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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-5097
JOHNSON CONTROLS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
WISCONSIN 39-0380010
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
5757 N. GREEN BAY AVENUE
P.O. BOX 591
MILWAUKEE, WISCONSIN 53201
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 228-1200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - --------------------------------------------- ---------------------------------------------
<S> <C>
Common Stock, $.16 2/3 par value New York Stock Exchange
Rights to Purchase Common Stock New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
<TABLE>
<CAPTION>
AGGREGATE MARKET VALUE NUMBER OF SHARES
OF NONAFFILIATES' SHARES OUTSTANDING AT
TITLE OF EACH CLASS AS OF DECEMBER 2, 1996 DECEMBER 2, 1996
- - -------------------------------------------------------- ------------------------- -----------------
<S> <C> <C>
Common Stock, $.16 2/3 par value........................ $ 3,191,868,603 41,520,242
Series D Convertible Preferred Stock, $1.00 par value,
$512,000 liquidation value............................ $ 230,924,505 300.3896
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate by reference portions of the Annual Report
to shareholders for the year ended September 30, 1996.
Part III incorporates by reference portions of the Proxy Statement dated
December 13, 1996.
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<PAGE> 2
JOHNSON CONTROLS, INC.
----------------------
Index to Annual Report on Form 10-K
Year Ended September 30, 1996
<TABLE>
<CAPTION>
PART I.
Page
----
<S> <C> <C>
ITEM 1. BUSINESS..................................... 3
ITEM 2. PROPERTIES................................... 13
ITEM 3. LEGAL PROCEEDINGS............................ 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS........................ 18
EXECUTIVE OFFICERS OF THE REGISTRANT......... 18
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS............ 20
ITEM 6. SELECTED FINANCIAL DATA...................... 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.. 30
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................. 30
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS............. 30
ITEM 11. EXECUTIVE COMPENSATION....................... 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT...................... 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................... 30
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.................... 31
INDEX TO EXHIBITS............................ 40-43
</TABLE>
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PART I
ITEM 1 BUSINESS
General Development of Business
Johnson Controls, Inc. is a Wisconsin corporation organized in 1885. Its
principal office is located at 5757 N. Green Bay Avenue, Milwaukee, Wisconsin
53201-0591 (Telephone: 414-228-1200). From 1885 through 1978 the company's
operations were predominantly in the controls business (see discussion under
Products and Services below). Through subsequent business acquisitions the
company's operations have been expanded to include three additional business
segments: battery, automotive and plastics, and its controls segment's
integrated facility management business.
In 1978 the company acquired Globe-Union, Inc. and thereby became a
leading domestic manufacturer of automotive batteries for the United States
replacement and original equipment markets.
In 1985 the company acquired Hoover Universal, Inc., a manufacturer of
automotive seating and seating components, plastic containers and plastics
blowmolding machinery. As a result of the acquisition, the company became the
leading independent producer of automotive seating systems and plastic beverage
bottles.
In 1989 the company acquired Pan Am World Services, Inc. (name
subsequently changed to Johnson Controls World Services Inc., "World
Services"), a leading provider of integrated facility management for military
bases, space centers and other government facilities worldwide. This
acquisition served as the foundation for the controls segment's entry into the
integrated facility management business which has subsequently been extended to
provide integrated facility management to the non-residential buildings market
worldwide.
On October 1, 1996, the company completed the acquisition of Prince
Holding Corporation (Prince), a major supplier of automotive interior systems
and components including overhead systems and consoles, door panels, floor
consoles, visors and armrests.
On December 9, 1996, the company announced it had signed a definitive
agreement to sell its plastic container business to Schmalbach-Lubeca
AG/Continental Can Europe (a member of the VIAG Group). The sale is subject to
approval by U.S. and European regulatory authorities.
Financial Information About Business Segments
Business segment financial information can be found on pages 20 through 30
of this Form 10-K and within the 1996 Annual Report to Shareholders, which is
incorporated herein by reference, on page 26 ("Business Segment" table) and on
page 41 (Note 12 "Segment Information" of Notes to Consolidated Financial
Statements).
3
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Products and Services
Automotive Segment
The automotive segment is engaged in the design and manufacture of
complete seat systems, seating components and interior trim systems for
manufacturers of cars and light trucks (including vans and sport utility
vehicles). In addition to its U.S. operations, the segment has operations
in the Asia/Pacific Rim, Canada, Europe, Mexico, South America, South Africa
and Australia through both wholly-owned and partially-owned businesses. The
segment operates 59 wholly-owned and 29 majority-owned manufacturing or
assembly facilities and is the largest independent manufacturer of complete
seating systems for both the North American and European automotive
industries. Worldwide, the segment is among the top 20 automotive
suppliers, with complete seat sales to eight of the top ten automobile
companies in the world, and component sales to all of the top ten.
The segment has 41 wholly or majority-owned assembly plants that supply
automotive manufacturers with complete seats on a "just-in-time" basis. All
foam and metal seating components, covers and seat mechanisms are shipped to
these plants from the segment's production facilities or outside suppliers.
The seats are then assembled to specific order and delivered on a
predetermined schedule directly to an automotive assembly line. Sales of
complete seats account for approximately 75% of total segment sales.
Other manufactured products for the original equipment market,
including seat frames, tracks, mechanisms, covers, foam cushions,
headliners, door trim panels and interior trim systems account for the
remaining 25% of segment sales.
During 1996, the company acquired a majority interest in Roth Freres
S.A. which supplies headliners and other interior components, and formed
Intertec Systems, a joint venture with Inoac Corporation which supplies
instrument panels. As a result of these investments, and the acquisition of
Prince effective October 1, 1996, the company believes it is positioned to
be able to supply complete interior systems for automakers if this need
emerges in the future.
Controls Segment
Overall, approximately 40% of the controls segment's sales are derived
from the installation and service of control systems to the existing
worldwide commercial building market, 40% from integrated facility
management, while the remaining 20% originates from new construction.
The controls segment is a major worldwide supplier of control systems,
services and products providing energy management, temperature and
ventilation control, security and fire safety for nonresidential buildings.
Building control systems are sold, installed and serviced, and mechanical
equipment is serviced, primarily by employee sales engineers,
4
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application engineers and mechanics working out of branch offices located in
approximately 260 principal cities throughout the world. The segment
manufactures a broad line of electric and electronic products for sale to
original equipment manufacturers, wholesalers and distributors of
air-conditioning, refrigeration, commercial and residential heating,
water-pumping and gas-burning equipment. Control system products are
manufactured in five domestic and five foreign facilities.
The segment is also a leading supplier of integrated facility
management for commercial buildings worldwide, as well as for government
facilities. Commercial facility management ensures the reliability of a
building's mechanical systems and energy supply, as well as provides a wide
range of on-site building support such as maintenance, security, food
services, etc. Government facility management services are provided for
military bases, space centers and other government facilities.
Plastics Segment
The plastics segment is one of the world's largest producers of
polyethylene terephthalate (PET) plastic containers. Products include
plastic soft drink bottles and plastic containers for other beverages
(isotonic sports drink, water, liquor and juice), food, household and
personal care items. High-heat technology, which provides the ability to
manufacture PET containers that can be filled at 185 degrees Fahrenheit, has
expanded the segment's ability to serve the food, sports drink and juice
industries. Plastic preforms and bottles are molded at 15 domestic plants
and are sold to bottle customers. In addition, the segment produces plastic
preforms in North America, Latin America and Europe, which are blowmolded
into bottles by customers in their own facilities. The segment entered the
European plastic container market in fiscal 1989 by acquiring a Belgian
manufacturer. Through subsequent investments, the segment has expanded its
container operations to the Czech Republic, France, Hungary, Italy, Mexico
and the United Kingdom.
The plastics segment is also the largest U.S. manufacturer of
blowmolding machinery for a variety of plastic resins other than PET, and
possesses the broadest range of blowmolding machinery technology.
Machinery is designed and manufactured for five principal plastics
processing systems: reciprocating extrusion blowmolding, continuous
extrusion blowmolding, injection blowmolding, accumulator head blowmolding
and structural foam. Molds for use in blowmolding and injection molding
machinery are also produced. Blowmolding machinery is manufactured for
North American, European and other markets through operations in the Czech
Republic, Germany, Italy and the United States and, via a joint
manufacturing agreement, in Brazil.
As previously noted, on December 9, 1996, the company announced it had
signed a definitive agreement to sell its plastic container business to
Schmalbach-Lubeca.
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Battery Segment
The battery segment is a leading manufacturer of lead-acid automotive
batteries for the North American replacement and original equipment markets.
Automotive batteries, which account for over 90% of the segment's sales,
are sold primarily under private label to automotive replacement battery
retailers and distributors and to automobile manufacturers as original
equipment. Manufacturing of batteries and plastic battery containers is
conducted at 11 plants in the U.S., one plant in Mexico and, via a
partially-owned affiliate, at a plant in China.
The battery segment also produces and markets lead-acid batteries for
use in a variety of industrial and consumer applications. The most
important are those based on gelled electrolyte technology and absorbent
glass mat (AGM) technology. The gelled electrolyte batteries are portable,
maintenance-free, rechargeable units used in various applications including
cable/telecommunication and deep cycling applications. The AGM batteries
are sealed, maintenance free, rechargeable units used mainly in
uninterruptible power supply (UPS) systems for computers,
telecommunications, cable TV and other applications where a UPS system is
required.
Major Customers and Competition
All three of the company's business segments have sales to the
automotive industry. Each of four major automotive vehicle manufacturers
accounted for between approximately 5% and 12% of the company's net sales in
each of the fiscal years 1996, 1995 and 1994. Ford Motor Corporation
accounted for 12% of the company's net sales in fiscal 1996, 7% in 1995 and
8% in 1994. Chrysler Corporation accounted for 9%, 11% and 9% in 1996, 1995
and 1994, respectively. General Motors Corporation accounted for 8%, 10%
and 8% in 1996, 1995 and 1994, respectively.
Automotive Segment
As a supplier to the automotive original equipment market, the segment
faces competition from other automotive parts suppliers and, with respect to
certain products, from the automobile manufacturers which themselves produce
or have the capability to produce many of the products supplied by the
segment. Competition is based on quality, price and just-in-time
manufacturing and delivery. Design, engineering and product planning are
increasingly important factors. The segment competes in North America with
two independent suppliers of complete seats, two independent suppliers of
foam seating components and six independent manufacturers of metal seating
components. In Europe, the segment primarily competes with automotive
manufacturers and two independent suppliers.
Roughly 65% of the automotive segment's sales over the last three years
were to four major automobile manufacturers. Because of the importance of
new vehicle sales of major
6
<PAGE> 7
automotive manufacturers to its operations, the segment is affected by
general business conditions in this industry (see pages 20 - 26).
Controls Segment
The controls segment conducts much of its system installation business
and its integrated facility management business through thousands of
individual contracts which are either negotiated or awarded on a competitive
basis. Key factors in awarding contracts include product and service
quality, price, reputation with respect to customer service, design,
application engineering capability and construction management expertise.
Although differences in corporate organization and product mix make
comparisons difficult, management believes that the controls segment's
domestic installed systems sales are approximately equal to those of its
next largest competitor. The integrated facility management services market
is highly fragmented, with no one company being dominant.
Sales of the segment's U.S. Federal Government facility management
services are largely dependent upon numerous individual contracts with
various departments and agencies of the U.S. Federal Government. Although
the loss of any individual contract with the U.S. Federal Government would
not have a materially adverse effect on the company, it should be noted that
approximately 50% of the company's government contracts are up for re-bid in
fiscal 1997. Efforts by the U.S. Federal Government to reduce spending have
narrowed the scope of the segment's activities at certain sites; however,
increased U.S. Federal Government outsourcing of facility management
services along with increased expenditures for energy efficiency programs
resulting from increased Congressional funding and Presidential executive
orders, have created additional opportunities.
Plastics Segment
The plastic container business competes principally with five domestic
and two European independent suppliers. The segment competes worldwide with
approximately four domestic and five foreign companies in the blowmolding
machinery business. Quality, price and service are all key competitive
determinants to all of the segments operations.
Plastics segment sales are not dependent upon a single customer, or a
limited number of customers.
Battery Segment
Approximately 80% of the battery segment's total sales are to the
automotive replacement market, with the remaining 20% to the original
equipment market. The segment is the principal supplier of automotive
batteries to Interstate Battery System of America ("Interstate") and
AutoZone, and is a major supplier of automotive batteries to Wal-Mart and
Western Auto. Each of these customers sell replacement batteries under
their own
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brand labels. Original equipment and replacement batteries are sold to a
number of large manufacturers of motor vehicles and heavy construction
equipment. Replacement batteries are also sold to battery distributors for
resale to retail outlets.
