Johnson Controls reports strong 2016 fiscal third quarter earnings; tightens guidance to higher end of previous range and announces acceleration of Tyco merger close

MILWAUKEE, July 21, 2016 /PRNewswire/ -- For the third quarter of fiscal 2016, Johnson Controls (NYSE:JCI), reported $9.5 billion in revenues and net income from continuing operations of $383 million, which includes several non-recurring items. Diluted earnings per share from continuing operations for the quarter were $0.59. Adjusted non-GAAP diluted earnings per share from continuing operations for the quarter were $1.07, up 18 percent from the prior year quarter. Excluding transaction / integration / separation costs and other non-recurring items in the fiscal third quarter, continuing operations highlights include:

• Net revenues of $9.5 billion versus $9.6 billion in fiscal Q3 2015, with the decrease due primarily to the deconsolidation of the Company's Automotive Interiors joint venture and foreign exchange, largely offset by higher organic revenues (up 1 percent) and incremental revenues from its Johnson Controls-Hitachi (JCH) joint venture
• Segment income from continuing operations of $1,003 million compared with $848 million in the prior year quarter, up 18 percent (up 19 percent excluding foreign exchange), including the contribution of the JCH joint venture and ongoing Johnson Controls Operating System benefits
• Segment income margins 170 basis points higher than the fiscal 2015 third quarter
• Diluted earnings per share of $1.07, up 18 percent versus $0.91 in the same quarter last year

Non-recurring items that impacted reported fiscal Q3 2016 and Q3 2015 income from continuing operations include:

2016 third quarter (net charge of $0.48 per share)

• Transaction, integration and separation costs of $167 million ($150 million after tax and non-controlling interest) primarily related to the proposed spin-off of Adient, the Tyco merger and the JCH joint venture integration
• Restructuring charges of $102 million ($79 million after tax) primarily related to workforce reductions, plant closures and asset impairments
• Non-cash tax charge of $85 million related to changes in entity tax status associated with the proposed Adient spin-off

2015 third quarter (net charge of $0.15 per share)

• Transaction, integration and separation costs of $26 million ($23 million after tax)
• Non-cash tax charge of $75 million related to the repatriation of foreign cash associated with the Automotive Interiors joint venture transaction

"The Company delivered another excellent quarter continuing our momentum as we progress toward separation into two world-class companies," said Alex Molinaroli, Johnson Controls CEO. "We experienced solid organic growth in both Building Efficiency and Power Solutions and delivered significant margin expansion across all our businesses. Power Solutions drove unit growth in all regions with start-stop units increasing 22 percent versus the prior year quarter, the Johnson Controls-Hitachi joint venture continues to exceed our expectations and Automotive Experience generated another quarter of exceptional profitability."

Business results (excluding transaction / integration / separation costs and non-recurring items)

Building Efficiency sales in the fiscal third quarter of 2016 were $3.6 billion, up 33 percent versus the prior year third quarter. Excluding the incremental revenue associated with the JCH joint venture and the impact of foreign currency, revenues increased 4 percent versus the prior year quarter with higher revenues in North America and Asia.

Orders in the quarter, excluding M&A and adjusted for foreign exchange, were 5 percent higher year-over-year driven by Systems and Services North America up 3 percent, Products North America up 8 percent and Asia up 6 percent. Backlog at the end of the quarter improved to $4.8 billion, an increase of 2 percent from the prior year, excluding the impact of foreign exchange.

Building Efficiency segment income was $397 million, up 46 percent from $272 million in the fiscal 2015 third quarter primarily as a result of incremental segment income from the JCH joint venture and higher volumes, partially offset by product and sales force investments. Overall Building Efficiency segment margins in the fiscal 2016 third quarter of 10.9 percent increased 90 basis points compared with the prior year quarter.

Power Solutions sales in the fiscal third quarter of 2016 were $1.5 billion, up 3 percent from the prior year quarter. Excluding the impact of foreign exchange and lower lead pass-through costs, sales increased 5 percent, with higher volumes in all regions. Global original equipment battery shipments were up 5 percent and aftermarket shipments up 1 percent in the quarter versus the prior year.

Power Solutions segment income of $262 million increased 12 percent from the prior year fiscal 2015 third quarter (up 13 percent excluding foreign exchange) due primarily to higher volumes, pricing discipline and mix. Segment margins were 17.2 percent in the quarter, up 130 basis points from the prior year quarter.

In the quarter, Johnson Controls announced the formation of joint ventures with Binzhou Bohai Piston Co., Ltd., an auto parts affiliate of Beijing Automotive Industry Group Co., Ltd. (BAIC Group), to build its fourth Chinese automotive battery manufacturing plant. This partnership is expected to provide the Company with further access to and influence within the expanding Chinese automotive battery market. Construction is expected to begin in 2017, with production slated to begin in 2019. Once up and running, the plant will have annual capacity of 7.5 million batteries. The Company also announced during the quarter it is investing $245 million between 2016 and 2020 to double Absorbent Glass Mat (AGM) battery production capacity in North America.

