Johnson Controls reports first quarter 2017 GAAP earnings from continuing operations of $0.39 per share, strong adjusted earnings of $0.53 per share and reaffirms 2017 adjusted EPS guidance

GAAP

Adjusted

Adjusted

Q1 2017

Q1 2017

Q1 2016
(Combined)

Change

Sales

$7,086

$7,096

$7,066

-

Segment EBITA

824

968

919

5%

Intangible asset amortization expense

(149)

(103)

(106)

(3%)

EBIT

521

757

690

10%

Net income from continuing operations

372

502

452

11%

EPS from continuing operations

$0.39

$0.53

$0.48

10%

BUSINESS RESULTS

Building Technologies & Solutions ("Buildings")

GAAP

Adjusted

Adjusted

Q1 2017

Q1 2017

Q1 2016

(Combined)

Change

Sales

$5,186

$5,196

$5,326

(2%)

Segment EBITA

$435

$578

$559

3%

Segment EBITA margin %

8.4%

11.1%

10.5%

+60bps

Power Solutions

GAAP

Adjusted

Adjusted

Q1 2017

Q1 2017

Q1 2016

(Combined)

Change

Sales

$1,900

$1,900

$1,740

9%

Segment EBITA

$389

$390

$360

8%

Segment EBITA margin %

20.5%

20.5%

20.7%

(20bps)

Corporate

GAAP

Adjusted

Adjusted

Q1 2017

Q1 2017

Q1 2016

(Combined)

Change

Corporate expense

($193)

($108)

($123)

(12%)

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,

2016

2015

Net sales

$ 7,086

$ 4,696

Cost of sales

4,972

3,439

Gross profit

2,114

1,257

Selling, general and administrative expenses

(1,570)

(847)

Restructuring and impairment costs

(78)

-

Net financing charges

(136)

(66)

Equity income

55

42

Income from continuing operations before income taxes

385

386

Income tax provision (benefit)

(27)

83

Income from continuing operations

412

303

Income (loss) from discontinued operations, net of tax

(34)

187

Net income

378

490

Less: Income from continuing operations attributable to noncontrolling interests

40

23

Less: Income from discontinued operations attributable to noncontrolling interests

9

17

Net income attributable to JCI

$    329

$    450

Income from continuing operations

$    372

$    280

Income (loss) from discontinued operations

(43)

170

Net income attributable to JCI

$    329

$    450

Diluted earnings per share from continuing operations

$   0.39

$   0.43

Diluted earnings (loss) per share from discontinued operations

(0.05)

0.26

Diluted earnings per share *

$   0.35

$   0.69

Diluted weighted average shares

947.4

652.8

Shares outstanding at period end

938.7

648.2

* May not sum due to rounding.

JOHNSON CONTROLS INTERNATIONAL PLC

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in millions; unaudited)

December 31,

September 30,

2016

2016

ASSETS

Cash and cash equivalents

$              377

$              579

Accounts receivable - net

6,057

6,394

Inventories

2,943

2,888

Assets held for sale

173

5,812

Other current assets

1,416

1,436

Current assets

10,966

17,109

Property, plant and equipment - net

5,556

5,632

Goodwill

20,772

21,024

Other intangible assets - net

7,290

7,540

Investments in partially-owned affiliates

1,030

990

Noncurrent assets held for sale

-

7,374

Other noncurrent assets

3,174

3,510

Total assets

$         48,788

$         63,179

LIABILITIES AND EQUITY

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

$           2,899

$           1,668

Accounts payable and accrued expenses

4,617

5,333

Liabilities held for sale

31

4,276

Other current liabilities

3,912

5,016

Current liabilities

11,459

16,293

Long-term debt

10,351

11,091

Other noncurrent liabilities

6,423

6,583

Noncurrent liabilities held for sale

-

3,888

Redeemable noncontrolling interests

159

234

Shareholders' equity attributable to JCI

19,577

24,118

Noncontrolling interests

819

972

Total liabilities and equity

$         48,788

$         63,179

JOHNSON CONTROLS INTERNATIONAL PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions; unaudited)

