Johnson Controls reports solid fiscal Q2 earnings with stronger orders and free cash flow
Johnson Controls reports solid fiscal Q2 earnings with stronger orders and free cash flow
- GAAP earnings of $0.47 per share including special items
- Adjusted EPS from continuing operations of $0.53, up 6% versus prior year
- Sales of $7.5 billion, up 3%, reflecting organic growth of 1% versus prior year
- Buildings organic sales growth in service and products up 3% and 6%, respectively
- Buildings field orders up 7% organically with continued strong quoting activity
- Adjusted free cash flow of $0.6 billion in Q2; $0.3 billion year-to-date
- Re-affirm full year fiscal 2018 guidance for adjusted EPS from continuing operations in the range of $2.75 to $2.85
CORK, Ireland, May 1, 2018 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) today reported fiscal second quarter 2018 GAAP earnings per share ("EPS") from continuing operations, including special items, of $0.47. Excluding these items, adjusted EPS from continuing operations was $0.53, up 6% versus the prior year period (see attached footnotes for non-GAAP reconciliation).
Sales of $7.5 billion increased 3% compared to the prior year. Excluding the impacts of M&A, foreign currency and lead prices, total sales grew 1% organically.
GAAP earnings before interest and taxes ("EBIT") was $676 million and EBIT margin was 9.0%. Adjusted EBIT was $740 million and adjusted EBIT margin was 9.9%, up 10 basis points over the prior year. Excluding the impact of the Scott Safety divestiture, foreign currency, and lead prices, the underlying adjusted EBIT margin increased 30 basis points.
"Second quarter results represent an important step in the continued transformation of Johnson Controls," said George Oliver, Johnson Controls chairman & chief executive officer. "We reported another quarter of solid operational performance and momentum continues to build. I am encouraged by the continued strength in orders across the Buildings platform driven by the significant efforts we have made to increase capacity and drive improved sales execution. In addition, we are monetizing investments in sales and product and channel investments with 3% organic service growth and 6% organic product growth," Oliver continued.
"In Power Solutions, we are encouraged by our new business wins in both Original Equipment and Aftermarket, driven by improved service levels and shifts to new technologies. We expect to see this momentum positively impact our top line growth as we move into the second half of the fiscal year. In addition, we are making good progress on our Power Solutions strategic review."
Income and EPS amounts attributable to Johnson Controls ordinary shareholders
($ millions, except per-share amounts)
The financial highlights presented in the tables below are in accordance with GAAP, unless otherwise indicated. All comparisons are to the second quarter of 2017.
GAAP GAAP Adjusted Adjusted
Q2 2017 Q2 2018 Q2 2017 Q2 2018 Change
------- ------- ------- ------- ------
Sales $7,267 $7,475 $7,237 $7,475 +3%
Segment
EBITA 956 929 931 944 +1%
EBIT 509 676 711 740 +4%
Net
income
(loss)
from
continuing
operations (148) 438 473 493 +4%
Diluted
EPS
from
continuing
operations $(0.16) $0.47 $0.50 $0.53 +6%
Organic sales growth, adjusted segment EBITA, adjusted EBIT, adjusted EPS from continuing operations and adjusted free cash flow are non-GAAP financial measures. For a reconciliation of these non-GAAP measures and detail of the special items, refer to the attached footnotes. A slide presentation reviewing second quarter results can be found in the Investor Relations section of Johnson Controls' website at http://investors.johnsoncontrols.com.
BUSINESS RESULTS
Building Solutions North America
GAAP GAAP Adjusted Adjusted
Q2 2017 Q2 2018 Q2 2017 Q2 2018 Change
------- ------- ------- ------- ------
Sales $2,097 $2,097 $2,074 $2,097 +1%
Segment
EBITA $255 $239 $229 $244 +7%
Segment
EBITA
margin % 12.2% 11.4% 11.0% 11.6% +60bps
Sales in the second quarter of 2018 were $2.1 billion, an increase of 1% versus the prior year quarter. Excluding M&A and foreign currency, organic sales also increased 1% versus the prior year, driven primarily by solid growth in HVAC & Controls.
Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 4% year-over-year. Backlog at the end of the quarter of $5.3 billion increased 5% year-over-year, excluding M&A and adjusted for foreign currency.
Adjusted segment EBITA was $244 million, up 7% versus the prior year. Adjusted segment EBITA margin of 11.6% increased 60 basis points driven by cost synergies and productivity savings as well as favorable volume/mix, partially offset by expected low margin backlog conversion and salesforce additions.
Building Solutions EMEA/LA (Europe, Middle East, Africa/Latin America)
GAAP GAAP Adjusted Adjusted
Q2 2017 Q2 2018 Q2 2017 Q2 2018 Change
------- ------- ------- ------- ------
Sales $898 $907 $891 $907 +2%
Segment
EBITA $89 $77 $79 $78 (1%)
Segment
EBITA
margin
% 9.9% 8.5% 8.9% 8.6% (30bps)
Sales in the second quarter of 2018 were $907 million, an increase of 2% versus the prior year quarter. Excluding M&A and foreign currency, organic sales declined 3% versus the prior year driven by lower volumes across Europe and the Middle East, partially offset by continued strength in Latin America.
Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 10% year-over-year. Backlog at the end of the quarter of $1.7 billion increased modestly year-over-year, excluding M&A and adjusted for foreign currency.
Adjusted segment EBITA was $78 million, down 1% versus the prior year quarter. Adjusted segment EBITA margin of 8.6% declined 30 basis points over the prior year, as the benefit from cost synergies and productivity savings was more than offset by lower volume de-leverage.
