Johnson Controls Reports Record Third-Quarter Results Provides Fourth-Quarter and Full-Year EPS Guidance
MILWAUKEE, July 21 -- Johnson Controls, Inc. (JCI) the leading supplier of automotive systems and facility management and control, today reported record results for the third quarter of fiscal 2005 with earnings of $1.31 per diluted share (EPS) from continuing operations, up 21% over $1.08 for the prior year.
"We are pleased with our record performance for the third quarter," said John M. Barth, Johnson Controls Chairman and Chief Executive Officer. "Our disciplined approach to innovation, cost reduction and continuous improvement has enabled us to stay ahead of changes in the market environment and to support our customers. We also continued to make progress on our growth strategies, which were advanced by recent controls and battery-related acquisitions that expanded the scope of our product and service offerings and geographic capabilities."
Mr. Barth added "We expect to complete fiscal 2005 with a strong performance that is in line with our expectations. Our controls and battery businesses are in excellent shape and enable us to overcome challenges in the current automotive market. We extend our thanks to all Johnson Controls employees around the world for their dedication and outstanding performance."
For the fourth quarter and full year of 2005, Johnson Controls expects:
-Fourth-quarter consolidated sales of approximately $7 billion, an estimated 8-9% increase over $6.4 billion for 2004; full-year sales of nearly $28 billion, up from $25.4 billion for 2004.
-Fourth-quarter EPS from continuing operations of $1.48 to $1.52, approximately 21% to 25% higher than $1.22 for 2004. For the 2005 full-year, EPS from continuing operations of $4.39 to $4.43, a 16-17% increase from $3.79 for 2004.
A footnote provides non-GAAP reconciliations regarding pension, restructuring and one-time tax benefits.
Third-Quarter Results
Sales for the 2005 third quarter increased 9 percent, to $7.1 billion, from $6.5 billion in the 2004 quarter, reflecting growth by each of its businesses. Operating income for the 2005 quarter was $368 million, up 7% from $343 million. Income from continuing operations increased 22%, to $255 million versus $209 million.
On April 1, 2005, a seating and interiors joint venture was deconsolidated due to a change in operating control. The deconsolidation, which had no impact on after-tax income from continuing operations, reduced third quarter sales and operating income as the company's interest in the joint venture is now reported as equity income.
All 2004 amounts have been restated to reflect the 2005 divestitures of the company's engine electronics and World Services businesses. The results for these businesses are reported separately as discontinued operations in the Consolidated Financial Statements.
The company's financial position continues to strengthen. Total debt to total capitalization was 28.0% at June 30, 2005 versus 28.5% at the end of the second quarter of 2005, even after the completion of the controls-related acquisition of United Systems Integrators (USI) and the incurrence of debt to fund the Delphi battery acquisition, which closed on July 1, 2005.
Capital expenditures in the 2005 third quarter were $104 million, down from $186 million the prior year. For the first nine months of 2005, capital expenditures totaled $396 million, down from the $595 million for the same period of 2004. The anticipated decline in spending from the unusually high 2004 level of capital projects also reflects the company's focus on improving the productivity of its existing assets.
Third-Quarter Business Highlights
While auto industry production in North America and Europe decreased by an estimated 1% in the 2005 quarter, Johnson Controls seating and interiors sales increased 8% to $5.0 billion from $4.6 billion, with new volume more than offsetting the effect of the joint-venture deconsolidation. Operating income declined 9% to $199 million from $219 million as the deconsolidation impact more than offset the favorable effects of higher volume and operational improvements.
Battery sales for the third quarter were $665 million, up 24 percent from $535 million in the 2004 period, due primarily to the increase in ownership and consolidation of a Latin American battery joint venture in the fourth quarter of 2004, and higher original equipment and aftermarket unit shipments. Operating income was $76 million, up 35 percent from $56 million, as a result of the higher sales as well as improved quality and cost reductions.
Controls sales to the nonresidential buildings market rose 6 percent to $1.4 billion from $1.3 billion last year. The increase was primarily due to higher systems renovation activity and technical services revenues. Operating income rose 37 percent to $93 million from $68 million in 2004, as a result of the higher sales and an improved performance by the North American branch network. The USI acquisition, which expands the range of services in the company's facility management offering, had no material impact on the quarter's results.
The backlog of uncompleted control system installation and service contracts at June 30, 2005 increased 7% over the prior year amount. Orders increased in the quarter, reflecting growth in technical service and systems renovation contracts in North America.
Change in Segment Reporting
Johnson Controls will begin reporting its financial results in five segments in its August 9, 2005 10-Q filing with the U.S. Securities and Exchange Commission. On that day, the company will also file amended 2004 10-K and 2005 10-Qs with the revised segment data, as well as an 8-K presenting quarterly data retroactive to the first quarter of 2004.