Three Months Ended December 31,

Operating Activities

Net income attributable to JCI

$   329

$   450

Income from continuing operations attributable to noncontrolling interests

40

23

Income from discontinued operations attributable to noncontrolling interests

9

17

Net income

378

490

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

Depreciation and amortization

346

226

Pension and postretirement benefit income

(155)

(17)

Pension and postretirement contributions

(247)

(19)

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

(64)

(110)

Deferred income taxes

580

(14)

Non-cash restructuring and impairment costs

16

-

Other - net

37

29

Changes in assets and liabilities, excluding acquisitions and divestitures:

Accounts receivable

37

199

Inventories

(142)

(70)

Other assets

(87)

(108)

Restructuring reserves

20

(74)

Accounts payable and accrued liabilities

(811)

(394)

Accrued income taxes

(1,808)

(151)

Cash used by operating activities

(1,900)

(13)

Investing Activities

Capital expenditures

(371)

(282)

Sale of property, plant and equipment 

2

9

Acquisition of businesses, net of cash acquired

(3)

(133)

Business divestitures, net of cash divested

47

18

Other - net

(6)

4

Cash used by investing activities

(331)

(384)

Financing Activities

Increase in short and long-term debt - net

556

514

Debt financing costs

(6)

-

Payment of cash dividends

-

(168)

Proceeds from the exercise of stock options

29

16

Dividends paid to noncontrolling interests

(31)

(154)

Dividend from Adient spin-off

2,050

-

Cash transferred to Adient related to spin-off

(564)

-

Cash paid related to prior acquisitions

(45)

-

Other - net

(10)

6

Cash provided by financing activities

1,979

214

Effect of exchange rate changes on cash and cash equivalents

(55)

-

Cash held for sale

105

(14)

Decrease in cash and cash equivalents

$ (202)

$ (197)

FOOTNOTES

 1.  Financial Summary

In the first quarter of fiscal 2017, the Company began evaluating 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.  Historical information has been revised to present the comparable periods on a consistent basis.  Also in the first quarter of fiscal 2017, the Company began reporting the Automotive Experience business as a discontinued operation, which required retrospective application to previously reported financial information.  As a result, the segment EBITA amounts shown below are for continuing operations and exclude the Automotive Experience business.  In addition, the financial results for the three months ended December 31, 2015 excludes the Tyco business.

(in millions)

Three Months Ended December 31,

2016

2015

Actual

Adjusted Non-GAAP

Actual

Adjusted Non-GAAP

(unaudited)

(unaudited)

Net sales (1)

Building Technologies & Solutions

$5,186

$                    5,196

$2,956

$                    2,956

Power Solutions

1,900

1,900

1,740

1,740

               Net sales

$7,086

$                    7,096

$4,696

$                    4,696

Segment EBITA (1)

Building Technologies & Solutions

$   435

$                      578

$   199

$                      211

Power Solutions

389

390

360

360

               Segment EBITA

824

968

559

571

Corporate expenses (2)

(193)

(108)

(87)

(68)

Amortization of intangible assets (3)

(149)

(103)

(20)

(20)

Mark-to-market gain for pension plans (4)

117

-

-

-

Restructuring and impairment costs (5)

(78)

-

-

-

               EBIT (6)

521

757

452

483

Net financing charges (7)

(136)

(119)

(66)

(66)

Income from continuing operations before income taxes

385

638

386

417

Income tax (provision) benefit (8)

27

(96)

(83)

(86)

Income from continuing operations

412

542

303

331

Income from continuing operations attributable to 

     noncontrolling interests (9)

(40)

(40)

(23)

(29)

Net income from continuing operations attributable to JCI

$   372

$                      502

$   280

$                      302

Building Technology & 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, fire detection and suppression products and services, and life safety products for the residential and non-residential building markets.

