Johnson Controls International plc — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021; comparisons are with FY2020. This is an annual filing, not a standalone fourth-quarter report. Johnson Controls is a global building technologies and services company operating in more than 150 countries, with four segments: Building Solutions North America, EMEA/LA, Asia Pacific, and Global Products.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $23.668 billion | $22.317 billion |
| Gross profit / gross margin | $8.059 billion / 34.1% | $7.411 billion / 33.2% |
| Income from continuing operations | $1.746 billion | $795 million |
| Net income attributable to Johnson Controls | $1.637 billion | $631 million |
| Diluted EPS, continuing operations | $2.10 | $0.84 |
| Cash from continuing operating activities | $2.551 billion | $2.479 billion |
| Capital expenditures | $552 million | $443 million |
Sales rose 6%; excluding currency, acquisitions, divestitures and purchase-accounting effects, organic sales increased 4%. Growth reflected recovery in demand and volumes. Gross margin improved 90 basis points. SG&A declined 7% to $5.258 billion, partly reflecting pension mark-to-market effects and cost actions. Operating cash flow increased modestly; working-capital movements supported cash generation, while receivables and inventory absorbed cash.
Reported net income included $124 million of discontinued-operations income from a favorable resolution of Power Solutions sale adjustments. FY2021 continuing-operations income tax expense was $868 million, versus $108 million; the effective tax rate increased to 33% from 12%, principally reflecting a $417 million charge tied to an intercompany intellectual-property transfer and other discrete tax items. Segment EBITA was $3.385 billion, up 15%; Global Products led with $1.441 billion, up 27%.
Liquidity, debt and capital allocation
At September 30, 2021, cash and cash equivalents were $1.336 billion; total debt was $7.740 billion and net debt was $6.404 billion, versus $5.868 billion a year earlier. Net debt was 26.7% of total capitalization, up from 25.2%. The company reported working capital, as it defines the measure, of negative $202 million, compared with positive $147 million. It had $2.551 billion of operating cash flow and $552 million of capital expenditure; the filing does not present free cash flow as a headline measure.
Management said liquidity was adequate for projected needs. A $2.5 billion revolving credit facility was undrawn and scheduled to expire in December 2024; a $500 million 364-day facility was scheduled to expire in December 2021. Credit ratings were S&P BBB+ and Moody’s Baa2, both with stable outlooks. FY2021 share repurchases were $1.307 billion, and approximately $5.1 billion remained authorized. The annual dividend was increased to $1.08 per share.
Changes, outlook and notable items
- All four segments increased sales. Global Products sales rose 9%; Building Solutions Asia Pacific rose 10%, EMEA/LA 8%, and North America 1%. Growth included a strong China recovery and higher service activity; North American installation sales were modestly lower amid weakness in new construction.
- Supply constraints, component shortages, labor scarcity and input-cost inflation negatively affected revenue and margins despite mitigation through pricing, supplier diversification and productivity actions. Management expected these pressures to continue into FY2022; specific FY2022 revenue or earnings guidance is not provided in the supplied filing text.
- FY2021 restructuring and impairment costs were $242 million, versus $783 million in FY2020. The new plan targets $300 million of annualized SG&A savings and $250 million of annual cost-of-sales savings by FY2023, with estimated one-time pre-tax costs of $385 million. The earlier plan targets about $430 million of annual operating-cost reductions.
- Backlog was $10.5 billion at year-end; remaining performance obligations were $16.1 billion, with about 60% expected to be recognized over the following two years. Backlog is not necessarily indicative of next-year revenue.
- The May 2021 Silent-Aire acquisition added hyperscale data-center cooling capabilities. Consideration was approximately $755 million net of cash acquired, including contingent earn-out liabilities; maximum earn-out payout was approximately $250 million.
- Major risks include ongoing COVID-19 effects, supply-chain and labor disruption, commodity inflation, cyclical construction markets, currency exposure, cybersecurity and data privacy, and regulatory and climate-transition demands. The company committed to net-zero carbon emissions by 2040 and to direct 75% of new-product R&D investment to climate-related innovation.
- Material contingencies include PFAS-related environmental remediation and extensive AFFF litigation. Environmental reserves were $102 million; the recorded asbestos net liability was $80 million. The company states AFFF exposure is difficult to predict and could be material. A Wisconsin settlement related to the Fire Technology Center provides for payments of up to $15 million.
Investor verification priorities
- Separate recurring operating improvement from favorable pension mark-to-market effects, restructuring charges, acquisition contributions and the $124 million discontinued-operations benefit.
- Track whether FY2022 pricing and productivity offset supply inflation, component shortages and labor constraints without impeding backlog conversion.
- Verify delivery of the FY2023 savings targets against the associated $385 million restructuring cost estimate.
- Monitor cash conversion, inventory levels, working capital, debt maturities and the funding of repurchases and dividends.
- Assess the potential financial range and timing of PFAS remediation, AFFF claims and tax audits; the filing does not provide a clear ultimate exposure for these matters.
- Review the assumptions behind the 33% effective tax rate, the $2.726 billion uncertain-tax-position liability and future impacts of proposed international tax changes.