Sales of the battery segment depend primarily on quality, price,
delivery and service, including marketing support and technical advice. The
segment primarily competes with three other battery manufacturers, one of
which is owned by a company having greater financial resources than Johnson
Controls.
Backlog
The company's backlog relates to the controls segment which derives a
significant portion of its revenues from long-term contracts which are
accounted for on the percentage-of-completion method. In accordance with
customary industry practice, the controls segment progress bills customers on
an estimated basis as work proceeds.
Integrated facility management contracts generally contain yearly renewal
options; however, only the noncancellable portion of uncompleted contracts
which will be executed within the next fiscal year are reflected in the backlog
information below.
Information concerning contracts in progress for the controls segment is
as follows:
<TABLE>
<CAPTION>
September 30,
----------------
1996 1995
------- -------
(in millions)
<S> <C> <C>
Backlog of uncompleted building
systems and services contracts $1,970 $1,872
Earned revenues on uncompleted
building systems and services
contracts 1,224 1,135
------- -------
Unearned backlog of building systems
and services contracts 746 737
Unearned backlog of government
integrated facility management
contracts 424 442
Unearned backlog of commercial
integrated facility management
contracts 422 385
------- -------
Total unearned backlog of contracts $1,592 $1,564
======= =======
</TABLE>
Certain of the company's manufacturing businesses also accumulate backlog
data, but the amounts, when considered in the aggregate, are not significant to
an understanding of these businesses.
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Raw Materials
Raw materials used in the automotive segment such as steel, urethane
chemicals and chromium, were readily available during the year and such
availability is expected to continue. The controls segment is not dependent
upon any single source of supply for essential materials, parts or components.
Principal raw materials used in the manufacture of automotive batteries are
lead, antimony, calcium, sulfuric acid and polypropylene, all of which are
generally available in the open market. The supply of plastic resins used in
the plastics segment were also available during the year and such availability
is expected to continue.
Intellectual Property
Generally, statutory protection is sought for most intellectual property
embodied in patents, trademarks and copyrights. Some intellectual property,
where appropriate or possible, is protected by contract, license, agreement or
hold-in-confidence undertaking.
The company owns numerous U.S. and counterpart foreign patents, the more
important of which cover those technologies and inventions embodied in current
products, or which are used in the manufacture of those products. While the
company believes patents are important to its business operations and in the
aggregate constitute a valuable asset, no single patent, or group of patents,
is critical to the success of the business. The company, from time to time,
grants licenses under its patents and technology and receives licenses under
patents and technology of others.
The company has numerous registered trademarks in the U.S. and in many
foreign countries. The most important of these marks are "JOHNSON CONTROLS"
(including a stylized version thereof) and "JOHNSON". These marks are
universally used in connection with certain of its product lines and services.
The trademarks and servicemarks "ALLIANCE", "BIGFOOT", "PENN", "BASO",
"UNI-TRIM", "COUNTERLINE", "UNILOY-SPRINGFIELD", "METASYS", and "UNILOY" are
used in connection with certain company product lines and services. Original
equipment and replacement automotive batteries are sold carrying customer-owned
private labels and trademarks. The company also markets automotive batteries
under the licensed trademarks "EVEREADY" and "ENERGIZER". Industrial batteries
for original equipment and/or replacement usage are sold carrying either
company or customer-owned trademarks, including the company mark "DYNASTY".
Most works of authorship produced for the company, such as computer
programs, catalogs and sales literature, carry appropriate notices indicating
the company's claim to copyright protection under U.S. law and appropriate
international treaties.
ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
The company's domestic operations are governed by a variety of laws
intended to protect the environment, principally the Resource Conservation and
Recovery Act, the Comprehensive Environmental
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Response, Compensation and Liability Act ("CERCLA"), the Clean Water Act, the
Clean Air Act and the state counterparts of these laws (collectively,
"Environmental Laws"), and by laws addressing workers' safety administered by
both the Occupational Safety and Health Administration and similar state
agencies and federal and state laws regulating health (collectively "Worker
Safety Laws"). The Environmental Laws implemented by the United States
Environmental Protection Agency and state agencies govern the generation and
management of hazardous and toxic materials, the discharge of pollutants into
the air and into surface and underground waters, the construction of new
discharge sources, and environmental reporting and record keeping, among other
things. These laws govern ongoing operations, require remediation of sites
associated with past operations, and provide for civil and criminal penalties
and fines, as well as injunctive and remedial relief, for noncompliance or
cleanup.
The company's policy is to comply with applicable Environmental Laws and
Worker Safety Laws, and the company maintains procedures designed to foster and
ensure compliance. The company has expended substantial resources, both
financial and managerial, to ensure compliance with Environmental Laws and
Worker Safety Laws. Certain of the company's businesses are and have been
engaged in the handling or use of substances or compounds that may be
considered toxic or hazardous within the meaning of the Environmental Laws and
Worker Safety Laws. While this creates the risk of environmental liability
rising out of the company's operations and products, the company is committed
to protect the environment and comply with all such applicable laws utilizing
available technology.
The company's operations and facilities have been, and in the future may
become, the subject of formal or informal enforcement actions or proceedings
for noncompliance with such laws. Resolution of such matters typically has
been achieved by negotiation with the regulatory authorities resulting in
commitments to compliance or abatement programs and payment of penalties.
Historically, neither such commitments nor such penalties have been material.
(See Item 3 "Legal Proceedings" of this report for a discussion of the
company's potential environmental liabilities.) Although the company believes
that its operations are in substantial compliance with such laws, there are no
assurances that substantial additional costs for compliance will not be
incurred in the future.
Environmental Capital Expenditures
The company's ongoing environmental compliance program often results in
capital expenditures. Environmental considerations are a part of all
significant capital expenditures, however, expenditures in 1996 related solely
to environmental compliance were not material. It is management's opinion that
the amount of any future capital expenditures would not have a materially
adverse effect on the company's financial results or competitive position in
any one year.
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Employees
As of September 30, 1996, the company employed approximately
65,800 employees, of whom 45,300 were hourly and 20,500 were salaried.
Seasonal Factors
The business of the controls segment is executed on a relatively
continuous basis. However, with the growing emphasis on performance
contracting, especially within schools, the relative weight of the fourth
fiscal quarter to overall revenues and earnings, is increasing.
The automotive replacement battery market is affected by weather patterns
because batteries are more likely to fail when extremely low temperatures place
substantial additional power requirements upon a vehicle's electrical system.
Also, battery life is shortened by extremely high temperatures which accelerate
corrosion rates. Therefore, either mild winter or moderate summer temperatures
may adversely affect automotive replacement battery sales.
Sales of batteries and seating to automobile manufacturers for use as
original equipment are dependent upon the demand for new automobiles.
Management believes that demand for new automobiles generally reflects
sensitivity to overall economic conditions with no material seasonal effect.
The plastics segment is experiencing increasing seasonality due to the
peak demand for beverage containers in the summer period.
International Operations
The automotive segment has wholly and majority-owned manufacturing
facilities located outside the U.S., including plants in Argentina, Australia,
Austria, Belgium, Brazil, Canada, Czech Republic, France, Germany, Mexico, The
Netherlands, Portugal, South Africa, Spain and the United Kingdom. These
facilities produce complete seats, metal seating components, metal frames, seat
covers, foam seating components or headliners, depending on the location. The
segment also has several partially-owned operations in the Asia/Pacific Rim,
Europe and Mexico which manufacture either complete seats, headliners and/or
seating components.
Through a number of foreign subsidiaries and branches, the controls
segment operates fully-staffed sales offices, offering engineering,
installation and service capabilities (the counterpart to the domestic controls
operations), and, in many cases, integrated facilities management services.
Offices are located in Australia, Austria, Belgium, Canada, China, Czech
Republic, Denmark, France, Germany, Hong Kong, Hungary, India, Italy, Malaysia,
Mexico, The Netherlands, Norway, Poland, Saudi Arabia, Singapore, Slovakia,
South Africa, Spain, Sweden, Switzerland, United Arab Emirates and the United
Kingdom. In addition, controls segment products are marketed through
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distributors represented in approximately 40 countries. Products are
manufactured in plants located in China, Germany, Italy, Mexico and The
Netherlands, with the remainder of the product line supplied from the U.S. The
controls segment also has joint venture operations in the U.S., Brazil, China,
Hong Kong, Italy, Japan, Kuwait, Malaysia, Singapore, Switzerland and Thailand.
The battery segment has a manufacturing operation in Mexico and a
partially-owned affiliate in China which produce batteries. Licensing and
joint venture arrangements are also in effect with certain foreign
manufacturers of batteries and automotive parts.
The plastics segment operates two Italian manufacturers of continuous
extrusion blowmolding machinery and parts and another machinery manufacturer
located in Germany and the Czech Republic. Products from the machinery
companies are marketed in the U.S. by the plastics segment's sales force. The
segment also operates one Belgian, one French and one Italian manufacturer of
plastic containers and one Welsh manufacturer which supplies plastic preforms
to soft drink bottlers in the United Kingdom. The segment has expanded its PET
preform operations into Hungary and Spain.
The financial results of all foreign operations are subject to currency
exchange rate fluctuations. Gains and losses from the translation of most
foreign currency financial statements are accumulated as a separate component
of shareholders' equity. Net foreign currency transaction losses included in
miscellaneous expense were not significant in 1996, 1995 or 1994.
Financial Information About Geographic Areas
Note 12 "Segment Information" of Notes to Consolidated Financial
Statements on page 41 of the 1996 Annual Report to Shareholders is incorporated
herein by reference.
Research and Development Expenditures
Expenditures for research activities relating to product development and
improvement are charged against income as incurred. Such expenditures amounted
to $165 million in 1996, $137 million in 1995 and $124 million in 1994. In
addition, the company expended $108 million in 1996, $76 million in 1995 and
$53 million in 1994 for research activities sponsored by customers.
12
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ITEM 2 PROPERTIES
The company has numerous wholly or majority-owned manufacturing facilities
located in the U.S. Plants are also located in Argentina, Australia, Austria,
Belgium, Brazil, Canada, Czech Republic, France, Germany, Hungary, Italy,
Mexico, The Netherlands, Portugal, South Africa, Spain and the United Kingdom.
The company considers its facilities to be suitable and adequate. The
majority of all of the company's facilities are operating at normal levels
based on capacity.
The principal manufacturing, administrative, and research and development
facilities listed on the following pages by industry segment and location
aggregate approximately 22 million square feet of floor space and are owned by
the company except as noted. In addition, approximately 260 controls segment
branch offices in major cities throughout the world are either owned or leased.
These offices vary in size in proportion to the volume of business in the
particular locality.
