Johnson Controls Second-Quarter EPS up 17% to $.82; Earnings Guidance Confirmed for Record Year
MILWAUKEE, April 15 -- Johnson Controls, Inc. , the leading supplier of automotive systems and facility management and control, today reported strong growth for its second quarter of fiscal 2004 with diluted earnings per share increasing 17% to $.82 from $.70 for the prior year. Boosted by double-digit sales increases by each of its business groups, consolidated revenues totaled $6.6 billion, 20% higher than for the 2003 period.
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Chairman and Chief Executive Officer John M. Barth said, "Delivering superior value and quality continues to result in growth for Johnson Controls. While the economy remains challenging for us as well as for many of our customers, we are able to identify strategies and solutions that differentiate our products and services while lowering costs. We are proud of Johnson Controls employees and their dedication to exceeding our customers' expectations."
Consolidated Second-Quarter Results
Sales for the second quarter of 2004 increased 20% to $6.6 billion from $5.5 billion last year, reflecting a 23% increase in automotive revenues and an 11% rise in controls sales. Of the $1.1 billion consolidated increase, new or expanded business accounted for $700 million, or 13%, with the balance due to the benefit of foreign currency translation. Net income was $157.7 million for the 2004 quarter, a 19% increase over $132.2 million for 2003. The 2004 net income amount benefited from higher operating income, improved foreign currency results and a lower effective income tax rate. Diluted earnings per share totaled $.82 versus $.70 for the second quarter of 2003. The per share amounts reflect a two-for-one stock split effective January 2, 2004.
Included in 2004 selling, general and administrative expenses (SG&A) was an $84.4 million non-cash gain on the transfer of certain pension obligations and related plan assets, associated with Automotive Group employees in Japan, to the Japanese government. Also included in SG&A were $82.4 million of restructuring costs involving workforce reductions and plant consolidations.
For the quarter, Automotive Group sales increased 23% over the same period of 2003 primarily reflecting new business attributable to the supply of interior systems for additional vehicles worldwide, as well as higher battery sales. Operating income, excluding the gain on the transfer of the Japanese pension obligations and the automotive related restructuring costs, was 19% higher than for the second quarter of 2003 reflecting the higher sales and operating improvements.
Controls Group sales were 11% higher in the second quarter of 2004 because of increased activity in installed systems, technical services and facilities management for the existing nonresidential buildings market. Operating income excluding restructuring costs, declined 16%, primarily due to investments made to increase technical service staffing levels. The backlog of uncompleted control system installation and service contracts increased 8% over the amount at March 31, 2003, reflecting growth in both systems and technical service orders.
Total debt to total capitalization decreased to 35.1% from 36.9% at December 31, 2003. Capital spending during the second quarter increased to $231 million from $134 million for the prior year, primarily in support of future new vehicle interior programs.
Full-Year Outlook
Johnson Controls confirmed its fiscal 2004 guidance for consolidated sales growth of 13-15% and the achievement of double-digit increases in operating income and net income.
Automotive Group guidance includes: sales growth of 13-18%; North American light vehicle production of approximately 15.9 million units and European production of 19.8 million units; and, a flat to slightly lower operating margin percentage. Controls Group guidance includes sales growth of 10-12% (up from the high end of 5-10%) and a slightly lower operating margin percentage.
Supplemental Financial Estimates
(dollars in millions)
FY2003 FY2004
Actual Estimate
Interest expense, net of
interest income $104 $105-110
Effective income tax rate 31.0% (a)
Minority interests in net earnings
of subsidiaries $47 $75-80
Capital expenditures $664 $750
Depreciation $538 $600-620
Total debt to total capitalization 35.6% Below 30%
(a) A rate of 21.6% for the first quarter, due to a one-time $17 million
benefit related to a favorable tax settlement, and 29% for each of the
second, third and fourth quarters.
Johnson Controls analyst conference call can be accessed on April 15 at www.johnsoncontrols.com . The audio begins at 11 am (Eastern) while the slides are accessible at 7 am (Eastern.)