Building Solutions Asia Pacific
GAAP GAAP Adjusted Adjusted
Q2 2017 Q2 2018 Q2 2017 Q2 2018 Change
------- ------- ------- ------- ------
Sales $562 $586 $562 $586 +4%
Segment
EBITA $67 $71 $67 $71 +6%
Segment
EBITA
margin
% 11.9% 12.1% 11.9% 12.1% +20bps
Sales in the second quarter of 2018 were $586 million, an increase of 4% versus the prior year quarter. Excluding M&A and foreign currency, organic sales declined 2% versus the prior year, as strong growth in service was more than offset by declines in project installations related to the timing of large project flow-through.
Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 10% year-over-year. Backlog at the end of the quarter of $1.5 billion was 15% higher year-over-year, excluding M&A and adjusted for foreign currency.
Adjusted segment EBITA was $71 million, up 6% versus the prior year. Adjusted segment EBITA margin of 12.1% expanded 20 basis points over the prior year, including a 40 basis point headwind related to foreign currency. Adjusting for foreign currency, the underlying margin improved 60 basis points driven by favorable mix as well as the benefit of cost synergies and productivity savings, partially offset by salesforce additions.
Global Products
GAAP GAAP Adjusted Adjusted
Q2 2017 Q2 2018 Q2 2017 Q2 2018 Change
------- ------- ------- ------- ------
Sales $2,014 $2,040 $2,014 $2,040 +1%
Segment
EBITA $242 $228 $253 $237 (6%)
Segment
EBITA
margin % 12.0% 11.2% 12.6% 11.6% (100bps)
Sales in the second quarter of 2018 were $2.0 billion, an increase of 1% versus the prior year quarter. Excluding M&A and foreign currency, organic sales increased 6% versus the prior year driven by mid-single digit growth in Building Management and HVAC & Refrigeration Equipment, and low-teens growth in Specialty Products.
Adjusted segment EBITA was $237 million, down 6% versus the prior year, primarily attributable to the impact of the Scott Safety divestiture. Adjusted segment EBITA margin of 11.6% declined 100 basis points over the prior year including a 120 basis point headwind related to the divestiture of the Scott Safety business. The underlying margin expanded 20 basis points as the benefit of cost synergies and productivity savings as well as favorable volume leverage was partially offset by planned product and channel investments and expected price/cost pressure.
Power Solutions
GAAP GAAP Adjusted Adjusted
Q2 2017 Q2 2018 Q2 2017 Q2 2018 Change
------- ------- ------- ------- ------
Sales $1,696 $1,845 $1,696 $1,845 +9%
Segment
EBITA $303 $314 $303 $314 +4%
Segment
EBITA
margin % 17.9% 17.0% 17.9% 17.0% (90bps)
Sales in the second quarter of 2018 were $1.8 billion, an increase of 9% versus the prior year quarter. Excluding the impact of higher lead pass-through and foreign currency, organic sales declined 2% as favorable price and technology mix was more than offset by lower unit volumes. Global original equipment battery shipments declined 2% in-line with overall market demand and aftermarket shipments declined 6% driven primarily by weather impacts in the U.S. and Europe. Start-stop battery shipments increased 14% year-over-year, led by growth in China and the Americas.
Power Solutions adjusted segment EBITA was $314 million, a 4% increase compared to the prior year. Adjusted segment EBITA margin of 17.0% decreased 90 basis points compared with the prior year, including a 60 basis point headwind related to the impact of foreign currency and lead prices. Power Solution's underlying margin declined 30 basis points as favorable mix and productivity savings were more than offset by higher transportation costs and planned incremental investments.
Corporate
GAAP GAAP Adjusted Adjusted
Q2 2017 Q2 2018 Q2 2017 Q2 2018 Change
------- ------- ------- ------- ------
Corporate
expense ($240) ($159) ($128) ($110) (14%)
Adjusted Corporate expense was $110 million in the second quarter, a decrease of 14% compared to the prior year quarter driven primarily by cost synergies and productivity initiatives.
OTHER ITEMS
-- Cash from operating activities less capex was $0.4 billion for the
quarter and nil year-to-date. Adjusted free cash flow was $0.6 billion
for the quarter and $0.3 billion year-to-date. Adjusted free cash flow
excludes net cash outflows of $0.2 billion in the quarter and $0.3
billion year-to-date primarily related to restructuring and integration
costs.
-- During the quarter, the Company repurchased 1.3 million shares for
approximately $50 million; year-to-date share repurchases totaled 4.9
million shares for approximately $200 million.
-- In March, the Company announced the decision to review strategic
alternatives for its Power Solutions business and the review is ongoing.
About Johnson Controls:
Johnson Controls is a global diversified technology and multi industrial leader serving a wide range of customers in more than 150 countries. Our 120,000 employees create intelligent buildings, efficient energy solutions, integrated infrastructure and next generation transportation systems that work seamlessly together to deliver on the promise of smart cities and communities. Our commitment to sustainability dates back to our roots in 1885, with the invention of the first electric room thermostat. We are committed to helping our customers win and creating greater value for all of our stakeholders through strategic focus on our buildings and energy growth platforms. For additional information, please visit http://www.johnsoncontrols.com or follow us @johnsoncontrols on Twitter.