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AUTOMOTIVE
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Alabama Cottondale (1) Argentina Escobar
Tuscaloosa Australia Adelade
California Livermore Thomastown
Modesto Austria Mandling
Stockton (1) Belgium Anderlecht (1)
Georgia John's Creek (1) Geel
Illinois Sycamore Vilvoore
Indiana Greencastle (1) Brazil Sao Bernardo
Ossian Canada Missisauga
Kentucky Bardstown Orangeville
Cadiz Saint Mary's
Georgetown (1) Stratford
Glasgow Tillsonburg
Harrodsburg Czech Republic Ceska Lipa
Maysville Mlada Boleslav
Nicholasville Roudnice (1)
Shelbyville (1) Straz Pod Ralskem
Louisiana Shreveport (1) France Melamare
Maryland Belcamp (2) Stasbourg (2)
North East (1) Rosny (1)
Michigan Ann Arbor Germany Betriebsgelande
Lapeer Bochum (1)
Livonia (1) Burscheid
Mt. Clemens (1) Espelkamp
Plymouth (2) Lahnwerk
Taylor (1) Opladen (1)
Missouri Jefferson City Radesomweld (1)
Kansas City (1) Schwalbach (1)
New Jersey Dayton (1) Waghausel
Ohio Greenfield Zwickau
Oberlin (1) Mexico Juarez (2)
Strongsville (1) Tlaxcala (2)
Pennsylvania Erie (1) The Netherlands Sitar
Tennessee Athens Portugal Nelas
Lexington (2) Portalegre
Lewisburg (2) South Africa Pretoria (1)
Linden Uitenhaige (1)
Murfreesboro (2) Spain Alagon
Pulaski Barcelona
Texas El Paso (1) Valencia
Virginia Chesapeake Zaragoza
United Kingdom Birmingham (1)
Chelmsford (1)
Dagenham (1)
Mansfield
Silloth
Speke (2)
Staffordshire
Wednesbury
</TABLE>
(1) Leased
(2) Both owned and leased facilities
14
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CONTROLS PLASTICS
- - ----------------------------------- -------------------------------------------
<TABLE>
<S> <C> <C> <C>
Florida Cape Canaveral (2) California Milpitas (1)
Georgia Atlanta Rancho Cucamonga (1)
Indiana Goshen Colorado Denver
Oklahoma Poteau Delaware New Castle
Wisconsin Milwaukee Florida Orlando
Watertown Georgia Atlanta
Germany Essen (1) Illinois Itasca (1)
Italy Lomagna Indiana Franklin
Mexico Juarez Kansas Lenexa (1)
Reynosa Kentucky Nicholasville
The Netherlands Leeuwarden Michigan Manchester (2)
United Kingdom Bournemouth (1) Novi (1)
Waterlooville (1) Williamston (1)
New Hampshire Merrimack (1)
New Jersey Pine Brook (1)
Somerville (1)
BATTERY Pennsylvania Erie
- - ----------------------------------- South Carolina Columbia (1)
California Fullerton Texas Ft. Worth (1)
Delaware Middletown Washington Tacoma (1)
Florida Tampa Belgium Brecht (1)
Illinois Geneva Czech Republic Prague (1)
Kentucky Florence (1) France Beaune (1)
Missouri St. Joseph (1) Germany Berlin (1)
North Carolina Winston-Salem Hungary Budapest (1)
Ohio Toledo Italy Ascoli
Oregon Canby (Portland) Bologna (1)
South Carolina Oconee Florence
Wisconsin Milwaukee (2) Milan
Mexico Torreon Modena (1)
Mexico Mexico City (1)
Spain Epila (1)
United Kingdom Banbury (1)
Mold, Wales (1)
CORPORATE
- - -----------------------------------
Wisconsin Milwaukee
</TABLE>
(1) Leased
(2) Both owned and leased facilities
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<PAGE> 16
ITEM 3 LEGAL PROCEEDINGS
Environmental Litigation and Proceedings. As noted previously, the
activities of the company are subject to various environmental laws and worker
safety laws. Liabilities potentially arise under these laws for any activities
which are not in compliance with such laws and for the cleanup of sites where
hazardous or toxic materials are present.
With respect to the cleanup of hazardous or toxic materials, the company's
activities have led to allegations that the company is responsible for
performing cleanups, or for the repayment of costs spent by governmental
entities or others performing cleanups at approximately 40 sites. Many of
these sites are landfills used by the company in the past for the disposal of
waste materials; others are secondary lead smelters and lead recycling sites
where the company returned lead-containing materials for recycling; a few
involve the cleanup of company manufacturing facilities; and the remaining fall
into miscellaneous categories. Furthermore, the company may face similar
claims of liability at additional sites in the future as a result of the
company's past or future operations.
Liability for investigation and remediation costs exists regardless of
fault or legality at the time of disposal, and it is joint and several, meaning
that any one of the companies responsible for disposing materials at the site
may be responsible for all of the cleanup expenses. Nevertheless, any
responsible party that has paid more than its fair share of site costs may
recover fair shares of its expenditures from other responsible parties. Thus,
with respect to many of the sites for which the company has potential
liabilities, there are other parties who the company believes will be required
and have the ability to bear a significant share of site cleanup costs. At any
given site, the liability and costs to be allocated among the parties depend on
such factors as the number of parties, the willingness of governmental agencies
to contribute public funds to the cleanup, the volume of material delivered to
the site by each party, the nature of each party's materials, the costs of the
site cleanup and the financial strength of the parties. Where the company is
alleged to be responsible for performing cleanup or for costs, it pursues a
course of action intended to mitigate its potential liabilities.
The company's policy is to accrue for potential environmental losses for
cleanup consistent with generally accepted accounting principles. In that
regard, the company accrues for potential environmental losses when it is
probable a loss has been incurred and the amount of the loss is reasonably
estimable. Its reserves for environmental related costs at the end of fiscal
year 1996 totalled $32 million. The company reviews the status of the sites on
a quarterly basis and adjusts its reserves accordingly. Such potential
liabilities accrued by the company are undiscounted and do not take into
consideration possible recoveries of future insurance proceeds. They do,
however, take into account the likely share other parties will bear at the
site. It is difficult to estimate the company's ultimate level of liability
for the sites due to the large number of other parties that may be
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involved, the complexity of determining the relative liability among those
parties, the uncertainty as to the nature and scope of the investigations and
remediation to be conducted, uncertainty in the application of law and risk
assessment, the various choices and costs associated with diverse technologies
that may be used in corrective actions at the sites, and the often quite
lengthy periods over which eventual remediation may occur. Nevertheless, the
company has no reason to believe at the present time that any claims, penalties
or costs in connection with known environmental remediation matters will have a
material adverse effect on the company's financial position, results of
operations or cash flows.
Typically, site remediation matters are addressed at the administrative
agency level of the government. Occasionally, however, litigation is involved.
The most significant of such matters where litigation has been commenced by the
government or by private parties and remain pending against the company are as
follows:
Gould, Inc. v. NL Industries, Inc., Case No. CV 91-1091 JE (United States
District Court for the District of Oregon), filed December , 1992.
Plaintiff is the owner of a site once used for secondary lead smelting. It
has sued certain site customers (including the company), the former owner
and several owners of adjacent properties seeking an allocation of cleanup
costs associated with the site among them. Plaintiff and many of the
defendants performed work at the site pursuant to an administrative order
issued on January 23, 1992. Approximately $24 million has been expended by
the parties at the site. The United States Environmental Protection Agency
(EPA) is determining what further work may be necessary to complete site
remediation and estimates that the cost of such work will range from $10
million to $13 million. The litigation, scheduled for trial in 1997, will
determine what portion of the expenses the company may be required to pay.
United States v. NL Industries, Inc., Case No. 91-CV-00578-WDS (United
States District Court for the Southern District of Illinois), filed July 31,
1991. The EPA seeks to enforce an administrative order issued on November
27, 1990 against Johnson Controls and other defendants requiring performance
of a cleanup at a secondary smelter facility in Granite City, Illinois. The
company, the other defendants and the other parties to the 1990 order have
chosen not to perform on the basis that the administrative record of
decision underlying that order does not support the remedy the agency is
requiring. The complaint alleges that the defendants should pay penalties
(up to $25,000 per day and three times the cost of work the government
performs) for failing to comply with the order. It also alleges the company
should be responsible for past government expenditures. According to the
agency, the total cost, both past and future, will probably exceed $55
million. The company is vigorously defending this action.
The company is also currently involved in litigation against its insurers
to recover cleanup costs and other damages for which it may be adjudged
responsible at many of the sites. The suit, Johnson Controls, Inc. v.
Employers Insurance of Wausau (Case No.
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<PAGE> 18
89-CV-016174), was filed in 1989 in Milwaukee County Circuit Court. The suit
seeks costs of defense and indemnity payments under the policies and also
declaratory judgments for future costs. In 1994, the Wisconsin Supreme Court
ruled that many types of cleanup costs are not recoverable under common
comprehensive general liability insurance policies, such as those at issue in
the company's cases. In 1995, the Milwaukee County Circuit Court decided that
the Wisconsin Supreme Court's ruling applies to the company's case against its
insurers and found for the insurers. The company has appealed the decision.
In the meantime, several cases in which the company is not a party are before
the Wisconsin Supreme Court. The results of these cases would impact the
company's case, and the company's appeal has been stayed by the Wisconsin
Supreme Court pending their outcome.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction of G(3) of Form 10-K, the following list
is included as an unnumbered Item in Part I of this report in lieu of being
included in the company's Proxy Statement for its 1997 Annual Meeting of
Shareholders.
James H. Keyes, 56, was elected Chairman of the Board in January, 1993,
and Chief Executive Officer in 1988. He has served as President since 1986.
Mr. Keyes joined the company in 1966.
John M. Barth, 50, was elected an Executive Vice President in 1992, with
responsibility for the Automotive Systems Group, the Plastics Technology Group
and the Battery Group. Previously, he served as Vice President, Automotive
Systems Group, since 1990 and as Vice President, Plastics Technology Group,
since 1986. Mr. Barth joined the company in 1969.
Joseph W. Lewis, 61, was elected an Executive Vice President in 1992 and
has served as Vice President, Controls Group, since 1986. Mr. Lewis joined the
company in 1958.
Dr. Steven J. Bomba, 59, was elected Vice President, Corporate Technology
in 1990. From 1987 to 1990 he was Vice President, Advanced Manufacturing
Technologies, for Rockwell International.
Susan F. Davis, 43, was elected Vice President, Human Resources, in April
1994. From August 1993, she served as Vice President of Organizational
Development for the Automotive Systems Group, the Plastics Technology Group and
the Battery Group. Ms. Davis joined the company in 1983.
Robert C. Dickhaus, 40, was elected Vice President and General Manager of
the Controls Group's Integrated Facility Management business in September 1995.
Mr. Dickhaus joined the company in 1991.
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Giovanni (John) Fiori, 52, was elected a Corporate Vice President in 1992
and serves as Vice President and General Manager of the automotive seating
operations in Europe. Previously, he served as Vice President, Plastics
Technology Group. Mr. Fiori joined the company in 1987.
Michael F. Johnston, 49, was elected a Corporate Vice President in July
1993, and was named Vice President and General Manager, Battery Group, in
October 1993. Previously, he served as Vice President and General Manager of
the Battery Group's Starting, Lighting and Ignition Division since 1991 and as
Vice President and General Manager of the Battery Group's Specialty Battery
Division since 1989. Mr. Johnston joined the company in 1989.
John P. Kennedy, 53, was elected a Corporate Vice President in
1989 and has been Secretary since 1987 and General Counsel since 1984 when he
joined the company.
William P. Killian, 62, was elected Vice President, Corporate Development
and Strategy in 1988, and served as Vice President, Corporate Development, from
1985 to 1988. Mr. Killian joined the company in 1977.
Charles G. McClure, 42, was elected a Corporate Vice President in June,
1993, and serves as Vice President and General Manager of the automotive
seating operations in the Americas. Previously he served as Vice President and
General Manager of the automotive seating operations in Europe. Mr. McClure
joined the company in 1983.
James H. Pell, 46, was elected Vice President and General Manager of the
Plastics Technology Group in June 1995. Prior to his current position, he
served as Vice President and General Manager of the Plastic Container Division
of the Plastics Technology Group. Mr. Pell joined the company in 1981.
Stephen A. Roell, 46, was elected Vice President and Chief Financial
Officer in 1991. Since 1990 he served as Corporate Controller and Assistant
Secretary. He served as Treasurer from 1987 to 1991. Mr. Roell joined the
company in 1982.
Brian J. Stark, 47, was elected Vice President and General Manager of the
Controls Group's Systems and Services business in September 1995. Since
joining the company in 1971, Mr. Stark has served as a Branch and Regional
Manager within the Systems and Services field organization.
Denise M. Zutz, 45, was elected Vice President, Communication in 1991.
She previously served as Director of Corporate Communication and had served in
other communication positions since joining the company in 1973.
Ben C.M. Bastianen, 52, was named Treasurer in 1991, when he joined the
company. Between 1984 and 1990 he served as Assistant Treasurer, and then
Treasurer, of Borg-Warner Corporation.
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<PAGE> 20
Stacy L. Fox, 43, was elected Assistant Secretary in November, 1996. She
joined the company in 1989 and serves as Vice President and Division General
Counsel of the Automotive Systems Group.
Jerome D. Okarma, 44, was elected Assistant Secretary in 1990. He has
served as Assistant General Counsel since joining the company in 1989 and as
Vice President and General Counsel of the Controls Group and Vice President and
General Counsel of the Battery Group since 1993.
Franklin H. Smith, Jr., 45, was named Controller, with responsibility for
the Controls Group, effective October, 1995. Between 1991 and 1995, he served
as Corporate Controller, and from 1987 to 1991 he served as Director, Corporate
Taxes for the company. Mr. Smith joined the company in 1987.
Subhash (Sam) Valanju, 54, joined the company in 1996 and is presently the
Chief Information Officer. Prior to that time, Mr. Valanju was Director of
Information Systems for Rockwell Automotive.
There are no family relationships, as defined by the instructions to this
item, between the above executive officers.
All officers are elected for terms which expire on the date of the meeting
of the Board of Directors following the Annual Meeting of Shareholders or until
their successors are elected and qualified.
