<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: December 7, 1995
Commission File Number 1-5097
JOHNSON CONTROLS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-0380010
(State of Incorporation) (I.R.S. Employer
Identification No.)
5757 North Green Bay Avenue, P.O. Box 591, Milwaukee, WI 53201
(Address of principal executive office)
Registrant's telephone number, including area code
(414) 228-1200
<PAGE> 2
Item 5:
Attached for filing are the Company's financial statements for the year ended
September 30, 1995. This information is being filed to facilitate the
Company's issuance of $125 million of 6.95% debentures.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JOHNSON CONTROLS, INC.
Date: December 7, 1995 By: Stephen A. Roell
Vice President and Chief
Financial Officer
<PAGE> 3
Index to Form 8-K
(a) The following documents are filed as part of this report:
(1) Management's Discussion and Analysis of Financial Condition and
Results of Operations
(2) Financial Statements
Report of Independent Accountants
Consolidated Statement of Income for the years ended
September 30, 1995, 1994 and 1993
Consolidated Statement of Financial Position as of
September 30, 1995 and 1994
Consolidated Statement of Cash Flows for the years
ended September 30, 1995, 1994 and 1993
Consolidated Statement of Shareholders' Equity for
the years ended September 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Financial Statement Schedule
For the years ended September 30, 1995, 1994 and 1993:
II. Valuation and Qualifying Accounts
(3) Five Year Summary of Selected Financial Data
(4) Exhibits
(12) Ratio of Earnings to Fixed Charges
(23) Consent of Independent Accountants
(27) Financial Data Schedule (Electronic Filing Only)
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
FISCAL 1995 COMPARED TO FISCAL 1994
SALES
Consolidated net sales for 1995 reached a record $8,330 million, representing a
21% increase from 1994. A substantial portion of the increase reflects higher
sales of automotive seating. A 34% increase in automotive segment sales to
$3,836 million was primarily generated by the Company's participation in new and
successful vehicle programs worldwide and continued strong North American
vehicle production levels. New vehicle programs launched in 1995 in which the
Company participated included Chrysler's Cirrus/Stratus sedans and Jeep
Cherokee, General Motors' Jimmy/ Blazer and Toyota's Avalon. In January 1995 we
acquired the remaining interest in a domestic seating business which produces
rear seats for the Ford Explorer. The consolidation of this business also
contributed to the year-over-year increase. European seating sales increased
substantially as a result of the success of new business for customers including
Ford, Rover and Skoda, and favorable currency translation rates.
Controls segment sales for 1995 were $2,630 million, 16% greater than in 1994.
This increase stemmed from a higher level of activity in the existing
buildings market. Strong growth within the worldwide integrated facility
management market was largely due to the acquisition of Procord, a United
Kingdom facility management services provider, in September 1994. A contract to
operate six United Kingdom Atomic Energy Authority sites in March 1995, was also
a major contributor to the sales increase. Sales of retrofit control systems to
the non-residential buildings market, primarily in the form of performance
contracts, also contributed to the increase. Facility management activity in the
U.S. government market was lower year over year.
Plastics segment sales rose 19% over the 1994 level to $1,192 million. The
improvement resulted from the pass-through of higher resin prices to customers
worldwide and higher unit shipments of water, other beverage and single-serve
soft drink containers in both North America and Europe. Increased sales to
emerging Latin American markets and favorable currency translation rates also
contributed to the sales improvement. Sales of plastics machinery improved
modestly as compared to the prior year, partially due to the acquisition in the
third quarter of 1995 of B&W Kunststoffmaschinenbau Handelsgesellschaft
mbH, a plastics machinery manufacturer located in Germany and the Czech
Republic.
Sales of the battery segment declined 9% to $672 million in 1995.
Total unit shipments were lower due to the loss of the supply contract to Sears,
Roebuck & Company, for which final shipments were made in September 1994.
Several factors helped offset a portion of this decline. The segment's unit
shipments to existing customers, both in the aftermarket and to original
equipment manufacturers, increased approximately 8%. In addition, higher lead
costs, which are passed through to customers in pricing, increased sales.
Assuming continued slow economic expansion in the U.S. and in Europe, management
expects consolidated sales for 1996 will exceed 1995 levels. Automotive segment
sales are expected to increase approximately 10%-15%, reflecting the launch of
new business, both domestically and outside the U.S., the Company's
participation in successful vehicle models, and relatively stable vehicle
production levels in North America and Europe. These comments do not reflect the
effects of the Company's anticipated acquisition of the Roth Freres companies.
See "Pending Acquisition". Management expects an increase in controls segment
sales of approximately 10%-15%. The anticipated driver of this increase is a
higher level of activity in the existing buildings market, primarily in
integrated facility management and performance contracting. At September 30,
1995, the unearned backlog of commercial building systems, services, and
integrated facility management contracts, to be executed within the next fiscal
year, was $1,122 million. The increase from the prior year amount of $857
million was due to growth in orders for performance contracting and integrated
facility management, including acquisitions. The unearned backlog of government
operations and maintenance contracts, which reflects only the noncancellable
portion of uncompleted contracts, was $442 million at September 30, 1995. This
was 25% lower than the prior year as a result of scope reductions on several
U.S. government projects and the loss of certain contracts. Plastics segment
sales improvement of 10%-15% is expected in 1996 from gains in container unit
volumes, particularly in Europe and Latin America. Battery segment sales are
expected to increase approximately 5%-10% from 1995 levels as a result of
increased sales to new and existing customers and further penetration of the
original equipment market.
<TABLE>
<CAPTION>
Common Stock Price Range Dividends
- ----------------------------------------------------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
First Quarter $ 45 7/8-50 3/8 $51 1/2-55 1/2 $ .39 $ .36
Second Quarter 45 3/4-52 1/2 52 -61 1/4 .39 .36
Third Quarter 50 5/8-58 1/4 44 7/8-56 3/4 .39 .36
Fourth Quarter 56 3/8-66 46 1/2-53 1/2 .39 .36
- ----------------------------------------------------------------------
Year $ 45 3/4-66 $44 7/8-61 1/4 $1.56 $1.44
- ----------------------------------------------------------------------
</TABLE>
20
<PAGE> 5
OPERATING INCOME
Consolidated operating income was $449 million for 1995, an increase of 23% over
1994. The increase can be primarily attributed to the strong improvement in
consolidated net sales.
The automotive segment's operating income of $222 million was 54% higher
than the prior year. The segment benefited from higher volumes in both North
America and Europe, and successful cost containment initiatives which lowered
manufacturing expense. The segment's European operations generated income during
1995 as compared with a loss in the prior year, reflecting a number of new
programs moving from the start-up phase into production.
Operating income of the controls segment improved 12% to $106 million as a
result of the increased activity in the worldwide existing buildings market.
Income grew at a lesser rate than sales primarily due to the high level of
investments associated with supporting the rapid integrated facilities
management growth and the assimilation of acquisitions.
Plastics operating income of $74 million rose 3% over the prior year due to the
increases in European container and worldwide plastics machinery volumes.
In North America, container operating margins declined due to unabsorbed fixed
costs which resulted from weaker than anticipated market demand. The Company was
successful in recovering resin price increases from customers, however, this
also lowered the operating margin percentage.
Battery operating income decreased 15% in 1995 to $47 million as a result of the
overall unit volume decline noted above. The segment was successful at
reducing costs to partially offset the effect of a volume decline. The segment's
fourth-quarter operating income exceeded the prior year's results despite the
loss of the Sears account, reflecting the group's success in reducing costs.
Consolidated operating income is expected to improve in 1996, with the
improvement derived primarily from the higher projected sales. The automotive
segment's operating income is anticipated to rise as the benefits from volume
increases related to new business and involvement in successful vehicle programs
will more than offset higher product development costs associated with new
programs. The automotive segment has supply agreements with certain of its
customers that provide for annual productivity price reductions and, in some
instances, for the recovery of material and labor cost increases. The segment
has been, and anticipates it will continue to be, able to substantially offset
any sales price changes with cost reductions from design changes, productivity
improvements and similar programs with suppliers. The controls segment will
continue to benefit from the activity in the existing buildings market,
especially from sales of retrofit systems. The plastics segment is expected to
show operating income improvement due to increased worldwide sales and cost
reduction programs. The battery segment's operating income is expected to
increase over 1995, primarily as a result of higher unit shipments and continued
cost reduction efforts.
OTHER INCOME/EXPENSE
Net interest expense in 1995 was $57 million, $17 million higher than the prior
year. The increase resulted from the financing associated with acquisitions and
higher short-term interest rates. Net interest expense for 1996 is expected to
remain level with the current year before considering the possible impact of
business acquisitions. See "Pending Acquisition."
Interest income of $6 million was $2 million higher than the prior year as
proceeds from the issuance of long-term debt were held on deposit for part of
the year.
Miscellaneous-net expense of $10 million was $7 million higher than the
prior year because of a decline in equity income. The lower equity income was
primarily due to the approximately $6 million impact of the devaluation of the
Mexican peso on the Company's unconsolidated Mexican affiliates.
21
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
PROVISION FOR INCOME TAXES
The effective income tax rate for 1995 was 42%, slightly lower than the
1994 rate of 43%. The effective rate declined due to improved performance by the
Company's European operations. The effective rate for the fiscal year remained
higher than the combined federal and state statutory rate of approximately 40%,
due in part to overall higher foreign effective rates.
