Johnson Controls reports strong organic revenue and earnings growth in fiscal Q1, with continued momentum in orders and backlog; Fiscal 2019 guidance updated to reflect the announced sale of Power Solutions
CORK, Ireland, Feb. 1, 2019 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) today reported fiscal first quarter 2019 GAAP earnings per share ("EPS") from continuing operations, including special items, of $0.12. Excluding these items, adjusted EPS from continuing operations was $0.26, up 24% versus the prior year period (see attached footnotes for non-GAAP reconciliation).
Sales of $5.5 billion increased 3% compared to the prior year. Excluding the impacts of M&A and foreign currency, sales grew 6% organically.
GAAP earnings before interest and taxes ("EBIT") was $329 million and EBIT margin was 6.0%. Adjusted EBIT was $400 million and adjusted EBIT margin was 7.3%, up 50 basis points over the prior year. Excluding the impact of M&A and foreign currency, the underlying adjusted EBIT margin increased 60 basis points.
George Oliver, chairman and CEO noted, "Fiscal 2019 is off to a great start, with solid results in the first quarter. The investments we have made in R&D as well as expanding our global salesforce directly impacted our results, with continued strength in organic top-line and order growth. While we continue to monitor the global macro-economic environment, we remain committed to driving execution across the organization, leveraging our large installed base and service offerings, and driving continued synergies and productivity initiatives. The sale of the Power Solutions business is progressing well, and we are on track to close in fiscal Q3."
Income and EPS amounts attributable to Johnson Controls ordinary shareholders
($ 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 fiscal first quarter of 2018. The results of Power Solutions are reported as discontinued operations in all periods presented.
Organic sales growth, organic EBITA 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 to accompany the results can be found in the Investor Relations section of Johnson Controls' website at http://investors.johnsoncontrols.com.
GAAP GAAP Adjusted Adjusted
Q1 2018 Q1 2019 Q1 2018 Q1 2019 Change
Sales $5,305 $5,464 $5,305 $5,464 +3%
Segment
EBITA 656 583 559 590 +6%
EBIT 272 329 362 400 +10%
Net income
(loss) from (75) 107 200 243 +22%
continuing
operations
Diluted EPS
from
continuing
operations ($0.08) $0.12 $0.21 $0.26 +24%
BUSINESS RESULTS
Building Solutions North America
GAAP GAAP Adjusted Adjusted
Q1 2018 Q1 2019 Q1 2018 Q1 2019 Change
Sales $2,012 $2,116 $2,012 $2,116 5%
Segment
EBITA $227 $250 $236 $253 7%
Segment
EBITA
margin % 11.3% 11.8% 11.7% 12.0%
30bps
Sales in the quarter of $2.1 billion, increased of 5% versus the prior year. Excluding M&A and foreign currency, organic sales increased 6% versus the prior year driven by solid growth across HVAC & Controls, Fire & Security and Solutions.
Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 5% year-over-year. Backlog at the end of the quarter of $5.4 billion increased 4% year-over-year, excluding M&A and adjusted for foreign currency.
Adjusted segment EBITA was $253 million, up 7% versus the prior year. Adjusted segment EBITA margin of 12.0% expanded 30 basis points versus the prior year as favorable volume leverage as well as cost synergies and productivity savings, were partially offset by unfavorable mix and salesforce additions.
Building Solutions EMEA/LA (Europe, Middle East, Africa/Latin America)
GAAP GAAP Adjusted Adjusted
Q1 2018 Q1 2019 Q1 2018 Q1 2019 Change
Sales $915 $907 $915 $907 (1%)
Segment
EBITA $69 $77 $71 $77 8%
Segment
EBITA
margin % 7.5% 8.5% 7.8% 8.5%
70bps
Sales in the quarter of $907 million declined 1% versus the prior year. Excluding M&A and foreign currency, organic sales grew 4% versus the prior year driven by stronger service growth. Growth was positive across most regions, led by strength in HVAC, Fire & Security and Industrial Refrigeration in Europe, and Fire & Security and Industrial Refrigeration in Latin America.
Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 9% year-over-year. Backlog at the end of the quarter of $1.6 billion increased 15% year-over-year, excluding M&A and adjusted for foreign currency.
Adjusted segment EBITA was $77 million, up 8% versus the prior year. Adjusted segment EBITA margin of 8.5% expanded 70 basis points over the prior year, including a 30 basis point headwind related to foreign currency. Adjusting for foreign currency, the underlying margin improved 100 basis points driven by favorable volume and mix as well as the benefit from cost synergies and productivity savings, partially offset by salesforce investments.
Building Solutions Asia Pacific
GAAP GAAP Adjusted Adjusted
Q1 2018 Q1 2019 Q1 2018 Q1 2019 Change
Sales $597 $613 $597 $613 3%
Segment
EBITA $74 $66 $74 $66 (11%)
Segment
EBITA
margin % 12.4% 10.8% 12.4% 10.8%
(160bps)
Sales in the quarter of $613 million increased 3% versus the prior year. Excluding M&A and foreign currency, organic sales increased 6% versus the prior year driven primarily by high-single digit growth in project installations.
Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 9% year-over-year. Backlog at the end of the quarter of $1.5 billion increased 12% year-over-year, excluding M&A and adjusted for foreign currency.
Adjusted segment EBITA was $66 million, down 11% versus the prior year. Adjusted segment EBITA margin of 10.8% declined 160 basis points over the prior year as favorable volume was more than offset by unfavorable mix, salesforce additions and expected underlying margin pressure.
Global Products
GAAP GAAP Adjusted Adjusted
Q1 2018 Q1 2019 Q1 2018 Q1 2019 Change
Sales $1,781 $1,828 $1,781 $1,828 3%
Segment
EBITA $286 $190 $178 $194 9%
Segment
EBITA
margin % 16.1% 10.4% 10.0% 10.6%
60bps
Sales in the quarter of $1.8 billion increased 3% versus the prior year. Excluding M&A and foreign currency, organic sales increased 7% versus the prior year with high-single digit growth in HVAC & Refrigeration Equipment, low-double digit growth in Building Management Systems, and mid-single digit growth in Specialty Products.
Adjusted segment EBITA was $194 million, up 9% versus the prior year. Adjusted segment EBITA margin of 10.6% expanded 60 basis points over the prior year driven by favorable volume and mix, positive price/cost as well as the benefit of cost synergies and productivity savings, partially offset by ongoing product and channel investments.
Corporate
GAAP GAAP Adjusted Adjusted
Q1 2018 Q1 2019 Q1 2018 Q1 2019 Change
Corporate
expense ($138) ($136) ($105) ($93) (11%)
Adjusted Corporate expense was $93 million in the quarter, a decrease of 11% compared to the prior year, driven primarily by continued cost synergies and productivity savings.
OTHER ITEMS
-- On November 13, 2018, the Company announced an agreement to sell its
Power Solutions business for $13.2 billion. The transaction is expected
to close no later than June 30, 2019, subject to customary closing
conditions and regulatory approvals. The results of the Power Solutions
business are reported in discontinued operations for all periods
presented.
-- Cash used by operating activities from continuing operations was $0.1
billion and capital expenditures were $0.2 billion in the quarter,
resulting in a free cash outflow from continuing operations of $0.2
billion. Adjusted free cash flow was also an outflow of $0.2 billion,
which excludes net cash outflows of $0.1 billion primarily related to
integration costs.
-- During the quarter, the Company repurchased approximately 14 million
shares for $467 million.
FISCAL 2019 CONTINUING OPERATIONS GUIDANCE
The Company also announced fiscal 2019 guidance from continuing operations:
-- Organic revenue growth in the mid-single digits.