PART II
The information required by Part II, Items 5, 6 and 8, are incorporated
herein by reference to the company's 1996 Annual Report to Shareholders as
follows:
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS - See price range and dividend information on page 23, and
Note 7 "Shareholders' Equity" on page 37 of Notes to Consolidated
Financial Statements of the 1996 Annual Report to Shareholders.
Number of Record Holders
Title of Class as of December 2, 1996
-------------- ------------------------
Common Stock, $.16-2/3 par value 46,263
ITEM 6 SELECTED FINANCIAL DATA - See "Five Year Summary" on page 44 of the
1996 Annual Report to Shareholders.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
SALES
Consolidated net sales for 1996 reached a record $10,009 million, representing
a 20% increase over 1995 sales of $8,330 million. Higher sales of automotive
seating and seating components was the
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primary contributor to the overall improvement. Automotive segment sales rose
35% to $5,308 million in 1996, principally due to the company's participation
in new and successful vehicle programs worldwide and the acquisition of Roth
Freres (Roth) during the year. New vehicle programs launched in 1996 included
Ford's F-Series truck in North America and Fiesta in Europe. Some of the more
successful vehicle programs in which the company participates include Ford's
Explorer, Chrysler's Jeep Cherokee and General Motor's Jimmy/Blazer. In
December 1995, the company completed the acquisition of approximately 75% of
Roth, a major supplier of seating and interior components to the European
automotive industry, which added approximately $500 million to 1996 sales.
Controls segment sales for 1996 were $2,960 million, 13% greater than 1995.
The increase was primarily generated by a higher level of activity in the
existing buildings market. Worldwide commercial integrated facilities
management sales improved substantially year-over-year. Sales of retrofit
control systems to the non-residential buildings market, primarily in the form
of performance contracts, also contributed to the increase. Construction sales
in Europe and the Pacific Rim were also higher than the year ago period.
Facilities management activity in the U.S. government market was lower than the
prior year.
Plastics segment sales declined 11% from 1995 to $968 million. The decrease
primarily stemmed from the pass-through of lower resin prices to customers
worldwide and competitive pricing pressures. Higher unit shipments of
single-serve soft drink containers and other custom units, primarily water,
were largely offset by a decline in two-liter soft drink container shipments.
Plastics machinery sales were slightly higher than the prior year.
Sales of the battery segment grew 15%, to $774 million, in 1996. The increase
resulted from the higher level of unit shipments to both replacement and
original equipment customers. Increased market penetration by the segment's
customers and the colder winter weather were key contributors to the increase
in replacement battery demand. 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 projects consolidated net sales during 1997 to exceed 1996 levels.
Automotive seating sales are expected to increase approximately 30%-35%,
despite relatively stable vehicle production levels worldwide, due to the
acquisition of Prince Holding Corporation (Prince) effective October 1, 1996
(see Acquisition), a full year's impact of the Roth acquisition and the launch
of new business, both domestically and outside the U.S.
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 the area of commercial
integrated facilities management and performance contracting. At September 30,
1996, the unearned backlog of commercial building systems, services, and
integrated facilities management contracts to be executed within the next
fiscal year was $1,168 million. The increase from the
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prior year amount of $1,122 million is primarily due to growth in orders for
integrated facilities management and performance contracting business. The
unearned backlog of government facilities management contracts, which reflects
only the noncancellable portion of uncompleted contracts, was $424 million at
September 30, 1996. This was 4% lower than the prior year as a result of scope
reductions on several U.S. government projects.
Plastics segment sales for 1997 are expected to be 5%-10% higher reflecting
increases in container unit volumes, primarily custom containers. The increase
in sales is expected to be less than the anticipated unit volume increase due
to the pass-through of lower resin prices to customers.
Battery segment sales are expected to improve approximately 10%-15% from 1996
levels as a result of increased sales to new and existing customers, including
Western Auto, for which shipments began in late 1996.
OPERATING INCOME
Consolidated operating income for 1996 was $500 million, an increase of 11%
over 1995. Three of the four business segments contributed to this overall
improvement. The automotive seating segment's operating income increased 28%,
to $299 million, in 1996. The segment benefited from higher volumes in both
North America and Europe. Operating margin improvements in North America and
Europe, associated with established vehicle program efficiencies, were more
than offset by start-up costs in the segment's emerging South American and
Asia/Pacific markets.
Operating income of the controls segment was $119 million, an increase of 12%
over the prior year. Income grew in line with the higher sales and primarily
resulted from the increased activity in the worldwide existing commercial
buildings market.
Plastics operating income decreased 62%, to $24 million, in 1996. The decline
was due to competitive pressures, declining resin prices and excess
manufacturing capacity resulting from the weaker than anticipated market
demand.
Battery operating income increased 26% in 1996, to $59 million, as a result of
the overall unit volume increase noted above. In addition, significant
reductions in operating costs benefited operating margins.
Consolidated operating income is expected to increase in 1997, with the
improvement derived primarily from the higher sales projections. The automotive
segment's operating income is anticipated to grow as a result of the
acquisition of Prince (see Acquisition), volume increases related to new
business and continued involvement in successful vehicle programs. Start-up
programs in South America and the Asia/Pacific region will continue to impact
operating income. 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
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significantly 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 increasing activity in the
existing commercial buildings market, particularly in the integrated facilities
management and performance contracting markets. The plastics segment is
expected to show operating income improvement, assuming a stable resin
environment, resulting from higher unit shipments, primarily custom containers,
and continuing cost reduction programs. The battery segment's operating income
is expected to increase over 1996 reflecting continued unit shipment growth and
cost reduction efforts.
OTHER INCOME/EXPENSE
Net interest expense (interest expense net of interest income) in 1996 was $69
million, $18 million higher than the prior year. The increase primarily
resulted from the financing associated with the Roth acquisition and the debt
assumed with the purchase. Net interest expense for 1997 is expected to
increase substantially as a result of the financing associated with the Prince
acquisition (see Acquisition).
Miscellaneous-net income of $12 million compares to an expense of $10 million
in the prior year. The company recorded $14 million more in equity income in
1996 than in 1995. The majority of this improvement related to the company's
Mexican affiliates which benefited from both improved operating results and the
absence of prior year losses associated with the Mexican Peso devaluation.
Other miscellaneous income items included gains associated with the sale of
certain assets and foreign currency transactions.
PROVISION FOR INCOME TAXES
The effective income tax rate for 1996 was 41%, slightly lower than the 1995
rate of 42%. The effective rate declined due to improved performance by
certain of the company's consolidated subsidiaries and European operations,
offset by start-up operations in emerging markets. The effective rate for the
fiscal year remained higher than the combined federal and state statutory rate
of approximately 39%, principally due to overall higher foreign effective
rates. The effective rate for 1997 is expected to be 42.5%, taking into
account the non-deductible goodwill amortization associated with the
acquisition of Prince (see Acquisition).
MINORITY INTERESTS
Minority interests in net earnings of subsidiaries decreased $3 million to $27
million in 1996 due to declines in income of certain automotive and plastics
segment consolidated subsidiaries.
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NET INCOME
Net income rose 20% in 1996 to $235 million as a result of the improvements in
operating and equity income, offset by the increase in interest expense.
Primary and fully diluted earnings per share were $5.39 and $5.10,
respectively, for 1996, up from $4.53 and $4.27 in 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
SALES
Consolidated net sales for 1995 were $8,330 million, a 21% increase from 1994.
A substantial portion of the increase reflects higher sales of automotive
seating. A 32% increase in automotive segment sales to $3,945 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 the company
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 facilities management
market was largely due to the acquisitions 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 22% over the 1994 level to $1,083 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, 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
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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.
OPERATING INCOME
Consolidated operating income was $449 million for 1995, an increase of 23%
over 1994. The increase can be attributed to the strong improvement in
consolidated net sales.
The automotive seating segment's operating income of $233 million was 52%
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 $64 million rose 2% 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,
these increases 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 segment's success in
reducing costs.
OTHER INCOME/EXPENSE
Net interest expense in 1995 was $51 million, $15 million higher than the prior
year. The increase resulted from the financing associated with acquisitions
and higher short-term interest rates.
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.
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
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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 consolidated subsidiaries.
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 other
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.
CAPITAL EXPENDITURES AND OTHER INVESTMENTS
Capital expenditures were $370 million, $451 million and $348 million in 1996,
1995 and 1994, respectively. Approximately one half of the spending in 1996 was
focused on the automotive segment, and was related to the expansion of
automotive facilities and product lines worldwide. The remaining spending was
divided equally among the other three segments, and primarily represented cost
reduction projects. Capital expenditures for 1997 are projected to approximate
$450-$475 million. The majority of the spending will again be focused on
automotive seating and interior expansion, with spending for the controls
segment information technology and cost reduction programs among all segments
making up the remainder of the spending.
Goodwill increased $84 million to $603 million at September 30, 1996. The
increase is attributable to business acquisitions during 1996, most notably the
acquisition of Roth at the end of the company's first fiscal quarter. All
acquisitions were accounted for as purchases, and as such, operating results
are included since the respective acquisition dates. Goodwill is expected to
increase significantly in 1997 in conjunction with the acquisition of Prince
(see Acquisition).
Investments in partially-owned affiliates of $128 million were approximately
$38 million higher than the prior year. Notable increases during 1996 included
the recording of the affiliate investment held by Roth and the initial
investment in a battery segment joint venture in China. The company recorded
approximately $16 million of equity income for the year.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
Cash provided by operating activities was $468 million during 1996 compared to
$370 million in 1995. This increase was generated by higher net income as
adjusted for depreciation and amortization of intangibles. Total working
capital increased to $291 million at
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September 30, 1996 compared to $154 million at September 30, 1995. This
increase reflects the impact of the Roth purchase.
CAPITALIZATION
The company's capitalization of $2,550 million at September 30, 1996 included
short-term debt of $250 million, long-term debt, including the current portion,
of $792 million and shareholders' equity of $1,508 million. Total debt as a
percentage of total capitalization increased to 41% from 38% at September 30,
1995. In December 1995, the company issued $125 million of 6.95%, 50-year
debentures, the proceeds of which were used to finance the acquisition of Roth.
The company expects total capitalization to increase substantially in fiscal
1997 as a result of the Prince acquisition financing (see Acquisition).
In September 1996, the company entered into two new revolving credit
facilities, one for $500 million maturing in May 2001 and one for $1.1 billion
maturing in September 1997. The credit facilities support the issuance of
commercial paper, including amounts issued for interim financing of the Prince
acquisition (see Acquisition). At September 30, 1996, $250 million of
short-term borrowings were outstanding compared to $130 million in 1995.
Additional unused credit facilities of approximately $444 million are available
to the company's international subsidiaries.
A shelf registration statement is on file with the Securities and Exchange
Commission (SEC) under which the company can issue a total of $350 million in
debt securities. Since the filing, $299 million of various debt securities have
been issued under the registration. On October 4, 1996, the company filed a
universal shelf registration for $1.5 billion with the SEC. The registration,
currently under review by the SEC, covers issuance of a variety of debt and
equity instruments.
High credit ratings from Moody's (A2), Fitch (A) and Standard & Poor's (A -
credit watch) have been 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 1997 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.
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ACQUISITION
The company completed its acquisition of Prince effective October 1, 1996, for
a cash purchase price of approximately $1.3 billion. Prince, based in Holland,
Michigan, supplies automotive interior systems and components including
overhead systems and consoles, door panels, floor consoles, visors and
armrests. Prince had consolidated net sales of $867 million for the fiscal year
ended September 30, 1996.
The acquisition will be accounted for as a purchase. As such, the excess of
the purchase price over the estimated fair value of the acquired net assets,
which approximates $1.1 billion, will be recorded as goodwill.
The acquisition was initially financed with commercial paper. Various
permanent financing alternatives are still under consideration.
FUTURE ACCOUNTING CHANGES
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The Statement is effective for the company's
1997 fiscal year. The financial statement effect of adoption is currently
under review.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based
Compensation." This Statement requires either recognition of compensation
expense in the financial statements for those companies that adopt the fair
value based accounting method or expanded disclosure of pro forma net income
and earnings per share information for those companies that retain the current
accounting method set forth in Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees." The company plans to retain the
current accounting method set forth in APB 25 and will begin expanded
disclosure in its fiscal 1997 financial statements.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The company's U.S. operations are governed by federal environmental laws,
principally the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), 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.
28
<PAGE> 29
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.
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 expenses 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.
