Johnson Controls Reports Record 2013 Fourth Quarter Earnings; Expects 30% Earnings Increase in Q1 2014

CONTACT:

Glen L. Ponczak (Investors)

(414) 524-2375

(414) 524-2733

JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share data; unaudited)

Three Months Ended September 30,

2013

2012 (Revised)

Net sales

$    11,047

$                 10,392

Cost of sales

8,945

8,805

Gross profit

2,102

1,587

Selling, general and administrative expenses

(802)

(1,385)

Gain on business divestitures - net

454

5

Restructuring and impairment costs

(758)

(245)

Net financing charges

(54)

(62)

Equity income

94

71

Income (loss) before income taxes

1,036

(29)

Income tax provision (benefit)

895

(50)

Net income

141

21

Less: income attributable to noncontrolling interests

36

29

Net income (loss) attributable to JCI

$         105

$                        (8)

Diluted earnings (loss) per share 

$        0.15

$                   (0.01)

Diluted weighted average shares

691

683

Shares outstanding at period end

685

682

JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share data; unaudited)

Twelve Months Ended September 30,

2013

2012 (Revised)

Net sales

$          42,730

$            41,955

Cost of sales

35,952

35,807

Gross profit

6,778

6,148

Selling, general and administrative expenses

(3,965)

(4,478)

Gain on business divestitures - net

483

40

Restructuring and impairment costs

(985)

(297)

Net financing charges

(248)

(233)

Equity income

402

340

Income before income taxes

2,465

1,520

Income tax provision 

1,168

209

Net income

1,297

1,311

Less: income attributable to noncontrolling interests

119

127

Net income attributable to JCI

$            1,178

$              1,184

Diluted earnings per share 

$              1.71

$                1.72

Diluted weighted average shares

689

689

Shares outstanding at period end

685

682

JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in millions; unaudited)

September 30,

September 30,

2013

2012 (Revised)

ASSETS

Cash and cash equivalents

$           1,055

$                  265

Accounts receivable - net

7,206

7,308

Inventories

2,325

2,343

Assets held for sale

818

-

Other current assets

2,308

2,827

Current assets

13,712

12,743

Property, plant and equipment - net

6,585

6,440

Goodwill

6,589

6,982

Other intangible assets - net

999

947

Investments in partially-owned affiliates

1,041

948

Other noncurrent assets

2,645

2,894

Total assets

$         31,571

$             30,954

LIABILITIES AND EQUITY

Short-term debt and current portion of long-term debt

$              938

$                  747

Accounts payable and accrued expenses

7,533

7,204

Liabilities held for sale

416

-

Other current liabilities

3,244

2,904

Current liabilities

12,131

10,855

Long-term debt

4,560

5,321

Other noncurrent liabilities

2,132

2,752

Redeemable noncontrolling interests

157

253

Shareholders' equity attributable to JCI

12,331

11,625

Noncontrolling interests

260

148

Total liabilities and equity

$         31,571

$             30,954

JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions; unaudited)

Three Months Ended September 30,

2013

2012 (Revised)

Operating Activities

Net income (loss) attributable to JCI

$                105

$                   (8)

Income attributable to noncontrolling interests

36

29

Net income

141

21

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

256

221

Pension and postretirement benefit cost (credit)

(470)

455

Pension and postretirement contributions

(36)

(26)

Equity in earnings of partially-owned affiliates, net of dividends received

(37)

68

Deferred income taxes

282

(292)

Restructuring and impairment costs

537

39

Gain on divestitures - net

(454)

(5)

Fair value adjustment of equity investment

(24)

-

Other 

6

2

Changes in assets and liabilities, excluding acquisitions and divestitures:

Receivables

(162)

(59)

Inventories

54

170

Restructuring reserves

167

172

Accounts payable and accrued liabilities

270

(30)

Change in other assets and liabilities

517

58

Cash provided by operating activities

1,047

794

Investing Activities

Capital expenditures

(358)

(398)

Sale of property, plant and equipment 

63

46

Acquisition of businesses, net of cash acquired

(10)

-

Business divestitures

761

14

Other 

17

4

Cash provided (used) by investing activities

(334)

Financing Activities

Decrease in short and long-term debt - net

(541)

(606)

Stock repurchases

(125)

(60)

Payment of cash dividends

(130)

(123)

Proceeds from the exercise of stock options

81

12

Other 

(67)

(11)

Cash used by financing activities

(782)

(788)

Effect of exchange rate changes on cash and cash equivalents

(70)

(9)

Cash held for sale

(4)

-

Increase (decrease) in cash and cash equivalents

$                664

$               (337)

JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions; unaudited)

Twelve Months Ended September 30,

2013

2012 (Revised)

Operating Activities

Net income attributable to JCI

$              1,178

$              1,184

Income attributable to noncontrolling interests

119

127

Net income

1,297

1,311

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

952

824

Pension and postretirement benefit cost (credit)