Johnson Controls International plc Cautionary Statement Regarding Forward-Looking Statements
Johnson Controls International plc has made statements in this communication that are forward-looking and therefore are subject to risks and uncertainties. All statements in this document other than statements of historical fact are, or could be, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In this communication, statements regarding Johnson Controls' future financial position, sales, costs, earnings, cash flows, other measures of results of operations, synergies and integration opportunities, capital expenditures and debt levels are forward-looking statements. Words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "forecast," "project" or "plan" and terms of similar meaning are also generally intended to identify forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Johnson Controls cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond Johnson Controls' control, that could cause Johnson Controls' actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to: any delay or inability of Johnson Controls to realize the expected benefits and synergies of recent portfolio transactions such as the merger with Tyco and the spin-off of Adient, changes in tax laws (including but not limited to the recently enacted Tax Cuts and Jobs Act), regulations, rates, policies or interpretations, the loss of key senior management, the tax treatment of recent portfolio transactions, significant transaction costs and/or unknown liabilities associated with such transactions, the outcome of actual or potential litigation relating to such transactions, the risk that disruptions from recent transactions will harm Johnson Controls' business, the strength of the U.S. or other economies, automotive vehicle production levels, mix and schedules, energy and commodity prices, the availability of raw materials and component products, currency rates, cancellation of or changes to commercial arrangements, and with respect to the recently announced review of strategic alternatives for the Power Solutions business, uncertainties as to the structure and timing of any transaction and whether it will be completed, the possibility that closing conditions for a transaction may not be satisfied or waived, the impact of the strategic review and any transaction on Johnson Controls and the Power Solutions business on a standalone basis if a transaction is completed, and whether the strategic benefits of any transaction can be achieved. A detailed discussion of risks related to Johnson Controls' business is included in the section entitled "Risk Factors" in Johnson Controls' Annual Report on Form 10-K for the 2017 fiscal year filed with the SEC on November 21, 2017, and its Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2017 filed with the SEC on February 2, 2018, both of which are and available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab. Shareholders, potential investors and others should consider these factors in evaluating the forward-looking statements and should not place undue reliance on such statements. The forward-looking statements included in this communication are made only as of the date of this document, unless otherwise specified, and, except as required by law, Johnson Controls assumes no obligation, and disclaims any obligation, to update such statements to reflect events or circumstances occurring after the date of this communication.
Non-GAAP Financial Information
The Company's press release contains financial information regarding adjusted earnings per share, which is a non-GAAP performance measure. The adjusting items include mark-to-market for pension and postretirement plans, transaction/integration/separation costs, restructuring and impairment costs, nonrecurring purchase accounting impacts related to the Tyco merger, Scott Safety gain on sale and discrete tax items. Financial information regarding adjusted sales, organic sales, adjusted segment EBITA, adjusted segment EBITA margin and adjusted free cash flow are also presented, which are non-GAAP performance measures. Adjusted segment EBITA excludes special items such as transaction/integration/separation costs and nonrecurring purchase accounting impacts because these costs are not considered to be directly related to the underlying operating performance of its business units. Management believes that, when considered together with unadjusted amounts, these non-GAAP measures are useful to investors in understanding period-over-period operating results and business trends of the Company. Management may also use these metrics as guides in forecasting, budgeting and long-term planning processes and for compensation purposes. These metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure.
CONTACT: Investors:
Antonella Franzen
(609) 720-4665
Ryan Edelman
(609) 720-4545
Media:
Fraser Engerman
(414) 524-2733
JOHNSON CONTROLS INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data; unaudited)
Three Months Ended March 31,
----------------------------
2018 2017
---- ----
Net sales $7,475 $7,267
Cost of sales 5,255 4,986
----- -----
Gross profit 2,220 2,281
Selling, general and administrative expenses (1,588) (1,726)
Restructuring and impairment costs - (99)
Net financing charges (115) (116)
Equity income 44 53
--- ---
Income from continuing operations before income taxes 561 393
Income tax provision 78 508
--- ---
Income (loss) from continuing operations 483 (115)
Loss from discontinued operations, net of tax - -
--- ---
Net income (loss) 483 (115)
Less: Income from continuing operations attributable to noncontrolling interests
45 33
Less: Income from discontinued operations attributable to noncontrolling interests
- -
--- ---
Net income (loss) attributable to JCI $438 $(148)
==== =====
Income (loss) from continuing operations $438 $(148)
Loss from discontinued operations - -
--- ---
Net income (loss) attributable to JCI $438 $(148)
==== =====
Diluted earnings (loss) per share from continuing operations $0.47 $(0.16)
Diluted loss per share from discontinued operations - -
--- ---
Diluted earnings (loss) per share $0.47 $(0.16)
===== ======
Diluted weighted average shares 932.5 939.2
===== =====
Shares outstanding at period end 926.2 938.1
===== =====
JOHNSON CONTROLS INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data; unaudited)
Six Months Ended
March 31,
-----------------
2018 2017
---- ----
Net sales $14,910 $14,353
Cost of sales 10,521 9,958
------ -----
Gross profit 4,389 4,395
Selling, general and
administrative
expenses (3,005) (3,296)
Restructuring and
impairment costs (158) (177)
Net financing
charges (231) (252)
Equity income 104 108
--- ---
Income from
continuing
