growth in the connector and cable assembly businesses was partially offset by weakness in battery packs and power systems. Operating income and the operating margin benefited from higher volume, improved TyCom performance (excluding TGN), restructuring and other credits of $20 million and continued cost reduction actions. Results were adversely impacted by pricing pressure and higher copper and gold costs. Healthcare Revenue increased $211 million with foreign currency contributing $95 million. The growth was primarily due to stronger performance in International, Pharmaceuticals and Respiratory. With stronger performance in Asian and European markets, International revenue grew 25 percent, including 16 percentage points from foreign currency. Operating income increased 21 percent and the operating margin expanded by 2.2 percentage points, due to increased volumes, favorable product mix and continued cost improvements, partially offset by a $10 million increase in R&D spending. Engineered Products & Services Revenue increased $72 million, with a $97 million benefit from foreign currency. Revenue was adversely impacted by continued weakness in Flow Control, which was partially offset by growth in the other businesses. Flow Control backlog increased 9 percent sequentially in the quarter, with strong gains in the Asia/Pacific region.Operating income and the operating margin declined due to continued pricing pressure in Flow Control and lower margins in Electrical & Metal Products. Plastics & Adhesives Revenue increased $9 million, with foreign currency contributing $7 million of the increase. Growth in films was offset by weakness in the garment hanger business. Operating income and the operating margin declined principally due to $30 million of charges related to the restructuring program announced last quarter. OTHER ITEMS* The effective tax rate was 27.0 percent versus 28.1 percent in the same period a year ago.* Net interest expense was $239 million, down 9 percent from $263 million in the same period a year ago.OUTLOOKThe company's EPS outlook for fiscal year 2004 remains unchanged, with an EPS range of $1.42 to $1.52. This EPS outlook excludes any impact from the restructuring and divestiture programs announced last quarter. The company's full-year cash flow guidance also remains unchanged, with the company expecting to exceed 2003 cash flow from operating activities and free cash flow, which were $5.4 billion and $3.2 billion, respectively. "The economy appears to be improving consistent with our expectations for the year," added Breen. "However, stronger performance in the industrial and non-residential construction markets remains an important factor in achieving the high end of the EPS range." The company expects to achieve EPS of $0.35 to $0.37 in the second quarter of 2004, excluding any impact from the restructuring and divestiture programs.