Johnson Controls is a global market leader in automotive systems and facility management and control. In the automotive market, it is a major supplier of integrated seating and interior systems, and batteries. For nonresidential facilities, Johnson Controls provides control systems and services including comfort, energy and security management. Johnson Controls , founded in 1885, has headquarters in Milwaukee, Wisconsin.
Johnson Controls has made forward-looking statements in this document pertaining to its financial results for fiscal 2004 that are based on preliminary data and are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future risks and may include words such as "believes," "expects," "anticipates" or similar expressions. For those statements, the company cautions that numerous important factors, such as automotive vehicle production levels and schedules, the strength of the U.S. or other economies, currency exchange rates, cancellation of commercial contracts, as well as those factors discussed in the company's Form 8-K (dated January 7, 2004) could affect the company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the company.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data; unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
2004 2003 2004 2003
Net sales
Products and systems* $5,658.6 $4,647.9 $11,178.6 $9,063.8
Services* 961.5 855.2 1,825.6 1,622.6
6,620.1 5,503.1 13,004.2 10,686.4
Cost of sales
Products and systems 4,953.5 4,016.0 9,755.6 7,806.3
Services 816.8 724.9 1,537.5 1,368.5
5,770.3 4,740.9 11,293.1 9,174.8
Gross profit 849.8 762.2 1,711.1 1,511.6
Selling, general and
administrative expenses 588.9 524.9 1,188.4 1,026.4
Operating income 260.9 237.3 522.7 485.2
Interest income 3.9 2.2 5.8 4.2
Interest expense (26.4) (29.5) (53.6) (58.6)
Equity income 16.3 14.6 34.1 22.9
Miscellaneous - net (5.4) (15.1) (30.0) (17.5)
Other income (expense) (11.6) (27.8) (43.7) (49.0)
Income before income taxes and
minority interests 249.3 209.5 479.0 436.2
Provision for income taxes 72.2 64.8 121.9 135.2
Minority interests in net
earnings of subsidiaries 19.4 12.5 34.9 28.4
Net income $157.7 $132.2 $322.2 $272.6
Earnings available for common
shareholders $157.7 $130.3 $320.4 $268.9
Earnings per share (post-split)**
Basic $0.83 $0.73 $1.73 $1.51
Diluted $0.82 $0.70 $1.67 $1.44
* Products and systems consist of Automotive Group products and systems
and Controls Group installed systems. Services are Controls Group
technical and facility management services.
** Prior year per share amounts have been restated to reflect a
two-for-one stock split (see Note 2).
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions, unaudited)
March September March
31, 30, 31,
2004 2003 2003
ASSETS
Cash and cash equivalents $226.4 $136.1 $278.1
Accounts receivable - net 3,780.2 3,539.1 3,193.7
Costs and earnings in excess of
billings on uncompleted contracts 349.6 323.0 279.6
Inventories 846.4 825.9 804.7
Other current assets 799.8 796.2 688.1
Current assets 6,002.4 5,620.3 5,244.2
Property, plant and equipment - net 3,204.7 2,963.4 2,633.7
Goodwill - net 3,354.5 3,162.7 3,042.2
Other intangible assets - net 321.8 316.9 287.3
Investments in partially-owned
affiliates 451.0 408.1 395.0
Other noncurrent assets 783.9 655.9 427.5
Total assets $14,118.3 $13,127.3 $12,029.9
LIABILITIES AND EQUITY
Short-term debt $657.9 $150.5 $513.1
Current portion of long-term debt 32.2 427.8 327.7
Accounts payable 3,580.0 3,329.3 2,935.3
Accrued compensation and benefits 558.8 546.3 450.1
Accrued income taxes 69.9 58.7 99.4
Billings in excess of costs and
earnings on uncompleted contracts 205.2 186.2 207.3
Other current liabilities 882.1 885.3 997.0
