Johnson Controls Reports Record Sales, Earnings for Fourth Quarter 2005
MILWAUKEE, Oct. 24, 2005 -- Johnson Controls, Inc. (JCI) today reported that its fourth quarter 2005 earnings from continuing operations rose 15% on a sales increase of 7%.
John M. Barth, Chairman and Chief Executive Officer, said, "We are pleased to report record quarterly and full-year results, continuing our track record for growth. In 2005 we broadened our capabilities, expanded our addressable markets and strengthened the foundation for improved profitability. Our company enters 2006 as the global leader in each of our businesses and with a strong financial position. We appreciate the efforts of our employees and their commitment to increase the value we deliver to our customers and our shareholders."
Johnson Controls sales for the 2005 fourth quarter totaled $6.9 billion, up 7% from $6.4 billion last year. Operating income was $436 million, up 14% from $384 million last year. Income from continuing operations totaled $293 million, up 15% from $255 million in the 2004 period. Diluted earnings per share from continuing operations for the 2005 fourth quarter were $1.50 versus $1.31 in the prior year.
During the fourth quarter, the company recorded an $8.7 million adjustment, net of tax, reducing the gain on sale of discontinued operations in the second quarter of 2005. Including this one-time reduction, diluted earnings per share were $1.45, up from $1.41.
Interior experience sales were $4.5 billion, up 4% from the $4.4 billion in the prior year. The increase was associated with the launch of new business which was partially offset by the deconsolidation of a North American joint venture during the third quarter of 2005. Excluding the deconsolidation, sales for the fourth quarter would have increased 9%. Industry light vehicle production in North America is estimated to have been approximately 3% higher than the prior year amount while European production is estimated to have been 2-3% lower. Operating income declined 13%, to $206 million versus $238 million for the 2004 fourth quarter, primarily due to higher commodity costs which more than offset the benefit of operational improvements.
Power solutions sales increased 37% to $864 million from $632 million last year as a result of organic growth in North America and Europe, the impact of the Delphi battery acquisition and the consolidation of a Latin American joint venture in late 2004. Operating income rose 79% to $114 million from $64 million, reflecting the higher volume, favorable product mix, improved quality and operational efficiencies.
Building efficiency sales increased 5% to $1.5 billion for the fourth quarter from $1.4 billion in 2004, primarily due to higher North American systems and services activity for both new construction and existing buildings. Operating income was $115 million, 40% above the 2004 amount of $83 million, reflecting growth of higher-margin service business and the timing of benefits associated with efficiency and cost improvement initiatives in the North American branch office network. The backlog of uncompleted contracts at the end of 2005 was 5% higher than one year ago.
Financial Position
Capital expenditures for the 2005 fiscal year decreased to $675 million, in line with earlier guidance. At September 30, 2005, the company's total debt to total capitalization declined to 28% from 34% at the prior year-end, despite funding acquisitions and the company's voluntary $180 million contribution to its U.S. pension plans in July.
Fiscal 2006 Guidance
On October 11, 2005, Johnson Controls issued guidance on its expected performance for 2006. Fiscal 2006 sales are anticipated to increase approximately 15%, to $32 billion. Earnings per share from continuing operations are estimated to increase 13 to 17%, to a range of $5.00 to $5.15. For the first quarter of 2006, Johnson Controls said it anticipates sales of $6.8 billion and earnings per share from continuing operations of $0.82 to $0.85.
The company said it expects that its previously announced acquisition of York International will be completed in December 2005.
Johnson Controls is a global leader in interior experience, building efficiency and power solutions. The company provides innovative automotive interiors that help make driving more comfortable, safe and enjoyable. For buildings, it offers products and services that optimize energy use and improve comfort and security. Johnson Controls also provides batteries for automobiles and hybrid electric vehicles, along with systems engineering and service expertise. Johnson Controls , founded in 1885, is headquartered in Milwaukee, Wisconsin. For additional information, please visit http://www.johnsoncontrols.com/ .