Environmental considerations are a part of all significant capital expenditure
decisions; however, expenditures in 1996 related solely to environmental
compliance were not material. Environmental remediation, compliance and
management expenses incurred by the company in 1996 were approximately $18
million. At September 30, 1996, an accrued liability of approximately $32
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. 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 material 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 judgement motion of
the Employers Insurance of Wausau and dismissing Johnson Controls' complaint
seeking to recover environmental response costs at 21 sites. The Circuit Court
based
29
<PAGE> 30
its decision on the reasoning of a 1994 Wisconsin Supreme Court case that held
that under the law of Wisconsin, response costs under CERCLA are not "damages"
as that term is used in comprehensive general liability policies. This appeal
is still pending. 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. In general, the company's competitors face the same laws, and,
accordingly, the company should not be placed at a competitive disadvantage.
RISK FACTORS
Except for the historical information contained herein, certain matters
discussed in this "Management's Discussion and Analysis" are "forward looking
statements" as defined in the Private Securities Litigation Reform Act (PSLRA)
of 1995, which involve risks and uncertainties, and are subject to change based
on various important factors. The company wishes to take advantage of the
"safe harbor" provisions of the PSLRA by cautioning that numerous important
factors as discussed in the company's Form 8-K filing (dated September 27,
1996), among others, in some cases have affected, and in the future could
affect, the company's actual results and could cause its actual consolidated
results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the company.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - See pages 30 through 42
of the 1996 Annual Report to Shareholders.
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
All information required by Items 10 through 13 of Part III, with the
exception of information on the Executive Officers which appears on pages 18-20
of Part I of this report, is incorporated by reference to pages 1-15 of the
company's Proxy Statement for its 1997 Annual Meeting of Shareholders.
30
<PAGE> 31
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
Page in
Annual Report*
--------------
(a) The following documents are filed as part
of this report:
(1) Financial Statements
Consolidated Statement of Income
for the years ended September 30,
1996, 1995 and 1994 .................... 30
Consolidated Statement of Financial
Position at September 30, 1996
and 1995................................ 31
Consolidated Statement of Cash Flows
for the years ended September 30, 1996,
1995 and 1994........................... 32
Consolidated Statement of Shareholders'
Equity for the years ended September 30,
1996, 1995 and 1994..................... 33
Notes to Consolidated Financial
Statements.............................. 34-42
Report of Independent Accountants......... 43
*Incorporated by reference from the indicated pages of the
1996 Annual Report to Shareholders.
Page in
Form 10-K
---------
(2) Financial Statement Schedule
Report of Independent Accountants on
Financial Statement Schedule............. 37
For the years ended September 30,
1996, 1995 and 1994:
II. Valuation and Qualifying Accounts.... 39
All other schedules are omitted because they are not applicable,
or the required information is shown in the financial statements or
notes thereto.
31
<PAGE> 32
Financial statements of 50% or less-owned companies have been omitted
because the proportionate share of their profit before income taxes and total
assets are less than 20% of the respective consolidated amounts, and investments
in such companies are less than 20% of consolidated total assets.
(3) EXHIBITS
3.(i) Restated Articles of Incorporation of Johnson
Controls, Inc. (incorporated by reference to Exhibit 3.A to
Johnson Controls, Inc. Annual Report on Form 10-K for the year
ended September 30, 1987).
3.(ii) By-laws of Johnson Controls, Inc., as amended March 27, 1996,
filed herewith.
4.A Miscellaneous long-term debt agreements and financing
leases with banks and other creditors and debenture indentures.*
4.B Miscellaneous industrial development bond long-term
debt issues and related loan agreements and leases.*
4.C Rights Agreement between Johnson Controls, Inc. and
Firstar Trust Company (Rights Agent) as amended November 16, 1994
(incorporated by reference to Exhibit 4.C to Johnson Controls,
Inc. Annual Report on Form 10-K for the year ended September 30,
1994).
4.D Certificate of the Relative Rights and Preferences of
the Series D Convertible Preferred Stock of Johnson Controls,
Inc. (incorporated by reference to an exhibit to the Form 8-K
dated May 26, 1989).
4.E Note and Guaranty Agreement dated June 19, 1989 between
Johnson Controls, Inc., as Guarantor, and Johnson Controls, Inc.
Employee Stock Ownership Trust, acting by and through LaSalle
National Bank, as trustee, as issuer (incorporated by reference
to Exhibit 4.E to Johnson Controls, Inc. Annual Report on Form
10-K for the year ended September 30, 1990).
4.F Letter of agreement dated December 6, 1990 between
Johnson Controls, Inc., LaSalle National Trust, N.A. and Fidelity
Management Trust Company which replaces LaSalle National Trust,
N.A. as Trustee of the Johnson Controls, Inc. Employee Stock
Ownership Plan Trust with Fidelity Management Trust Company as
Successor Trustee, effective January 1, 1991 (incorporated by
reference to Exhibit 4.F to Johnson Controls, Inc. Annual Report
on Form 10-K for the year ended September 30, 1991).
32
<PAGE> 33
(3) EXHIBITS (Continued)
4.G Indenture for debt securities dated February 22, 1995 between
Johnson Controls, Inc. and Chemical Bank Delaware, trustee
(Incorporated by reference to the Form S-3 filed February 13,
1995, which became effective February 17, 1995).
10.A Johnson Controls, Inc., 1992 Stock Option Plan as amended
through January 24, 1996, filed herewith.
10.B Johnson Controls, Inc., 1984 Stock Option Plan as amended
through September 22, 1993 (Incorporated by reference to Exhibit
10.B to Johnson Controls, Inc. Annual Report on Form 10-K for the
year ended September 30, 1993).
10.C Johnson Controls, Inc., 1992 Stock Plan for Outside
Directors, (incorporated by reference to Exhibit 10.D to Johnson
Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 1992).
10.D Johnson Controls, Inc., Common Stock Purchase Plan for
Executives approved January 24, 1996, filed herewith.
10.E Johnson Controls, Inc., Deferred Compensation Plan for
Certain Directors as amended through September 25, 1991
(incorporated by reference to Exhibit 10.C to Johnson Controls,
Inc. Annual Report on Form 10-K for the year ended September 30,
1991).
10.F Johnson Controls, Inc., Directors Retirement Plan as
amended through July 26, 1989 (incorporated by reference to
Exhibit 10.D to Johnson Controls, Inc. Annual Report on Form 10-K
for the year ended September 30, 1989).
10.G Johnson Controls, Inc., Executive Incentive Compensation
Plan Deferred Option as amended March 21, 1995 (incorporated by
reference to Exhibit 10.F to Johnson Controls, Inc. Annual Report
on Form 10-K for the year ended September 30, 1995).
10.H Johnson Controls, Inc., Executive Incentive Compensation
Plan as amended through September 22, 1993, (incorporated by
reference to Exhibit 10.H to Johnson Controls, Inc. Annual Report
on Form 10-K for the year ended September 30, 1993).
33
<PAGE> 34
(3) EXHIBITS (Continued)
10.I Johnson Controls, Inc., Executive Incentive Compensation
Plan, Deferred Option, Qualified Plan effective September 28,
1994, (incorporated by reference to Exhibit 10.I to Johnson
Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 1994).
10.J Johnson Controls, Inc., Long-Term Performance Plan, as
amended through September 28, 1994, (incorporated by reference to
Exhibit 10.J to Johnson Controls, Inc. Annual Report on Form 10-K
for the year ended September 30, 1994).
10.K Johnson Controls, Inc., Executive Survivor Benefits Plan,
as amended through January 1, 1989, (incorporated by reference to
Exhibit 10.K to Johnson Controls, Inc. Annual Report on Form 10-K
for the year ended September 30, 1994).
10.L Johnson Controls, Inc., Equalization Benefit Plan as
amended through May 24, 1989, filed herewith.
10.M Form of employment agreement as amended through October
1, 1991 between Johnson Controls, Inc. and Messrs. Barth, Kennedy,
Keyes, Lewis and Roell, (incorporated by reference to Exhibit 10.K
to Johnson Controls, Inc. Annual Report on Form 10-K for the year
ended September 30,1992).
10.N Form of indemnity agreement, as amended, between Johnson
Controls, Inc. and Messrs. Barth, Kennedy, Keyes, Lewis and Roell,
(incorporated by reference to Exhibit 10.K to Johnson Controls,
Inc. Annual Report on Form 10-K for the year ended September 30,
1991).
11 Statement regarding computation of earnings per share for
the years ended September 30, 1996, 1995 and 1994, filed herewith.
12 Statement regarding computation of ratio of earnings to
fixed charges for the year ended September 30, 1996, filed
herewith.
13 1996 Annual Report to Shareholders (incorporated sections
only in electronic filing), filed herewith.
21 Subsidiaries of the Registrant, filed herewith.
23 Consent of Independent Accountants dated December 13,
1996, filed herewith.
34
<PAGE> 35
(3) EXHIBITS (Continued)
27 Financial Data Schedule (electronic filing only).
99 Proxy Statement for Annual Meeting of Shareholders of
Johnson Controls, Inc., to be held January 22, 1997, filed
herewith.
*These instruments are not being filed as exhibits herewith
because none of the long-term debt instruments authorizes the
issuance of debt in excess of ten percent of the total assets of
Johnson Controls, Inc., and its subsidiaries on a consolidated
basis. Johnson Controls, Inc. agrees to furnish a copy of each
such agreement to the Securities and Exchange Commission upon
request.
(b) The following Form 8-K's were filed during the fourth quarter of the
company's 1996 fiscal year or thereafter through the date of this Form
10-K:
(1) On July 19, 1996 the company filed a Form 8-K announcing the
acquisition of Prince.
(2) On September 27, 1996 the company filed a Form 8-K in order to take
advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
(3) On October 4, 1996, the company filed a Form 8-K which included the
historical financial statements of Prince and pro forma financial
information.
(4) On December 10, 1996, the company filed a Form 8-K announcing the sale
of the plastic container division.
Other Matters
For the purposes of complying with the amendments to the rules governing
Form S-8 under the Securities Act of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be incorporated by reference
into registrant's Registration Statements on Form S-8 Nos. 33-30309, 33-31271,
33-58092, 33-58094, 33-49862 and 333-10707.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or
35
<PAGE> 36
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
36
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Johnson Controls, Inc.
Our audits of the consolidated financial statements referred to in our report
dated October 21, 1996 appearing on page 43 of the 1996 Annual Report to
Shareholders of Johnson Controls, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE, LLP
Milwaukee, Wisconsin
October 21, 1996
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JOHNSON CONTROLS, INC.
BY Stephen A. Roell,
Vice President and
Chief Financial Officer
Date: December 13, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below as of December 13, 1996, by the
following persons on behalf of the registrant and in the capacities
indicated:
James H. Keyes, Chairman and Stephen A. Roell,
Chief Executive Officer Vice President and Chief
Financial Officer
Robert W. Smith
Assistant Corporate Controller
Southwood J. Morcott R. Douglas Ziegler
Director Director
Richard F. Teerlink Fred L. Brengel
Director Director
Paul A. Brunner William F. Andrews
Director Director
38
<PAGE> 39
JOHNSON CONTROLS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in millions)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of period $22.2 $23.4 $17.2
Provision charged to costs and expenses 7.3 5.7 9.6
Accounts charged off (6.9) (6.4) (3.8)
Acquisition of businesses 1.0 -- 0.7
Recoveries on accounts previously charged off (1.1) (0.4) (0.8)
Currency translation (0.1) 0.5 0.6
Other 0.2 (0.6) (0.1)
-----------------------------------
Balance at end of period $22.6 $22.2 $23.4
===================================
DEFERRED TAX ASSET - VALUATION ALLOWANCE
Balance at beginning of period $31.8 $27.0 $11.2
Allowance established for new
loss carryforwards and tax credits 34.4 8.5 18.0
Allowance reversed for loss
carryforwards utilized (4.8) (3.7) (2.2)
-----------------------------------
Balance at end of period $61.4 $31.8 $27.0
===================================
</TABLE>
39
<PAGE> 40
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
EXHIBITS TITLE PAGE
-------- ------------------------------------------ ----
3.(i) Restated Articles of Incorporation of
Johnson Controls, Inc. (incorporated by
reference to Exhibit 3.A to Johnson
Controls, Inc. Annual Report on Form 10-K
for the year ended September 30, 1987).
3.(ii) By-laws of Johnson Controls, Inc., as
amended March 24, 1996, filed herewith. 44-66
4.A Miscellaneous long-term debt agreements
and financing leases with banks and
other creditors and debenture indentures.*
4.B Miscellaneous industrial development bond
long-term debt issues and related loan
agreements and leases.*
4.C Rights Agreement between Johnson Controls,
Inc. and Firstar Trust Company
(Rights Agent), as amended November 16,
1994, (incorporate by reference to Exhibit
4.C to Johnson Controls, Inc. Annual Report
on Form 10-K for the year ended September 30,
1994).