operations before
income taxes 1,099 778
Income tax provision 345 481
--- ---
Income from
continuing
operations 754 297
Loss from
discontinued
operations, net of
tax - (34)
--- ---
Net income 754 263
Less: Income from continuing
operations attributable to
noncontrolling interests
86 73
Less: Income from discontinued operations
attributable to noncontrolling interests
- 9
--- ---
Net income
attributable to JCI $668 $181
==== ====
Income from
continuing
operations $668 $224
Loss from
discontinued
operations - (43)
--- ---
Net income
attributable to JCI $668 $181
==== ====
Diluted earnings per
share from
continuing
operations $0.72 $0.24
Diluted loss per
share from
discontinued
operations - (0.05)
--- -----
Diluted earnings per
share $0.72 $0.19
===== =====
Diluted weighted
average shares 932.9 948.0
===== =====
Shares outstanding
at period end 926.2 938.1
===== =====
JOHNSON CONTROLS INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions; unaudited)
March 31, September 30,
2018 2017
---- ----
ASSETS
Cash and cash equivalents $268 $321
Accounts receivable - net 6,679 6,666
Inventories 3,565 3,209
Assets held for sale 22 189
Other current assets 1,737 1,907
----- -----
Current assets 12,271 12,292
Property, plant and equipment - net 6,235 6,121
Goodwill 19,806 19,688
Other intangible assets - net 6,625 6,741
Investments in partially-owned affiliates 1,294 1,191
Noncurrent assets held for sale - 1,920
Other noncurrent assets 3,721 3,931
----- -----
Total assets $49,952 $51,884
=======
LIABILITIES AND EQUITY
Short-term debt and current portion of long-term debt $1,136 $1,608
Accounts payable and accrued expenses 5,116 5,342
Liabilities held for sale - 72
Other current liabilities 4,740 4,832
----- -----
Current liabilities 10,992 11,854
Long-term debt 10,962 11,964
Other noncurrent liabilities 5,883 6,315
Noncurrent liabilities held for sale - 173
Redeemable noncontrolling interests 235 211
Shareholders' equity attributable to JCI 20,874 20,447
Noncontrolling interests 1,006 920
----- ---
Total liabilities and equity $49,952 $51,884
=======
JOHNSON CONTROLS INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
Three Months Ended March 31,
----------------------------
2018 2017
---- ----
Operating Activities
Net income (loss) attributable to JCI $438 $(148)
Income from continuing operations attributable to noncontrolling interests 45 33
Income from discontinued operations attributable to noncontrolling interests - -
--- ---
Net income (loss) 483 (115)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization 280 292
Pension and postretirement benefit income (36) (47)
Pension and postretirement contributions (13) (11)
Equity in earnings of partially-owned
affiliates, net of dividends received (43) (52)
Deferred income taxes 2 479
Non-cash restructuring and impairment costs - 23
Other - net 15 45
Changes in assets and liabilities, excluding
acquisitions and divestitures:
Accounts receivable 138 (58)
Inventories (67) (228)
Other assets (49) (63)
Restructuring reserves (105) 27
Accounts payable and accrued liabilities 102 197
Accrued income taxes (45) (123)
--- ----
Cash provided by operating activities 662 366
--- ---
Investing Activities
Capital expenditures (267) (263)
Sale of property, plant and equipment 5 16
Acquisition of businesses, net of cash acquired (15) (3)
Business divestitures, net of cash divested 103 133
Other - net (2) (24)
Cash used by investing activities (176) (141)
---- ----
Financing Activities
Increase (decrease) in short and long-term debt - net (497) 220
Debt financing costs - (11)
Stock repurchases (49) (119)
Payment of cash dividends (241) (235)
Proceeds from the exercise of stock options 20 59
Dividends paid to noncontrolling interests (46) (47)
Cash transferred to Adient related to spin-off - (101)
Cash paid related to prior acquisitions - 8
Other - net (1) 6
Cash used by financing activities (814) (220)
---- ----
Effect of exchange rate changes on cash and cash equivalents 44 30
Increase (decrease) in cash and cash equivalents $(284) $35
===== ===
JOHNSON CONTROLS INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
Six Months Ended March 31,
--------------------------
2018 2017
---- ----
Operating Activities
Net income attributable to JCI $668 $181
Income from continuing operations attributable to noncontrolling interests 86 73
Income from discontinued operations attributable to noncontrolling interests - 9
--- ---
Net income 754 263
Adjustments to reconcile net income to cash provided (used) by operating activities:
Depreciation and amortization 552 638
Pension and postretirement benefit income (72) (202)
Pension and postretirement contributions (37) (258)
Equity in earnings of partially-owned affiliates,
net of dividends received (79) (116)
Deferred income taxes (77) 1,059
Non-cash restructuring and impairment costs 30 39
Gain on Scott Safety business divestiture (114) -
Other - net 32 82
Changes in assets and liabilities, excluding
acquisitions and divestitures:
Accounts receivable 108 (21)
Inventories (300) (370)
Other assets 15 (150)
Restructuring reserves (12) 47
Accounts payable and accrued liabilities (521) (599)
Accrued income taxes 254 (1,931)
--- ------
Cash provided (used) by operating activities 533 (1,519)
--- ------
Investing Activities
Capital expenditures (497) (634)
Sale of property, plant and equipment 10 18
Acquisition of businesses, net of cash acquired (15) (6)
Business divestitures, net of cash divested 2,114 180
Other - net (14) (30)
Cash provided (used) by investing activities 1,598 (472)
----- ----
Financing Activities
Increase (decrease) in short and long-term debt - net (1,542) 776
Debt financing costs (4) (17)
Stock repurchases (199) (119)
Payment of cash dividends (473) (235)
Proceeds from the exercise of stock options 36 88
Dividends paid to noncontrolling interests (46) (78)
Dividend from Adient spin-off - 2,050
Cash transferred to Adient related to spin-off - (665)
Cash paid related to prior acquisitions - (37)
Other - net (26) (19)
Cash provided (used) by financing activities (2,254) 1,744
------ -----
Effect of exchange rate changes on cash and cash equivalents 61 (25)
Change in cash held for sale 9 105
--- ---
Decrease in cash and cash equivalents $(53) $(167)
==== =====
FOOTNOTES
1. Financial Summary
The Company evaluates the performance of its business units primarily on segment earnings before interest, taxes and amortization (EBITA), which represents income from continuing operations before income taxes and noncontrolling interests,
excluding general corporate expenses, intangible asset amortization, net financing charges, significant restructuring and impairment costs, and the net mark-to-market adjustments related to pension and postretirement plans.