Current liabilities 5,986.1 5,584.1 5,529.9
Long-term debt 1,888.9 1,776.6 1,525.8
Postretirement health and other
benefits 166.6 167.8 165.9
Minority interests in equity of
subsidiaries 245.7 221.8 215.2
Other noncurrent liabilities 1,061.7 1,115.7 787.0
Shareholders' equity 4,769.3 4,261.3 3,806.1
Total liabilities and
shareholders' equity $14,118.3 $13,127.3 $12,029.9
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions; unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
2004 2003 2004 2003
Operating Activities
Net income $157.7 $132.2 $322.2 $272.6
Adjustments to reconcile net income
to cash provided by operating
activities
Depreciation 147.3 130.9 290.2 259.9
Amortization of intangibles 5.3 5.1 11.0 9.6
Equity in earnings of partially-
owned affiliates, net of dividends
received (16.0) (11.6) (20.4) (19.8)
Minority interests in net earnings
of subsidiaries 19.4 12.5 34.9 28.4
Deferred income taxes 41.1 2.1 48.3 5.7
Gain on sale of long-term
investment - - - (16.6)
Pension gain (84.4) - (84.4) -
Other (10.7) (26.0) (7.0) (2.7)
259.7 245.2 594.8 537.1
Changes in working capital,
excluding acquisition of business
Receivables (302.4) (73.7) (111.3) 176.1
Inventories 0.8 (8.4) 13.8 (18.5)
Other current assets (25.4) (25.5) 5.0 (50.1)
Accounts payable and accrued
liabilities 432.6 170.7 53.9 (302.4)
Accrued income taxes (10.1) (58.5) 33.7 (87.0)
Billings in excess of costs and
earnings on uncompleted contracts (1.4) 8.9 12.2 12.7
94.1 13.5 7.3 (269.2)
Cash provided by operating
activities 353.8 258.7 602.1 267.9
Investing Activities
Capital expenditures (231.0) (134.1) (434.6) (240.7)
Sale of property, plant and equipment 8.6 0.9 15.8 6.9
Acquisition of business, net of cash
acquired - (11.8) (36.6) (230.7)
Recoverable customer engineering
expenditures (46.1) (17.2) (95.2) (24.9)
Proceeds from sale of long-term
investment - - - 38.2
Changes in long-term investments 4.0 1.2 (0.7) (0.7)
Cash used by investing activities (264.5) (161.0) (551.3) (451.9)
Financing Activities
(Decrease) increase in short-term
debt - net (61.3) (98.0) 506.0 411.6
Increase in long-term debt 59.1 0.1 109.0 0.1
Repayment of long-term obligations (106.7) (15.2) (530.6) (138.0)
Payment of cash dividends (79.9) (62.8) (85.3) (68.0)
Other 23.3 4.7 40.4 (5.6)
Cash (used) provided by financing
activities (165.5) (171.2) 39.5 200.1
(Decrease) increase in cash and cash
equivalents $(76.2) $(73.5) $90.3 $16.1
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
FOOTNOTES
1. Earnings Per Share
Basic earnings per share (EPS) are computed by dividing net income, after deducting dividend requirements on the Series D Convertible Preferred Stock, by the weighted average number of common shares outstanding. Diluted earnings are computed by deducting from net income the after-tax compensation expense which would arise from the assumed conversion of the Series D Convertible Preferred Stock, which was $0.5 million for the three months ended March 31, 2003, and $0.1 million and $1.0 million for the six months ended March 31, 2004 and 2003, respectively. Effective December 31, 2003, the Company converted all the outstanding Series D Convertible Preferred Stock (see Note 3) and accordingly there was no after-tax compensation expense for the three months ended March 31, 2004. Diluted weighted average shares assume the conversion of the Series D Convertible Preferred Stock, if dilutive, plus the dilutive effect of common stock equivalents which would arise from the exercise of stock options. All prior year share and per share amounts disclosed in this document have been restated to reflect a two-for-one stock split discussed in Note 2.
