Johnson Controls 2004 Sales Up 17%, EPS Up 18%
MILWAUKEE, Oct. 26, 2004 -- Johnson Controls, Inc. (JCI) today reported record sales and earnings for the fourth quarter and full year of 2004. The results qualify 2004 as the company's 58th consecutive year of sales increases and the 14th straight year of increased earnings.
John M. Barth, Chairman and Chief Executive Officer, said, "We are pleased to have achieved strong growth in 2004. During the year we accelerated the rate of change in our businesses in response to challenging market conditions and to better align our resources with our future growth opportunities. We appreciate the support of our customers, suppliers and employees, as we work to continue to create value for all Johnson Controls constituencies, including our shareholders."
Full-Year Results
Sales totaled $26.6 billion, 17% higher than the $22.6 billion for the year ended September 30, 2003. The growth in revenues reflects a 20% increase in Automotive Group sales of seating, interiors and batteries, and a 9% increase in sales by the Controls Group. Operating income increased 12%, reaching $1.3 billion compared with the prior year's $1.2 billion. Net income for fiscal 2004 was $818 million, up 20% from $683 million. The net income increase was aided by higher equity income and a lower effective tax rate. Diluted earnings per share for 2004 were 18% higher, reaching $4.24 compared with $3.60 for the prior year.
Included in 2004 selling, general and administrative expenses (SG&A), and recorded during the second quarter, 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 recorded in SG&A in the second quarter were $82.4 million of restructuring costs involving workforce reductions and plant consolidations.
The company's financial position remained strong. The ratio of total debt to total capitalization of 33.9% increased slightly from 31.6% at June 30, 2004 due to the acquisition of the remaining interest in its Latin American automotive battery joint venture during the 2004 fourth quarter. The ratio of 33.9% was a decline from 35.6% at September 30, 2003.
Fourth-Quarter Results
Sales for the three months ended September 30, 2004 increased 13% to $6.8 billion from $6.0 billion for the same period of 2003. Operating income was $414 million, up 15% from last year's $360 million. Net income rose 24% to $273 million, up from $220 million for the fourth quarter of 2003. The increase was aided by a lower effective tax rate and lower "miscellaneous-net" expenses. Diluted earnings per share increased 22% to $1.41 for 2004 from $1.16.
The tax provision in the quarter benefited from a lower base effective tax rate and a $10 million favorable resolution of worldwide tax audits, which together contributed $.09 to diluted earnings per share.
Johnson Controls Automotive Group sales increased 15% for the fourth quarter primarily reflecting the launch of new business and stronger shipments of seating, other interior systems and batteries. Industry vehicle production in North America is estimated to have been slightly below prior year amounts while European production is estimated to have been slightly higher. Operating income for the Group increased 19% over the fourth quarter of 2003. The increase reflects the higher volumes and benefits from operational improvements at the company's European operations.
Controls Group sales increased 5% for the fourth quarter, led by stronger facility management activity and technical services revenues. Operating income was 4% above 2003 reflecting the growth in sales. The backlog of uncompleted contracts at the end of 2004 was 5% higher than one year ago. The company said that orders for controls systems installation contracts were below the prior year as lower domestic spending by the federal and state governments more than offset increased bookings in the education and health care sectors.
2005 Guidance
Johnson Controls confirmed its October 8, 2004, guidance, which forecast record fiscal 2005 results, among other expectations.
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, INC.
