EX-99.1 2 c06922exv99w1.htm PRESS RELEASE exv99w1
 

Exhibit 99.1
         
Contact:  
Monica Levy (media)
414-524-2695
  For Immediate Release
July 20, 2006
   
 
    
   
Glen Ponczak (investors)
414-524-2375
    
JOHNSON CONTROLS REPORTS RECORD THIRD-QUARTER SALES AND EARNINGS; UPDATES GUIDANCE
     MILWAUKEE, WISCONSIN, July 20, 2006 ... Johnson Controls, Inc. (JCI) today reported record sales and earnings for the third quarter of fiscal 2006.
     Sales for the 2006 third quarter increased 19% to $8.4 billion from $7.1 billion for the 2005 quarter. Building efficiency sales were double the level a year ago and power solutions sales were one-third higher. Interior experience sales were lower than the year-ago period reflecting weaker automotive markets. Operating income for the 2006 quarter was $280 million, including a restructuring charge of $197 million, compared with $368 million last year. Income from continuing operations, including non-recurring tax benefits, was $336 million versus $255 million the prior year. Diluted earnings per share from continuing operations were 30% higher, reaching $1.70 vs. $1.31.
     “Johnson Controls continues to assertively grow its businesses and take actions to improve its profitability,” said John M. Barth, Chairman and Chief Executive Officer. “The integration of our 2005 acquisitions, that have expanded our market penetration and strengthened our capabilities for our customers, is progressing well. The set of restructuring initiatives announced during the third quarter reflect our long-term commitment to growth and strengthened competitive positions.”
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July 20, 2006
Page 2
     “This quarter’s results show the value of Johnson Controls business and geographic diversification,” said Mr. Barth. “While cost recoveries from automotive customers and battery replacement demand were lower than our expectations in April, these shortfalls were mitigated by strong performances by our European interiors and North American building efficiency systems businesses. The total building efficiency business performed in line with our expectations, and for the first time became the largest contributor to consolidated earnings, generating 40 percent of our operating income in the quarter.”
     Mr. Barth added, “As we implement our strategies for sustained profitable growth, our employees have experienced significant change. We wish to thank them for their support and dedication to our customers and to our goals.”
     The restructuring charge ($137 million after-tax) is associated with initiatives to improve the profitability of interior experience and building efficiency operations in North America and Europe. The tax benefits of $141 million are primarily associated with the reversal of a deferred tax asset valuation allowance in Germany. The net impact of these two items was a benefit of $0.02 per share.
     The company’s financial position continued to strengthen due to earnings growth and an improvement in working capital. Total debt to total capitalization was 42% at June 30, 2006 versus 45% at the end of the second quarter of 2006.
Business Results
     Discussion of the business results excludes the impact on operating income of the restructuring charge.
     Building efficiency sales were $2.8 billion compared with 2005 revenues of $1.4 billion. The increase was primarily due to the additional revenues associated with the December 2005 York acquisition as well as double-digit growth in the North American services market and global facility management. Operating income also doubled, reaching $190 million versus $93 million a year ago reflecting the higher revenues as well as successful acquisition integration initiatives. The backlog of uncompleted contracts at June 30, 2006 was $3.7 billion, an increase of 16% over the prior year amount (pro-forma including York). Johnson Controls added that its domestic systems and services orders from the nonresidential buildings market were up substantially, aided by its ability to offer customers a complete control and mechanical equipment solution for building comfort and energy efficiency.