4.D Certificate of the Relative Rights and
Preferences of the Series D Convertible
Preferred Stock of Johnson Controls, Inc.
(incorporated by reference to an exhibit
to the Form 8-K dated May 26, 1989).
4.E Note and Guaranty Agreement dated June 19,
1989 between Johnson Controls, Inc., as
Guarantor, and Johnson Controls, Inc.
Employee Stock Ownership Trust, acting by
and through Lasalle National Bank, as
trustee, as issuer, (Incorporated by
reference to Exhibit 4.E to Johnson Controls,
Inc. Annual Report on Form 10-K for the year
ended September 30, 1990).
40
<PAGE> 41
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
EXHIBITS TITLE PAGE
-------- ------------------------------------------------- -----
4.F Letter of agreement dated December 6, 1990
between Johnson Controls, Inc., LaSalle
National Trust, N.A. and Fidelity Management
Trust Company which replaces LaSalle National
Trust, N.A. as Trustee of the Johnson Controls,
Inc. Employee Stock Ownership Plan Trust
with Fidelity Management Trust Company as
Successor Trustee, effective January 1, 1991
(incorporated by reference to Exhibit 4.F to
Johnson Controls, Inc. Annual Report on Form
10-K for the year ended September 30, 1991).
4.G Indenture for debt securities dated
September 1, 1989 between Johnson Controls,
Inc. and Chemical Bank Delaware, trustee
(incorporated by reference to the Form S-3
dated September 20, 1989).
10.A Johnson Controls, Inc., 1992 Stock Option
Plan as amended through January 24, 1996,
herewith. 67-85
10.B Johnson Controls, Inc., 1984 Stock Option
Plan as amended through September 22, 1993
(incorporated by reference to Exhibit 10.B
to Johnson Controls, Inc. Annual Report on
Form 10-K for the year ended September 30,
1993).
10.C Johnson Controls, Inc., 1992 Stock Plan for
Outside Directors, (incorporated by reference
to Exhibit 10.D to Johnson Controls, Inc.
Annual Report on Form 10-K for the year ended
September 30, 1992).
10.D Johnson Controls, Inc., Common Stock Purchase
Plan for Executives, approved January 24,
1996, filed herewith. 86-88
10.E Johnson Controls, Inc., Deferred Compensation
Plan for Certain Directors as amended through
September 25, 1991 (incorporated by reference
to Exhibit 10.C to Johnson Controls, Inc. Annual
Report on Form 10-K for the year ended
September 30, 1991).
41
<PAGE> 42
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
EXHIBITS TITLE PAGE
-------- ------------------------------------------------- -----
10.F Johnson Controls, Inc., Directors Retirement
Plan as amended through July 26, 1989
(incorporated by reference to Exhibit 10.D
to Johnson Controls, Inc. Annual Report on
Form 10-K for the year ended September 30,
1989).
10.G Johnson Controls, Inc., Executive Incentive
Compensation Plan Deferred Option as amended
March 21, 1995 (incorporated by reference to
Exhibit 10.F to Johnson Controls, Inc. Annual
Report on Form 10-K for the year ended
September 30, 1995).
10.H Johnson Controls, Inc., Executive Incentive
Compensation Plan as amended through September
22, 1993 (incorporated by reference to
Exhibit 10.H to Johnson Controls, Inc. Annual
Report on Form 10-K for the year ended
September 30, 1993).
10.I Johnson Controls, Inc., Executive Incentive
Compensation Plan, Deferred Option, Qualified
Plan effective September 28, 1994, (incorporated
by reference to Exhibit 10.I to Johnson Controls,
Inc. Annual Report on Form 10-K for the year
ended September 30, 1994).
10.J Johnson Controls, Inc., Long-Term Performance
Plan as amended through September 28, 1994,
(incorporated by reference to Exhibit 10.J to
Johnson Controls, Inc. Annual Report on Form
10-K for the year ended September 30, 1994).
10.K Johnson Controls, Inc., Executive Survivor
Benefits Plan amended through January 1, 1989,
(incorporated by reference to Exhibit 10.K to
Johnson Controls, Inc. Annual Report on Form
10-K for the year ended September 30, 1994).
10.L Johnson Controls, Inc., Equalization Benefit
Plan dated May 24, 1989, filed herewith. 89-95
10.M Form of employment agreement, as amended
through October 1, 1991, between Johnson
Controls, Inc. and Messrs. Barth, Kennedy,
Keyes, Lewis and Roell, (incorporated by
reference to Exhibit 10.K to Johnson
Controls, Inc. Annual Report on Form 10-K
for the year ended September 30, 1992).
42
<PAGE> 43
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
EXHIBITS TITLE PAGE
-------- ------------------------------------------------ -------
10.N Form of indemnity agreement, as amended,
between Johnson Controls, Inc. and Messrs.
Barth, Kennedy, Keyes, Lewis and Roell,
(incorporated by reference to Exhibit 10.K
to Johnson Controls, Inc. Annual Report on
Form 10-K for the year ended September 30,
1991).
11 Statement regarding computation of earnings
per share for the years ended September 30,
1996, 1995 and 1994, filed herewith. 96
12 Statement regarding computation of ratio of
earnings to fixed charges for the year ended
September 30, 1996, filed herewith. 97
13 1996 Annual Report to Shareholders
(incorporated sections only in electronic
filing), filed herewith. 98-144
21 Subsidiaries of the Registrant, filed
herewith. 145-155
23 Consent of Independent Accountants dated
December 13, 1996, filed herewith. 156
27 Financial Data Schedule, (electronic
filing only.)
99 Proxy Statement for Annual Meeting of
Shareholders of Johnson Controls, Inc.,
to be held January 22, 1997, filed herewith. 157-180
*These instruments are not being filed as exhibits
herewith because none of the long-term debt instruments
authorizes the issuance of debt in excess of ten percent of
the total assets of Johnson Controls, Inc., and its
subsidiaries on a consolidated basis. Johnson Controls, Inc.
agrees to furnish a copy of each such agreement to the
Securities and Exchange Commission upon request.
43
<PAGE> 1
EXHIBIT 3 (ii)
JOHNSON CONTROLS, INC.
BY-LAWS
(As in effect March 27, 1996)
ARTICLE I
OFFICES
The principal office of the corporation in the State of Wisconsin shall be
located in the City of Glendale, County of Milwaukee. The corporation may have
such other offices, either within or without the State of Wisconsin, as the
Board of Directors may designate or as the business of the corporation may
require from time to time.
The registered office of the corporation required by the Wisconsin
Business Corporation Law to be maintained in the State of Wisconsin may be, but
need not be, identical with the principal office in the State of Wisconsin, and
the address of the registered office may be changed from time to time by the
Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders of the
Corporation (an "Annual Meeting") shall be held on the fourth Tuesday in the
month of January in each year, at the hour of 2:00 o'clock P.M., or at such
other hour or day as may be designated by the Board of Directors. At each
Annual Meeting, the shareholders shall elect a number of directors equal to the
number of the class whose term expires at the time of such meeting and shall
conduct any other business properly brought before the Annual Meeting in
accordance with Article II, Section 13 of the By-Laws. In the event of
failure, through oversight or otherwise, to hold the Annual Meeting of
shareholders in any year on the date herein provided therefor, the Annual
Meeting, upon waiver of notice or upon due notice, may be held at a later date
and any election had or business done at such Annual Meeting shall be as valid
and effectual as if had or done at the Annual Meeting on the date herein
provided. In fixing a meeting date for any Annual Meeting, the Board of
Directors may consider such factors as it deems relevant within the good faith
exercise of its business judgment.
44
<PAGE> 2
Section 2. SPECIAL MEETINGS.
(a) A special meeting of the shareholders of the Corporation (a "Special
Meeting") may be called only by (i) the Chairman of the Board, (ii) the
President or (iii) the Board of Directors and shall be called by the Chairman
of the Board or the President upon the demand, in accordance with this Section
2, of the holders of record of shares representing at least 10% of all the
votes entitled to be cast on any issue proposed to be considered at the Special
Meeting.
(b) In order that the Corporation may determine the shareholders entitled
to demand a Special Meeting, the Board of Directors may fix a record date to
determine the shareholders entitled to make such a demand (the "Demand Record
Date"). The Demand Record Date shall not precede the date upon which the
resolution fixing the Demand Record Date is adopted by the Board of Directors
and shall not be more than 10 days after the date upon which the resolution
fixing the Demand Record Date is adopted by the Board of Directors. Any
shareholder of record seeking to have shareholders demand a Special Meeting
shall, by sending written notice to the Secretary of the Corporation by hand or
by certified or registered mail, return receipt requested, request the Board of
Directors to fix a Demand Record Date. The Board of Directors shall promptly,
but in all events within 10 days after the date on which a valid request to fix
a Demand Record Date is received, adopt a resolution fixing the Demand Record
Date and shall make a public announcement of such Demand Record Date. If no
Demand Record Date has been fixed by the Board of Directors within 10 days
after the date on which such request is received by the Secretary, the Demand
Record Date shall be the 10th day after the first date on which a valid written
request to set a Demand Record Date is received by the Secretary. To be valid,
such written request shall set forth the purpose or purposes for which the
Special Meeting is to be held, shall be signed by one or more shareholders of
record (or their duly authorized proxies or other representatives), shall bear
the date of signature of each such shareholder (or proxy or other
representative) and shall set forth all information about each such shareholder
and about the beneficial owner or owners, if any, on whose behalf the request
is made that would be required to be set forth in a shareholder's notice
described in paragraph (a)(ii) of Article II, Section 13 of these By-Laws.
(c) In order for a shareholder or shareholders to demand a Special
Meeting, a written demand or demands for a Special Meeting by the holders of
record as of the Demand Record Date of shares representing at least 10% of all
the votes entitled to be cast on each issue proposed to be considered at the
Special Meeting must be delivered to the Corporation. To be valid, each
written demand by a shareholder for a Special Meeting shall set forth the
specific purpose or purposes for which the Special Meeting is to be held (which
purpose or purposes shall be limited to the purpose or purposes set forth in
the written request to set a Demand Record Date received by the Corporation
pursuant to paragraph (b) of this Section 2), shall be signed by one or more
persons who as of the Demand Record Date are shareholders
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of record (or their duly authorized proxies or other representatives), shall
bear the date of signature of each such shareholder (or proxy or other
representative), and shall set forth the name and address, as they appear in
the Corporation's books, of each shareholder signing such demand and the class
and number of shares of the Corporation which are owned of record and
beneficially by each such shareholder, shall be sent to the Secretary by hand
or by certified or registered mail, return receipt requested, and shall be
received by the Secretary within 70 days after the Demand Record Date.
(d) The Corporation shall not be required to call a Special Meeting upon
shareholder demand unless, in addition to the documents required by paragraph
(c) of this Section 2, the Secretary receives a written agreement signed by
each Soliciting Shareholder, pursuant to which each Soliciting Shareholder,
jointly and severally, agrees to pay the Corporation's costs of holding the
special meeting, including the costs of preparing and mailing proxy materials
for the Corporation's own solicitation, provided that if each of the
resolutions introduced by any Soliciting Shareholder at such meeting is
adopted, and each of the individuals nominated by or on behalf of any
Soliciting Shareholder for election as director at such meeting is elected,
then the Soliciting Shareholders shall not be required to pay such costs. For
purposes of this paragraph (d), the following terms shall have the meanings set
forth below:
(i) "Affiliate" of any Person shall mean any Person
controlling, controlled by or under common control with such first
Person.
(ii) "Participant" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.
(iii) "Person" shall mean any individual, firm, corporation,
partnership, joint venture association, trust, unincorporated
organization or other entity.
(iv) "Proxy" shall have the meaning assigned to such term in
Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Shareholder" shall mean, with respect to any
Special Meeting demanded by a shareholder or shareholders, any of
the following Persons:
(A) if the number of shareholders signing the
demand or demands of meeting delivered to the
Corporation
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pursuant to paragraph (c) of this Section 2 is ten or
fewer, each shareholder signing any such demand;
(B) if the number of shareholders signing the
demand or demands of meeting delivered to the
Corporation pursuant to paragraph (c) of this Section
2 is more than ten, each Person who either (I) was a
Participant in any Solicitation of such demand or
demands or (II) at the time of the delivery to the
Corporation of the documents described in paragraph
(c) of this Section 2, had engaged or intended to
engage in any Solicitation of Proxies for use at such
Special Meeting (other than a Solicitation of Proxies
on behalf of the Corporation); or
(C) any Affiliate of a Soliciting Shareholder, if
a majority of the directors then in office determine,
reasonably and in good faith, that such Affiliate
should be required to sign the written notice
described in paragraph (c) of this Section 2 and/or
the written agreement described in this paragraph (d)
in order to prevent the purposes of this Section 2
from being evaded.