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data; unaudited)
(GAAP) (NON-GAAP)
Three Months Three Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
Net sales
Products and systems* $ 6,112.3 $ 5,680.4 $ 6,112.3 $ 5,680.4
Services* 787.8 758.6 787.8 758.6
6,900.1 6,439.0 6,900.1 6,439.0
Cost of sales
Products and systems 5,332.0 4,958.9 5,332.0 4,958.9
Services 619.3 617.0 619.3 617.0
5,951.3 5,575.9 5,951.3 5,575.9
Gross profit 948.8 863.1 948.8 863.1
Selling, general and
administrative expenses 512.7 479.2 512.7 479.2
Restructuring costs - - - -
Japanese pension gain - - - -
Operating income 436.1 383.9 436.1 383.9
Interest income 1.3 5.0 1.3 5.0
Interest expense (32.2) (32.9) (32.2) (32.9)
Equity income 12.6 18.5 12.6 18.5
Miscellaneous -- net (2.7) (11.3) (2.7) (11.3)
Other income (expense) (21.0) (20.7) (21.0) (20.7)
Income from continuing
operations before income
taxes and minority interests 415.1 363.2 415.1 363.2
Income tax provision 110.2 84.2 110.2 103.0
Minority interests in net
earnings of subsidiaries 12.4 24.5 12.4 24.5
Income from continuing
operations 292.5 254.5 292.5 235.7
Income from discontinued
operations, net of income
taxes - 18.5 - 18.5
Gain on sale of discontinued
operations, net of income
taxes (8.7) - - -
Net income $ 283.8 $ 273.0 $ 292.5 $ 254.2
Earnings available
for common
shareholders $ 283.8 $ 273.0 $ 292.5 $ 254.2
Earnings per share from
continuing operations
Basic $ 1.52 $ 1.34 $ 1.52 $ 1.24
Diluted $ 1.50 $ 1.31 $ 1.50 $ 1.22
Earnings per share
Basic $ 1.47 $ 1.43 $ 1.52 $ 1.34
Diluted $ 1.45 $ 1.41 $ 1.50 $ 1.32
* Products and systems consist of interior experience and power
solutions products and systems and building efficiency installed
systems. Services are building efficiency technical and facility
management services.
The accompanying notes are an integral part of the financial statements.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data; unaudited)
(GAAP) (NON-GAAP)
Year Ended Year Ended
September 30, September 30,
2005 2004 2005 2004
Net sales
Products and systems* $24,741.1 $22,413.8 $24,741.1 $22,413.8
Services* 3,142.1 2,949.6 3,142.1 2,949.6
27,883.2 25,363.4 27,883.2 25,363.4
Cost of sales
Products and systems 21,818.2 19,559.3 21,818.2 19,559.3
Services 2,533.8 2,414.0 2,533.8 2,414.0
24,352.0 21,973.3 24,352.0 21,973.3
Gross profit 3,531.2 3,390.1 3,531.2 3,390.1
Selling, general and
administrative expenses 2,218.8 2,173.0 2,218.8 2,173.0
Restructuring costs 210.0 82.4 - -
Japanese pension gain - (84.4) - -
Operating income 1,102.4 1,219.1 1,312.4 1,217.1
Interest income 13.7 14.0 13.7 14.0
Interest expense (121.1) (110.8) (121.1) (110.8)
Equity income 60.4 71.0 60.4 71.0
Miscellaneous -- net (26.7) (63.4) (26.7) (63.4)
Other income (expense) (73.7) (89.2) (73.7) (89.2)
Income from continuing
operations before income
taxes and minority
interests 1,028.7 1,129.9 1,238.7 1,127.9
Income tax provision 218.6 285.1 325.9 320.7
Minority interests in net
earnings of subsidiaries 52.9 78.0 56.3 78.0
Income from continuing
operations 757.2 766.8 856.5 729.2
Income from discontinued
operations, net of income
taxes 16.1 50.7 16.1 50.7
Gain on sale of
discontinued operations,
net of income taxes 136.1 - - -
Net income $ 909.4 $ 817.5 $ 872.6 $ 779.9
Earnings available for
common shareholders $ 909.4 $ 815.7 $ 872.6 $ 778.1
Earnings per share from
continuing operations
Basic $ 3.95 $ 4.08 $ 4.47 $ 3.87
Diluted $ 3.90 $ 3.98 $ 4.41 $ 3.79
Earnings per share
Basic $ 4.74 $ 4.35 $ 4.55 $ 4.15
Diluted $ 4.68 $ 4.24 $ 4.49 $ 4.05
* Products and systems consist of interior experience and power solution
products and systems and building efficiency installed systems.
Services are building efficiency technical and facility management
services.