The restatement has no effect on the Consolidated Statement of Financial Position, Cash Flows, or the liquidity of the company. The restatement relates only to the company's segment information; therefore, the previously reported amounts in the Consolidated Statement of Income, including net sales, operating income, net income and earnings per share, remain unchanged.
The reporting segments of the company will be: Controls, Battery, Seating and Interiors-North America, Seating and Interiors-Europe, and Seating and Interiors-Asia.
Supplemental Fiscal 2005 Full-Year Financial Estimates
(Dollars in millions)
Interest expense,
net of interest income $100-105
Base effective income tax rate 26.5%
Minority interests in net earnings of subsidiaries $50-55
Capital expenditures $625-675
Depreciation $620-630
Total debt to total capitalization Approximately 25%
Euro/U.S. Dollar assumption $1.20
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; unaudited)
(GAAP) (GAAP)
Three Months Nine Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
Net sales
Products and systems* $6,322.6 $5,755.4 $18,628.8 $16,733.4
Services* 739.5 720.2 2,354.3 2,191.0
7,062.1 6,475.6 20,983.1 18,924.4
Cost of sales
Products and systems 5,570.1 5,014.2 16,486.2 14,600.4
Services 591.7 587.5 1,914.5 1,797.0
6,161.8 5,601.7 18,400.7 16,397.4
Gross profit 900.3 873.9 2,582.4 2,527.0
Selling, general and
administrative expenses 532.2 530.8 1,706.1 1,693.8
Restructuring costs - - 210.0 82.4
Japanese pension gain - - - (84.4)
Operating income 368.1 343.1 666.3 835.2
Interest income 4.9 3.3 12.4 9.0
Interest expense (27.3) (24.5) (88.9) (78.4)
Equity income 19.5 18.4 47.8 52.5
Miscellaneous - net (8.5) (20.7) (24.0) (51.7)
Other income (expense) (11.4) (23.5) (52.7) (68.6)
Income from continuing
operations before
income taxes and minority
interests 356.7 319.6 613.6 766.6
Income tax provision 94.6 91.1 108.4 200.9
Minority interests in net
earnings of subsidiaries 7.4 19.3 40.5 53.5
Income from continuing
operations 254.7 209.2 464.7 512.2
Income from discontinued
operations, net
of income taxes - 13.0 16.1 32.2
Gain on sale of discontinued
operations, net
of income taxes - - 144.8 -
Net income $254.7 $222.2 $625.6 $544.4
Earnings available for
common shareholders $254.7 $222.2 $625.6 $542.7
Earnings per share from
continuing operations
Basic $1.33 $1.10 $2.43 $2.73
Diluted $1.31 $1.08 $2.39 $2.66
Earnings per share
Basic $1.33 $1.17 $3.27 $2.90
Diluted $1.31 $1.15 $3.22 $2.83
(NON-GAAP)
Nine Months
Ended June 30,
2005 2004
Net sales
Products and systems* $18,628.8 $16,733.4
Services* 2,354.3 2,191.0
20,983.1 18,924.4
Cost of sales
Products and systems 16,486.2 14,600.4
Services 1,914.5 1,797.0
18,400.7 16,397.4
Gross profit 2,582.4 2,527.0
Selling, general and administrative
expenses 1,706.1 1,693.8
Restructuring costs - -
Japanese pension gain - -
Operating income 876.3 833.2
Interest income 12.4 9.0
Interest expense (88.9) (78.4)
Equity income 47.8 52.5
Miscellaneous - net (24.0) (51.7)
Other income (expense) (52.7) (68.6)
Income from continuing operations
before
income taxes and minority interests 823.6 764.6
Income tax provision 215.7 217.6
Minority interests in net earnings of
subsidiaries 43.9 53.5
Income from continuing operations 564.0 493.5
Income from discontinued operations,
net
of income taxes 16.1 32.2
Gain on sale of discontinued
operations, net
of income taxes - -
Net income $580.1 $525.7
Earnings available for common
shareholders $580.1 $523.9
Earnings per share from continuing
operations
Basic $2.94 $2.63
Diluted $2.91 $2.56
Earnings per share
Basic $3.03 $2.80
Diluted $2.99 $2.73
* Products and systems consist of Seating & Interiors products and
systems, Battery Group products, and Controls Group installed systems.