MINORITY INTERESTS
Minority interests in net earnings of subsidiaries increased $8 million
to $29 million in 1995. The increase relates to higher earnings from certain of
the Company's North American automotive seating joint ventures.
NET INCOME
Net income rose 19% in 1995 to $196 million as a result of the increase
in operating income, offset by the increases in interest and miscellaneous-net
expenses. Primary and fully diluted earnings per share were $4.53 and $4.27,
respectively, for 1995, up from $3.80 and $3.60 in 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
SALES
Consolidated net sales rose 11% in 1994 to $6,871 million. This increase was
generated by improvements in all four business segments. Sales of automotive
seating and seating components rose 12% over the prior year to $2,874 million.
This increase was primarily driven by strong North American vehicle production
and the Company's participation in new and successful vehicle programs. New
vehicle programs with which the Company participated included Chrysler's Jeep
Grand Cherokee, Concorde, Intrepid, Vision, and Neon, Ford's Villager and
Nissan's Quest and Altima. North American automotive industry car and light
truck production grew approximately 13% over the prior year period. European
seating sales improved slightly over 1993 levels. The increase resulting from
our participation in successful vehicle programs in Europe, primarily with
Toyota and SEAT, a Volkswagen subsidiary, was partially offset by declines in
existing business.
Controls segment sales improved 11% over 1993 to $2,260 million. This increase
was generated by higher sales to the North American commercial buildings market,
in particular, the installation of control systems in existing buildings. Strong
growth within the integrated facility management market also contributed
to the sales increase. International sales increased, principally due to a U.K.
acquisition and higher activity in the Pacific Rim. Government facility
management activities decreased slightly. The segment completed three
acquisitions during 1994 including Network Integration Services, a domestic
network installation and operations management specialist acquired in January;
Haydon, a United Kingdom controls service business acquired in July; and
Procord, a United Kingdom integrated facility management services provider
acquired in September.
Plastics segment sales for 1994 were $998 million, representing an 11%
improvement over the comparable 1993 period. The increase was driven by higher
unit shipments of all container types, both domestically and in Europe.
Non-soft drink container sales, primarily high-heat bottles for juices and
isotonic sports drinks and water containers, grew substantially. Soft drink
container unit shipments improved slightly, led by single-serve containers.
Price reductions, however, had an offsetting impact on soft drink container
sales. Plastics blowmolding machinery sales improved modestly.
Higher unit shipments helped the battery segment increase sales to $738 million,
an 8% improvement over the prior year. Aftermarket unit shipment increases
resulted from the extreme winter and summer weather, while strong domestic
vehicle production resulted in higher shipments to the original equipment
market. Current year volumes were only slightly impacted by the loss of the
supply contract with Sears, under which final shipments were made in September
1994.
OPERATING INCOME
Consolidated operating income increased 17% to $365 million, principally as a
result of the improvement in sales. Operating income for the automotive segment
rose $16 million, or 12%, over the prior year. North American income benefited
from higher volume and improved manufacturing efficiencies associated with
existing vehicle programs. This increase was partially offset by higher
engineering, research and development, and administrative expenses associated
with the support of new and existing vehicle programs. The high
22
<PAGE> 7
level of investment reflects the emerging trend by vehicle manufacturers to
outsource design, development and project management of seating systems and to
reimburse suppliers for these costs through prices on future seat sales as
opposed to up-front reimbursement. European operations continued to operate at a
loss; however, results were slightly improved from the prior year. Volume
improvements related to new business were largely offset by higher engineering
and administrative expenses incurred to support the European growth.
The controls segment's operating income improved $10 million or 12% over 1993
as a result of the increased sales to the existing commercial buildings market.
Plastics operating income rose $10 million, or 16%, over the prior year. Sales
growth of higher margin non-soft drink containers was the primary reason
for this increase. In addition, productivity improvements and continuing
programs to contain and reduce costs offset competitive pricing pressures and
contributed to increases in margins.
Battery operating income rose $16 million, or 41%, in 1994 as a result of the
substantial increase in unit volumes and manufacturing efficiency improvements.
During the year, the segment accrued over $10 million of costs associated with
the announced closings of two manufacturing plants scheduled for 1995. The plant
closings and other cost reduction programs resulted from the segment's need to
lower its cost structure. Prior year operating income reflected approximately
$10 million in charges associated with the closings of two other plants.
OTHER INCOME/EXPENSE
Net interest expense was $7 million lower than the prior year. A decrease
experienced through the first half of 1994, resulting from
business segments
<TABLE>
<CAPTION>
Operating Assets Depreciation/ Capital
Year ended September 30, Net Sales Income (Year End) Amortization Expenditures
- --------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
1995
Automotive $3,836.3 $221.8 $1,647.2 $131.8 $212.0
Controls 2,630.3 105.8 1,073.1 46.9 56.5
Plastics 1,191.7 74.6 840.0 74.3 135.4
Battery 672.0 46.6 482.8 35.5 46.8
Unallocated - - 277.8 - -
------------------------------------------------------------------------------------------
Consolidated $8,330.3 $448.8 $4,320.9 $288.5 $450.7
- --------------------------------------------------------------------------------------------------------------------------
1994
Automotive $2,874.0 $143.8 $1,308.5 $102.0 $168.3
Controls 2,259.9 94.5 929.1 44.8 28.7
Plastics 998.2 72.2 722.1 69.6 90.0
Battery 738.4 54.7 462.5 41.9 60.5
Unallocated - - 384.7 - -
------------------------------------------------------------------------------------------
Consolidated $6,870.5 $365.2 $3,806.9 $258.3 $347.5
- --------------------------------------------------------------------------------------------------------------------------
1993
Automotive $2,556.4 $128.2 $1,028.4 $ 95.4 $145.6
Controls 2,040.3 84.3 732.3 44.2 31.9
Plastics 900.3 62.2 686.8 58.3 57.8
Battery 684.7 38.7 454.1 40.4 63.0
Unallocated - - 329.2 - -
------------------------------------------------------------------------------------------
Consolidated $ 6,181.7 $313.4 $3,230.8 $238.3 $298.3
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
the recapitalization of certain foreign operations in the prior year, was
partially offset by an increase in fourth-quarter expense associated with the
issuance of $125 million of 8.2% debentures.
Miscellaneous-net expense declined by $3 million compared to 1993. This
primarily resulted from a $5 million increase in equity income associated with
improved performance by automotive seating and battery equity affiliates.
PROVISION FOR INCOME TAXES
The effective income tax rate for 1994 was 43%, slightly higher than the
1993 rate of 42%. The effective rate for the fiscal year remained higher than
the combined U.S. federal and state statutory rate of approximately 40%, due to
higher foreign effective tax rates and nondeductible amortization of goodwill
associated with business acquisitions.
MINORITY INTERESTS
Minority interests in net earnings of subsidiaries increased to $21 million
from $16 million in 1993. The increase was due to improved performance
by certain of the Company's North American automotive seating joint ventures.
NET INCOME
Net income, before the cumulative effect of 1993 accounting changes described
below, rose 20% in 1994 to $165 million as the result of improvements in
operating income, interest expense and equity income. Primary and fully diluted
earnings per share before the cumulative effect of accounting changes, were
$3.80 and $3.60, respectively, for 1994, up from $3.16 and $2.98 in 1993.
During 1993, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," SFAS No. 109, "Accounting for Income Taxes," and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The combined cumulative
effect of these accounting changes was a one-time charge of $151.8 million
before taxes ($122 million, or $2.99 per share on a primary basis and $2.81 per
share fully diluted, after taxes.) In addition, 1993 earnings from operations
were reduced by $20.1 million ($7.1 million, or $.20 per share on a primary
basis and $.22 per share fully diluted, after taxes) for incremental costs
resulting from the accounting changes.
CAPITAL EXPENDITURES AND OTHER INVESTMENTS
Capital expenditures were $451 million, $348 million, and $298 million in 1995,
1994 and 1993, respectively. Consistent with the prior year, a significant
portion of 1995 expenditures related to the expansion of automotive facilities
and product lines, both domestically and in Europe. Expenditures were also made
for capacity expansion for
<TABLE>
<CAPTION>
quarterly financial data
First Second Third Fourth Full
Year ended September 30, Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
(in millions, except per share data; unaudited)
<S> <C> <C> <C> <C> <C>
1995
Net sales $1,857.6 $2,050.5 $2,180.9 $2,241.3 $8,330.3
Gross profit $ 277.3 $ 288.5 $ 319.0 $ 372.9 $1,257.7
Net income $ 41.2 $ 32.3 $ 55.3 $ 67.0 $ 195.8
Earnings per share
Primary $ .95 $ .73 $ 1.28 $ 1.57 $ 4.53
Fully diluted $ .90 $ .70 $ 1.21 $ 1.46 $ 4.27
- ------------------------------------------------------------------------------------------------------------------------------------
1994
Net sales $1,585.0 $1,682.1 $1,757.8 $1,845.6 $6,870.5
Gross profit $ 252.6 $ 241.0 $ 278.3 $ 336.6 $1,108.5
Net income $ 38.1 $ 25.5 $ 45.6 $ 56.0 $ 165.2
Earnings per share
Primary $ .87 $ .56 $ 1.06 $ 1.31 $ 3.80
Fully diluted $ .83 $ .54 $ 1.00 $ 1.23 $ 3.60
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 9
plastic container operations. Capital expenditures for 1996 are projected to
approximate $350-$375 million. The majority of the spending will be focused
on new automotive seating product lines and European automotive facilities.