-- Incremental synergy and productivity savings of $200 million.
-- Preliminary assumptions for use of Power Solutions sale proceeds results
in $0.05 benefit.
-- Effective tax rate of 13.5% versus 12.1% in prior year.
-- Fiscal 2019 adjusted EPS before special items from continuing operations
of $1.75 to $1.85, representing a year-over-year increase of 10% to 16%.
-- Adjusted free cash flow conversion of approximately 95%, excluding
special items.
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, changes to laws or policies governing foreign trade, including increased tariffs or trade restrictions, automotive vehicle production levels, mix and schedules, energy and commodity prices, the availability of raw materials and component products, currency rates and cancellation of or changes to commercial arrangements, and with respect to the disposition of the Power Solutions business, the expected financial impact and timing of the Power Solutions disposition, whether and when the required regulatory approvals for the Power Solutions disposition will be obtained, the possibility that closing conditions for the Power Solutions disposition may not be satisfied or waived, and whether the strategic benefits of the Power Solutions 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 2018 fiscal year filed with the SEC on November 20, 2018, which is 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 net mark-to-market adjustments, transaction/integration costs, restructuring and impairment costs, Scott Safety gain on sale, the impact of ceasing the depreciation/amortization expense for the Power Solutions business as the business is held for sale and discrete tax items. Financial information regarding organic sales, adjusted segment EBITA, adjusted organic segment EBITA, adjusted segment EBITA margin, adjusted free cash flow and adjusted free cash flow conversion are also presented, which are non-GAAP performance measures. Adjusted segment EBITA excludes special items such as transaction/integration costs and Scott Safety gain on sale 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
December 31,
2018 2017
Net sales $5,464 $5,305
Cost of sales 3,739 3,607
---
Gross profit 1,725 1,698
Selling, general and
administrative
expenses (1,438) (1,319)
Restructuring and
impairment costs (154)
Net financing
charges (85) (102)
Equity income 42 47
---
Income from
continuing
operations before
income taxes 244 170
Income tax provision 108 217
---
Income (loss) from
continuing
operations 136 (47)
Income from
discontinued
operations, net of
tax 263 318
---
Net income 399 271
Less: Income from continuing
operations
attributable to
noncontrolling interests
29 28
Less: Income from
discontinued operations
attributable to
noncontrolling interests
15 13
---
Net income
attributable to JCI $355 $230
Income (loss) from
continuing
operations $107 $(75)
Income from
discontinued
operations 248 305
---
Net income
attributable to JCI $355 $230
Diluted earnings
(loss) per share
from continuing
operations $0.12 $(0.08)
Diluted earnings per
share from
discontinued
operations 0.27 0.33
---
Diluted earnings per
share * $0.38 $0.25
Diluted weighted
average shares 925.2 926.1
===
Shares outstanding
at period end 912.7 926.1
===
* May not sum due to
rounding.