(475)

479

Pension and postretirement contributions

(97)

(414)

Equity in earnings of partially-owned affiliates, net of dividends received

(86)

(138)

Deferred income taxes

273

(234)

Restructuring and impairment costs

586

53

Gain on divestitures - net

(483)

(40)

Fair value adjustment of equity investment

(106)

(12)

Other 

43

45

Changes in assets and liabilities, excluding acquisitions and divestitures:

Receivables

(156)

(114)

Inventories

(97)

109

Restructuring reserves

234

196

Accounts payable and accrued liabilities

584

(64)

Change in other assets and liabilities

127

(442)

Cash provided by operating activities

2,596

1,559

Investing Activities

Capital expenditures

(1,287)

(1,831)

Sale of property, plant and equipment 

116

58

Acquisition of businesses, net of cash acquired

(123)

(30)

Business divestitures

761

105

Other 

43

(94)

Cash used by investing activities

(490)

(1,792)

Financing Activities

Increase (decrease) in short and long-term debt - net

(573)

922

Stock repurchases

(350)

(102)

Payment of cash dividends

(513)

(477)

Proceeds from the exercise of stock options

254

40

Other 

(32)

(176)

Cash provided (used) by financing activities

(1,214)

207

Effect of exchange rate changes on cash and cash equivalents

(98)

34

Cash held for sale

(4)

-

Increase in cash and cash equivalents

$                 790

$                     8

FOOTNOTES

1. Business Unit Summary

In the fourth quarter of fiscal 2013, the Company changed its method of accounting for certain inventory at Power Solutions from LIFO to FIFO which required retrospective application to prior year financial statements.  As a result of this accounting change, the segment income amounts shown below reflect increases to cost of sales of $1 million ($0.00) for the fiscal 2012 fourth quarter and $70 million ($0.06) for the fiscal 2012 year-to-date.

Three Months Ended

Twelve Months Ended

(in millions)

September 30,

September 30,

2013

2012 (Revised)

%

2013

2012 (Revised)

(unaudited)

(unaudited)

Net Sales

Building Efficiency

$  3,891

$ 3,817

2%

$  14,591

$    14,715

-1%

Automotive Experience

5,459

5,012

9%

21,781

21,334

2%

Power Solutions

1,697

1,563

9%

6,358

5,906

8%

               Net Sales

$11,047

$10,392

$  42,730

$    41,955

Segment Income(2) 

Building Efficiency

$     363

$    327

11%

$       988

$        910

9%

Automotive Experience

734

159

*

1,299

803

62%

Power Solutions

346

239

45%

1,006

784

28%

               Segment Income

$  1,443

(1)

$    725

(1)

$    3,293

$      2,497

Restructuring and impairment costs

(758)

(245)

(985)

(297)

Mark-to-market benefit (charge) for pension and postretirement plans

405

(447)

405

(447)

Net financing charges

(54)

(62)

(248)

(233)

Income (loss) before income taxes

$  1,036

$    2,465

$      1,520

Net Sales

Products and systems

$  8,869

$ 8,268

7%

$  34,412

$    33,561

3%

Services

2,178

2,124

3%

8,318

8,394

-1%

$11,047

$10,392

$  42,730

$    41,955

Cost of Sales

Products and systems

$  7,237

$ 7,096

2%

$  29,196

$    28,909

1%

Services

1,708

1,709

0%

6,756

6,898

-2%

$  8,945

$ 8,805

$  35,952

$    35,807

* metric not meaningful

(1)  These 2013 fourth quarter reported segment income numbers include non-recurring/unusual items.  There were no 2012 fourth quarter non-recurring/unusual items included in segment income.  The pre-tax non-recurring/unusual items are reported in the segments as follows:

 Automotive Experience 

 Building Efficiency 

 Power Solutions 

 Consolidated JCI 

Segment income, as reported

$     734

$    363

$    346

$    1,443

Non-recurring/unusual items:

  Net loss (gain) on sale of businesses

(476)

22

-

(454)

  Pension settlement gain

(25)

(28)

(16)

(69)

Segment income, excluding non-recurring/unusual items

$     233

$    357

$    330

$       920

2) Management evaluates the performance of the business units based primarily on segment income, which represents income from continuing operations before income taxes and noncontrolling interests, excluding net financing charges, significant restructuring and impairment costs, and the net mark-to-market adjustments related to pension and postretirement plans.

Building Efficiency - 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 for the residential and non-residential building markets.

Automotive Experience - Designs and manufactures interior systems and products for passenger cars and light trucks, including vans, pick-up trucks and sport/crossover utility vehicles.

Power Solutions -  Services both automotive original equipment manufacturers and the battery aftermarket by providing advanced battery technology, coupled with systems engineering, marketing and service expertise.