Plastics spending will be lower in 1996 as a portion of the capacity that was
put in place in 1995 was underutilized.
Goodwill increased $25 million to $519 million at September 30, 1995. The
increase is attributable to business acquisitions during 1995. All acquisitions
were accounted for as purchases and, as such, operating results are included
since their respective acquisition dates.
Investments in partially-owned affiliates of $91 million were approximately $9
million lower than the prior year, primarily as a result of dividends received
and currency translation effects, which more than offset the recording of equity
income.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
Cash provided by operating activities was $370 million during 1995 compared to
$447 million in 1994. Increases in 1995 accounts receivable and other working
capital items, resulting from higher levels of business activity, exceeded
the benefit of increased net income as adjusted for depreciation, amortization
of intangibles and other noncash income and expense items. Total working capital
declined to $154 million at September 30, 1995 from $262 million one year ago.
This decline reflects an increase in short-term debt which was used to fund the
Company's capital spending and current year acquisitions.
CAPITALIZATION
The Company's capitalization of $2,168 million at September 30, 1995 included
short-term debt of $198 million, long-term debt of $630 million and
shareholders' equity of $1,340 million. Total debt as a percentage of total
capitalization increased to 38% from 37% at September 30, 1994. In October 1994,
the Company issued $103 million of medium-term notes, the proceeds of which were
used to refinance $60 million of bank borrowings and $35 million of medium-term
notes due in December 1994. In March 1995, the Company issued $125 million of
20-year, 7.7% debentures and $30 million of 6.92% private notes, the proceeds of
which were used to refinance the Company's $150 million of 8.875% notes which
would have been due in 1998.
A $250 million revolving line of credit agreement, established in 1991, is
available to support working capital requirements and to back up commercial
paper borrowings. At September 30, 1995, $130 million of short-term borrowings
were outstanding compared to $19 million in 1994. Additional unused credit
facilities of approximately $324 million are available to the Company's
international subsidiaries.
A shelf registration statement is on file with the Securities and Exchange
Commission under which the Company can issue a total of $350 million in
debt securities. Since the filing, $125 million of 7.7%, 20-year debentures,
putable after 10 years, have been issued under the registration.
High credit ratings from Standard & Poor's (A), Moody's (A2) and Fitch (A) are
maintained on the Company's long-term debt.
The Company's capital resources and liquidity position are considered sufficient
to meet projected needs. Requirements for working capital, capital
expenditures, dividends and debt maturities in fiscal 1996 will continue to be
funded from operations, supplemented by short-term or long-term borrowings, if
required.
Because of its global operations, the Company participates in the foreign
exchange markets in order to minimize the Company's risk of loss from
fluctuations in exchange rates. The Company closely monitors its exposure to
fluctuations in currencies and, where cost-justified, adopts strategies to
reduce the impact of these fluctuations on the Company's financial performance.
These strategies include engaging in various hedging activities to manage income
and cash flows denominated in foreign currencies, and using foreign currency
borrowings when appropriate to finance investments outside the United States.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company's U.S. operations are governed by federal environmental laws,
principally the Resource Conservation and Recovery
25
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Air Act, and the Clean Water Act, as well as state counterparts
("Environmental Laws"), and by federal and state laws addressing worker
safety and health ("Worker Safety Laws"). These laws govern ongoing operations
and the remediation of sites associated with past operations. Under certain
circumstances these laws provide for civil and criminal penalties and fines, as
well as injunctive and remedial relief.
The Company's policy is to comply with applicable Environmental Laws and
Worker Safety Laws, and it has expended substantial resources, both financial
and managerial, to comply with such laws and for measures designed to protect
the environment and maximize worker protection and safety. In addition, in view
of diminishing capacity and increasing costs and liabilities associated with the
usage of disposal facilities, the Company continues to implement processes and
procedures designed to reduce waste.
The Company believes it is in substantial compliance with such laws, and
maintains procedures designed to ensure compliance. However, the Company has
been, and in the future may become, the subject of formal or informal
enforcement actions or proceedings. Such matters typically are resolved by
negotiation with regulatory authorities resulting in commitments to compliance
or abatement programs and payment of penalties. Historically, neither such
commitments nor penalties imposed on the Company have been material.
Environmental Laws require that certain parties fund remedial actions regardless
of fault, legality of original disposal or ownership of the site. The Company
is currently participating in environmental assessment and remediation at a
number of sites under these laws, and it is likely that in the future the
Company will be involved in additional environmental assessments and
remediations. Such sites include facilities that had been engaged in the
recycling of lead batteries.
Future remediation costs at these and other sites are subject to a number of
uncertainties, including the method and extent of remediation (dependent, in
part, on existing laws and technology), the percentage and type of material
attributable to the Company, the financial viability of site owners and the
other parties, and the availability of insurance coverage. A charge to earnings
is recorded for sites when it is probable that a liability has been incurred and
the cost can be reasonably estimated.
While environmental considerations are a part of all significant capital
expenditure decisions, in excess of $2 million of the Company's total
expenditures in 1995 related solely to environmental compliance. In addition,
remedial response and related expenses were approximately $9 million. At
September 30, 1995, an accrued liability of approximately $33 million was
maintained relating to environmental matters. The Company's environmental
liabilities are undiscounted and do not take into consideration any possible
recoveries of future insurance proceeds or claims against third parties. Because
of the uncertainties associated with environmental assessment and remediation
activities, future expenses to remediate the currently identified sites could be
considerably higher than the accrued liability. However, while neither the
timing nor the amount of ultimate costs associated with known environmental
assessment and remediation matters can be determined at this time, the Company
does not expect that these matters will have a materially adverse effect on its
financial position, results of operations or cash flows.
On June 30, 1995, the Company appealed to the Wisconsin Court of Appeals, the
Milwaukee County Circuit Court's order granting the summary judgment motion of
the Employers Insurance of Wausau and dismissing Johnson Controls' complaint
seeking to recover environmental investigation and remediation costs at 21
sites. The Circuit Court based its decision on the reasoning of a 1994 Wisconsin
Supreme Court case that held that under the law of Wisconsin, response costs
under CERCLA (a/k/a Superfund) are not "damages" as that term is used in
comprehensive general liability policies. The Company has not recorded any
anticipated recoveries of future insurance proceeds, and therefore, the outcome
of this case should have no significant impact on the Company's consolidated
financial statements.
If future Environmental and Worker Safety Laws contain more stringent
requirements than currently anticipated, expenditures may have a more
significant effect on the Company's financial position, results of operations
or cash flows. Competitors face the same laws, and, accordingly, the Company
should not be placed at a competitive disadvantage.
PENDING ACQUISITION
The Company has reached agreement to acquire approximately 75% of the
Roth Freres companies for $175 to $200 million. Roth Freres is a major supplier
of seating and interior components to the European automotive industry.
Headquartered in Strasbourg, France, it is a privately held company with
estimated 1995 sales of $600 million. The acquisition is expected to be
completed by December 31, 1995, following government approvals. Financing for
the acquisition will initially be with short-term debt.
26
<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of Johnson Controls, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Johnson Controls, Inc. and its subsidiaries at September 30, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for postretirement benefits other than
pensions, postemployment benefits and income taxes effective October 1, 1992.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
October 23, 1995
<PAGE> 12
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(in millions, except per share data) Year ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Net sales $8,330.3 $6,870.5 $6,181.7
Cost of sales 7,072.6 5,762.0 5,233.2
-----------------------------------------
Gross profit 1,257.7 1,108.5 948.5
Selling, general and administrative expenses 808.9 743.3 635.1
-----------------------------------------
Operating income 448.8 365.2 313.4
-----------------------------------------
Interest income 6.2 4.4 5.8
Interest expense (57.4) (40.7) (47.7)
Miscellaneous - net (9.7) (2.5) (5.3)
-----------------------------------------
Other income (expense) (60.9) (38.8) (47.2)
-----------------------------------------
Income before income taxes,
minority interests and cumulative effect of accounting changes 387.9 326.4 266.2
Provision for income taxes 162.9 140.3 112.8
Minority interests in net earnings of subsidiaries 29.2 20.9 15.5
-----------------------------------------
Income before cumulative effect of accounting changes 195.8 165.2 137.9
Cumulative effect of accounting changes, net of income taxes -- -- (122.0)
-----------------------------------------
Net income $ 195.8 $ 165.2 $ 15.9
=========================================
Earnings available for common shareholders $ 186.4 $ 155.9 $ 6.8
=========================================
Earnings per share before cumulative effect of accounting changes
Primary $ 4.53 $ 3.80 $ 3.16
Fully diluted $ 4.27 $ 3.60 $ 2.98
=========================================
Cumulative effect of accounting changes per share
Primary -- -- $ (2.99)
Fully diluted -- -- $ (2.81)
=========================================
Earnings per share
Primary $ 4.53 $ 3.80 $ .17
Fully diluted $ 4.27 $ 3.60 $ .17(1)
=========================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
(1) Calculation is anti-dilutive.
