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Non-Tech : Tyco International Limited (TYC)
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From: rich evans12/21/2004 5:18:24 PM
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Tyco issued its 2004 10k. The interesting parts to me were the charges for restructuring, TGN losses, divestures etc. If you add those items back to segment operating income and then add back the extra corporate costs of TGN losses,divesture losses and moving costs which all total about 74 mill in Q4 costs on the corporate side, you get for Q4 alone about 1630 mill in operating income , much more then the 1288 reported. This equals about a 15.7% operating margin which is what I think we can expect for 2005. This should give us $2.00 share for 2005.

Taxes also interesting. Tyco accrued 1140 mill in taxes but only paid 550 mill in cash . They have nice operating loss carryforwards helping them out. Plus they hinted that their valuation reserves for future NOL is very conservative so I think we can look forward to more low cash taxes paid - a hidden benefit in my opinion.

Overall for 2004 adding back the total 755mill in restructures/divesture costs the operating margin was about 14.4%. So Q4 shows the improvement Breen is talking about for the year in margins. 2005 should continue improving and if tyco meets its goals for 2006, it could reach 18% operating margin in 2006 if the economy holds up.

I expect this stock to hold up therefore in price and gradually increase into the 40s in 2005 and higher in 2006.

Rich
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