On the verge of spinning off its automotive seating business into a new company called Adient, Johnson Controls Inc. said its seating orders accelerated during the first half of fiscal 2016, and were “nearly equal to full year fiscal 2015 levels."
JCI CEO Alex Molinaroli also said in a second-quarter earnings webcast April 21 that Adient's corporate headquarters would not be in the United States, though the company declined to say where it will be located.
JCI, the world's largest seat supplier, also said the planned spinoff of its seating business is on pace to be completed by Oct. 31, later than the initial Oct. 3 goal.
Adient will file a U.S. Securities and Exchange Commission Form 10 later this month with more details about its finances and corporate structure.
Earlier this year, Glendale, Wis.-based JCI announced it will merge with Tyco Corp. and that the merged company would be based in Ireland. The JCI-Tyco deal became part of a firestorm of controversy over so-called tax inversion deals, which involve a U.S. company shifting its tax address to another country to lower its tax rate.
President Barack Obama has criticized such deals and Democratic presidential candidate Hillary Clinton called the JCI-Tyco merger “outrageous.” The company has denied such charges.
Fraser Engerman, director of global media relations for JCI, said: “As we've said all along, this deal was driven by the strategic value it brings. This was not a tax-driven deal. It was about bringing together two world class companies. It was not about the taxes.”
The $14 billion merger is expected to be completed by Oct. 1, the companies said today in a regulatory filing.
The announcement comes after the companies reviewed new rules by the U.S. Treasury Department that would prevent some companies from participating in inversions. The rules, which limit a company from inverting if it has previously done so within three years, killed the proposed $160 billion merger between Pfizer Inc. and Allegran Plc.
Seating momentum
Bruce McDonald, CEO of Adient, said the renewed momentum of seating orders shows there were good reasons to spin off the seating business.
“When you think about the rationale for spinning off the automotive business, we wanted to free up automotive to reinvest,” he said. “Compared to our closest competitor, our reinvestment has been 30-40 percent lower than theirs. Our growth has been stunted because of our lack of commitment on future [capital expenditures] and engineering. We're giving them back resources and letting them flourish in the first half.”
The operational offices for Adient will be distributed between Plymouth, Mich., the site of the division's current North American headquarters; Burscheid, Germany; Shanghai, China, and a corporate presence in Milwaukee, said Engerman.
In 2014, JCI spun its interiors business to the Chinese company Yanfeng Automotive Interiors. JCI retains a 30 percent stake in that venture. Once Adient spins off in October, JCI, once one of the world's largest automotive suppliers, will be out of the auto seating and interiors business. JCI will remain in the automotive battery business.
It has in-house injection molding for batteries, while other plastics operations have gone into the Yanfeng Visteon business and will go to Adient.
Earnings report
JCI also reported a net loss of $530 million, or 82 cents per share, for the quarter ending March 31, compared with a $529 million profit a year earlier.
The company attributed the loss to costs related to the Tyco merger, among others. JCI reported per-share earnings of 86 cents excluding those costs, beating expectations.
Sales fell to $9 billion from $9.2 billion a year earlier. Sales at the company's automotive business fell 18 percent from a year earlier to $4.3 billion.
Johnson Controls shares rose 4.7 percent to close at $41.58 today.