27
<PAGE> 13
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(in millions) September 30,
-----------------------------
1995 1994
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 103.8 $ 132.6
Accounts receivable, less allowance for doubtful accounts of $22.2 and $23.4, respectively 1,287.5 1,067.0
Inventories 355.5 304.7
Other current assets 317.1 274.2
-----------------------------
Current assets 2,063.9 1,778.5
Property, plant and equipment - net 1,518.8 1,333.4
Goodwill, less amortization of $128.7 and $106.4, respectively 519.1 493.8
Investments in partially owned affiliates 90.8 99.7
Other noncurrent assets 128.3 101.5
-----------------------------
Total assets $4,320.9 $3,806.9
================================================================================================================================
LIABILITIES AND EQUITY
Short-term debt $ 130.2 $ 19.2
Current portion of long-term debt 67.7 24.8
Accounts payable 983.5 814.9
Accrued compensation and benefits 258.5 246.3
Accrued income taxes 35.5 39.4
Billings in excess of costs and earnings on uncompleted contracts 87.8 76.2
Other current liabilities 346.3 295.6
-----------------------------
Current liabilities 1,909.5 1,516.4
Long-term debt 630.0 670.3
Postretirement health and other benefits 168.8 167.1
Other noncurrent liabilities 272.4 250.3
Shareholders equity 1,340.2 1,202.8
-----------------------------
Total liabilities and equity $4,320.9 $3,806.9
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 14
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(in millions) Year ended September 30,
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $195.8 $165.2 $ 15.9
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 256.3 230.4 212.1
Amortization of intangibles 32.2 27.9 26.2
Equity in earnings of partially owned affiliates (1.6) (9.4) (4.9)
Noncurrent deferred income taxes (1.7) (3.1) (23.9)
Cumulative effect of accounting changes -- -- 122.0
Other -- 1.5 24.9
Changes in working capital, excluding acquisition of businesses
Accounts receivable (216.4) (103.3) (55.3)
Inventories (40.0) (8.0) 19.4
Other current assets (40.6) (19.6) (43.2)
Accounts payable and accrued liabilities 181.0 186.7 184.0
Accrued income taxes (5.6) (20.0) 24.2
Billings in excess of costs and earnings on uncompleted contracts 10.8 (1.1) (9.7)
-------------------------------------
Cash provided by operating activities 370.2 447.2 491.7
-------------------------------------
INVESTING ACTIVITIES
Capital expenditures (450.7) (347.5) (298.3)
Sale of property, plant and equipment 17.3 28.3 16.3
Acquisition of businesses (30.6) (167.9) (56.1)
Additions of long-term investments (6.4) (21.7) (11.4)
Proceeds from long-term investments 18.1 11.5 13.1
Other .3 .2 .9
-------------------------------------
Cash used by investing activities (452.0) (497.1) (335.5)
-------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in short-term debt 107.1 (17.5) (99.9)
Issuance of long-term debt 218.8 202.8 42.1
Repayment of long-term debt (206.8) (26.5) (36.8)
Payment of cash dividends (76.3) (71.4) (68.1)
Other 9.7 4.4 9.4
-------------------------------------
Cash provided (used) by financing activities 52.5 91.8 (153.3)
-------------------------------------
Effect of exchange rate changes on cash and cash equivalents .5 3.0 (11.4)
-------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (28.8) $ 44.9 $ (8.5)
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE> 15
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned Capital in Treasury Cumulative
Preferred Compensation Common Excess of Retained Stock, Translation
(in millions) Total Stock - ESOP Stock Par Value Earnings at Cost Adjustments
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AT SEPTEMBER 30, 1992 $ 1,194.2 $ 171.1 $(159.4) $ 7.0 $ 493.6 $ 681.4 $(55.2) $55.7
Net income 15.9 -- -- -- -- 15.9 -- --
Reduction of guaranteed ESOP debt 6.0 -- 6.0 -- -- -- -- --
Cash dividends
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $4.1 million tax benefit (9.1) -- -- -- -- (9.1) -- --
Common ($1.36 per share) (54.9) -- -- -- -- (54.9) -- --
Translation adjustments (79.6) -- -- -- -- -- -- (79.6)
Other, including options exercised 6.5 (3.0) -- -- 9.4 -- .1 --
- -----------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1993 1,079.0 168.1 (153.4) 7.0 503.0 633.3 (55.1) (23.9)
Net income 165.2 -- -- -- -- 165.2 -- --
Reduction of guaranteed ESOP debt 6.8 -- 6.8 -- -- -- -- --
Cash dividends
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $3.6 million tax benefit (9.3) -- -- -- -- (9.3) -- --
Common ($1.44 per share) (58.5) -- -- -- -- (58.5) -- --
Translation adjustments 16.4 -- -- -- -- -- -- 16.4
Other, including options exercised 3.2 (4.0) -- .1 6.9 -- .2 --
- -----------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1994 1,202.8 164.1 (146.6) 7.1 509.9 730.7 (54.9) (7.5)
Net income 195.8 -- -- -- -- 195.8 -- --
Reduction of guaranteed ESOP debt 7.9 -- 7.9 -- -- -- -- --
Cash dividends
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $3.1 million tax benefit (9.4) -- -- -- -- (9.4) -- --
Common ($1.56 per share) (63.8) -- -- -- -- (63.8) -- --
Translation adjustments .3 -- -- -- -- -- -- .3
Other, including options exercised 6.6 (4.0) -- -- 10.6 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1995 $1,340.2 $ 160.1 $(138.7) $7.1 $520.5 $853.3 $(54.9) $(7.2)
===================================================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
30
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Johnson Controls, Inc. and its majority-owned domestic and foreign
subsidiaries. All significant intercompany transactions have been eliminated.
Investments in partially owned affiliates are accounted for by the equity
method when the Company's interest exceeds 20%. Gains and losses from the
translation of most foreign currency financial statements are accumulated as a
separate component of shareholders' equity.
INVENTORIES: Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for most inventories at
domestic locations. Cost of other inventories is determined on the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT: The Company uses the straight-line method of
depreciation for financial reporting purposes and accelerated methods for
income tax purposes.The general range of useful lives for financial reporting
is 10 to 50 years for buildings and improvements and 3 to 20 years for
machinery and equipment.
INTANGIBLES: Goodwill arising from business acquisitions is amortized using the
straight-line method over periods of 15 to 40 years. Patents and other
intangibles are amortized over their estimated lives. The Company reviews the
carrying value of goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Measurement of any impairment would include a comparison of estimated future
operating cash flows anticipated to be generated during the remaining life of
the goodwill to the net carrying value of goodwill.
REVENUE RECOGNITION: The Company recognizes revenue from long-term
contracts of the controls segment and machinery produced by the plastics
segment over the contractual period under the percentage-of-completion method
of accounting (see "Long-Term Contracts"). In all other cases, the Company
recognizes revenue at the time products are shipped or as services are
performed.
LONG-TERM CONTRACTS: Under the percentage-of-completion method of accounting
used for long-term contracts, sales and gross profit are recognized as work
is performed based on the relationship between actual costs incurred and total
estimated costs at completion. Sales and gross profit are adjusted
prospectively for revisions in estimated total contract costs and contract
values. Estimated losses are recorded when identified. Claims against customers
are recognized as revenue upon settlement. The amount of accounts receivable
due after one year is not significant.
EARNINGS PER SHARE: Primary earnings per share are computed by dividing net
income, after deducting dividend requirements on the Series D Convertible
Preferred Stock, by the weighted average number of common shares and
common stock equivalents which would arise from the exercise of stock options.
Fully diluted earnings are computed by deducting from net income the after-tax
compensation expense which would arise from the assumed conversion of the
Series D Convertible Preferred Stock, which was $5.8 million, $5.9 million and
$6.0 million in 1995, 1994 and 1993, respectively. Fully diluted weighted
average shares assume the conversion of the Series D Convertible Preferred
Stock, if dilutive, plus the dilutive effect of the stock options.
The weighted average number of shares used in the primary and fully diluted
earnings per share computations were as follows:
<TABLE>
<CAPTION>
Year ended September 30,
- -------------------------------------------------
(in millions of shares) 1995 1994 1993
--------------------------
<S> <C> <C> <C>
Primary 41.2 41.0 40.8
Fully diluted 44.5 44.3 44.3
- -------------------------------------------------
</TABLE>
CASH FLOW: For purposes of the Consolidated Statement of Cash Flows,
the Company considers all investments with a maturity of three months or less
at the time of purchase to be cash equivalents.
ACCOUNTING CHANGES: Effective October 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," No. 109, "Accounting for Income
Taxes," and No. 112, "Employers' Accounting for Postemployment Benefits."
The combined cumulative effect of the accounting changes was a one-time charge
of $151.8 million before taxes ($122 million or $2.99 per share on a primary
basis and $2.81 per share fully diluted, after taxes). Additional disclosures
related to these accounting changes are included in Note 8 for SFAS No. 106,
Note 11 for SFAS No. 109 and Note 9 for SFAS No. 112.
NOTE 1 - INVENTORIES
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------
(in millions) 1995 1994
----------------------
<S> <C> <C>
Raw materials and supplies $145.1 $100.2
Work in process 112.9 112.6
Finished goods 149.6 134.0
- ------------------------------------------------------
FIFO inventories 407.6 346.8
LIFO reserve (52.1) (42.1)
- ------------------------------------------------------
LIFO inventories $355.5 $304.7
- ------------------------------------------------------
</TABLE>
Inventories valued by the LIFO method of accounting were approximately
61% and 66% of total inventories at September 30, 1995 and 1994, respectively.