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 first quarter 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 Technologies & Solutions 

 Power Solutions 

 Consolidated JCI plc 

2016

2015

2016

2015

2016

2015

Net sales as reported

$     5,186

$2,956

$                    1,900

$1,740

$                    7,086

$4,696

Adjusting items:

  Nonrecurring purchase accounting impacts

10

-

-

-

10

-

Adjusted net sales

$     5,196

$2,956

$                    1,900

$1,740

$                    7,096

$4,696

Segment EBITA as reported

$       435

$   199

$                      389

$   360

$                      824

$   559

Segment EBITA margin as reported

8.4%

6.7%

20.5%

20.7%

11.6%

11.9%

Adjusting items:

  Transaction costs

17

9

1

-

18

9

  Integration costs

14

3

-

-

14

3

  Nonrecurring purchase accounting impacts

112

-

-

-

112

-

Adjusted segment EBITA

$       578

$   211

$                      390

$   360

$                      968

$   571

Adjusted segment EBITA margin

11.1%

7.1%

20.5%

20.7%

13.6%

12.2%

(2) Adjusted Corporate expenses for the fiscal 2017 first quarter exclude $50 million of integration costs, $31 million of transaction costs and $4 million of separation costs.  Adjusted Corporate expenses for the fiscal 2016 first quarter exclude $18 million of separation costs and $1 million of transaction costs.

(3) Adjusted amortization of intangible assets for the fiscal 2017 first quarter excludes $46 million of nonrecurring asset amortization related to Tyco purchase accounting.

(4) The fiscal 2017 first quarter pension mark-to-market gain of $117 million due to lump sum payouts for certain U.S. pension plans in the quarter is excluded from the adjusted non-GAAP results.

(5) The fiscal 2017 first quarter restructuring and impairment charge of $78 million is 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 fiscal 2017 first quarter exclude $17 million of transaction costs related to the debt exchange offers.

(8) Adjusted income tax provision for the fiscal 2017 first quarter excludes the tax benefits of changes in entity tax status of $101 million, Tyco non-recurring purchase accounting impacts of $43 million, restructuring and impairment costs of $14 million, integration costs of $7 million and transaction costs of $4 million, partially offset by the tax provision for gain on mark-to-market pension of $46 million.  Adjusted income tax provision for the fiscal 2016 first quarter excludes the tax benefits of transaction costs of $2 million and separation costs of $1 million.

(9) Adjusted income from continuing operations attributable to noncontrolling interests for the fiscal 2016 first quarter excludes $6 million for the noncontrolling interest impact of transaction/integration costs.

 2.  2016 Supplemental Combined Information

As a result of the reverse merger between JCI and Tyco, which closed on September 2, 2016, the Company is providing supplemental combined financial information.  As supplemental information that management believes will be useful to investors, the Company has provided unaudited selected historical information which combines JCI's historical Building Efficiency business with historical Tyco results of operations as if these businesses had been operated together during the periods presented.

The merger is accounted for as a reverse acquisition with JCI considered to be acquiring Tyco for accounting purposes.  As a result, the amounts reflected in Column A in the below table present the historical results of JCI, revised for the reporting changes described within footnote 1 above.  The amounts in Column B reflect the impact of the special items, as set forth in the notes to the table and within footnote 1 above. The amounts in Column C reflect the inclusion of Tyco's historical results for the period prior to the merger on an adjusted basis.

For the avoidance of doubt, this supplemental combined information is not intended to be, and was not, prepared on a basis consistent with the unaudited pro forma condensed combined financial information in Exhibit 99.3 to the Company's Current Report on Form 8-K/A filed October 3, 2016 with the U.S. Securities and Exchange Commission (the "Pro Forma 8-K/A Filing"), which provides the pro forma financial information required by Item 9.01(b) of Form 8-K. The supplemental combined information is intentionally different from, but does not supersede, the pro forma financial information in the Pro Forma 8-K/A Filing.