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July 20, 2006
Page 3
     Interior experience sales were $4.7 billion, down 6% from $5.0 billion in 2005 reflecting lower sales in North America, Europe and Asia. While North American production of light vehicles was only 1% lower, Johnson Controls sales decreased 8% in the region due to its exposure to weak light truck demand impacting every automaker in the domestic market. The company’s sales in Europe were 6% below the prior year, approximately in line with automotive vehicle production, which reflects fewer production days in the current year. Operating income was $168 million, down 16% from $200 million. North American income declined as lower sales and higher commodity and launch costs offset improvements in operational efficiencies. European results were markedly higher reflecting substantial improvements in its cost structure and operational performance.
     Power solutions sales increased 33% to $886 million from $665 million mainly due to volume from the July 2005 acquisition of the Delphi battery business and a full quarter of recently launched original equipment and aftermarket business. Operating income increased 59% to $119 million, from $75 million for the prior year. The current year amount includes a $33 million positive legal settlement associated with the recovery of previously incurred environmental costs.
Fourth-Quarter and 2006 Full-Year Outlook
     Johnson Controls said that it continues to anticipate full-year sales approximating $32 billion as the positive impact of a stronger Euro versus the U.S. dollar will be offset by an unfavorable vehicle production mix. Diluted earnings per share from continuing operations for 2006 are forecast in a range of $5.25 to $5.30 for the full year and $1.86 to $1.91 for the fourth quarter. The full-year forecast, which includes the restructuring charge and one-time tax benefits, was narrowed from the $5.25 to $5.35 range issued in April 2006 to reflect lower than anticipated North American interior experience sales and operating income.
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Johnson Controls is a global leader in interior experience, building efficiency and power solutions. The company provides innovative automotive interiors that help make driving more comfortable, safe and enjoyable. For buildings, it offers products and services that optimize energy use and improve comfort and security. Johnson Controls also provides batteries for automobiles and hybrid electric vehicles, along with systems engineering and service expertise. Johnson Controls (NYSE: JCI), founded in 1885, is headquartered in Milwaukee, Wisconsin. For additional information, visit http://www.johnsoncontrols.com.
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July 20, 2006
Page 4
Johnson Controls, Inc. (“the Company”) has made forward-looking statements in this document pertaining to its financial results for fiscal 2006 that are based on preliminary data and are subject to risks and uncertainties. All statements other than statements of historical fact are statements that are or could be deemed forward-looking statements, including information concerning possible or assumed future risks. For those statements, the Company cautions that numerous important factors, such as automotive vehicle production levels and schedules, the ability to mitigate the impact of higher raw material and energy costs, the strength of the U.S. or other economies, currency exchange rates, cancellation of commercial contracts, labor interruptions, the successful integration of York, the ability to execute on restructuring actions according to anticipated timelines and costs and the ability to deliver planned levels of profitability in Germany, as well as those factors discussed in the Company’s Form 8-K filing (dated January 19, 2006) and the risk factors as filed with the SEC January 9, 2006, could affect the Company’s actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.
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Johnson Controls
July 20, 2006
Page 5
JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data; unaudited)
                 