Three Months Six Months
(in millions) Ended March 31, Ended March 31,
2004 2003 2004 2003
Weighted Average Shares
(post-split)
Basic 189.5 178.2 185.2 178.0
Diluted 192.8 188.7 192.3 188.6
Outstanding at period end 190.0 178.3
2. Stock Split
On November 19, 2003, the Company's Board of Directors declared a two-for- one stock split of the common stock payable January 2, 2004. All prior year share and per share amounts disclosed in this document have been restated to reflect the two-for-one stock split. The stock split resulted in the issuance of approximately 90.5 million additional shares of common stock. In connection with the stock split, the par value of the common stock was changed from $.16 2/3 per share to $.04 1/6 per share.
3. Conversion of Preferred Stock
Effective December 31, 2003, the Company's Board of Directors authorized the redemption of all the outstanding Series D Convertible Preferred Stock, held in the Company's Employee Stock Ownership Plan (ESOP), and the trustee converted the preferred stock into common shares in accordance with the terms of the preferred stock certificate. The conversion resulted in the issuance of approximately 7.5 million common shares (on a post-split basis) and was accounted for through the exchange of preferred stock into common stock and capital in excess of par value. The conversion of the preferred shares held by the ESOP has been reflected within Shareholders' Equity in the Consolidated Statement of Financial Position as of March 31, 2004. The conversion of these shares will result in their inclusion in the weighted average common stock outstanding used to compute basic EPS. The conversion of preferred shares has always been assumed in the determination of diluted EPS. The Company's ESOP was financed with debt issued by the ESOP, and the final ESOP debt payment was paid by the Company in December 2003.
4. Segment Information
Management's evaluation of the performance of the Company's segments excludes the restructuring costs (see Note 5) and the pension gain (see Note 6) recorded in the second quarter of fiscal year 2004.
(in millions) Three Months Six Months
Ended March 31, Ended March 31,
2004 2003 % 2004 2003 %
Sales
Automotive
Group $5,100.3 $4,131.4 23% $10,077.6 $8,072.8 25%
Controls Group 1,519.8 1,371.7 11% 2,926.6 2,613.6 12%
Total $6,620.1 $5,503.1 $13,004.2 $10,686.4
Operating Income
Automotive
Group (1) $203.5 $171.3 19% $410.7 $367.4 12%
Controls Group (2) 55.4 66.0 -16% 110.0 117.8 -7%
Total segment
operating
income 258.9 237.3 520.7 485.2
Restructuring
costs (82.4) - (82.4) -
Pension gain 84.4 - 84.4 -
Consolidated
operating
income $260.9 $237.3 $522.7 $485.2
(1) Automotive Group operating income for the three and six months ended
March 31, 2004 excludes $69.1 million of restructuring costs and a
pension gain of $84.4 million, both of which are included within
Selling, general and administrative expenses in the Consolidated
Statement of Income.
(2) Controls Group operating income for the three and six months ended
March 31, 2004 excludes $13.3 million of restructuring costs included
within Selling, general and administrative expenses in the
Consolidated Statement of Income.
5. Restructuring Costs
In the second quarter of fiscal 2004, the Company executed a restructuring plan involving cost structure improvement actions and incurred $82.4 million of restructuring costs included within Selling, general and administrative expenses in the Consolidated Statement of Income. These costs primarily relate to workforce reductions and plant consolidations. The majority of the actions are concentrated on Automotive Group operations in Europe as the Company focuses on significantly improving profitability in the region in future years. A modest portion of the actions involve Controls Group activities. No further costs related to these actions are anticipated.
6. Pension Gain
During the second quarter of fiscal 2004, the Company recorded a pension gain related to certain of the Company's Japanese pension plans established under the Japanese Welfare Pension Insurance Law. In accordance with recent amendments to this law, the Company completed the transfer of certain pension obligations and related plan assets to the Japanese government which resulted in a non-cash settlement gain of $84.4 million.
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