(in millions; unaudited) Three Months Ended March 31, Six Months Ended March 31,
2018 2017 2018 2017
---- ---- ---- ----
Actual Adjusted Actual Adjusted Actual Adjusted Actual Adjusted
Non-GAAP Non-GAAP Non-GAAP Non-GAAP
-------- -------- -------- --------
Net sales (1)
------------
Building Solutions North America $2,097 $2,097 $2,097 $2,074 $4,109 $4,109 $4,039 $4,016
Building Solutions EMEA/LA 907 907 898 891 1,822 1,822 1,773 1,769
Building Solutions Asia Pacific 586 586 562 562 1,183 1,183 1,137 1,138
Global Products 2,040 2,040 2,014 2,014 3,821 3,821 3,808 3,814
Total Building Technologies & Solutions 5,630 5,630 5,571 5,541 10,935 10,935 10,757 10,737
Power Solutions 1,845 1,845 1,696 1,696 3,975 3,975 3,596 3,596
Net sales $7,475 $7,475 $7,267 $7,237 $14,910 $14,910 $14,353 $14,333
Segment EBITA (1)
----------------
Building Solutions North America $239 $244 $255 $229 $466 $480 $451 $465
Building Solutions EMEA/LA 77 78 89 79 146 149 138 144
Building Solutions Asia Pacific 71 71 67 67 145 145 130 139
Global Products 228 237 242 253 514 415 369 458
Total Building Technologies & Solutions 615 630 653 628 1,271 1,189 1,088 1,206
Power Solutions 314 314 303 303 698 698 692 693
Segment EBITA 929 944 956 931 1,969 1,887 1,780 1,899
Corporate expenses (2) (159) (110) (240) (128) (293) (211) (433) (236)
Amortization of intangible assets (3) (94) (94) (126) (92) (188) (188) (275) (195)
Mark-to-market gain for pension plans (4) - - 18 - - - 135 -
Restructuring and impairment costs (5) - - (99) - (158) - (177) -
EBIT (6) 676 740 509 711 1,330 1,488 1,030 1,468
EBIT margin 9.0% 9.9% 7.0% 9.8% 8.9% 10.0% 7.2% 10.2%
Net financing charges (7) (115) (115) (116) (116) (231) (231) (252) (235)
Income from continuing operations before income taxes 561 625 393 595 1,099 1,257 778 1,233
Income tax provision (8) (78) (87) (508) (89) (345) (176) (481) (185)
Income (loss) from continuing operations 483 538 (115) 506 754 1,081 297 1,048
Income from continuing operations attributable to noncontrolling interests (45) (45) (33) (33) (86) (86) (73) (73)
Net income (loss) from continuing operations attributable
to JCI $438 $493 $(148) $473 $668 $995 $224 $975
========================
Building Technologies & Solutions- Provides facility systems and services including comfort, energy and security management for the non-residential buildings market, and provides heating, ventilating, and air conditioning products and services,
security products and services, and fire detection and suppression products and services.
Power Solutions- Services both automotive original equipment manufacturers and the battery aftermarket by providing advanced battery technology, coupled with systems engineering, marketing and service expertise.
(1) The Company's press release contains financial information regarding adjusted net sales, adjusted segment EBITA and adjusted segment EBITA margins, which are non-GAAP performance measures. The Company's definition of adjusted segment EBITA
excludes special items because these costs are not considered to be directly related to the underlying operating performance of its business units. Management believes these non-GAAP measures are useful to investors in understanding the ongoing
operations and business trends of the Company.
The following is the three months ended March 31, 2018 and 2017 reconciliation of net sales, segment EBITA and segment EBITA margin as reported to adjusted net sales, adjusted segment EBITA and adjusted segment EBITA margin (unaudited):
(in millions) Building Solutions Building Solutions Building Solutions Global Products Total Building Power Solutions Consolidated JCI plc
North America EMEA/LA Asia Pacific Technologies & Solutions
------------- ------- ------------ ------------------------
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net sales as reported $2,097 $2,097 $907 $898 $586 $562 $2,040 $2,014 $5,630 $5,571 $1,845 $1,696 $7,475 $7,267
Adjusting items:
Nonrecurring purchase accounting impacts - (23) - (7) - - - - - (30) - - - (30)
Adjusted net sales $2,097 $2,074 $907 $891 $586 $562 $2,040 $2,014 $5,630 $5,541 $1,845 $1,696 $7,475 $7,237
======
Segment EBITA as reported $239 $255 $77 $89 $71 $67 $228 $242 $615 $653 $314 $303 $929 $956
Segment EBITA margin as reported 11.4% 12.2% 8.5% 9.9% 12.1% 11.9% 11.2% 12.0% 10.9% 11.7% 17.0% 17.9% 12.4% 13.2%
Adjusting items:
Transaction costs - 1 - 3 - - - 6 - 10 - - - 10
Integration costs 5 7 1 2 - 2 9 5 15 16 - - 15 16
Nonrecurring purchase accounting impacts - (34) - (15) - (2) - - - (51) - - - (51)
Adjusted segment EBITA $244 $229 $78 $79 $71 $67 $237 $253 $630 $628 $314 $303 $944 $931
====
Adjusted segment EBITA margin 11.6% 11.0% 8.6% 8.9% 12.1% 11.9% 11.6% 12.6% 11.2% 11.3% 17.0% 17.9% 12.6% 12.9%
The following is the six months ended March 31, 2018 and 2017 reconciliation of net sales, segment EBITA and segment EBITA margin as reported to adjusted net sales, adjusted segment EBITA and adjusted segment EBITA margin (unaudited):
(in millions) Building Solutions Building Solutions Building Solutions Global Products Total Building Power Solutions Consolidated JCI plc
North America EMEA/LA Asia Pacific Technologies & Solutions
------------- ------- ------------ ------------------------