    Three Months Ended June 30,  
    2006     2005  
Net sales
   $ 8,390     $ 7,062  
Cost of sales
     7,177       6,162  
 
            
Gross profit
     1,213       900  
 
                
Selling, general and administrative expenses
     736       532  
Restructuring costs
     197       —  
 
            
Operating income
     280       368  
 
                
Interest expense — net
     (65 )     (23 )
Equity income
     28       19  
Miscellaneous — net
     (10 )     (8 )
 
                
 
            
Income from continuing operations before income taxes and minority interests
     233       356  
 
                
Provision (benefit) for income taxes
     (111 )     94  
Minority interests in net earnings of subsidiaries
     8       7  
 
            
 
                
Income from continuing operations
     336       255  
 
                
Income from discontinued operations, net of income taxes
     2       —  
 
            
 
                
Net income
   $ 338     $ 255  
 
            
 
                
Diluted earnings per share from continuing operations
   $ 1.70     $ 1.31  
 
            
 
                
Diluted earnings per share
   $ 1.71     $ 1.31  
 
            
 
                
Diluted weighted average shares
     197       195  
 
            
Shares outstanding at period end
     195       192  
 
            

 

 

Johnson Controls
July 20, 2006
Page 6
JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data; unaudited)
                 
    Nine Months Ended June 30,  
    2006     2005  
Net sales
   $ 24,085     $ 20,579  
Cost of sales
     20,902       18,046  
 
            
Gross profit
     3,183       2,533  
 
                
Selling, general and administrative expenses
     2,209       1,693  
Restructuring costs
     197       210  
 
            
Operating income
     777       630  
 
                
Interest expense — net
     (179 )     (77 )
Equity income
     72       59  
Miscellaneous — net
     (10 )     (24 )
 
                
 
            
Income from continuing operations before income taxes and minority interests
     660       588  
 
                
Provision (benefit) for income taxes
     (37 )     95  
Minority interests in net earnings of subsidiaries
     32       28  
 
            
 
                
Income from continuing operations
     665       465  
 
                
Income and gain on sale from discontinued operations, net of income taxes
     3       161  
 
            
 
                
Net income
   $ 668     $ 626  
 
            
 
                
Diluted earnings per share from continuing operations
   $ 3.39     $ 2.39  
 
            
 
                
Diluted earnings per share
   $ 3.40     $ 3.22  
 
            
 
                
Diluted weighted average shares
     196       194  
 
            
Shares outstanding at period end
     195       192  
 
            

 

 

Johnson Controls
July 20, 2006
Page 7
JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions; unaudited)
                         
    June 30,     September 30,     June 30,  
    2006     2005     2005  
ASSETS
                        
Cash and cash equivalents
   $ 380     $ 171     $ 385  
Accounts receivable — net
     5,686       4,987       4,529  
Inventories
     1,740       983       915  
Assets of discontinued operations
     153       —       —  
Other current assets
     1,385       998       896  
 
                  
Current assets
     9,344       7,139       6,725  
 
                        
Property, plant and equipment — net
     3,970       3,581       3,294  
Goodwill — net
     5,758       3,733       3,670  
Other intangible assets — net
     779       289       274  
Investments in partially-owned affiliates
     488       445       420  
Other noncurrent assets
     1,717       957       778  
 
                  
Total assets
   $ 22,056     $ 16,144     $ 15,161  
 
                  
 
                        
LIABILITIES AND SHAREHOLDERS’ EQUITY
                        
Short-term debt and current portion of long-term debt
     833       765       614  
Accounts payable and accrued expenses
     5,573       4,686       4,318  
Liabilities of discontinued operations
     40       —       —  
Other current liabilities
     2,237       1,390       1,350  
 
                  
Current liabilities
     8,683       6,841       6,282  
 
                        
Long-term debt
     4,180       1,577       1,632  
Minority interests in equity of subsidiaries
     136       196       143  
Other noncurrent liabilities
     2,148       1,472       1,327  
Shareholders’ equity
     6,909       6,058       5,777  
 
                  
Total liabilities and shareholders’ equity
   $ 22,056     $ 16,144     $ 15,161  
 
                  

 

 

Johnson Controls
July 20, 2006
Page 8
JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
                 
    Three Months  
    Ended June 30,  
    2006     2005  
Operating Activities
                
Net income
   $ 338     $ 255  
 
                
Adjustments to reconcile net income to cash provided by operating activities:
                
Depreciation and amortization
     178       151  
Equity in earnings of partially-owned affiliates, net of dividends received
     (10 )     (14 )
Minority interests in net earnings of subsidiaries
     8       7  
Deferred income taxes
     (263 )     84  
Non-cash restructuring
     51       —  
Other — net
     20       29  
Changes in working capital, excluding acquisition of businesses:
                
Receivables
     93       (120 )
Inventories
     (119 )     (62 )
Accounts payable and accrued liabilities
     226       57  
Change in other assets and liabilities
     154       (40 )
 
            
Cash provided by operating activities
     676       347  
 
            
 
                
Investing Activities
                
Capital expenditures
     (176 )     (104 )
Sale of property, plant and equipment
     —       3  
Acquisition of businesses, net of cash acquired
     (11 )     (73 )
Business divestitures
     —       —  
Other — net
     (20 )     (19 )
 