Automotive Experience revenues in the fiscal third quarter of 2016 were $4.4 billion, down 19 percent compared to the prior year quarter, primarily due to the deconsolidation of the Interiors joint venture and the impact of foreign exchange. Excluding the impact of the Interiors deconsolidation and foreign exchange, sales were down 1 percent, with growth in Asia and Europe offset by expiring programs in North America. Revenues in China, which are primarily generated through non-consolidated joint ventures, increased 49 percent to $2.9 billion (up 11 percent excluding the impact of the deconsolidation of Interiors and foreign exchange).

Automotive Experience segment income was a third quarter record at $344 million, an increase of 1 percent versus the prior year third quarter. The increase in segment income in the quarter was primarily due to restructuring savings, cost reduction initiatives and operational efficiencies. Segment margins at 7.9 percent were up 160 basis points in the quarter (up 20 basis points adjusting for the impact of the deconsolidation of the Interiors joint venture).

Also during the quarter, Adient, the Company's automotive seating and interiors business, initiated discussions with lenders as a first step in securing its financing in advance of the planned spin-off.  The strength of Adient's underlying business and positive outlook was affirmed with S&P's preliminary BB+ corporate credit rating. At the time of separation, Adient's net debt position and corresponding dividend back to Johnson Controls is expected to be $3.0 billion. New business wins at Adient continue to accelerate with $4.3 billion booked through June 30, 2016 versus $3.6 billion for the full fiscal 2015 year.

Tightens full year earnings guidance to higher end of previous range

Johnson Controls tightens its full year fiscal 2016 guidance from $3.85 - $4.00 earnings per diluted share to $3.95 to $3.98, reflecting continued strong operational performance. The Company expects 2016 fiscal fourth quarter earnings per diluted share of $1.17 - $1.20. Quarterly and fiscal year guidance excludes the impact of the Tyco merger as well as transaction, integration and separation costs, year-end pension/postretirement mark-to-market adjustments and other non-recurring items.

Other matters

The Adient spin-off remains on track for completion by the end of October. The Company has determined that Adient will incorporate in Ireland, and reconfirms Adient's previously disclosed expected tax rate of between 10 and 12 percent. Adient will host an analyst meeting on September 15, 2016 in New York City as it continues to progress toward becoming an independent company.

Johnson Controls also announces it expects to accelerate the closing of its merger with Tyco International plc to September 2, 2016. In conjunction with this closing date, the Company will pull forward its fiscal 2016 fourth quarter dividend to an August 5, 2016 record date and August 19, 2016 payment date. Johnson Controls will host its annual Analyst Day on December 5, 2016 in New York City.

Beginning in the fiscal third quarter, the Company has now completed $500 million in common stock share repurchases in conjunction with its previously announced program.

"I am very proud of the progress our team has made toward the execution of the most significant transformation in Johnson Controls' history," said Molinaroli. "The Adient team is now operationally ready and we expect they will soon become the independent world leader in automotive seating and interiors. My enthusiasm and confidence in the future of Johnson Controls only continues to grow as I work closely with our future colleagues from Tyco. With the leadership team established, we continue to progress in our integration planning to create what we believe will be the world leader in buildings and energy, uniquely positioned to deliver superior value to our customers, employees and shareholders through this powerful strategic combination."

ABOUT JOHNSON CONTROLS

Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. Our 150,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and seating components and systems for automobiles. Our commitment to sustainability dates back to our roots in 1885, with the invention of the first electric room thermostat. Through our growth strategies and by increasing market share we are committed to delivering value to shareholders and making our customers successful. In 2016, Corporate Responsibility Magazine recognized Johnson Controls as the #17 company in its annual "100 Best Corporate Citizens" list. For additional information, please visit http://www.johnsoncontrols.com. Follow Johnson Controls Investor Relations on Twitter at www.twitter.com/JCI_IR.

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In connection with the proposed transaction between Johnson Controls, Inc. ("Johnson Controls") and Tyco International plc ("Tyco"), Tyco has filed with the U.S. Securities and Exchange Commission (the "SEC") a registration statement on Form S-4 that includes a definitive joint proxy statement of Johnson Controls and Tyco that also constitutes a prospectus of Tyco (the "Joint Proxy Statement/Prospectus"). Johnson Controls and Tyco have mailed to their respective shareholders the definitive Joint Proxy Statement/Prospectus in connection with the transaction. INVESTORS AND SECURITY HOLDERS OF JOHNSON CONTROLS AND TYCO ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT JOHNSON CONTROLS, TYCO, THE TRANSACTION AND RELATED MATTERS. Investors and security holders are able to obtain free copies of the Joint Proxy Statement/Prospectus and other documents filed with the SEC by Johnson Controls and Tyco through the website maintained by the SEC at www.sec.gov. In addition, investors and security holders are able to obtain free copies of the documents filed with the SEC by Johnson Controls by contacting Johnson Controls Shareholder Services at [email protected] or by calling (800) 524-6220 and are able to obtain free copies of the documents filed with the SEC by Tyco by contacting Tyco Investor Relations at [email protected] or by calling (609) 720-4333.

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