JOHNSON CONTROLS INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions; unaudited)
December 31,
September 30,
2018 2018
ASSETS
Cash and cash equivalents $292 $185
Accounts receivable -net 5,442 5,622
Inventories 2,027 1,819
Assets held for sale 3,042 3,015
Other current assets 1,152 1,182
---
Current assets 11,955 11,823
Property, plant and equipment -
net 3,314 3,300
Goodwill 18,291 18,381
Other intangible assets -net 6,080 6,187
Investments in partially-owned
affiliates 887 848
Noncurrent assets held for sale 5,159 5,188
Other noncurrent assets 2,330 3,070
---
Total assets $48,016 $48,797
LIABILITIES AND EQUITY
Short-term debt and current
portion of long-term debt $2,320 $1,307
Accounts payable and accrued
expenses 4,141 4,428
Liabilities held for sale 1,636 1,791
Other current liabilities 3,556 3,724
---
Current liabilities 11,653 11,250
Long-term debt 9,588 9,623
Other noncurrent liabilities 5,167 5,259
Noncurrent liabilities held for
sale 201 207
Shareholders' equity attributable
to JCI 20,102 21,164
Noncontrolling interests 1,305 1,294
---
Total liabilities and
equity $48,016 $48,797
JOHNSON CONTROLS INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
Three Months Ended December 31,
2018 2017
Operating Activities
Net income (loss) attributable to JCI from continuing
operations $107 $(75)
Income from continuing operations attributable to
noncontrolling interests 29 28
Net income (loss) from continuing operations 136 (47)
Adjustments to reconcile net income (loss) from continuing operations to
cash used by operating activities:
Depreciation and
amortization 211 210
Pension and
postretirement
benefit income (29) (36)
Pension and
postretirement
contributions (21) (23)
Equity in earnings of
partially-owned
affiliates, net of
dividends received (36) (33)
Deferred income taxes 43 (80)
Non-cash
restructuring and
impairment costs 28
Gain on Scott Safety
business divestiture (114)
Other - net 28 27
Changes in assets and
liabilities,
excluding
acquisitions and
divestitures:
Accounts
receivable 146 (10)
Inventories (222) (196)
Other assets (63) (137)
Restructuring
reserves (25) 96
Accounts payable
and accrued
liabilities (226) (259)
Accrued income
taxes (21) 441
Cash used by operating
activities from continuing
operations (79) (133)
Investing Activities
Capital expenditures (153) (114)
Acquisition of businesses, net of cash acquired (13) -
Business divestitures, net of cash divested 6 2,011
Other - net 24 (17)
Cash provided (used) by
investing activities from
continuing operations (136) 1,880
Financing Activities
Increase (decrease) in short and long-term debt - net 1,014 (1,056)
Stock repurchases (467) (150)
Payment of cash dividends (240) (232)
Dividends paid to noncontrolling interests (43) -
Proceeds from the exercise of stock options 13 16
Employee equity-based compensation withholdings (21) (24)
Other - net - (4)
Cash provided (used) by
financing activities from
continuing operations 256 (1,450)
Discontinued Operations
Net cash provided by operating activities 193 6
Net cash used by investing activities (66) (121)
Net cash provided (used) by financing activities (11) 10
Net cash flows provided (used)
by discontinued operations 116 (105)
Effect of exchange rate changes on cash, cash equivalents
and restricted cash (43) 17
Changes in cash held for sale (2) 10
Increase in cash, cash equivalents and restricted cash $112 $219
===
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, restructuring and
impairment costs, and the net
mark-to-market adjustments
related to restricted asbestos
investments and pension and
postretirement plans. In the first
quarter of fiscal 2019, the
Company began reporting the Power
Solutions business as a
discontinued operation, which
required retrospective application
to previously reported financial
information. As a result, the
financial results shown below are
for continuing operations and
exclude the Power Solutions
business.
(in millions; unaudited)
Three Months Ended December 31,
2018 2017
Actual
Adjusted
Actual
Adjusted
Non-GAAP Non-GAAP
Net sales
---
Building Solutions North
America $2,116 $2,116 $2,012 $2,012
Building Solutions EMEA/
LA 907 907 915 915
Building Solutions Asia
Pacific 613 613 597 597
Global Products 1,828 1,828 1,781 1,781
Net sales $5,464 $5,464 $5,305 $5,305
Segment EBITA (1)
---
Building Solutions North
America $250 $253 $227 $236
Building Solutions EMEA/
LA 77 77 69 71
Building Solutions Asia
Pacific 66 66 74 74
Global Products 190 194 286 178
Segment EBITA 583 590 656 559
Corporate expenses (2) (136) (93) (138) (105)
Amortization of
intangible assets (97) (97) (92) (92)
Net mark-to-market
adjustments (3) (21)
Restructuring and
impairment costs (4) (154)
EBIT (5) 329 400 272 362
EBIT margin 6.0% 7.3% 5.1% 6.8%
Net financing charges (85) (85) (102) (102)
Income from continuing
operations before income
taxes 244 315 170 260
Income tax provision (6) (108) (43) (217) (32)
Income (loss) from
continuing operations 136 272 (47) 228
Income from continuing
operations attributable
to
noncontrolling interests
(29) (29) (28) (28)
Net income (loss) from
continuing operations
attributable to JCI $107 $243 $(75) $200
(1) The Company's press release
contains financial information
regarding 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 businesses.