(e) Except as provided in the following sentence, any Special Meeting
shall be held at such hour and day as may be designated by whichever of the
Chairman of the Board, the President or the Board of Directors shall have
called such meeting. In the case of any Special Meeting called by the Chairman
of the Board or the President upon the demand of shareholders (a "Demand
Special Meeting"), such meeting shall be held at such hour and day as may be
designated by the Board of Directors; provided, however, that the date of any
Demand Special Meeting shall be not more than 70 days after the Meeting Record
Date (as defined in Article II, Section 5); and provided further that in the
event that the directors then in office fail to designate an hour and date for
a Demand Special Meeting within 10 days after the date that valid written
demands for such meeting by the holders of record as of the Demand Record Date
of shares representing at least 10% of all the votes entitled to be cast on
each issue proposed to be considered at the special meeting are delivered to
the Corporation (the "Delivery Date"), then such meeting shall be held at 2:00
P.M. local time on the 100th day after the Delivery Date or, if such 100th day
is not a Business Day (as defined below), on the first preceding Business Day.
In fixing a meeting date for any Special Meeting, the Chairman of the Board,
the President or the Board of Directors may consider such factors as he or it
deems relevant within the good faith exercise of his or its business judgment,
including, without limitation, the nature of the action proposed to be taken,
the facts and circumstances surrounding any demand for such meeting, and any
plan of the Board of Directors to call an Annual Meeting or a Special Meeting
for the conduct of related business.
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(f) The Corporation may engage nationally recognized independent
inspectors of elections to act as an agent of the Corporation for the purpose
of promptly performing a ministerial review of the validity of any purported
written demand or demands for a Special Meeting received by the Secretary. For
the purpose of permitting the inspectors to perform such review, no purported
demand shall be deemed to have been delivered to the Corporation until the
earlier of (i) five Business Days following receipt by the Secretary of such
purported demand and (ii) such date as the independent inspectors certify to
the Corporation that the valid demands received by the Secretary represent at
least 10% of all the votes entitled to be cast on each issue proposed to be
considered at the Special Meeting. Nothing contained in this paragraph shall
in any way be construed to suggest or imply that the Board of Directors or any
shareholder shall not be entitled to contest the validity of any demand,
whether during or after such five Business Day period, or to take any other
action (including, without limitation, the commencement, prosecution or defense
of any litigation with respect thereto).
(g) For purposes of these By-Laws, "Business Day" shall mean any day other
than a Saturday, a Sunday or a day on which banking institutions in the State
of Wisconsin are authorized or obligated by law or executive order to close.
Section 3. PLACE OF MEETING. The Board of Directors, the Chairman or the
President may designate any place, either within or without the State of
Wisconsin, as the place of meeting for any Annual Meeting or Special Meeting,
or for any postponement thereof, and in case the Board of Directors, the
Chairman or the President shall fail or neglect to make such designation, the
Secretary shall designate the time and place of such meeting. Any adjourned
meeting may be reconvened at any place designated by vote of the Board of
Directors or by the Chairman or the President.
Section 4. NOTICE OF MEETING. The Corporation shall send written or
printed notice stating the place, day and hour of any Annual Meeting or Special
Meeting not less than 10 days nor more than 70 days before the date of such
meeting either personally or by mail to each shareholder of record entitled to
vote at such meeting and to other shareholders as may be required by law or by
the Restated Articles of Incorporation. In the event of any Demand Special
Meeting, such notice of meeting shall be sent not more than 30 days after the
Delivery Date. If mailed, such notice of meeting shall be addressed to the
shareholder at his address as it appears on the Corporation's record of
shareholders. Unless otherwise required by law or the Restated Articles of
Incorporation, a notice of an Annual Meeting need not include a description of
the purpose for which the meeting is called. In the case of any Special
Meeting, (a) the notice of meeting shall describe any business that the Board
of Directors shall have theretofore determined to bring before the meeting and
(b) in the case of a Demand Special Meeting, the notice of meeting (i) shall
describe any business set forth in the statement of purpose of the demands
received by the Corporation in accordance with Article II, Section 2 of these
By-Laws and (ii) shall
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contain all of the information required in the notice received by the
Corporation in accordance with Article II, Section 13(b)(ii) of these By-Laws.
Section 5. FIXING OF RECORD DATE. The Board of Directors may fix a future
date not less than 10 days and not more than 70 days prior to the date of any
Annual Meeting or Special Meeting as the record date for the determination of
shareholders entitled to notice of, or to vote at, such meeting (the "Meeting
Record Date"). In the case of any Demand Special Meeting, (i) the Meeting
Record Date shall be not later than the 30th day after the Deliver Date and
(ii) if the Board of Directors fails to fix the Meeting Record Date within 30
days after the Delivery Date, then the close of business on such 30th day shall
be the Meeting Record Date. The shareholders of record on the Meeting Record
Date shall be the shareholders entitled to notice of and to vote at the
meeting. Except as may be otherwise provided by law, a determination of
shareholders entitled to notice of or to vote at a meeting of shareholders is
effective for any adjournment of such meeting unless the Board of Directors
fixes a new Meeting Record Date, which it shall do if the meeting is postponed
or adjourned to a date more than 120 days after the date fixed for the original
meeting.
Section 6. SHAREHOLDER LISTS. After a record date has been fixed for a
meeting of shareholders, the Secretary or agent having charge of the
shareholder record shall prepare a list of the names of all of the shareholders
who are entitled to notice of the meeting. The list shall be arranged by class
or series of shares and shall show the address of and number of shares held by
each shareholder. The corporation shall make the shareholders' list available
for inspection by any shareholder, beginning 2 business days after notice of
the meeting is given for which the list was prepared and continuing to the date
of the meeting, at the corporation's principal office or at a place identified
in the meeting notice in the city where the meeting will be held. The
corporation shall make the shareholders' list available at the meeting, and any
shareholder or his or her agent or attorney may inspect the list at any time
during the meeting or any adjournment. Refusal or failure to prepare or make
available the shareholders' list does not affect the validity of action taken
at the meeting.
Section 7. QUORUM; POSTPONEMENTS; ADJOURNMENTS.
(a) Except as otherwise provided by law or by the Restated Articles of
Incorporation, when specified business is to be voted upon by one or more
classes or series of shares entitled to vote as a separate voting group, the
holders of shares representing a majority of the votes entitled to be cast on
the matter by the voting group shall constitute a quorum of that voting group
for the transaction of such business. Once a share is represented for any
purpose at a meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered present, for
purposes of determining whether a quorum exists, for the remainder of the
meeting and for any adjournment of that meeting unless a new Meeting Record
Date is or must be set for that adjourned meeting.
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(b) The Board of Directors acting by resolution may postpone and
reschedule any previously scheduled Annual Meeting or Special Meeting;
provided, however, that a Demand Special Meeting shall not be postponed beyond
the 100th day following the Delivery Date. Any Annual Meeting or Special
Meeting may be adjourned from time to time, whether or not there is a quorum,
(i) at any time, upon a resolution of shareholders if the votes cast in favor
of such resolution by the holders of shares of each voting group entitled to
vote on any matter theretofore properly brought before the meeting exceed the
number of votes cast against such resolution by the holders of shares of each
such voting group or (ii) at any time prior to the transaction of any business
at such meeting, by the Chairman of the Board or pursuant to resolution of the
Board of Directors. No notice of the time and place of adjourned meetings need
be given except as required by law. At any adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified.
Section 8. PROXIES. At all the meetings of shareholders, a shareholder
entitled to vote may vote his or her shares in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for the shareholder by
signing an appointment form, either personally or by his or her
attorney-in-fact. An appointment of a proxy is effective when received by the
secretary or other officer or agent of the corporation authorized to tabulate
votes. An appointment is valid for 11 months from the date of its signing
unless a different period is expressly provided in the appointment form.
Section 9. VOTING OF SHARES. Except as otherwise provided by law or by
the Articles of Incorporation, holders of Common Stock and holders of Preferred
Stock shall be entitled to one vote for each share of each such class held on
all questions on which shareholders are entitled to vote, and the holders of
Common Stock and the holders of Preferred Stock shall vote together as one
class.
Section 10. ACCEPTANCE OF INSTRUMENTS SHOWING SHAREHOLDER ACTION. If the
name signed on a vote, waiver or proxy appointment does not correspond to the
name of its shareholder, the corporation may accept the vote, waiver or proxy
appointment and give it effect as the act of the shareholder if any of the
following apply:
(a) The shareholder is an entity and the name signed purports to be that
of an officer or agent of the entity.
(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the shareholder
and, if the corporation requests, evidence of fiduciary status acceptable to
the corporation is presented with respect to the vote, waiver or proxy
appointment.
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(c) The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of
this status acceptable to the corporation is presented with respect to the
vote, waiver or proxy appointment.
(d) The name signed purports to be that of a pledgee, beneficial owner, or
attorney-in-fact of the shareholder and, if the corporation requests, evidence
acceptable to the corporation of the signatory's authority to sign for the
shareholder is presented with respect to the vote, waiver or proxy appointment.
(e) Two or more persons are the shareholder as co-tenants or fiduciaries
and the name signed purports to be the name of at least one of the co-owners
and the person signing appears to be acting on behalf of all co-owners.
Section 11. WAIVER OF NOTICE BY SHAREHOLDERS. A shareholder may waive any
notice whatever required to be given to any shareholder of the corporation
under the Articles of Incorporation or By-Laws or any provision of law, by a
waiver thereof in writing, signed at any time, whether before or after the date
and time stated in the notice, by the shareholder entitled to such notice;
provided that such waiver shall contain the same information as would have been
required to be included in such notice under any applicable provisions of
Chapter 180, Wisconsin Statutes, except the time and place of meeting, and
shall be delivered to the corporation for inclusion in the corporate records.
A shareholder's attendance at a meeting, in person or by proxy, waives
objection to the following: (a) lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting or promptly
upon arrival objects to holding the meeting or transacting business at the
meeting; and (b) consideration of a particular matter at the meeting that is
not within the purpose described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.
Section 12. VALIDITY OF PROXIES, ETC. The Corporation or its authorized
officers, agents or other representatives may reject a vote, waiver, proxy
appointment, request to fix a Demand Record Date or demand for a Special
Meeting if the Secretary or other duly authorized officer or agent of the
Corporation, acting in good faith, has reasonable basis for doubt about the
validity of the signature or signatures on it, about the signatory's authority
to sign for the shareholder or about any other matter affecting the validity of
such vote, waiver, proxy appointment, request or demand.
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Section 13. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATION OF DIRECTORS.
(a) Annual Meetings of Shareholders.
(i) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to
be considered by the shareholders may be made at an Annual
Meeting (A) pursuant to the Corporation's notice of meeting,
(B) by or at the direction of the Board of Directors or (C)
by any shareholder of the Corporation who is a shareholder
of record at the time of giving of notice provided for in
this By-Law, is entitled to vote at the meeting and complies
with the notice procedures set forth in this Section 13.
(ii) For nominations or other business to be properly
brought before an Annual Meeting by a shareholder pursuant
to clause (C) of paragraph (a)(i) of this Section 13, the
shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be received by the Secretary of
the Corporation at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days
prior to the fourth Tuesday in the month of January;
provided, however, that in the event that the date of the
Annual Meeting is advanced by more than 30 days or delayed
by more than 60 days from the fourth Tuesday in the month of
January, notice by the shareholder to be timely must be so
received not earlier than the 90th day prior to the date of
such Annual Meeting and not later than the close of business
on the later of (x) the 60th day prior to such Annual
Meeting and (y) the 10th day following the day on which
public announcement of the date of such meeting is first
made. Such shareholder's notice shall be signed by the
shareholder of record who intends to make the nomination or
introduce the other business (or his duly authorized proxy
or other representative), shall bear the date of signature
of such shareholder (or proxy or other representative) and
shall set forth: (A) the name and address, as they appear
on the Corporation's books, of such shareholder and the
beneficial owner or owners, if any, on whose behalf the
nomination or proposal is made; (B) the class and number of
shares of the Corporation which are beneficially owned by
such shareholder or beneficial owner or owners; (C) a
representation that such shareholder is a holder of record
of shares of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the
meeting to make
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the nomination or introduce the other business specified in
the notice; (D) in the case of any proposed nomination for
election or reelection as a director, (I) the name and
residence address of the person or persons to be nominated,
(II) a description of all arrangements or understandings
between such shareholder or beneficial owner or owners and
each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination is to be
made by such shareholder, (III) such other information
regarding each nominee proposed by such shareholder as would
be required to be disclosed in solicitations of proxies for
elections of directors, or would be otherwise required to be
disclosed, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including any information that would be required to
be included in a proxy statement filed pursuant to
Regulation 14A had the nominee been nominated by the Board
of Directors and (IV) the written consent of each nominee to
be named in a proxy statement and to serve as a director of
the Corporation if so elected; and (E) in the case of any
other business that such shareholder proposes to bring
before the meeting, (I) a brief description of the business
desired to be brought before the meeting and, if such
business includes a proposal to amend the By-Laws of the
Corporation, the language of the proposed amendment, (II)
such shareholder's and beneficial owner's or owners' reasons
for conducting such business at the meeting and (III) any
material interest in such business of such shareholder and
beneficial owner or owners.