31
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
September 30,
- ----------------------------------------------------------------
(in millions) 1995 1994
-------------------------
<S> <C> <C>
Buildings and improvements $ 594.8 $ 553.6
Machinery and equipment 2,168.1 1,868.2
Construction in progress 220.7 193.5
- ----------------------------------------------------------------
2,983.6 2,615.3
Land 57.9 53.9
- ----------------------------------------------------------------
3,041.5 2,669.2
Less accumulated depreciation 1,522.7 1,335.8
- ----------------------------------------------------------------
Property, plant and equipment - net $ 1,518.8 $ 1,333.4
- ----------------------------------------------------------------
</TABLE>
Interest costs capitalized during 1995, 1994, and 1993 were $11.0
million, $5.9 million and $3.0 million, respectively.
NOTE 3 - LEASES
Certain administrative and production facilities and equipment are leased under
long-term agreements. Most leases contain renewal options for varying periods,
and certain leases include options to purchase the leased property during or at
the end of the lease term. Leases generally require the Company to pay for
insurance, taxes and maintenance of the property. Leased capital assets
included in net property, plant and equipment, primarily buildings and
improvements, were $26 million and $31 million at September 30, 1995 and 1994,
respectively.
Other facilities and equipment are leased under arrangements which are
accounted for as operating leases. Total rental expense was $89 million in
1995, $73 million in 1994 and $72 million in 1993.
Future minimum capital and operating lease payments and the related present
value of capital lease payments at September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
- -------------------------------------------------------------------
(in millions)
<S> <C> <C>
1996 $ 4.9 $ 52.4
1997 4.8 39.7
1998 4.5 27.4
1999 4.4 16.7
2000 2.7 7.5
After 2000 17.5 45.6
- -------------------------------------------------------------------
Total minimum lease payments 38.8 $ 189.3
- -------------------------------------------------------------------
Interest 12.4
- -------------------------------------------------------------------
Present value of net minimum lease payments $ 26.4
- -------------------------------------------------------------------
</TABLE>
NOTE 4 - SHORT-TERM DEBT AND CREDIT AGREEMENTS
Short-term debt at September 30, 1995 and 1994 consisted entirely of
bank borrowings. At September 30, 1995, the Company had unsecured lines of
credit available from banks totalling $579 million. The lines of credit are
subject to the usual terms and conditions applied by banks. Domestic lines of
credit totalling $255 million are available for support of outstanding
commercial paper. The average short-term debt outstanding during 1995 and 1994
was $211 million and $144 million, respectively. The weighted average interest
rate on short-term debt outstanding at September 30, 1995 and 1994, was
5.76% and 7.43%, respectively. Total interest paid on both long-term and
short-term debt was $66 million, $43 million and $51 million in 1995, 1994 and
1993, respectively.
NOTE 5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------------------
(in millions) 1995 1994
--------------------
<S> <C> <C>
Bank borrowings $ -- $ 60.0
Unsecured notes
6.15% due in 1996 30.0 30.0
8.875% due in 1998 -- 149.8
8.2% due in 2024 125.0 125.0
6.92% due in 1998 30.0 --
7.7% due in 2015 124.8 --
Industrial revenue bonds due through 2006,
net of unamortized discount of $3.0 million
in 1995 and $3.2 million in 1994 51.4 52.3
Medium-term notes due in 1996, 1997 and 1999
at an average interest rate of 7.56% 123.0 54.8
Guaranteed ESOP debt due in increasing annual
installments through 2004 at an average
interest rate of 7.34% (tied in part to LIBOR) 138.7 146.6
Capital lease obligations 26.4 34.9
Other 48.4 41.7
- ------------------------------------------------------------------------------------
697.7 695.1
Less current portion 67.7 24.8
- ------------------------------------------------------------------------------------
Long-term debt $ 630.0 $ 670.3
- ------------------------------------------------------------------------------------
</TABLE>
In March 1995, the Company refinanced its $150 million, 8.875% debentures due
in 1998 by issuing $125 million of 7.7% debentures due in 2015 and $30 million
of 6.92% private placement notes due in 1998.
32
<PAGE> 18
In October 1994, the Company issued $53 million of 7.18% medium-term notes due
in 1997 and $50 million of 7.63% medium-term notes due in 1999. The proceeds
were used to refinance a portion of the existing medium-term notes and certain
bank borrowings. Accordingly, at September 30, 1994, $60 million of bank
borrowings and $35 million of the medium-term notes due in 1995 were classified
as long-term debt.
Industrial revenue bond financed facilities have been accounted for as plant
and equipment. The related bonds issued by the government units are recorded
as long-term debt. Fixed rate industrial revenue bonds totalling $27 million at
September 30, 1995 and $28 million at September 30, 1994 had a weighted average
interest rate of 6.3%. Variable rate bonds of $27 million at September 30,
1995 and $28 million at September 30, 1994 had weighted average interest rates
of 4.7% and 3.9%, respectively.
In 1989 the Company established an employee stock ownership plan (ESOP). The
ESOP was financed with $175 million in debt issued by the ESOP. The ESOP debt
is guaranteed by the Company as to payment of principal and interest and,
therefore, the unpaid balance has been recorded as long-term debt. The
dividends on the Series D Preferred Stock held by the ESOP plus Company
contributions to the ESOP are used by the ESOP to service the debt. Therefore,
interest incurred on the ESOP debt of $10 million for each of the years 1995,
1994, and 1993 has not been reflected as interest expense in the Company's
Consolidated Statement of Income.
The installments of long-term debt maturing in each of the next five years
(including the guaranteed ESOP debt) are: 1996 - $68 million, 1997 - $34
million, 1998 - $104 million, 1999 - $19 million and 2000 - $78 million.
The indentures for the unsecured notes and the guaranteed ESOP debt include
various financial covenants, none of which are expected to restrict future
operations.
NOTE 6 - FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents and short-term debt approximate
their carrying values. The fair value of long-term debt shown below was
determined using market interest rates and discounted future cash flows.
The fair values of hedging instruments were obtained from dealer quotes and
published foreign currency exchange rates. A comparison of the carrying values
in the Consolidated Statement of Financial Position and estimated fair values
of these financial instruments is as follows:
<TABLE>
<CAPTION>
September 30,
- ----------------------------------------------------------------------
(in millions) 1995 1994
----------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $630 $665 $670 $663
Forward contracts 4 6 5 5
Interest rate swap 5 6 2 3
- ----------------------------------------------------------------------
</TABLE>
HEDGING TRANSACTIONS: The Company has global operations and participates in the
foreign exchange markets to minimize its risk of loss from fluctuations in
exchange rates. The Company enters into forward exchange contracts to hedge
certain of its foreign currency commitments. Realized and unrealized gains and
losses on these contracts are recognized as income in the same periods as the
hedged commitments. The Company's forward exchange contracts generally have
maturities which do not exceed twelve months in duration, and are designed to
coincide with settlement dates of the related transactions.
In March 1994, the Company settled its $54 million cross-currency interest rate
swap agreement and subsequently entered into a cross-currency interest rate
swap agreement and forward contract to continue to hedge a portion of its $160
million of net investments in its German subsidiaries. Under the swap, the
Company receives interest based on a floating U.S. dollar commercial paper rate
on $30 million and pays interest based on a floating Deutschemark ("DM") LIBOR
rate on 50 million DM through March 1997, at which time the Company will
receive $30 million in exchange for paying 50 million DM. Under the terms of
the forward contract, the Company will pay 50 million DM in exchange for $30
million in March 1997. Related foreign exchange gains and losses on the
notional principal values of these two instruments are deferred in the
cumulative translation adjustments account ("CTA") within shareholders' equity.
The total pretax exchange loss deferred in CTA of approximately $14 million at
September 30, 1995, was offset by translation gains on the underlying net
investments. Gains and losses on the interest component of the swap are
recorded as interest expense in the Consolidated Statement of Income on a
current basis.
All contracts are executed with major international financial institutions
and, as such, the Company does not anticipate that these institutions will fail
to perform.
33
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following forward contracts, by which the Company sold or purchased
currencies, were outstanding at September 30, 1995:
<TABLE>
<CAPTION>
Currency Currency Contract
Sold Purchased Amount
- ------------------------------------------
(in millions)
<S> <C> <C>
British Pound German DM $100
German DM U.S. Dollar 84
Spanish Peseta German DM 44
Canadian Dollar U.S. Dollar 35
Portuguese Escudo German DM 19
German DM Belgian Franc 13
U.S. Dollar Italian Lira 13
French Franc German DM 11
Others 57
- ------------------------------------------
$376
- ------------------------------------------
</TABLE>
NOTE 7 - SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------------
(in millions of shares) 1995 1994
-----------------------
<S> <C> <C>
Preferred Stock, $1.00 par value
Authorized 2.0 2.0
Issued and outstanding
Series D Convertible * *
- ------------------------------------------------------------
Common Stock, $.16 2/3 par value
Authorized 150.0 150.0
Issued and outstanding 41.1 40.7
- ------------------------------------------------------------
</TABLE>
*312.7224 and 320.4416 shares of Series D Convertible Preferred Stock were
outstanding at September 30, 1995 and 1994, respectively.
In 1989 the Company issued 341.7969 shares of 7.75% Series D Convertible
Preferred Stock to its newly established ESOP for $175 million. The Preferred
Stock was issued in fractional amounts representing one ten-thousandth of a
share each or 3.4 million Preferred Stock units in total. Each Preferred Stock
unit has a liquidation value of $51.20.