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 December 31, 2018 and 2017
reconciliation of segment EBITA
and segment EBITA margin as
reported to adjusted segment
EBITA and adjusted segment EBITA
margin (unaudited):
(in millions) Building Solutions Building Solutions Building Solutions Global Products Consolidated
North America EMEA/LA Asia Pacific JCI plc
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
Segment EBITA
as reported $250 $227 $77 $69 $66 $74 $190 $286 $583 $656
Segment EBITA
margin as
reported 11.8% 11.3% 8.5% 7.5% 10.8% 12.4% 10.4% 16.1% 10.7% 12.4%
Adjusting
items:
Integration
costs 3 9 2 4 6 7 17
Scott Safety
gain on sale (114) (114)
Adjusted
segment EBITA $253 $236 $77 $71 $66 $74 $194 $178 $590 $559
Adjusted
segment EBITA
margin 12.0% 11.7% 8.5% 7.8% 10.8% 12.4% 10.6% 10.0% 10.8% 10.5%
(2) Adjusted Corporate expenses for
the three months ended December 31,
2018 excludes $41 million of
integration costs and $2 million of
transaction costs. Adjusted
Corporate expenses for the three
months ended December 31, 2017
excludes $28 million of integration
costs and $5 million of transaction
costs.
(3) On October 1, 2018, the Company
adopted Accounting Standards Update
(ASU) No. 2016-01, "Financial
Instruments - Overall (Subtopic
825-10): Recognition and
Measurement of Financial Assets and
Financial Liabilities." ASU No.
2016-01 amends certain aspects of
recognition, measurement,
presentation and disclosure of
financial instruments, including
marketable securities. The new
standard requires the mark-to-
market of marketable securities
investments previously recorded
within accumulated other
comprehensive income on the
statement of financial position be
recorded in the statement of income
on a prospective basis beginning as
of the adoption date. The three
months ended December 31, 2018
exclude the net mark-to-market
adjustments on restricted
investments of $21 million. As these
restricted investments do not relate
to the underlying operating
performance of its businesses, the
Company's definition of adjusted
segment EBITA and adjusted EBIT
excludes the mark-to-market
adjustments effective October 1,
2018.
(4) Restructuring and impairment
costs for the three months ended
December 31, 2017 of $154 million
are excluded from the adjusted non-
GAAP results. The restructuring
actions and impairment costs related
primarily to workforce reductions,
plant closures and asset impairments
in the Building Technologies &
Solutions business and at Corporate.
(5) Management defines earnings
before interest and taxes (EBIT) as
income from continuing operations
before net financing charges, income
taxes and noncontrolling interests.
(6) Adjusted income tax provision for
the three months ended December 31,
2018 excludes the tax provision for
valuation allowance adjustments of
$76 million as a result of changes
in U.S. tax law, partially offset by
the tax benefits for integration
costs of $6 million and net mark-
to-market adjustments of $5
million. Adjusted income tax
provision for the three months ended
December 31, 2017 excludes the net
tax provision related to the U.S.