2. Earnings Per Share Reconciliation

A reconciliation of earnings per share, as reported, to earnings per share, excluding non-recurring/unusual items, for the respective quarters and annual periods is shown below:

Three Months Ended

Twelve Months Ended

September 30,

September 30,

2013

2012 (Revised)

2013

2012 (Revised)

(unaudited)

(unaudited)

Earnings per share, as reported

$    0.15

$            (0.01)

$      1.71

$           1.72

Non-recurring/unusual items:

  Equity affiliate fair value adjustment

-

-

(0.07)

-

  Net gain on sale of businesses

(0.34)

-

(0.34)

(0.05)

  Restructuring and impairment costs

1.00

0.33

1.27

0.45

  Mark-to-market (gains)/charges for pension and postretirement plans

(0.34)

0.40

(0.34)

0.39

  Pension settlement gain

(0.06)

-

(0.06)

-

  Tax valuation allowances and tax reserves

0.24

0.05

0.19

0.02

  Foreign earnings repatriation provision (Electronics business)

0.30

-

0.30

-

Earnings per share, excluding non-recurring/unusual items

$    0.95

$             0.77

$      2.66

$           2.53

3. Income Taxes

The Company's effective tax rate before consideration of non-recurring/unusual items for the fourth quarter and year ending September 30, 2013 is 20 percent.  The fiscal 2013 fourth quarter provision for income tax reflects net valuation allowances and FIN 48 provisions of $165 million ($0.24) and repatriation of foreign earnings provisions of $206 million ($0.30).  The fiscal 2012 fourth quarter provision for income taxes reflects a $35 million ($0.05) valuation allowance provision.  The full year fiscal 2013 reflects net valuation allowances and FIN 48 provisions of $136 million ($0.19) and repatriation of foreign earnings provisions of $206 million ($0.30).  The full year fiscal 2012 provision for income taxes reflects a net tax expense of ($0.02) consisting of fourth quarter valuation allowance increase of ($0.05) and a $22 million third quarter tax benefit of ($0.03) related to a release of reserves for uncertain tax positions at international locations.

4.  Restructuring and Impairment

The fiscal 2013 fourth quarter includes restructuring and impairment costs of $758 million related to cost reduction initiatives in the Automotive Experience, Building Efficiency and Power Solutions businesses.  The costs consist primarily of workforce reductions and a goodwill impairment charge of $430 million related to Automotive Interiors.  The fiscal 2012 fourth quarter restructuring and impairment costs of $245 million related to cost reduction initiatives in the Automotive Experience, Building Efficiency and Power Solutions businesses, and the costs consist primarily of workforce reductions.

5. Divestitures

In the fourth quarter of fiscal 2013, the Company completed the sale of its HomeLink business, which had been part of the Automotive Experience Electronics segment. The Company received cash proceeds of approximately $700 million and recorded a net gain of $476 million ($257 million after-tax) as a result of the sale.  The remaining Electronics business has been shown as assets held for sale and liabilities held for sale in the accompanying condensed consolidated statement of financial position as of September 30, 2013.  In the fourth quarter of fiscal 2013, the Company also sold its commercial refrigeration business in France.  The Company recorded a net loss of $22M as a result of the sale.

6.  Mark-to-Market Pension and Postretirement Plans

In the fourth quarter of fiscal 2012, the Company changed its method of accounting for pension and postretirement benefits.  The pension and postretirement mark-to-market gain or charge for each period resulting from this accounting change is treated as a non-recurring/unusual item.  The fiscal 2013 fourth quarter includes a mark-to-market gain for pension and postretirement plans of $405 million ($0.34).  The fiscal 2012 fourth quarter includes a mark-to-market charge for pension and postretirement plans of ($447) million ($0.40). 

7.  Share Repurchase Program

In November 2012, the Company's Board of Directors authorized a share repurchase program to acquire up to $500 million of the Company's outstanding stock.  During fiscal 2013, the Company repurchased $350 million under this authorization.  In September 2013, the Company's Board of Directors authorized up to an additional $500 million.  The share repurchase program does not have an expiration date and may be amended or terminated by the Board of Directors at any time without prior notice.

8. Earnings Per Share

The following table reconciles the numerators and denominators used to calculate basic and diluted earning per share (in millions):

Three Months Ended

Twelve Months Ended

September 30,

September 30,

2013

2012 (Revised)

2013

2012 (Revised)

(unaudited)

(unaudited)

Income (loss) Available to Common Shareholders

Basic income (loss) available to common

shareholders

$     105

$              (8)

$    1,178

$         1,184

Interest expense, net of tax

-

-

-

1

Diluted income (loss) available to common

shareholders

$     105

$    1,178

$         1,185

Weighted Average Shares Outstanding

Basic weighted average shares outstanding

683.8

682.6

683.7

681.5

Effect of dilutive securities:

     Stock options and unvested restricted stock

6.9

-

5.5

5.2

     Equity units

-

-

-

1.9

Diluted weighted average shares outstanding

690.7

682.6

689.2

688.6