The ESOP financed its purchase of the Preferred Stock units by issuing debt in
the amount of $175 million. The ESOP debt is guaranteed by the Company and is
therefore recorded as long-term debt of the Company. An amount representing
unearned employee compensation, equivalent in value to the unpaid balance of
the ESOP debt, has been recorded as a deduction from shareholders' equity. The
net increase in shareholders' equity at September 30, 1995 and 1994 resulting
from the above transactions was $21 million and $18 million, respectively.
Preferred Stock units are allocated to participating employees based on the
annual ESOP debt service payments and are held in trust for the employees until
their retirement, death, or vested termination.
Each allocated unit may be converted into one share of common stock or redeemed
for cash equal to the greater of the current market value of the common stock
or $51.20, at the election of the employee or beneficiary, upon retirement,
death or vested termination. The Company, at its option, may issue shares of
its common stock or distribute cash to the ESOP to redeem the Preferred Stock
units. As of September 30, 1995, 3.1 million shares of common stock were
reserved for the conversion of the Preferred Stock units. Employees may vote
allocated units, and the plan trustee is to vote unallocated units in the same
proportion as the allocated units are voted.
Dividends on the Preferred Stock are deductible for income tax purposes
and enter into the determination of earnings available for common shareholders
net of their tax benefit.
The Company held 1.7 million shares of its common stock in treasury at
September 30, 1995. These shares may be used for a variety of purposes,
including employee benefit and stock option plans.
Options to purchase common stock of the Company, at prices equal to or higher
than market values on dates of grant, are granted to key employees under
stock option plans. Stock appreciation rights (SARs) may be granted in
conjunction with the stock option grants under one plan. Options or SARs are
exercisable between one and ten years after date of grant. Shares available for
future grant under stock option plans were 1.2 million at September 30, 1995.
Following is a summary of activity in the stock option plans for 1995 and 1994:
<TABLE>
<CAPTION>
Weighted Shares
Average Subject to
Option Price Option SARs
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding
September 30, 1993 $34.74 1,422,846 259,898
Granted 53.81 664,900 137,200
Exercised 31.01 295,090 33,291
Cancelled 39.80 160,116 22,984
- ---------------------------------------------------------------------------
Outstanding
September 30, 1994 42.69 1,632,540 340,823
Granted 49.31 693,700 210,058
Exercised 33.81 418,055 77,118
Cancelled 45.72 330,543 77,960
- ---------------------------------------------------------------------------
Outstanding,
September 30, 1995(1) $47.32 1,577,642 395,803
- ---------------------------------------------------------------------------
Exercisable,
September 30, 1995 $37.90 476,492 130,428
- ---------------------------------------------------------------------------
</TABLE>
(1) Option exercise prices range from $33.13 to $53.81 per share.
Under the terms of a Rights Agreement, as amended effective November 16, 1994,
each share of the Company's common stock entitles its holder to one Right. The
Rights Agreement provides that if
34
<PAGE> 20
20% or more of the Company's common stock is acquired, the Rights become
exercisable. Further, upon the occurrence of certain defined events, the Rights
entitle the holder to purchase common stock of the Company or common stock
of an "acquiring company" having a market value equivalent to two times the
Right's exercise price of $175. In addition, the Rights Agreement permits the
Company's Board of Directors, in certain circumstances, to exchange the Rights
for shares of common stock and permits a bidder to call for a shareholders'
vote to redeem the Rights. The Rights are subject to redemption by the Board of
Directors for $.01 per Right. The Rights have no voting power and expire
November 30, 2004.
Approximately $47 million of consolidated retained earnings at September 30,
1995 represents undistributed earnings of the Company's partially-owned
affiliates accounted for by the equity method.
NOTE 8 - RETIREMENT PLANS
PENSION BENEFITS: The Company has noncontributory defined benefit pension
plans covering most domestic and certain foreign employees. The benefits
provided are based primarily on years of service and average compensation or a
monthly retirement benefit amount. Funding for domestic pension plans equals or
exceeds the minimum requirements of the Employee Retirement Income Security Act
of 1974 (ERISA). Also, the Company makes contributions to union-trusteed
pension funds for construction and service personnel and to defined
contribution plans for the majority of Johnson Controls World Services Inc.
employees. Net pension expense for defined benefit plans included the following
components:
<TABLE>
<CAPTION>
Year ended September 30,
- --------------------------------------------------------------------------------
(in millions) 1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
Service cost $28.0 $25.6 $23.3
Interest cost on projected
benefit obligation 46.5 41.7 37.1
Actual return on plan assets (75.6) (16.7) (67.1)
Net amortization and deferral 21.6 (33.6) 20.3
- --------------------------------------------------------------------------------
Net pension expense $20.5 $17.0 $13.6
- --------------------------------------------------------------------------------
</TABLE>
The following schedule details the funded status of the Company's
defined benefit pension plans. Plans with assets exceeding the accumulated
benefit obligation (ABO) are segregated by column from plans with the ABO
exceeding assets. The plans with the ABO exceeding assets were primarily
foreign plans which are not subject to ERISA. The projected benefit obligation
was determined using assumed discount rates of 7.75% and 8.0% at September 30,
1995 and 1994, respectively. Pension expense was determined using assumed
discount rates of 8.0% in 1995 and 8.25% in 1994 and 1993. The assumed
long-term rate of return on plan assets was 9.75% in 1995, and 10% in 1994 and
1993. The average rate of compensation increase assumed was 6.0% in 1995, 1994
and 1993.
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------------------------
(in millions) 1995 1994
--------------------------------------------------------
Assets ABO Assets ABO
Exceed Exceeds Exceed Exceeds
ABO Assets ABO Assets
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations
Vested $408.5 $ 97.0 $350.8 $ 91.3
Nonvested 26.7 4.7 24.0 4.5
- -------------------------------------------------------------------------------------------
Accumulated benefit
obligation 435.2 101.7 374.8 95.8
Effect of projected
salary increases 117.2 12.5 95.6 13.0
- -------------------------------------------------------------------------------------------
Total projected benefit
obligation 552.4 114.2 470.4 108.8
Plan assets at fair value 546.6 49.1 473.6 53.8
- -------------------------------------------------------------------------------------------
(Deficit) excess of plan
assets over projected
benefit obligation (5.8) (65.1) 3.2 (55.0)
Unrecognized
transitional asset (27.2) (9.9) (29.8) (2.4)
Unrecognized net loss 49.7 11.1 49.4 3.7
- -------------------------------------------------------------------------------------------
Prepaid (accrued)
pension expense $ 16.7 $(63.9) $ 22.8 $(53.7)
- -------------------------------------------------------------------------------------------
</TABLE>
At the measurement dates of June 30, 1995 and 1994, plan assets included
approximately 402,000 and 390,000 shares, respectively, of Johnson Controls,
Inc. common stock with total market values of $22.7 million and $18.9 million
at the respective dates.
During 1989, the Company established an ESOP as part of its existing savings
and investment (401K) plan, which is available to eligible domestic employees.
The ESOP issued debt to finance its purchase of 3.4 million units (341.7969
shares) of the Company's Series D Convertible Preferred Stock for $175 million.
The Preferred Stock units are being allocated to participating employees over
the 15-year term of the ESOP debt and held in trust until the employees'
retirement, death, or vested termination. As of September 30, 1995,
approximately 1,249,000 Preferred Stock units had been allocated to employees.
The Company's annual contributions to the ESOP, when combined with the
Preferred Stock dividends, are of an amount which will allow the ESOP to
meet its debt service requirements. This contribution amount was $6 million in
1995, $5 million in 1994, and $4 million in 1993. Total compensation expense
recorded by the Company was $19 million, $13 million and $5 million in 1995,
1994 and 1993, respectively.
POSTRETIREMENT HEALTH AND OTHER BENEFITS: The Company provides certain
healthcare and life insurance benefits for eligible retirees and their
dependents. These benefits are not funded, but are paid as incurred.
Eligibility for coverage is based on meeting
35
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
certain years of service and retirement age qualifications. These benefits
may be subject to deductibles, copayment provisions and other limitations, and
the Company has reserved the right to modify these benefits. Effective January
31, 1994, the Company modified certain salaried plans to place a limit on the
Company's cost of future annual retiree medical benefits at no more than 150%
of the 1993 cost. Most international employees are covered by government
sponsored programs, and the cost to the Company is not significant.
Effective October 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No.106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" using the immediate transition
option. Under SFAS No. 106, the costs of retiree healthcare and life insurance
benefits are accrued over relevant employee service periods. Previously, these
costs generally were charged to expense as claims were paid.
As of October 1, 1992, the accumulated postretirement benefit obligation
(transition obligation) based on the substantive plans for these benefits was
$149 million before taxes ($91 million or $2.23 per share on a
primary basis and $2.10 per share fully diluted, after taxes). In accordance
with the requirements of SFAS No. 106, the transition obligation was charged to
1993 income as the cumulative effect of an accounting change.