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net sales as reported $4,109 $4,039 $1,822 $1,773 $1,183 $1,137 $3,821 $3,808 $10,935 $10,757 $3,975 $3,596 $14,910 $14,353
Adjusting items:
Nonrecurring purchase accounting impacts - (23) - (4) - 1 - 6 - (20) - - - (20)
Adjusted net sales $4,109 $4,016 $1,822 $1,769 $1,183 $1,138 $3,821 $3,814 $10,935 $10,737 $3,975 $3,596 $14,910 $14,333
======
Segment EBITA as reported $466 $451 $146 $138 $145 $130 $514 $369 $1,271 $1,088 $698 $692 $1,969 $1,780
Segment EBITA margin as reported 11.3% 11.2% 8.0% 7.8% 12.3% 11.4% 13.5% 9.7% 11.6% 10.1% 17.6% 19.2% 13.2% 12.4%
Adjusting items:
Transaction costs - 11 - 5 - 2 - 9 - 27 - 1 - 28
Integration costs 14 14 3 4 - 3 15 9 32 30 - - 32 30
Scott Safety gain on sale - - - - - - (114) - (114) - - - (114) -
Nonrecurring purchase accounting impacts - (11) - (3) - 4 - 71 - 61 - - - 61
Adjusted segment EBITA $480 $465 $149 $144 $145 $139 $415 $458 $1,189 $1,206 $698 $693 $1,887 $1,899
====
Adjusted segment EBITA margin 11.7% 11.6% 8.2% 8.1% 12.3% 12.2% 10.9% 12.0% 10.9% 11.2% 17.6% 19.3% 12.7% 13.2%
(2) Adjusted Corporate expenses for the three months ended March 31, 2018 excludes $46 million of integration costs and $3 million of transaction costs. Adjusted Corporate expenses for the six months ended March 31, 2018 excludes $74 million of
integration costs and $8 million of transaction costs. Adjusted Corporate expenses for the three months ended March 31, 2017 excludes $95 million of integration costs and $17 million of transaction costs. Adjusted Corporate expenses for the six
months ended March 31, 2017 excludes $145 million of integration costs, $48 million of transaction costs and $4 million of separation costs.
(3) Adjusted amortization of intangible assets for the three and six months ended March 31, 2017 excludes $34 million and $80 million, respectively, of nonrecurring asset amortization related to Tyco purchase accounting.
(4) The three and six months ended March 31, 2017 pension mark-to-market gains of $18 million and $135 million, respectively, due to lump sum payouts for certain U.S. pension plans in the quarter are excluded from the adjusted non-GAAP results.
(5) Restructuring and impairment costs for the six months ended March 31, 2018 of $158 million are excluded from the adjusted non-GAAP results. Restructuring and impairment costs for the three and six months ended March 31, 2017 of $99 million
and $177 million, respectively, are excluded from the adjusted non-GAAP results.
(6) Management defines earnings before interest and taxes (EBIT) as income from continuing operations before net financing charges, income taxes and noncontrolling interests.
(7) Adjusted net financing charges for the six months ended March 31, 2017 exclude $17 million of transaction costs related to the debt exchange offers.
(8) Adjusted income tax provision for the three months ended March 31, 2018 excludes the tax benefit for integration costs of $9 million. Adjusted income tax provision for the six months ended March 31, 2018 excludes the net tax provision related
to the U.S. Tax Reform legislation of $204 million and the Scott Safety gain on sale of $30 million, partially offset by the tax benefits for tax audit settlements of $25 million, restructuring and impairment costs of $24 million, integration
costs of $15 million and transaction costs of $1 million. Adjusted income tax provision for the three months ended March 31, 2017 excludes the non-cash tax charge of $457 million related to establishment of a deferred tax liability on the
outside basis difference of the Company's investment in certain subsidiaries of the Scott Safety business and the tax provisions for the pension mark-to-market gain of $8 million and Tyco nonrecurring purchase accounting impacts of $5 million,
partially offset by the tax benefits of integration costs of $25 million, restructuring and impairment costs of $20 million and transaction costs of $6 million. Adjusted income tax provision for the six months ended March 31, 2017 excludes the
non-cash tax charge of $457 million related to establishment of a deferred tax liability on the outside basis difference of the Company's investment in certain subsidiaries of the Scott Safety business and the tax provision for the pension mark-
to-market gains of $54 million, partially offset by the tax benefits of changes in entity tax status of $101 million, Tyco nonrecurring purchase accounting impacts of $38 million, restructuring and impairment costs of $34 million, integration
costs of $32 million and transaction costs of $10 million.
2. Diluted Earnings Per Share Reconciliation
The Company's press release contains financial information regarding adjusted earnings per share, which is a non-GAAP performance measure. The adjusting items include transaction/integration/separation costs, nonrecurring purchase accounting
impacts related to the Tyco merger, mark-to-market gain or loss for pension and postretirement plans, Scott Safety gain on sale, restructuring and impairment costs and discrete tax items. The Company excludes these items because they are not
considered to be directly related to the underlying operating performance of the Company. Management believes these non-GAAP measures are useful to investors in understanding the ongoing operations and business trends of the Company.