Tax Reform legislation of $204
million, the Scott Safety gain on
sale of $30 million and the impact
of the third quarter fiscal 2018
effective tax rate change of $6
million, partially offset by the tax
benefits for tax audit settlements
of $25 million, restructuring and
impairment costs of $23 million,
integration costs of $6 million and
transaction costs of $1 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
costs, gain on sale of the Scott Safety business,
net mark-to-market adjustments, restructuring
and impairment costs, impact of ceasing the
depreciation / amortization expense for the Power
Solutions business as the business is held for
sale, 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 adjusted diluted earnings per share
for the respective periods is shown below
(unaudited):
Net Income Net Income Attributable
Attributable to
to JCI plc JCI plc from
Continuing Operations
---
Three Months Ended Three Months Ended
December 31,
December 31,
---
2018 2017 2018 2017
---
Earnings (loss) per
share as reported
for JCI plc $0.38 $0.25 $0.12 $(0.08)
Adjusting items:
Transaction costs 0.03 0.01 0.01
Integration costs 0.05 0.05 0.05 0.05
Related tax impact (0.01) (0.01) (0.01) (0.01)
Scott Safety gain
on sale (0.12) (0.12)
Related tax impact 0.03 0.03
Net mark-to-
market adjustments 0.02 0.02 -
Related tax impact (0.01) (0.01) -
Restructuring and
impairment costs 0.17 0.17
Related tax impact (0.03) (0.02)
Cease of Power Solutions
depreciation /
amortization expense
(0.03) -
Related tax impact 0.01 -
Discrete tax items 0.16 0.20 0.08 0.20
---
Adjusted earnings
per share for JCI
plc* $0.61 $0.54 $0.26 $0.21
* May not sum due to rounding.
Thefollowing table reconciles the denominators used to calculate basic and diluted earnings per share for JCI plc (in millions; unaudited):
Three Months Ended
December 31,
2018 2017
Weighted average shares outstanding for
JCI plc
Basic weighted
average shares
outstanding 921.6 926.1
Effect of dilutive securities:
Stock options, unvested
restricted stock
and unvested performance
share awards
3.6
Diluted weighted
average shares
outstanding 925.2 926.1
For the three months ended December
31, 2017, the total number of
potential dilutive shares due to
stock options, unvested restricted
stock and unvested performance share
awards was 7.2 million. However,
these items were not included in the
computation of diluted loss per share
for the three months ended December
31, 2017, since to do so would
decrease the loss per share for
continuing operations. On an adjusted
diluted outstanding share basis,
inclusion of the effect of dilutive
securities results in diluted
weighted average shares outstanding
of 933.3 million for the three months
ended December 31, 2017.
The Company has presented forward-
looking statements regarding adjusted
EPS from continuing operations,
organic net sales growth, organic
adjusted EBITA growth, organic
adjusted EBIT growth, adjusted
segment EBITA margin, adjusted EBIT
margin and adjusted free cash flow
conversion for the full fiscal year
of 2019, 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 and the effect of
foreign currency exchange
fluctuations. Our fiscal 2019 outlook
for organic net sales and adjusted
EBITA and EBIT growth also excludes
the effect of acquisitions,
divestitures and foreign currency. 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 2019 GAAP financial
results.