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
Three Months Year Ended
Ended September 30, September 30,
(unaudited)
2004 2003 2004 2003
Net sales
Products and systems* $5,798.5 $5,140.3 $22,849.7 $19,318.7
Services* 958.4 859.4 3,703.7 3,327.3
6,756.9 5,999.7 26,553.4 22,646.0
Cost of sales
Products and systems 5,054.6 4,407.7 19,921.5 16,632.1
Services 798.4 719.1 3,109.0 2,793.7
5,853.0 5,126.8 23,030.5 19,425.8
Gross profit 903.9 872.9 3,522.9 3,220.2
Selling, general and
administrative expenses 490.2 512.8 2,221.8 2,058.6
Operating income 413.7 360.1 1,301.1 1,161.6
Interest income 5.0 2.9 14.0 10.2
Interest expense (32.9) (28.6) (110.8) (113.7)
Equity income 18.5 17.4 71.0 54.9
Miscellaneous - net (11.6) (26.3) (63.2) (55.5)
Other income (expense) (21.0) (34.6) (89.0) (104.1)
Income before income taxes and
minority interests 392.7 325.5 1,212.1 1,057.5
Provision for income taxes 95.1 100.9 315.7 327.8
Minority interests in net
earnings of subsidiaries 24.6 4.3 78.9 46.8
Net income $273.0 $220.3 $817.5 $682.9
Earnings available for common
shareholders $273.0 $218.6 $815.7 $675.7
Earnings per share
Basic $1.43 $1.22 $4.35 $3.78
Diluted $1.41 $1.16 $4.24 $3.60
* Products and systems consist of Automotive Group products and systems
and Controls Group installed systems.
Services are Controls Group technical and facility management services.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions, except par value and share data)
(unaudited)
September 30, June 30,
2004 2003 2004
ASSETS
Cash and cash equivalents $169.5 $136.1 $120.8
Accounts receivable - net 4,173.2 3,539.1 3,814.7
Costs and earnings in excess of
billings on uncompleted contracts 328.6 323.0 330.9
Inventories 924.6 825.9 878.7
Other current assets 780.9 796.2 767.3
Current assets 6,376.8 5,620.3 5,912.4
Property, plant and equipment - net 3,529.4 2,963.4 3,208.1
Goodwill - net 3,753.5 3,162.7 3,321.0
Other intangible assets - net 347.0 316.9 315.6
Investments in partially-owned
affiliates 314.9 408.1 429.5
Other noncurrent assets 769.2 655.9 785.8
Total assets $15,090.8 $13,127.3 $13,972.4
LIABILITIES AND EQUITY
Short-term debt $813.3 $150.5 $415.5
Current portion of long-term debt 226.8 427.8 21.9
Accounts payable 3,767.3 3,329.3 3,562.6
Accrued compensation and benefits 644.8 546.3 610.6
Accrued income taxes 96.3 58.7 63.2
Billings in excess of costs and
earnings on uncompleted contracts 197.2 186.2 195.3
Other current liabilities 855.9 885.3 905.5
Current liabilities 6,601.6 5,584.1 5,774.6
Long-term debt 1,630.6 1,776.6 1,834.7
Postretirement health and other
benefits 164.1 167.8 165.3
Minority interests in equity of
subsidiaries 268.7 221.8 251.8
Other noncurrent liabilities 1,208.4 1,115.7 1,028.4
Long-term liabilities 3,271.8 3,281.9 3,280.2
Preferred stock, $1.00 par value
shares authorized: 2,000,000
shares issued and outstanding:
2004 - 0; 2003 - 189.647 - 97.1 -
Common stock, $.04 1/6 par value
shares authorized: 600,000,000
shares issued: 2004 - 191,176,609;
2003 - 181,262,254 8.0 15.1 7.9
Capital in excess of par value 953.0 748.0 949.0
Retained earnings 4,187.9 3,541.1 3,957.7
Treasury stock, at cost (2004 -
855,668 shares; 2003 - 951,586
shares) (14.5) (9.5) (14.5)
Employee stock ownership plan -
unearned compensation - (23.6) -
Accumulated other comprehensive
income (loss) 83.0 (106.9) 17.5
Shareholders' equity 5,217.4 4,261.3 4,917.6
Total liabilities and shareholders'
equity $15,090.8 $13,127.3 $13,972.4
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions; unaudited)
Three Months
Ended Year Ended
September 30, September 30,
2004 2003 2004 2003
Operating Activities
Net income $273.0 $220.3 $817.5 $682.9
Adjustments to reconcile net income
to cash provided by operating
activities
Depreciation 159.4 139.3 594.4 537.8
Amortization of intangibles 5.9 5.3 22.2 20.2
Equity in earnings of partially-
owned affiliates, net of dividends
received (17.2) (2.0) (8.3) (15.9)
Minority interests in net earnings
of subsidiaries 24.6 4.3 78.9 46.8