A reconciliation of diluted earnings per share as reported to diluted adjusted earnings per share for the respective periods is shown below (unaudited):
Net Income Attributable Net Income Attributable Net Income Attributable Net Income Attributable
to JCI plc to JCI plc from Continuing to JCI plc to JCI plc from
Operations Continuing Operations
---------- ---------------------
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
--------- --------- --------- ---------
2018 2017 2018 2017 2018 2017 2018 2017
---- ---- ---- ---- ---- ---- ---- ----
Earnings per share as reported for JCI plc $0.47 $(0.16) $0.47 $(0.16) $0.72 $0.19 $0.72 $0.24
Adjusting items:
Transaction costs - 0.03 - 0.03 0.01 0.10 0.01 0.10
Related tax impact - (0.01) - (0.01) - (0.01) - (0.01)
Integration costs 0.07 0.12 0.07 0.12 0.11 0.18 0.11 0.18
Related tax impact (0.01) (0.03) (0.01) (0.03) (0.02) (0.03) (0.02) (0.03)
Separation costs - - - - - 0.09 - -
Nonrecurring purchase accounting impacts - (0.02) - (0.02) - 0.15 - 0.15
Related tax impact - 0.01 - 0.01 - (0.04) - (0.04)
Mark-to-market gain for pension plans - (0.02) - (0.02) - (0.14) - (0.14)
Related tax impact - 0.01 - 0.01 - 0.06 - 0.06
Scott Safety gain on sale - - - - (0.12) - (0.12) -
Related tax impact - - - - 0.03 - 0.03 -
Restructuring and impairment costs - 0.10 - 0.10 0.17 0.19 0.17 0.19
Related tax impact - (0.02) - (0.02) (0.03) (0.04) (0.03) (0.04)
Discrete tax items - 0.48 - 0.48 0.19 0.40 0.19 0.38
---
Adjusted earnings per share for JCI plc* $0.53 $0.50 $0.53 $0.50 $1.07 $1.09 $1.07 $1.03
=====
* May not sum due to rounding.
The following table reconciles the denominators used to calculate basic and diluted earnings per share for JCI plc (in millions; unaudited):
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2018 2017 2018 2017
---- ---- ---- ----
Weighted Average Shares Outstanding for JCI plc
Basic weighted average shares outstanding 926.2 939.2 926.2 938.2
Effect of dilutive securities:
Stock options, unvested restricted stock and unvested performance share awards
6.3 - 6.7 9.8
Diluted weighted average shares outstanding 932.5 939.2 932.9 948.0
=====
For the three months ended March 31, 2017, the total number of potential dilutive shares due to stock options, unvested restricted stock and unvested performance share awards was 9.4 million. However, these items were not included in the
computation of diluted loss per share for the three months ended March 31, 2017, since to do so would decrease the loss per share. On an adjusted diluted outstanding share basis, inclusion of the effect of dilutive securities results in diluted
weighted average shares outstanding of 948.6 million for the three months ended March 31, 2017.
The Company has presented forward-looking statements regarding adjusted EPS from continuing operations, adjusted EBIT margin, organic adjusted net sales growth and adjusted free cash flow conversion (defined as adjusted free cash flow divided by
adjusted net income from continuing operations attributable to JCI) for the full fiscal year of 2018, which are non-GAAP financial measures. These non-GAAP financial measures are derived by excluding certain amounts, expenses, income or cash
flows from the corresponding financial measures determined in accordance with GAAP. The determination of the amounts that are excluded from these non-GAAP financial measures are a matter of management judgment and depends upon, among other
factors, the nature of the underlying expense or income amounts recognized in a given period, including but not limited to the high variability of the net mark-to-market adjustments related to pension and postretirement plans and the effect of
foreign currency exchange fluctuations. Our fiscal 2018 outlook for organic adjusted net sales growth also excludes the effect of acquisitions and divestitures, and for our Power Solutions business, the impacts of lead price fluctuations. We are
unable to present a quantitative reconciliation of the aforementioned forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because such information is not available and management
cannot reliably predict all of the necessary components of such GAAP measures without unreasonable effort or expense. The unavailable information could have a significant impact on the Company's full year 2018 GAAP financial results.
3. Organic Adjusted Net Sales Growth Reconciliation
The components of the changes in adjusted net sales for the three months ended March 31, 2018 versus the three months ended March 31, 2017, including organic net sales, is shown below (unaudited):
(in millions) Adjusted Net Sales Base Year Adjustments - Adjusted Base Net Foreign Currency Lead Impact Organic Net Sales Adjusted Net Sales
for the Three Divestitures Sales for the Three for the Three
Months Ended Months Ended Months Ended
March 31, 2017 March 31, 2017 March 31, 2018
-------------- -------------- --------------
Building Solutions North America $2,074 $ - 0.0% $2,074 $10 0.5% $ - 0.0% $13 0.6% $2,097 1.1%
Building Solutions EMEA/LA 891 (37) -4.2% 854 81 9.5% - 0.0% (28) -3.3% 907 6.2%
Building Solutions Asia Pacific 562 (2) -0.4% 560 35 6.3% - 0.0% (9) -1.6% 586 4.6%
Global Products 2,014 (161) -8.0% 1,853 72 3.9% - 0.0% 115 6.2% 2,040 10.1%
-----
Total Building Technologies & Solutions 5,541 (200) -3.6% 5,341 198 3.7% - 0.0% 91 1.7% 5,630 5.4%
Power Solutions 1,696 - 0.0% 1,696 113 6.7% 68 4.0% (32) -1.9% 1,845 8.8%
-----
Total net sales $7,237 $(200) -2.8% $7,037 $311 4.4% $68 1.0% $59 0.8% $7,475 6.2%
======
The components of the changes in adjusted net sales for the six months ended March 31, 2018 versus the six months ended March 31, 2017, including organic net sales, is shown below (unaudited):
(in millions) Adjusted Net Sales Base Year Adjustments - Adjusted Base Net Foreign Currency Lead Impact Organic Net Sales Adjusted Net Sales
for the Six Divestitures Sales for the Six for the Six
Months Ended Months Ended Months Ended
March 31, 2017 March 31, 2017 March 31, 2018
-------------- -------------- --------------
Building Solutions North America $4,016 $ - 0.0% $4,016 $20 0.5% $ - 0.0% $73 1.8% $4,109 2.3%
Building Solutions EMEA/LA 1,769 (80) -4.5% 1,689 127 7.5% - 0.0% 6 0.4% 1,822 7.9%
Building Solutions Asia Pacific 1,138 (9) -0.8% 1,129 49 4.3% - 0.0% 5 0.4% 1,183 4.8%
Global Products 3,814 (299) -7.8% 3,515 92 2.6% - 0.0% 214 6.1% 3,821 8.7%
-----
Total Building Technologies & Solutions 10,737 (388) -3.6% 10,349 288 2.8% - 0.0% 298 2.9% 10,935 5.7%
Power Solutions 3,596 - 0.0% 3,596 191 5.3% 199 5.5% (11) -0.3% 3,975 10.5%
-----
Total net sales $14,333 $(388) -2.7% $13,945 $479 3.4% $199 1.4% $287 2.1% $14,910 6.9%
=======
4. Adjusted Free Cash Flow Reconciliation
The Company's press release contains financial information regarding free cash flow and adjusted free cash flow, which are non-GAAP performance measures. Free cash flow is defined as cash used by operating activities less capital expenditures.