In addition, the supplemental combined information does not purport to indicate the results that actually would have been obtained had the JCI and Tyco businesses been operated together on the basis of the new segment structure during the periods presented, or which may be realized in the future. 

Amounts Adjusted for Certain Special Items

The supplemental combined information includes line items, such as net sales, income from continuing operations before income taxes, income tax provision, noncontrolling interest, net income and diluted EPS, that have been adjusted for the special items set forth in the notes to the table. Such amounts should be viewed in addition to, and not in lieu of, net sales, income from continuing operations before income taxes, income tax provision, noncontrolling interest, net income and diluted EPS and other financial measures on an unadjusted basis. In addition, per share amounts presented in the tables take into account the effects of (i) the issuance of ordinary shares to JCI shareholders in connection with the merger, and (ii) the consolidation of Tyco ordinary shares immediately prior to the merger. As a result, share counts reflect shares outstanding as of September 2, 2016 immediately following the consummation of the merger transaction.

The Company's management believes that these adjusted amounts, when considered together with the unadjusted amounts, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionate positive or negative impact on results in any particular period. The Company's management also believes that these adjusted amounts enhance the ability of investors to analyze trends in the Company's underlying business and to better understand the Company's performance. In addition, the Company may utilize adjusted amounts as guides in forecasting, budgeting and long-term planning processes and to measure operating performance for compensation purposes. Adjusted amounts should be considered in addition to, and not as a substitute for, or superior to, unadjusted amounts. 

(in millions, except per share data)

Three Months Ended December 31, 2015

A

B

C

D

Net sales

Building Technologies & Solutions

$2,956

$                           -

$2,370

$                    5,326

Power Solutions

1,740

-

-

1,740

               Net sales

$4,696

$                           -

$2,370

$                    7,066

Income from continuing operations

Building Technologies & Solutions

$   199

$                        12

$   348

$                      559

Power Solutions

360

-

-

360

               Segment EBITA

559

12

348

919

Corporate expenses

(87)

19

(55)

(123)

Amortization of intangible assets

(20)

-

(86)

(106)

               EBIT

452

31

207

690

Net financing charges

(66)

-

(45)

(111)

Income from continuing operations before income taxes

386

31

162

579

Income tax provision

(83)

(3)

(12)

(98)

Noncontrolling interest

(23)

(6)

-

(29)

Net income

$   280

$                        22

$   150

$                      452

Diluted weighted average shares

652.8

940

Diluted earnings per share

$  0.43

$                     0.48

A - Johnson Controls, as reported.

B - Adjusted to exclude special items because these costs 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 better understanding the ongoing operations and business trends of the Company.  The special items are described by line item in footnote 1 above.  The income tax provision and noncontrolling interest adjustments are a result of the special items discussed in footnote 1.

C - Includes Tyco adjusted non-GAAP results for the first quarter of fiscal 2016 as if the merger occurred October 1, 2015. Tyco's first three fiscal quarters of 2016 ended on the last Friday of December, March and June, while JCI's fiscal quarters ended on the last day of each such month. Because the historical statements of income of each company represent full and equivalent quarterly periods, no adjustments were made to align the fiscal quarters.  The income tax provision also includes an adjustment to arrive at an annualized 17% tax rate for fiscal 2016 as a combined company.

D - Combined financial information as if the merger with Tyco was completed on October 1, 2015. Reflects annual 17% tax rate and 940 million share count.

 3. Organic Adjusted Net Sales Growth Reconciliation

The components of the changes in adjusted net sales for the three months ended December 31, 2016 versus the three months ended December 31, 2015, including organic net sales, is shown below (unaudited):

(in millions)

Combined Adjusted Net Sales for the Three Months Ended
December 31, 2015

Foreign Currency

Acquisitions/
Divestitures, Net

Lead Impact

Organic Net Sales

Building Technologies & Solutions

$                      5,326

$                       (46)

-0.9%

$                       (50)