The accompanying notes are an integral part of the financial statements.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions; unaudited)
September 30, September 30,
2005 2004
ASSETS
Cash and cash equivalents $ 170.9 $ 169.5
Accounts receivable -- net 4,672.2 3,992.1
Costs and earnings in excess of
billings on
uncompleted contracts 314.5 271.8
Inventories 983.1 885.8
Assets of discontinued operations - 579.8
Other current assets 997.6 774.5
Current assets 7,138.3 6,673.5
Property, plant and equipment -- net 3,581.6 3,463.5
Goodwill -- net 3,732.6 3,578.7
Other intangible assets - net 284.2 291.0
Investments in partially-owned
affiliates 445.4 314.9
Other noncurrent assets 957.4 769.2
Total assets $16,139.5 $15,090.8
LIABILITIES AND EQUITY
Short-term debt $ 684.0 $ 813.3
Current portion of long-term debt 80.9 226.8
Accounts payable 3,937.5 3,608.4
Accrued compensation and benefits 704.4 606.2
Accrued income taxes 44.3 47.1
Billings in excess of costs and
earnings on uncompleted contracts 225.7 197.2
Liabilities of discontinued
operations - 228.5
Other current liabilities 1,164.6 875.6
Current liabilities 6,841.4 6,603.1
Long-term debt 1,577.5 1,630.6
Postretirement health and other
benefits 158.7 164.1
Minority interests in equity of
subsidiaries 195.6 267.2
Other noncurrent liabilities 1,305.3 1,219.5
Shareholders' equity 6,061.0 5,206.3
Total liabilities and equity $16,139.5 $15,090.8
The accompanying notes are an integral part of the financial statements.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions; unaudited)
Three Months Year Ended
Ended September 30, September 30,
2005 2004 2005 2004
Operating Activities
Net Income $ 283.8 $ 273.0 $ 909.4 $ 817.5
Gain and earnings from
discontinued operations 8.7 (18.5) (152.2) (50.7)
Income from continuing operations 292.5 254.5 757.2 766.8
Adjustments to reconcile income from
continuing operations to cash
provided by operating activities
Depreciation 160.5 151.4 625.3 572.5
Amortization of intangibles 6.1 5.1 23.1 19.0
Equity in earnings of
partially-owned affiliates,
net of dividends received (3.5) (17.2) (43.2) (8.3)
Minority interests in net
earnings of subsidiaries 12.4 24.5 52.9 78.0
Deferred income taxes (4.1) 32.0 (11.2) 100.4
Japanese pension settlement gain - - - (84.4)
Non cash restructuring costs 1.7 - 47.5 6.6
Pension contributions in excess
of expense (143.3) - (143.3) -
Other 5.4 (21.0) 27.1 (21.5)
Changes in working capital,
excluding acquisition and
divestitures of businesses
Receivables (401.4) (191.7) (755.8) (384.3)
Inventories (0.2) 17.4 (62.3) (8.8)
Other current assets (11.9) (6.0) (91.1) 28.0
Restructuring reserves (32.8) (16.2) 101.9 35.0
Accounts payable and accrued
liabilities 215.9 234.9 352.4 274.9
Accrued income taxes 99.7 (18.9) 81.3 13.7
Billings in excess of costs and
earnings on uncompleted
contracts 0.6 (7.5) 27.7 (3.0)
Cash provided by operating
activities 197.6 441.3 989.5 1,384.6
Investing Activities
Capital expenditures (278.6) (234.6) (674.9) (829.1)
Sale of property, plant
and equipment 28.5 28.5 39.2 50.9
Acquisition of businesses, net of
cash acquired (196.9) (383.0) (302.7) (419.6)
Business divestitures (10.3) - 676.9 -
Recoverable customer engineering
expenditures (8.9) (11.3) (9.8) (55.0)
Changes in long-term investments (4.6) (4.1) (120.4) (25.8)
Cash used by investing
activities (470.8) (604.5) (391.7) (1,278.6)
Financing Activities
Increase (decrease) in short-term
debt -- net 353.1 394.9 (117.7) 659.9
Increase in long-term debt 66.7 9.9 82.8 213.7
Repayment of long-term debt (266.4) (191.9) (373.7) (869.9)
Payment of cash dividends (48.9) (42.8) (192.7) (170.7)
Other -- net 20.1 (6.6) 70.6 22.5
Cash provided (used) by
financing activities 124.6 163.5 (530.7) (144.5)
Cash (used) provided by
discontinued operations (12.0) 48.4 (65.7) 71.9
(Decrease) increase in cash
and cash equivalents $(160.6) $ 48.7 $ 1.4 $ 33.4
Certain prior period amounts have been reclassified to conform to the current period's presentation.
The accompanying notes are an integral part of the financial statements.