Net postretirement benefit expense included the following components:
<TABLE>
<CAPTION>
Year ended September 30,
- -------------------------------------------------------------------------------
(in millions) 1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Service cost $ 4.3 $ 4.5 $ 6.0
Interest cost on accumulated
benefit obligation 11.2 11.0 12.1
Net amortization and deferral (1.9) (1.6) --
- -------------------------------------------------------------------------------
Net postretirement benefit expense $13.6 $13.9 $18.1
- -------------------------------------------------------------------------------
</TABLE>
The status of the Company's postretirement benefit plans is as follows:
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------------
(in millions) 1995 1994
--------------------------
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation
Retirees $ 84.5 $ 74.5
Vested active plan participants 15.5 17.9
Other plan participants 44.5 52.9
- -------------------------------------------------------------------------------
144.5 145.3
- -------------------------------------------------------------------------------
Unrecognized prior service cost 30.4 28.9
Unrecognized net gain (loss) 4.6 (1.9)
- -------------------------------------------------------------------------------
Accrued postretirement benefit obligation $179.5 $172.3
- -------------------------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using assumed
discount rates of 7.75% and 8.0% at September 30, 1995 and 1994, respectively.
An assumed discount rate of 8.0% and 8.25% was used to determine postretirement
benefit expense for 1995 and 1994, respectively. The September 30, 1995
accumulated postretirement benefit obligation was determined using assumed
healthcare cost trend rates of 12% and 9% for pre-65 and post-65 years of age
employees, respectively. The September 30, 1994 accumulated postretirement
benefit obligation was determined using assumed healthcare cost trend rates of
13% and 10% for pre-65 and post-65 years of age employees, respectively. These
rates decrease 1% per year to an ultimate rate of 6%. The healthcare cost trend
rate assumption has a significant affect on the amounts reported. To
illustrate, a one percentage point increase in the assumed healthcare cost
trend rate would have increased the accumulated benefit obligation by $8
million at September 30, 1995, and the sum of the service and interest costs in
1995 by $1 million.
No change in the Company's practice of funding these benefits on a
pay-as-you-go basis is anticipated.
NOTE 9 - POSTEMPLOYMENT BENEFITS
Effective October 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits." SFAS No. 112 prescribes accrual accounting methods for employers who
provide certain benefits to former or inactive employees after employment but
before retirement. Previously, these costs were charged to expense as benefits
were paid. Adoption of this standard resulted in a one time transition charge
of $42.3 million before taxes ($26 million or $.64 per share on a primary basis
and $.60 per share fully diluted, after taxes). In accordance with the
requirements of SFAS No. 112, the transition obligation was charged to 1993
income as the cumulative effect of an accounting change. In 1995, the Company's
accrued post-employment benefit obligation was reduced by approximately $12
million as disabled individuals became qualified for primary Medicare coverage.
NOTE 10 - RESEARCH AND DEVELOPMENT
Expenditures for research activities relating to product development
and improvement are charged against income as incurred. Such expenditures
amounted to $137 million in 1995, $124 million in 1994, and $95 million in
1993.
36
<PAGE> 22
NOTE 11 - INCOME TAXES
Effective October 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes." SFAS No.
109 requires the use of the liability method of accounting for deferred income
taxes. The liability method measures the expected tax impact of future taxable
income or deductions implicit in the Consolidated Statement of Financial
Position. The cumulative effect as of October 1, 1992 was an expense of $5.0
million, or $.12 per share on a primary basis and $.11 per share fully diluted.
Components of income before income taxes, minority interests and cumulative
effect of accounting changes included the following:
<TABLE>
<CAPTION>
Year ended September 30,
- -------------------------------------------------------------------------------
(in millions) 1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Domestic $307.6 $271.3 $231.5
Foreign 80.3 55.1 34.7
- -------------------------------------------------------------------------------
Income before income taxes $387.9 $326.4 $266.2
- -------------------------------------------------------------------------------
</TABLE>
Components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
Year ended September 30,
- -------------------------------------------------------------------------------
(in millions) 1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Current
Federal $110.2 $109.7 $106.8
State 24.0 22.3 23.0
Foreign 24.4 21.1 20.6
- -------------------------------------------------------------------------------
158.6 153.1 150.4
- -------------------------------------------------------------------------------
Deferred
Federal (1.4) (17.1) (35.4)
State (.6) (1.3) (4.8)
Foreign 6.3 5.6 2.6
- -------------------------------------------------------------------------------
4.3 (12.8) (37.6)
- -------------------------------------------------------------------------------
Provision for income taxes $162.9 $140.3 $112.8
- -------------------------------------------------------------------------------
</TABLE>
An analysis of effective income tax rates is shown below:
<TABLE>
<CAPTION>
Year ended September 30,
- -------------------------------------------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 34.8%
State income taxes,
net of federal benefit 4.2 4.2 4.3
Foreign tax expense at
different rates and foreign
losses without tax benefit .7 2.3 4.2
Other 2.1 1.5 (.9)
- -------------------------------------------------------------------------------
42.0% 43.0% 42.4%
- -------------------------------------------------------------------------------
</TABLE>
Deferred taxes were classified in the Consolidated Statement of Financial
Position as follows:
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------------
(in millions) 1995 1994
--------------------------
<S> <C> <C>
Other current assets $87.6 $89.5
Other noncurrent assets 8.8 9.5
- -------------------------------------------------------------------------------
Net deferred tax asset $96.4 $99.0
- -------------------------------------------------------------------------------
</TABLE>
Temporary differences and carryforwards which gave rise to deferred tax assets
and liabilities included:
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------------
(in millions) 1995 1994
--------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Accrued expenses and reserves $128.2 $111.4
Postretirement and postemployment benefits 78.7 81.8
Operating loss and foreign tax credit carryforwards 67.1 55.1
Long-term contracts -- 10.2
Other 10.7 10.7
- -------------------------------------------------------------------------------
284.7 269.2
Valuation allowance (31.8) (27.0)
- -------------------------------------------------------------------------------
252.9 242.2
- -------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Property, plant and equipment 81.0 75.1
Employee benefits 15.6 27.3
Inventories 6.6 12.5
Leases 3.3 4.1
Long-term contracts 18.7 --
Other 31.3 24.2
- -------------------------------------------------------------------------------
156.5 143.2
- -------------------------------------------------------------------------------
Net deferred tax assets $ 96.4 $ 99.0
- -------------------------------------------------------------------------------
</TABLE>
The valuation allowance primarily represents foreign loss carryforwards
and foreign tax credit carryforwards for which utilization is uncertain. These
tax benefits expire at various dates from 1996 to 2002.
Income taxes paid during 1995, 1994 and 1993 were $164 million, $162 million
and $114 million, respectively.
Domestic income taxes have not been provided on undistributed earnings of
foreign subsidiaries of $158 million which are considered to be permanently
invested. If undistributed earnings were remitted, foreign tax credits would
substantially offset any resulting domestic tax liability.
NOTE 12 - CONTINGENCIES
As of September 28, 1983, Hoover Universal, Inc. ("Hoover") sold the assets of
its Wood Preserving Division to Hoover Treated Wood Products, Inc. ("HTWP"), a
subsidiary of Ply-Gem Industries, Inc.
37
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
("PLY-GEM"). The agreement provided that Hoover retain certain liabilities
relating to that business including liability for products shipped prior to
October 1, 1983. One of the products of the Wood Preserving Division was fire
retardant treated wood. In May 1985, Hoover became a subsidiary of the Company.
The Company and its subsidiary, Hoover, have received claims related to fire
retardant treated wood sold and used in a number of structures primarily
in the eastern half of the United States. These claims allege that the fire
retardant treated wood loses its structural integrity under some circumstances
over time. Plywood manufacturers, architects, wood treaters, builders, lumber
suppliers, chemical suppliers and others are also involved in these claims.
A mediation process that includes many of these parties and their insurers is
ongoing in New Jersey, where a number of these claims are located. The efforts
have been successful in resolving much of that litigation.
The Company and its subsidiary are vigorously defending these claims and have
been successful on certain of their defenses asserted in these claims to date.
During 1993, the Company entered into agreements with two insurance carriers to
provide a total of $65 million of insurance coverage on potential fire
retardant treated wood claims. With respect to the underlying claims, liability
cannot be reasonably estimated at this time. However, it is management's
opinion that this matter will not have a materially adverse effect on the
Company's financial position, results of operations or cash flows.
The Company is also involved in a number of proceedings and potential
proceedings relating to environmental matters. At September 30, 1995, the
Company had an accrued liability of approximately $33 million relating to
environmental matters. The Company's environmental liabilities are undiscounted
and do not take into consideration any possible recoveries of future insurance
proceeds or claims against third parties. Because of the uncertainties
associated with environmental assessment and remediation activities, our future
expenses to remediate the currently identified sites could be considerably
higher than the accrued liability. Although it is difficult to estimate the
liability of the Company related to these environmental matters, the Company
believes that these matters will not have a materially adverse effect upon its
capital expenditures, earnings or competitive position.
Additionally, the Company is involved in a number of product liability and
various other suits incident to the operation of its businesses. Insurance
coverages are maintained and estimated costs are recorded for claims and suits
of this nature. It is management's opinion that none of these will have a
materially adverse effect on the Company's financial position, results of
operations or cash flows.
Note 13 - SEGMENT INFORMATION
Reference is made to pages 20 through 26 for segment financial data and an
unaudited description and discussion of the business segments.
All operating revenues and expenses are allocated to business segments and
geographical areas in determining their operating incomes. Other income
(expense), excluded from the determination of segment operating income,
includes interest income and expense, equity in earnings of partially-owned
affiliates, gains and losses from sales of long-term assets, foreign currency
gains and losses and other miscellaneous expenses. Unallocated assets are
corporate cash and cash equivalents, investments in partially owned affiliates
and other non-operating assets.