Services are Controls Group technical and facility management services.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions; unaudited)
June 30, September 30, June 30,
2005 2004 2004
ASSETS
Cash and cash equivalents $385.2 $169.5 $120.8
Accounts receivable - net 4,228.9 3,992.1 3,648.8
Costs and earnings in excess of
billings on uncompleted contracts 300.5 271.8 274.5
Inventories 915.0 885.8 840.5
Assets of discontinued operations - 579.8 561.2
Other current assets 895.2 774.5 763.3
Current assets 6,724.8 6,673.5 6,209.1
Property, plant and equipment - net 3,293.6 3,463.5 3,140.3
Goodwill - net 3,669.9 3,578.7 3,148.3
Other intangible assets - net 274.1 291.0 259.7
Investments in partially-owned
affiliates 419.5 314.9 429.0
Other noncurrent assets 779.4 769.2 786.0
Total assets $15,161.3 $15,090.8 $13,972.4
LIABILITIES AND SHAREHOLDERS'
EQUITY
Short-term debt $392.7 $813.3 $415.5
Current portion of long-term debt 220.9 226.8 21.8
Accounts payable 3,544.3 3,608.4 3,438.2
Accrued compensation and benefits 747.1 606.2 583.1
Accrued income taxes 27.3 47.1 62.9
Billings in excess of costs and
earnings on uncompleted contracts 225.5 197.2 195.3
Liabilities of discontinued
operations - 228.5 184.7
Other current liabilities 1,124.1 875.6 876.3
Current liabilities 6,281.9 6,603.1 5,777.8
Long-term debt 1,632.1 1,630.6 1,834.7
Postretirement health and other
benefits 158.5 164.1 167.4
Minority interests in equity of
subsidiaries 142.9 267.2 248.6
Other noncurrent liabilities 1,168.8 1,219.5 1,026.3
Shareholders' equity 5,777.1 5,206.3 4,917.6
Total liabilities and
shareholders' equity $15,161.3 $15,090.8 $13,972.4
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions; unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
Operating Activities
Net income $254.7 $222.2 $625.6 $544.4
Gain and income from discontinued
operations - (13.0) (160.9) (32.2)
Income from continuing operations 254.7 209.2 464.7 512.2
Adjustments to reconcile income from
continuing operations to cash
provided by operating activities
Depreciation 144.4 139.9 464.8 421.1
Amortization of intangibles 5.4 4.5 17.0 13.9
Equity in earnings of
partially-owned affiliates,
net of dividends received (13.7) 29.3 (39.7) 8.9
Minority interests in net
earnings of subsidiaries 7.4 19.3 40.5 53.5
Deferred income taxes 88.5 15.7 (7.1) 68.4
Japanese pension settlement gain - - - (84.4)
Non cash restructuring costs - - 45.8 6.6
Other 18.5 10.8 21.8 (0.5)
Changes in working capital,
excluding acquisitions & divestitures
of businesses
Receivables (120.2) (66.9) (354.4) (192.6)
Inventories (61.7) (39.3) (62.1) (26.2)
Other current assets (13.5) 30.1 (79.2) 34.0
Restructuring reserves (29.5) (14.5) 134.7 51.2
Accounts payable and accrued
liabilities 22.4 114.8 136.5 40.0
Accrued income taxes 46.8 (1.1) (18.4) 32.6
Billings in excess of costs and
earnings on uncompleted contracts (4.4) (7.7) 27.1 4.5
Cash provided by operating
activities 345.1 444.1 792.0 943.2
Investing Activities
Capital expenditures (104.3) (186.2) (396.3) (594.5)
Sale of property, plant and
equipment 2.8 3.9 10.7 22.4
Acquisition of businesses,
net of cash acquired (72.7) - (105.8) (36.6)
Recoverable customer engineering
expenditures 5.0 - (0.9) (43.7)
Proceeds from sale of discontinued
operations - - 687.2 -
Changes in long-term investments (137.9) (19.7) (115.8) (21.7)
Cash (used) provided by investing
activities (307.1) (202.0) 79.1 (674.1)
Financing Activities
Increase (decrease) in short-term
debt - net 20.6 (241.0) (413.6) 265.0
Increase in long-term debt 2.6 86.8 16.1 203.8
Repayment of long-term debt (9.0) (147.4) (107.3) (678.0)
Payment of cash dividends (48.1) (42.6) (143.8) (127.9)
Other 30.9 (0.9) 50.4 29.2
Cash used by financing activities (3.0) (345.1) (598.2) (307.9)
Cash (used) provided by discontinued
operations - (2.6) (57.2) 23.5
Increase (decrease) in cash and
cash equivalents $35.0 $(105.6) $215.7 $(15.3)
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 $0.1 million for the nine months ended June 30, 2005 and 2004, respectively. Effective December 31, 2003, the Company converted all the outstanding Series D Convertible Preferred Stock and accordingly there was no after-tax compensation expense for the three or nine months ended June 30, 2005. 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.