            
Cash used in investing activities
     (207 )     (193 )
 
            
 
                
Financing Activities
                
Increase (decrease) in short and long-term debt — net
     (221 )     4  
Payment of cash dividends
     (54 )     (48 )
Other — net
     32       30  
 
            
Cash used in financing activities
     (243 )     (14 )
 
            
 
                
 
            
Increase in cash and cash equivalents
   $ 226     $ 140  
 
            

 

 

Johnson Controls
July 20, 2006
Page 9
JOHNSON CONTROLS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
                 
    Nine Months  
    Ended June 30,  
    2006     2005  
Operating Activities
                
Net income
   $ 668     $ 626  
 
                
Adjustments to reconcile net income to cash provided by operating activities:
                
Depreciation and amortization
     524       472  
Equity in earnings of partially-owned affiliates, net of dividends received
     (9 )     (42 )
Minority interests in net earnings of subsidiaries
     32       28  
Gain on sale of discontinued operations
     —       (145 )
Deferred income taxes
     (343 )     (13 )
Non-cash restructuring
     51       46  
Other — net
     38       24  
Changes in working capital, excluding acquisition of businesses:
                
Receivables
     74       (369 )
Inventories
     (160 )     (64 )
Accounts payable and accrued liabilities
     54       105  
Change in other assets and liabilities
     133       34  
 
            
Cash provided by operating activities
     1,062       702  
 
            
 
                
Investing Activities
                
Capital expenditures
     (438 )     (387 )
Sale of property, plant and equipment
     13       11  
Acquisition of businesses, net of cash acquired
     (2,597 )     (106 )
Business divestitures
     —       687  
Other — net
     45       (78 )
 
            
Cash provided by (used in) investing activities
     (2,977 )     127  
 
            
 
                
Financing Activities
                
Increase (decrease) in short and long-term debt — net
     2,131       (443 )
Payment of cash dividends
     (163 )     (144 )
Other — net
     156       44  
 
            
Cash provided by (used in) financing activities
     2,124       (543 )
 
            
 
                
 
            
Increase in cash and cash equivalents
   $ 209     $ 286  
 
            

 

 

 
Johnson Controls
July 20, 2006
Page 10
FOOTNOTES
1. Business Unit Summary
                                                 
    Three Months     Nine Months  
    Ended June 30,     Ended June 30,  
(in millions)   (unaudited)     (unaudited)  
    2006     2005     %     2006     2005     %  
                                                 
Net Sales
                                                
Building efficiency
   $ 2,823     $ 1,406       101 %   $ 7,121     $ 4,216       69 %
Interior experience
     4,681       4,991       -6 %     14,229       14,298       0 %
Power solutions
     886       665       33 %     2,735       2,065       32 %
 
                                        
 
   $ 8,390     $ 7,062             $ 24,085     $ 20,579          
 
                                        
 
                                                
Operating Income
                                                
Building efficiency
   $ 190     $ 93       104 %   $ 283     $ 179       58 %
Interior experience
     168       200       -16 %     388       426       -9 %
Power solutions
     119       75       59 %     303       235       29 %
 
                                        
 
   $ 477     $ 368             $ 974     $ 840          
 
                                        
Restructuring costs
     (197 )     —               (197 )     (210 )        
 
                                        
 