Deferred income taxes 58.0 103.9 100.4 122.7
Gain on sale of long-term
investment - - - (16.6)
Pension contributions in excess of
expense - 6.4 - (231.7)
Japanese pension settlement gain - - (84.4) -
Other (22.7) 9.5 (23.2) (0.5)
481.0 487.0 1,497.5 1,145.7
Changes in working capital,
excluding acquisition of
businesses
Receivables (205.8) (158.5) (422.4) (31.2)
Inventories 17.3 46.5 (8.5) (7.6)
Other current assets (8.3) (11.0) 24.1 (78.8)
Accounts payable and accrued
liabilities 215.0 132.0 337.7 (72.5)
Accrued income taxes 4.1 (63.7) 62.6 (128.1)
Billings in excess of costs and
earnings on uncompleted contracts (7.5) (12.9) (3.0) (12.3)
Cash provided by operating
activities 495.8 419.4 1,488.0 815.2
Investing Activities
Capital expenditures (239.7) (252.9) (862.2) (664.4)
Sale of property, plant and equipment 28.5 45.1 50.9 52.2
Acquisition of businesses, net of
cash acquired (383.0) (116.6) (419.6) (384.7)
Recoverable customer engineering
expenditures (12.4) (7.2) (55.0) (46.0)
Proceeds from sale of long-term
investment - - - 38.2
Changes in long-term investments (4.0) (27.1) (24.2) (8.4)
Cash used by investing activities (610.6) (358.7) (1,310.1) (1,013.1)
Financing Activities
Increase (decrease) in short-term
debt - net 394.9 (489.4) 659.9 53.0
Increase in long-term debt 9.9 505.9 213.7 510.9
Repayment of long-term debt (191.9) (179.8) (869.9) (376.9)
Payment of cash dividends (42.8) (34.2) (170.7) (136.3)
Other (6.6) 19.2 22.5 21.3
Cash provided (used) by financing
activities 163.5 (178.3) (144.5) 72.0
Increase (decrease) in cash and cash
equivalents $48.7 $(117.6) $33.4 $(125.9)
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 and $0.6 million for
the three months ended September 30, 2004 and 2003, respectively, and
$0.1 and $2.1 million for the year ended September 30, 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 September 30, 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 Year Ended
Ended September 30, Ended September 30,
(in millions) (unaudited)
2004 2003 2004 2003
Weighted Average Shares
(post-split)
Basic 190.3 180.0 187.7 178.7
Diluted 193.0 190.4 192.6 189.1
Outstanding at period end 190.3 180.3
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 September 30, 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 Ended Year Ended
September 30, September 30,
2004 2003 % 2004 2003 %
Automotive Group $5,126.0 $4,452.6 15% $20,475.6 $17,070.0 20%
Controls Group 1,630.9 1,547.1 5% 6,077.8 5,576.0 9%
Total $6,756.9 $5,999.7 $26,553.4 $22,646.0
Operating Income
Automotive Group (1) $317.7 $267.9 19% $1,014.8 $879.0 15%
Controls Group (2) 96.0 92.2 4% 284.3 282.6 1%
Total segment
operating income $413.7 $360.1 $1,299.1 $1,161.6
Restructuring costs - - (82.4) -
Pension gain - - 84.4 -
Consolidated
operating income $413.7 $360.1 $1,301.1 $1,161.6
(1) Automotive Group operating income for the year ended September 30,
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 year ended September 30, 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. Japanese Pension Settlement 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.
7. Bond Redemption
In the third quarter of fiscal 2004, the Company redeemed in full
$125 million of outstanding principal of its 8.2% bonds due in 2024 plus
accrued interest which resulted in a pre-tax charge of approximately
$6.0 million included within Miscellaneous - net in the Consolidated
Statement of Income.
8. Latin American Battery Acquisition
In the fourth quarter of fiscal 2004, the Company acquired 100% ownership
of its battery joint venture with Grupo IMSA, S.A. de C.V. The purchase
price for the remaining 51% interest in the joint venture was
approximately $525 million, including the assumption of debt. The
acquisition was funded with short-term debt. Management believes the
acquisition is in line with the Company's growth strategies and provides
new opportunities to strengthen the Company's global leadership position
in the automotive industry.