Johnson Controls reports solid fiscal Q2 earnings with stronger orders and free cash flow

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  •  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-d
  • 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
Non-GAAP


Actual


Adjusted
Non-GAAP


Actual


Adjusted
Non-GAAP


Actual


Adjusted
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
North America 


 Building Solutions
EMEA/LA 


 Building Solutions
Asia Pacific 


 Global Products 


 Total Building
Technologies & Solutions 


 Power Solutions 


 Consolidated JCI plc 



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
North America 


 Building Solutions
EMEA/LA 


 Building Solutions
Asia Pacific 


 Global Products 


 Total Building
Technologies & Solutions 


 Power Solutions 


 Consolidated JCI plc 



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
to JCI plc 


 Net Income Attributable
to JCI plc from Continuing
Operations 


 Net Income Attributable
to JCI plc 


 Net Income Attributable
to JCI plc from
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
for the Three
Months Ended
March 31, 2017


Base Year Adjustments -
Divestitures


Adjusted Base Net
Sales for the Three
Months Ended
March 31, 2017


Foreign Currency


Lead Impact


Organic Net Sales


Adjusted Net Sales
for the Three
Months Ended
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
for the Six
Months Ended
March 31, 2017


Base Year Adjustments -
Divestitures


Adjusted Base Net
Sales for the Six
Months Ended
March 31, 2017


Foreign Currency


Lead Impact


Organic Net Sales


Adjusted Net Sales
for the Six
Months Ended
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
March 31, 2018 


 Three Months Ended
March 31, 2017 


 Six Months Ended
March 31, 2018 


 Six Months Ended
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.

 

Johnson Controls Logo. (PRNewsFoto/JOHNSON CONTROLS, INC.) (PRNewsFoto/)

 

SOURCE Johnson Controls

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