   $ 280     $ 368             $ 777     $ 630          
 
                                        
Building efficiency — Provides facility systems and services including comfort, energy and security management for the non-residential buildings market and provides heating, ventilating, air conditioning and refrigeration products and services for the residential and non-residential building markets.
Interior 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 — Designs and manufactures automotive batteries for the replacement and original equipment markets.
2. Acquisitions
On December 9, 2005, the Company completed its acquisition of York International Corporation (York). The Company paid $56.50 for each outstanding share of common stock plus the assumption of debt. The total value of the acquisition was approximately $3.2 billion, including approximately $565 million of debt.
3. Discontinued Operations
In December 2005, the Company acquired York’s Bristol Compressor business as part of the York acquisition. On July 12, 2006, the Company announced its agreement to divest its 50% interest in Scroll Technologies, Inc. The Company is continuing to explore strategic alternatives for the remainder of the business.
In February 2005, the Company completed the sale of its engine electronics business to Valeo for approximately $316 million euro, or approximately $419 million. This non-core business was a part of the Sagem SA automotive electronics business that was acquired in fiscal 2002 and was included in the interior experience — Europe segment.
In March 2005, the Company completed the sale of its Johnson Controls World Services Inc. subsidiary to IAP Worldwide Services Inc. for approximately $260 million. This non-strategic business was acquired in fiscal 1989 from Pan Am Corporation and was included in the building efficiency segment.
The Bristol Compressor business, the engine electronics business and the Johnson Controls World Services Inc. subsidiary are reported as discontinued operations in the Consolidated Financial Statements in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
4. Restructuring Costs
As part of its continuing efforts to reduce costs and improve the efficiency of its global operations, the Company announced a restructuring plan in the third quarter of fiscal 2006 and recorded a $197 million restructuring charge.
The restructuring charge relates to cost reduction initiatives mainly in its interior experience and building efficiency businesses and includes workforce reductions and plant consolidations. The company expects to substantially complete the initiatives over the next 12 months. The automotive-related restructuring is focused on improving the profitability associated with the manufacturing and supply of instrument panels, headliners and other interior components in North America. In Europe, it reflects actions intended to increase the efficiency of its seating component operations. The charges associated with the building efficiency business mostly relate to Europe where the company is launching its systems redesign initiative. Systems redesign was successfully completed in the North American building efficiency branch offices last year, resulting in improved profitability and increased market opportunities.

 

 

 
Johnson Controls
July 20, 2006
Page 11
5. Income Taxes
In the second quarter of fiscal year 2006, the Company’s estimated annual base effective income tax rate for continuing operations declined to 21.0% from the 24.3% used in the first quarter of fiscal year 2006 and from the 25.7% for the prior fiscal year, primarily due to increased income in certain foreign jurisdictions with a rate of tax lower than the U.S. statutory tax rate, decreased income in higher-tax jurisdictions and certain tax planning initiatives. In addition, the Company reversed a valuation allowance of $32 million attributable to Mexican operating loss and tax credit carryforwards based on an assessment of expected future profitability and also recorded $31 million of tax expense related to the American Jobs Creation Act of 2004.
In the third quarter of fiscal year 2006, the Company completed an analysis of its German operations and, based on cumulative income over a 36 month period, an assessment of expected future profitability in Germany and finalization of the 2006 restructuring plan, determined that it was more likely than not that the tax benefits of certain operating loss and tax credit carryforwards in Germany would be utilized in the future. As such, the Company reversed $131 million attributable to these operating loss and tax credit carryforwards in the current quarter as a credit to income tax expense. In addition, the Company recorded a $10 million tax benefit from a favorable tax audit conclusion in a foreign jurisdiction and recognized an $18 million discrete period tax benefit related to third quarter 2006 restructuring costs using a tax rate of 30.6%.
The table below shows a reconciliation of the tax provision, as reported, for the three and nine months ended June 30, 2006 (amounts in millions):
                                 
    Three Months Ended     Nine Months Ended  
    June 30, 2006     June 30, 2006  
    Amount     Tax Rate     Amount     Tax Rate  
    (unaudited)   (unaudited)
Federal, state and foreign income tax expense
     48       21.0 %     138       21.0 %
Restructuring charge
     (18 )             (18 )        
Valuation allowance releases
     (131 )             (163 )        
Uncertain tax positions
     (10 )             (10 )        
Foreign dividend repatriation
     —               31          
Change in tax status of foreign subsidiary
     —               (11 )        
Disposition of a joint venture
     —               (4 )        
 
                            
Tax benefit, as reported
   $ (111 )     -47.6 %   $ (37 )     -5.6 %