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 twelve months ended September 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 twelve months ended September 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 Year Ended
Ended September 30, September 30,
(in millions) (unaudited) (unaudited)
2005 2004 2005 2004
Weighted Average Shares
Basic 192.6 190.3 191.8 187.7
Diluted 195.0 193.0 194.3 192.6
Outstanding at
period end 192.9 190.3
2. Business Highlights
Three Months Year Ended
Ended September 30, September 30,
(in millions) (unaudited) (unaudited)
2005 2004 % 2005 2004 %
Sales
Building efficiency $1,501.3 $1,431.0 5% $ 5,717.7 $ 5,323.7 7%
Interior experience
-- North America 2,100.8 2,199.5 -4% 8,902.4 8,997.8 -1%
Interior experience
-- Europe 2,076.4 1,874.5 11% 8,935.5 7,677.6 16%
Interior experience
-- Asia 358.1 302.4 18% 1,399.1 1,092.6 28%
Power solutions 863.5 631.6 37% 2,928.5 2,271.7 29%
Total $6,900.1 $6,439.0 $27,883.2 $25,363.4
Operating Income
Building efficiency $ 115.4 $ 82.5 40% $ 295.1 $ 242.1 22%
Interior experience
-- North America 107.6 152.2 -29% 384.0 585.6 -34%
Interior experience
-- Europe 87.4 66.8 31% 253.3 114.2 122%
Interior experience
-- Asia 11.3 18.5 -39% 30.2 37.8 -20%
Power solutions 114.4 63.9 79% 349.8 237.4 47%
Total $ 436.1 $ 383.9 $ 1,312.4 $ 1,217.1
Restructuring costs - - (210.0) (82.4)
Japanese pension
gain - - - 84.4
Consolidated
Operating Income $ 436.1 $ 383.9 $ 1,102.4 $ 1,219.1
Building efficiency - Provides facility systems and services including comfort, energy and security management for the non-residential buildings market.
Interior experience - Designs and manufactures interior systems and products for passenger cars and light trucks, including vans, pick-up trucks and sport/crossover utility vehicles.
Power solutions - Designs and manufactures batteries for the replacement and original equipment markets.
3. Discontinued Operations
In February 2005, the Company completed the sale of its engine electronics business, included in interior experience -- - Europe segment, to Valeo for approximately euro 316 million, or about $419 million. This non-core business was acquired in fiscal 2002 from Sagem SA. As part of the post-closing activities, the Company settled a claim with Valeo for approximately $8 million ($5 million after tax), resulting in an adjustment to the purchase price. The sale of the engine electronics business resulted in a gain of approximately $81 million ($51 million after tax), net of related costs.
In March 2005, the Company completed the sale of its Johnson Controls World Services, Inc. subsidiary (World Services), included in the building efficiency segment, to IAP Worldwide Services, Inc. for approximately $260 million. This non-strategic business was acquired in fiscal 1989 from Pan Am Corporation. As part of the post-closing activities, the Company has provided approximately $4 million ($3 million after tax) for certain contingencies related to the sale. The sale of World Services resulted in a gain of approximately $139 million ($85 million after tax), net of related costs.
Both the engine electronics business and World Services 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 interior experience operations in Europe as the Company focuses on further improving 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:
Year Ended September 30,
(in millions) (unaudited)
2005 2004 % Inc
Non-GAAP operating income $ 1,312 $ 1,217 8%
Japanese pension gain - 84
Restructuring costs (210) (82)
GAAP operating income $ 1,102 $ 1,219
Three Months Ended
Year Ended September 30, September 30,
(in millions) (unaudited) (unaudited)
2005 2004 % Inc 2005 2004
Non-GAAP income from
continuing operations $ 857 $ 729 17% $ 293 $ 236
Japanese pension gain - 60 - -
Restructuring costs (180) (58) - -
One-time tax credits 80 36 - 19
GAAP income from
continuing operations $ 757 $ 767 $ 293 $ 255
Three Months Ended
Year Ended September 30, September 30,
(in millions) (unaudited) (unaudited)
2005 2004 2005 2004
Non-GAAP diluted EPS from
continuing operations $ 4.41 * $ 3.79 $ 1.50 $ 1.22
Japanese pension gain - 0.31 - -
Restructuring costs (0.92) (0.30) - -
One-time tax credits 0.40 0.18 - 0.09
GAAP diluted EPS from
continuing operations $ 3.90 * $ 3.98 $ 1.50 $ 1.31
Earnings Per
Share Guidance
Full Year Earnings Per (unaudited)
Share Guidance First First
(unaudited) Quarter Quarter
2006 2005 % Inc 2006 2005
(estimate) (estimate)
Non-GAAP EPS
from continuing
operations $5.00 to $5.15 $4.41* 13-17% $0.82 to $0.85 $0.75
Restructuring
costs - (0.92) - -
One-time
tax credits - 0.40 - 0.06
GAAP EPS
from continuing
operations $5.00 to $5.15 $3.90* $0.82 to $0.85 $0.81
* Due to the use of weighted-average shares outstanding for the fiscal
year in computing earnings per share, the sum of the quarterly
components may not equal the per share amounts listed for the fiscal
year.