Three Months Nine Months
Ended June 30, Ended June 30,
(in millions) (unaudited) (unaudited)
2005 2004 2005 2004
Weighted Average
Shares
Basic 192.2 190.2 191.5 186.9
Diluted 194.5 192.9 194.1 192.5
Outstanding at period
end 192.3 190.3
2. Business Highlights
Three Months Nine Months
Ended June 30, Ended June 30,
(in millions) (unaudited) (unaudited)
2005 2004 % 2005 2004 %
Sales
Controls Group $1,406.6 $1,320.8 6% $4,216.4 $3,892.6 8%
Seating & Interiors 4,990.3 4,620.2 8% 14,701.7 13,391.6 10%
Battery Group 665.2 534.6 24% 2,065.0 1,640.2 26%
Total $7,062.1 $6,475.6 $20,983.1 $18,924.4
Operating Income
Controls Group $93.0 $67.8 37% $179.7 $159.6 13%
Seating & Interiors 199.4 219.1 -9% 461.2 501.6 -8%
Battery Group 75.7 56.2 35% 235.4 172.0 37%
Total $368.1 $343.1 $876.3 $833.2
Restructuring costs - - (210.0) (82.4)
Japanese pension
gain - - - 84.4
Consolidated
Operating Income $368.1 $343.1 $666.3 $835.2
Controls Group - Provides facility systems and services including comfort, energy and security management for the non-residential buildings market.
Seating & Interiors - Designs and manufactures interior systems and products for passenger cars and light trucks, including vans, pick-up trucks and sport/crossover utility vehicles.
Battery Group - Designs and manufactures batteries for the replacement and original equipment markets.
3. Discontinued Operations
On March 1, 2005, the Company announced it completed the sale of its engine electronics business to Valeo for approximately 323 million euro, or approximately $427 million, subject to adjustments. The engine electronics business generated revenues of approximately $436 million in fiscal 2004. This non-core business was a part of the Sagem SA automotive electronics business that was acquired in fiscal 2002.
On March 30, 2005, the Company announced it completed the sale of its Johnson Controls World Services Inc. subsidiary to IAP Worldwide Services Inc. for approximately $260 million, subject to adjustments. The Johnson Controls World Services Inc. subsidiary generated revenues of approximately $754 million in fiscal 2004.
Both the engine electronics business and the Johnson Controls World Services Inc. subsidiary are reported as discontinued operations in the Consolidated Financial Statements in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
4. Restructuring Costs
In the second quarter of 2005, the Company recorded a restructuring charge of $210 million involving cost structure reduction actions, primarily relating to severance costs and facility consolidations. The majority of the actions are concentrated on the Seating & Interiors operations in Europe as the Company focuses on further improving the profitability in the region.
5. Non GAAP Reconciliations
The following tables reconcile the Company's Non-GAAP amounts included in the press release to the most directly comparable GAAP amounts:
Nine Months
Ended June 30,
(in millions) (unaudited)
2005 2004
Non-GAAP operating income $876 $833
Japanese pension gain - 84
Restructuring costs (210) (82)
GAAP operating income $666 $835
Nine Months
Ended June 30,
(in millions) (unaudited)
2005 2004
Non-GAAP income from
continuing operations $564 $493
Japanese pension gain - 60
Restructuring costs (180) (58)
One-time tax credits 81 17
GAAP income from
continuing operations $465 $512
Nine Months
Ended June 30,
(in millions) (unaudited)
2005 2004
Non-GAAP diluted EPS from
continuing operations $2.91 $2.56
Japanese pension gain - 0.31
Restructuring costs (0.92) (0.30)
One-time tax credits 0.40 0.09
GAAP diluted EPS from
continuing operations $2.39 $2.66
Fourth Quarter Earnings Per Share
(in millions) (unaudited)
2005 2004
(estimate) (actual) %
Non-GAAP EPS from continuing operations $1.48 to $1.52 $1.22 21-25%
One-time tax credits - 0.09
GAAP EPS from continuing operations $1.48 to $1.52 $1.31
Full Year Earnings Per Share Guidance
(in millions) (unaudited)
2005 2004
(estimate) (actual) %
Non-GAAP EPS from continuing operations $4.39 to $4.43 $3.79 16-17%
Japanese pension gain - 0.31
Restructuring costs (0.92) (0.30)
One-time tax credits 0.40 0.18
GAAP EPS from continuing operations $3.87 to $3.91 $3.98*
* Due to the use of weighted -average shares outstanding for each quarter
for computing earnings per share, the sum of the quarterly per share
amounts may not equal the per share amount for the year.