3. Organic Growth Reconciliation
The components of the changes in net sales for the three months ended December 31, 2018 versus the three months ended December 31, 2017, including organic growth, is shown below (unaudited):
(in millions) Net Sales for the
Three Base Year Adjustments - Adjusted Base Net Foreign Currency Organic Growth Net Sales for the
Months Ended Acquisitions and Sales for the Three Three Months Ended
December 31, 2017 Divestitures Months Ended December 31, 2018
December 31, 2017
Building
Solutions North
America $2,012
$ - $2,012 $(8) $112 6% $2,116 5%
Building
Solutions EMEA/
LA 915 2 917 (43) -5% 33 4% 907 -1%
Building
Solutions Asia
Pacific 597 - 597 (18) -3% 34 6% 613 3%
Total field 3,524 2 3,526 (69) -2% 179 5% 3,636 3%
Global Products 1,781 (49) -3% 1,732 (31) -2% 127 7% 1,828 6%
Total net sales $5,305 $(47) -1% $5,258 $(100) -2% $306 6% $5,464 4%
The components of the changes in segment EBITA and EBIT for the three months ended December 31, 2018 versus the three months ended December 31, 2017, including organic growth, is shown below (unaudited):
(in millions) Adjusted Segment Base Year Adjustments - Adjusted Base Segment Foreign Currency Organic Growth Adjusted Segment
EBITA / EBIT for the Acquisitions and EBITA / EBIT for the EBITA / EBIT for
Three Months Ended Divestitures Three Months Ended the Three
December 31, 2017 December 31, 2017 Months Ended
December 31, 2018
Building
Solutions North
America $236
$ - $236 $(1) $18 8% $253 7%
Building
Solutions EMEA/
LA 71 1 1% 72 (7) -10% 12 17% 77 7%
Building
Solutions Asia
Pacific 74 - 74 (1) -1% (7) -9% 66 -11%
Total field 381 1 382 (9) -2% 23 6% 396 4%
Global Products 178 (6) -3% 172 (3) -2% 25 15% 194 13%
Total adjusted
segment EBITA 559 $(5) -1% 554 $(12) -2% $48 9% 590 6%
Corporate
expenses (105) (105) (93) 11%
Amortization of
intangible
assets (92) (92) (97) -5%
Total adjusted
EBIT $362 $357 $400 12%
4. Adjusted Free Cash Flow
Reconciliation
The Company's press release contains
financial information regarding free
cash flow, adjusted free cash flow
and adjusted free cash flow
conversion, which are non-GAAP
performance measures. Free cash flow
is defined as cash provided 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 businesses. Adjusted free
cash flow conversion is defined as
adjusted free cash flow divided by
adjusted net income. 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 months
ended December 31, 2018 and 2017
reconciliation of free cash flow,
adjusted free cash flow and adjusted
free cash flow conversion for
continuing operations (unaudited):
(in billions) Three Months Ended Three Months Ended
December 31, 2018 December 31, 2017
Cash used by operating activities from
continuing operations $(0.1) $(0.1)
Capital expenditures (0.2) (0.1)
Reported free cash flow * (0.2) (0.2)
Adjusting items:
Transaction/integration costs 0.1 0.1
Nonrecurring tax refunds (0.2)
Total adjusting items 0.1 (0.1)
Adjusted free cash flow * $(0.2) $(0.3)
Adjusted net income from continuing
operations
attributable to
JCI
$0.2 $0.2
Adjusted free cash flow conversion -100% -150%
* 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
December 31, 2018 and September 30,
2018 calculation of net debt as a
percentage of total capitalization
(unaudited):
(in millions) December 31, 2018 September 30, 2018
Short-term debt and current
portion of long-term debt $2,320 $1,307
Long-term debt 9,588 9,623
Total debt 11,908 10,930
Less: cash and cash equivalents 292 185
Total net debt 11,616 10,745
Shareholders' equity attributable
to JCI 20,102 21,164
Total capitalization $31,718 $31,909
Total net debt as a % of total
capitalization 36.6% 33.7%
6. Divestitures
On November 13, 2018, the Company entered into a
definitive agreement to sell its Power Solutions
business to BCP Acquisitions LLC for approximately
$13.2 billion. BCP Acquisitions LLC is a newly-
formed entity controlled by investment funds
managed by Brookfield Capital Partners LLC. The
transaction is expected to close by June 30, 2019,
subject to investment closing conditions and
required regulatory approvals. Net cash proceeds
are expected to be $11.4 billion after tax and
transaction-related expenses.
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.
7. Income Taxes
The Company's effective tax rate from continuing
operations before consideration of transaction/
integration costs, gain on sale of the Scott
Safety business, net mark-to-market adjustments,
restructuring and impairment costs, and discrete
tax items for the three months ending December 31,
2018 and 2017 is approximately 13.5% and 12.1%,
respectively.
SOURCE Johnson Controls
