Adient, the company that will be created by the spin-off of Johnson Controls’ automotive seating business will be a foreign domiciled company, allowing it to take advantage of a lower corporate tax rate.
[caption id="attachment_125842" align="alignright" width="168"]
Alex Molinaroli, chief executive officer, Johnson Controls[/caption]
Adient will have an effective tax rate between 10 and 12 percent, Johnson Controls chief executive officer Alex Molinaroli said Thursday during the company’s second quarter conference call, adding it “will be a foreign domiciled company when we spin.”
Glendale-based Johnson Controls is shifting its legal domicile to Ireland as part of a merger with Tyco International. The move, known as an inversion, is expected to generate $150 million in annual tax savings. The spin-off of Adient, the company’s automotive seating business, is set to take place after the merger, giving shareholders of both JCI and Tyco a stake in the new company and potentially allowing it to take advantage of Tyco’s Irish domicile.
Molinaroli did not say if Adient would officially be based in Ireland. That information is expected to be disclosed in filings with the Securities and Exchange Commission by the end of the month.
Adient would have had $23.7 billion in global sales for 2015 when including its non-consolidated joint ventures. Johnson Controls vice president for global investor relations Glen Ponczak said 65 percent of the company’s automotive revenue and 85 percent of its profit came from outside the United States.
The exact benefit created by Adient's foreign domicile is unclear. The U.S. corporate tax rate is 35 percent, but the company said before the Tyco merger was announced the new company would have a tax rate at or below Johnson Controls' then 19 percent effective tax rate.
Johnson Controls has come under fire from presidential candidates for its decision to take up a foreign domicile as part of the merger with Tyco. Former Secretary of State Hillary Clinton in particular has singled Johnson Controls out for benefiting from the 2008 auto bailout and now taking steps to avoid paying additional taxes.
Molinaroli has countered that the company did not seek help from the government, was not in financial distress at the time and was strong enough to step in and take action to support the industry.
As the company’s seating and interiors business, Adient represents the majority of what was Johnson Controls’ exposure to the auto industry at the time of the bailout. In 2008, the automotive experience segment of the business generated $18.1 billion in revenue. That figure dropped to $12 billion the next year and the company said in its 2009 annual report that lower production volumes from major OEM customers accounted for $2.5 billion in lost revenue for the year.
Johnson Controls has long run its automotive seating business out of Plymouth, Mich. and Burscheid, Germany. That will continue to be the case for Adient.
[caption id="attachment_126646" align="alignright" width="348"]
The corporate offices for Adient will be located in the new 833 East Michigan St. building in downtown Milwaukee, but the company will be foreign domiciled.[/caption]
The company will also have a corporate presence in Milwaukee and has leased space in the new 833 East office building
downtown. Ponczak said headcounts for the Milwaukee offices have not been finalized. Bruce McDonald, the future CEO of Adient, and several of his direct reports, including Ponczak, will have offices in Milwaukee. Employees in various corporate functions not supported in Michigan or elsewhere will also be based here. Ponczak said the tax functions would be an example of these corporate jobs.
He said JCI’s merger with Tyco has not altered Adient’s plans for Milwaukee.
The merger with Tyco has potentially complicated the Adient spinoff. McDonald said in January the company planned to file its Form 10 in late March or early April. It is now expected by the end of the month. He also said the company would begin trading on the New York Stock Exchange on Oct. 3.
The company is now targeting Oct. 31 as a legal day one for Adient, but Molinaroli said Thursday the spin-off is on track to be operationally independent on July 1.