All four of the Company's business segments have sales to the automotive
industry. Four major automotive manufacturers accounted for between
approximately 5% and 11% of the Company's net sales in each of the years 1995,
1994 and 1993. As of September 30, 1995, the Company had accounts receivable
totalling $254 million from the major U.S. automotive manufacturers. The
Company's controls and battery segments have sales to the U.S. Federal
government which accounted for approximately 6% of the Company's net sales in
1995, 9% in 1994 and 10% in 1993. As of September 30, 1995, the Company's
receivables from the U.S. Federal government were $62 million.
Product transfers from domestic to foreign locations amounted to $64 million in
1995, $56 million in 1994 and $54 million in 1993. Product transfers from
foreign to domestic locations were $133 million in 1995, $43 million in
1994 and $57 million in 1993. Interarea transfers of manufactured products are
at prices in excess of cost. The resultant income is assigned to the geographic
area of manufacture.
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS Year ended September 30,
- ------------------------------------------------------------------------------
(in millions) 1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
NET SALES
Domestic $5,873.6 $5,294.9 $4,751.0
European 1,960.6 1,171.9 1,088.6
Other foreign 496.1 403.7 342.1
- ------------------------------------------------------------------------------
Consolidated $8,330.3 $6,870.5 $6,181.7
- ------------------------------------------------------------------------------
OPERATING INCOME
Domestic $ 356.9 $ 316.2 $ 282.9
European 52.5 10.7 2.4
Other foreign 40.7 37.9 27.7
Eliminations (1.3) .4 .4
- ------------------------------------------------------------------------------
Consolidated 448.8 365.2 313.4
Other income (expense) (60.9) (38.8) (47.2)
- ------------------------------------------------------------------------------
Income before income taxes
and minority interests $ 387.9 $ 326.4 $ 266.2
- ------------------------------------------------------------------------------
ASSETS (YEAR END)
Domestic $2,557.9 $2,261.6 $2,061.4
European 1,275.7 991.5 721.9
Other foreign 209.5 169.1 118.3
Unallocated 277.8 384.7 329.2
- ------------------------------------------------------------------------------
Consolidated $4,320.9 $3,806.9 $3,230.8
- ------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 24
JOHNSON CONTROLS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in millions)
================================================================================
<TABLE>
<CAPTION>
Year Ended September 30, 1995 1994 1993
--------------------------------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE - ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Balance at beginning of period $23.4 $17.2 $12.5
Provision charged to costs and expenses 5.7 9.6 9.3
Acquisition of businesses 0.0 0.7 0.2
Recoveries on accounts previously charged off (0.4) (0.8) 0.2
Currency translation 0.5 0.6 (1.3)
Accounts charged off (6.4) (3.8) (4.6)
Other (0.6) (0.1) 0.9
--------------------------------
Balance at end of period $22.2 $23.4 $17.2
================================
DEFERRED TAX ASSETS - VALUATION ALLOWANCE
Balance at beginning of period $27.0 $11.2 $ --
Establishment of SFAS No. 109
valuation allowance -- -- 11.2
Allowance established for new
loss carryforwards and tax credits 8.5 18.0 --
Allowance reversed for loss
carryforwards utilized (3.7) (2.2) --
--------------------------------
Balance at end of period $31.8 $27.0 $11.2
================================
</TABLE>
<PAGE> 25
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
(dollars in millions, except per share data) Year ended September 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993(1) 1992 1991
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $8,330.3 $6,870.5 $ 6,181.7 $5,156.5 $ 4,559.0
Operating income $ 448.8 $ 365.2 $ 313.4 $ 274.1 $ 232.9
Income before cumulative effect of accounting changes $ 195.8 $ 165.2 $ 137.9 $ 123.0 $ 95.1
Net income $ 195.8 $ 165.2 $ 15.9 $ 123.0 $ 95.1
Earnings per share before cumulative effect of accounting changes
Primary $ 4.53 $ 3.80 $ 3.16 $ 2.86 $ 2.19
Fully diluted $ 4.27 $ 3.60 $ 2.98 $ 2.73 $ 2.11
Earnings per share
Primary $ 4.53 $ 3.80 $ .17 $ 2.86 $ 2.19
Fully diluted $ 4.27 $ 3.60 $ .17(2) $ 2.73 $ 2.11
Return on average shareholders' equity 16% 15% 13%(3) 11% 9%
Capital expenditures $ 450.7 $ 347.5 $ 298.3 $ 237.4 $ 155.9
Depreciation $ 256.3 $ 230.4 $ 212.1 $ 188.8 $ 169.0
Number of employees 59,200 54,800 50,100 46,800 42,700
FINANCIAL POSITION
Working capital $ 154.4 $ 262.1 $ 247.1 $ 279.1 $ 270.8
Total assets $4,320.9 $3,806.9 $ 3,230.8 $3,179.5 $ 2,841.0
Long-term debt $ 630.0 $ 670.3 $ 500.4 $ 503.3 $ 490.6
Total debt $ 827.9 $ 714.3 $ 552.0 $ 677.8 $ 732.6
Shareholders' equity $1,340.2 $1,202.8 $ 1,079.0 $1,194.2 $ 1,064.0
Total debt to total capitalization 38% 37% 34% 36% 41%
Book value per share $ 32.09 $ 29.10 $ 26.30 $ 29.47 $ 26.64
COMMON SHARE INFORMATION
Dividends per share $ 1.56 $ 1.44 $ 1.36 $ 1.28 $ 1.24
Market prices
High $ 66 $ 61 1/4 $ 59 1/8 $ 43 3/4 $ 35 1/8
Low $ 45 3/4 $ 44 7/8 $ 38 5/8 $ 30 3/8 $ 17 1/8
Number of shareholders 37,971 33,227 30,483 27,464 25,625
Weighted average shares (in millions)
Primary 41.2 41.0 40.8 40.1 39.6
Fully diluted 44.5 44.3 44.3 43.8 43.3
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Results include the adoption of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," No. 109, "Accounting for Income Taxes," and No.
112, "Employers' Accounting for Postemployment Benefits." The
combined cumulative effect of the accounting changes was a one-time charge
of $122 million or $2.99 per share on a primary basis and $2.81 per share
fully diluted, after taxes.
(2) Calculation is anti-dilutive.
(3) The net income amount used in calculation excludes the cumulative effect
of accounting changes; however, the cumulative effect has been reflected
in average equity computation.
40
<PAGE> 1
Exhibit 12
JOHNSON CONTROLS, INC.
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
For the Year Ended
September 30, 1995
------------------
<S> <C>
Net income $195.8
Provision for income taxes 162.9
Undistributed earnings of partially-owned affiliates (5.0)
Minority interest in earnings of consolidated subsidiaries 29.2
Amortization of previously capitalized interest 3.5
------
386.4
Fixed charges:
Interest incurred and amortization of debt expense 75.0
Estimated portion of rent expense 29.7
------
Fixed charges 104.7
Less: Interest capitalized during period (11.0)
------
93.7
------
Earnings $480.1
======
Ratio of earnings to fixed charges 4.6
======
</TABLE>
For the purpose of computing this ratio, "earnings" consist of (a)
income from continuing operations before income taxes (adjusted for
undistributed earnings or recognized losses of partially-owned affiliates,
minority interest in earnings or losses of consolidated subsidiaries, and
amortization of previously capitalized interest), plus (b) fixed charges, minus
(c) interest capitalized during the period. "Fixed charges" consist of (a)
interest incurred and amortization of debt expense plus (b) the portion of rent
expense representative of the interest factor.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 and in the
Registration Statements on Form S-8 listed below of Johnson Controls, Inc. of
our report dated October 23, 1995 which appears in this Current Report on Form
8-K.
1. Post-Effective Amendment No. 6 to Form S-16 on Form S-3
(Registration No. 2-64288)
2. Registration Statement on Form S-8 (Registration No. 33-30309)
3. Registration Statement on Form S-8 (Registration No. 33-31271)
4. Registration Statement on Form S-3 (Registration No. 33-50110)
5. Registration Statement on Form S-8 (Registration No. 33-58092)
6. Registration Statement on Form S-8 (Registration No. 33-58094)
7. Registration Statement on Form S-8 (Registration No. 33-49862)
8. Registration Statement on Form S-3 (Registration No. 33-57685)
9. Registration Statement on Form S-3 (Registration No. 33-64703)
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
December 7, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 103,800
<SECURITIES> 0
<RECEIVABLES> 1,309,700
<ALLOWANCES> 22,200
<INVENTORY> 355,500
<CURRENT-ASSETS> 2,063,900
<PP&E> 3,041,500
<DEPRECIATION> 1,522,700
<TOTAL-ASSETS> 4,320,900
<CURRENT-LIABILITIES> 1,909,500
<BONDS> 630,000
<COMMON> 7,100
160,100
0
<OTHER-SE> 1,173,000
<TOTAL-LIABILITY-AND-EQUITY> 4,320,900
<SALES> 8,330,300
<TOTAL-REVENUES> 8,330,300
<CGS> 7,072,600
<TOTAL-COSTS> 7,072,600
<OTHER-EXPENSES> 806,700
<LOSS-PROVISION> 5,700
<INTEREST-EXPENSE> 57,400
<INCOME-PRETAX> 387,900
<INCOME-TAX> 162,900
<INCOME-CONTINUING> 195,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195,800
<EPS-PRIMARY> 4.53
<EPS-DILUTED> 4.27
</TABLE>