Adjusted free cash flow excludes special items, as included in the table below, because these cash flows are not considered to be directly related to its underlying business. Management believes these non-GAAP measures are useful to investors in
understanding the strength of the Company and its ability to generate cash.
The following is the three and six months ended March 31, 2018 and 2017 reconciliation of free cash flow and adjusted free cash flow (unaudited):
(in billions) Three Months Ended Three Months Ended Six Months Ended Six Months Ended
March 31, 2018 March 31, 2017 March 31, 2018 March 31, 2017
-------------- -------------- -------------- --------------
Cash provided (used) by operating activities $0.7 $0.4 $0.5 $(1.5)
Capital expenditures (0.3) (0.3) (0.5) (0.6)
-----
Reported free cash flow * $0.4 $0.1 $ - $(2.2)
Adjusting items:
Transaction/integration/separation costs 0.1 0.1 0.2 0.3
Transaction tax payments - 0.1 - 1.3
Adient cash outflow - - - 0.3
Change in control pension payment - - - 0.2
Restructuring costs 0.1 - 0.1 0.1
---
Total adjusting items 0.2 0.2 0.3 2.2
Adjusted free cash flow $0.6 $0.3 $0.3 $ -
====
* May not sum due to rounding
5. Net Debt to Capitalization
The Company provides financial information regarding net debt as a percentage of total capitalization, which is a non-GAAP performance measure. The Company believes the percentage of total net debt to total capitalization is useful to
understanding the Company's financial condition as it provides a review of the extent to which the Company relies on external debt financing for its funding and is a measure of risk to its shareholders. The following is the March 31, 2018 and
September 30, 2017 calculation of net debt as a percentage of total capitalization (unaudited):
(in millions) March 31, 2018 September 30, 2017
------------
Short-term debt and current portion of long-term debt $1,136 $1,608
Long-term debt 10,962 11,964
------
Total debt 12,098 13,572
Less: cash and cash equivalents 268 321
---
Total net debt 11,830 13,251
Shareholders' equity attributable to JCI 20,874 20,447
------
Total capitalization $32,704 $33,698
=======
Total net debt as a % of total capitalization 36.2% 39.3%
=====
6. Mark-to-Market of Pension and Postretirement Plans
The pension and postretirement mark-to-market gain or loss for each period is excluded from adjusted diluted earnings per share. There was no mark-to-market gain or loss for pension and postretirement plans for the three and six months ended
March 31, 2018. The three and six months ended March 31, 2017 includes a mark-to-market gain for pension plans of $18 million and $135 million, respectively, due to lump sum payouts for certain U.S. pension plans in the quarter.
7. Divestitures
On March 16, 2017, the Company announced that it signed a definitive agreement to sell its Scott Safety business to 3M for approximately $2.0 billion. The transaction closed on October 4, 2017. Net cash proceeds from the transaction approximated
$1.9 billion and the Company recorded a net gain of $114 million ($84 million after tax). Scott Safety is a leader in the design, manufacture and sale of high performance respiratory protection, gas and flame detection, thermal imaging and other
critical products for fire services, law enforcement, industrial, oil and gas, chemical, armed forces, and homeland defense end markets. The Scott Safety business is included within assets held for sale and liabilities held for sale in the
accompanying condensed consolidated statement of financial position as of September 30, 2017.
On October 31, 2017, the Company completed the spin-off of its Automotive Experience business by way of the transfer of the Automotive Experience business from JCI plc to Adient plc and the issuance of ordinary shares of Adient plc directly to
holders of JCI plc ordinary shares on a pro rata basis. Following the separation, Adient plc is now an independent public company trading on the New York Stock Exchange (NYSE) under the symbol "ADNT." The Company did not retain any equity
interest in Adient plc. Beginning in the first quarter of fiscal 2017, Adient's historical financial results are reflected in the Company's consolidated financial statements as a discontinued operation.
8. Income Taxes
The Company's effective tax rate from continuing operations before consideration of the transaction/integration/separation costs, nonrecurring purchase accounting impacts related to the Tyco merger, mark-to-market gains or losses for pension
and postretirement plans, Scott Safety gain on sale, restructuring and impairment costs and discrete tax items for the three and six months ending March 31, 2018 is approximately 14 percent and for the three and six months ending March 31, 2017 is
approximately 15 percent.
9. Restructuring
The six months ended March 31, 2018 include restructuring and impairment costs of $158 million related primarily to workforce reductions, plant closures and asset impairments in the Building Technologies & Solutions and Power Solutions businesses,
and at Corporate. The three and six months ended March 31, 2017 restructuring and impairment costs of $99 million and $177 million, respectively, related primarily to workforce reductions, plant closures and asset impairments in the Building
Technologies & Solutions business and at Corporate.
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SOURCE Johnson Controls