(iii) Notwithstanding anything in the second sentence
of paragraph (a)(ii) of this Section 13 to the contrary, in
the event that the number of directors to be elected to the
Board of Directors of the Corporation is increased and there
is no public announcement naming all of the nominees for
Director or specifying the size of the increased Board of
Directors made by the Corporation at least 70 days prior to
the fourth Tuesday in the month of January, a shareholder's
notice required by this Section 13 shall also be considered
timely, but only with respect to nominees for any new
positions created by such increase, if it shall be received
by the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th
day following the day on which such public announcement is
first made by the Corporation.
(b) Special Meetings of Shareholders. Only such business shall be
conducted at a Special Meeting as shall have been described in the notice of
meeting sent to shareholders pursuant to Article II, Section 4 of the By-Laws.
Nominations of
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persons for election to the Board of Directors may be made at a Special Meeting
at which directors are to be elected pursuant to such notice of meeting (i) by
or at the direction of the Board of Directors or (ii) by any shareholder of the
Corporation who (A) is a shareholder of record at the time of giving of such
notice of meeting, (B) is entitled to vote at the meeting and (C) complies with
the notice procedures set forth in this Section 13. Any shareholder desiring
to nominate persons for election to the Board of Directors at such a Special
Meeting shall cause a written notice to be received by the Secretary of the
Corporation at the principal executive offices of the Corporation not earlier
than 90 days prior to such Special Meeting and not later than the close of
business on the later of (x) the 60th day prior to such Special Meeting and (y)
the 10th day following the day on which public announcement is first made of
the date of such Special Meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. Such written notice shall be signed
by the shareholder of record who intends to make the nomination (or his duly
authorized proxy or other representative), shall bear the date of signature of
such shareholder (or proxy or other representative) and shall set forth: (A)
the name and address, as they appear on the Corporation's books, of such
shareholder and the beneficial owner or owners, if any, on whose behalf the
nomination is made; (B) the class and number of shares of the Corporation which
are beneficially owned by such shareholder or beneficial owner or owners; (C) a
representation that such shareholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to make the nomination specified in the notice; (D) the
name and residence address of the person or persons to be nominated, (E) a
description of all arrangements or understandings between such shareholder or
beneficial owner or owners and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination is to be made
by such shareholder, (F) such other information regarding each nominee proposed
by such shareholder as would be required to be disclosed in solicitations of
proxies for elections of directors, or would be otherwise required to be
disclosed, in each case pursuant to Regulation 14A under the Exchange Act,
including any information that would be required to be included in a proxy
statement filed pursuant to Regulation 14A had the nominee been nominated by
the Board of Directors and (G) the written consent of each nominee to be named
in a proxy statement and to serve as a director of the Corporation if so
elected.
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(c) General.
(i) Only persons who are nominated in accordance with
the procedures set forth in this Section 13 shall be
eligible to serve as directors. Only such business shall be
conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures
set forth in this Section 13. The chairman of the meeting
shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth
in this Section 13 and, if any proposed nomination or
business is not in compliance with this Section 13, to
declare that such defective proposal shall be disregarded.
(ii) For purposes of this Section 13, "public
announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(iii) Notwithstanding the foregoing provisions of this
Section 13, a shareholder shall also comply with all
applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set
forth in this Section 13. Nothing in this Section 13 shall
be deemed to limit the Corporation's obligation to include
shareholder proposals in its proxy statement if such
inclusion is required by Rule 14a-8 under the Exchange Act.
Section 14. CONDUCT OF MEETING. The Chairman of the Board of Directors,
and in his absence (or if no person then holds such office), the President, and
in his absence, any officer or director designated by the President, and in his
absence, a Vice President in the order provided under Section 6 of Article IV
of the By-Laws, and in their absence, any person chosen by the shareholders
present shall call any Annual Meeting or Special Meeting to order and shall act
as chairman of the meeting, and the Secretary of the Corporation shall act as
secretary of all meetings of the shareholders, but, in the absence of the
Secretary, the presiding officer may appoint any other person to act as
secretary of the meeting.
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ARTICLE III
BOARD OF DIRECTORS
Section 1. NUMBER AND TENURE QUALIFICATIONS. All corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
corporation managed under the direction of a Board of thirteen directors
divided into three classes, to consist of four members in two classes, and five
members in one class, and the term of office of one class shall expire at each
annual meeting. At each annual meeting, the number of directors equal to the
number of the class whose term expires at the time of such meeting shall be
elected to hold office until the third succeeding annual meeting. Each
director shall hold office for the term for which he is elected and until his
death or until he shall resign or shall have been removed from office. Any
director may be removed from office by shareholders prior to the expiration of
his or her term, but only (i) at a special meeting called for the purpose of
removing the director, (ii) by the affirmative vote of the number of
outstanding shares set forth in the Restated Articles of Incorporation and
(iii) for cause as hereinafter defined; provided, however, that, if the Board
of Directors, by resolution adopted by the Requisite Vote (as hereinafter
defined), shall have recommended removal of a director, then the shareholders
may remove such director without cause by the vote referred to above. As used
herein, "cause" shall exist only if the director whose removal is proposed has
been convicted of a felony by a court of competent jurisdiction, where such
conviction is no longer subject to direct appeal, or has been adjudged liable
for actions or omissions in the performance of his or her duty to the
Corporation in a matter which has a materially adverse effect on the business
of the Corporation, where such adjudication is no longer subject to appeal. As
used herein, the term "Requisite Vote" shall mean the affirmative vote of at
least two-thirds of the directors then in office plus one director. A director
may resign at any time by delivering written notice to the chairperson of the
Board of Directors or to the corporation. A resignation is effective when the
notice is delivered unless the notice specifies a later effective date. Any
action by the Board of Directors, other than pursuant to a Requisite Vote, or
shareholders eliminating the requirement to establish cause for the removal of
a director shall not operate to eliminate such requirement with respect to any
director incumbent at the time of such action. The Board of Directors, at the
regular meeting thereof held immediately after the annual meeting of
shareholders, may elect one of its members to act as its Chairman until his
successor is elected or his prior death, resignation or removal; and such
Chairman shall, when present, preside at all meetings of the Board of Directors
and perform all such other duties as may be prescribed by the Board from time
to time.
Section 2. REGULAR MEETINGS. A regular meeting of the Board of Directors
of the Corporation shall be held without notice other than this By-Law
immediately after, and at the same place as the annual meeting of the
shareholders and each adjourned session thereof. The Board of Directors may
provide, by
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resolution, the time and place either within or without the State of Wisconsin
for the holding of additional regular meetings without notice other than such
resolution.
Section 3. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, Chief
Executive Officer, Secretary, or any two directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the time
and place, either within or without the State of Wisconsin, for the holding of
any special meeting of the Board of Directors called by them.
Section 4. NOTICE. Notice of any special meeting shall be given at least
six hours previously thereto orally or in writing to each director at his
business address; provided that if notice is given by mail or private carrier
only, it shall be given at least forty-eight hours prior to such meeting.
Whenever any notice whatever is required to be given to any director of the
corporation under the Articles of Incorporation or By-Laws or any provision of
law, a waiver thereof in writing, signed at any time, whether before or after
the time of the meeting, by the director entitled to such notice and retained
by the corporation, shall be deemed equivalent to the giving of such notice.
The attendance of a director at or participation in a meeting shall constitute
a waiver of notice of such meeting, unless the director at the beginning of the
meeting or promptly upon his or her arrival objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need
be specified in the notice or waiver of notice of such meeting.
Section 5. QUORUM. Except as otherwise provided by law or by the Articles
of Incorporation or these By-Laws a majority of the number of directors fixed
by Section 1 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board of Directors. Notwithstanding the
foregoing, if less than such majority is present at a meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice other than by announcement at the meeting if the adjournment shall be to
the following day, but if the meeting shall be adjourned to a date later than
the following day, notice of such adjourned meeting shall be duly given to each
director not less than six hours before the time set for such adjourned
meeting; provided that if notice is given by mail or private carrier only, it
shall be given not less than forty-eight hours before the time set for such
adjourned meeting.
Section 6. MANNER OF ACTING. If a quorum is present when a vote is taken,
the affirmative vote of a majority of directors present shall be the act of the
Board of Directors, unless the act of a greater number is required by law or by
the Articles of Incorporation or these By-Laws.
Section 7. VACANCIES. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled by
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any of the following: (i) the shareholders, (ii) the Board of Directors or
(iii) if the directors remaining in office constitute fewer than a quorum of
the Board, the directors, by the affirmative vote of a majority of all
directors remaining in office; provided, however, that if the vacant office was
held by a director elected by a voting group of shareholders, only the holders
of shares of that voting group may vote to fill the vacancy if it is filled by
the shareholders, and only the remaining directors elected by that voting group
may vote to fill the vacancy if it is filled by the directors. Any director
elected pursuant to this Section 7 shall serve until the next election of the
class of which such director shall have been chosen and until his or her
successor shall be duly elected and qualified.
Section 8. COMPENSATION. The Board of Directors, irrespective of any
personal interest of any of its members, may establish compensation of all
directors for services to the corporation as directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for pensions, disability or death benefits,
and other benefits or payments, to directors, officers and employees and to
their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the corporation.
Section 9. PRESUMPTION OF ASSENT. A director of the corporation who is
present and is announced as present at a meeting of the Board of Directors or a
committee thereof at which action on any corporate matter is taken assents to
the action taken unless any of the following occurs: (i) the director objects
at the beginning of the meeting or promptly upon his or her arrival to the
holding of the meeting or transacting business at the meeting; (ii) minutes of
the meeting are prepared and the director's dissent from the action taken is
entered in those minutes; or (iii) the director delivers written notice of his
or her dissent or abstention to the presiding officer of the meeting before its
adjournment or to the corporation immediately after adjournment of the meeting.
Such right to dissent or abstain shall not apply to a director who voted in
favor of such action.
Section 10. COMMITTEES. The Board of Directors by resolution approved by
a majority of all the directors in office when the action is taken (if a quorum
of the directors is present and acting) may designate one or more committees,
including an executive committee, each committee to consist of two or more
directors elected by the Board of Directors, which to the extent provided in
said resolution as initially adopted, and as thereafter supplemented or amended
by further resolution adopted by a like vote, shall have and may exercise, when
the Board of Directors is not in session, the authority of the Board of
Directors in the management of the business and affairs of the corporation,
except that a committee may not do any of the following: (i) authorize
distributions; (ii) approve or propose to shareholders action that Chapter 180,
Wisconsin Statutes, requires be approved by shareholders; (iii) fill vacancies
on the Board of Directors or, unless the Board of Directors provides by
resolution that any
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vacancies on a committee shall be filled by the affirmative vote of a majority
of the remaining committee members, on any of its committees; (iv) amend the
corporation's Articles of Incorporation; (v) adopt, amend or repeal by-laws;
(vi) approve a plan of merger not requiring shareholder approval; (vii)
authorize or approve reacquisition of shares, except according to a formula or
method prescribed by the Board of Directors or (viii) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences and limitations of a class or series of
shares, except that the Board of Directors may authorize a committee or a
senior executive officer of the corporation to do so within limits prescribed
by the Board of Directors. Unless otherwise provided by the Board of
Directors, members of a committee shall serve at the pleasure of the Board of
Directors. The Board of Directors may elect one or more of its members as
alternate members of any such committee who may take the place of any absent
member or members at any meeting of such committee, upon request by the Chief
Executive Officer or upon request by the chairman of such meeting. Subject to
any provision of law and these By-Laws, each such committee shall fix its own
rules governing the conduct of its activities and shall make such reports to
the Board of Directors of its activities as the Board of Directors may request.
Section 11. INFORMAL ACTION WITHOUT MEETING. Any action required or
permitted by the Articles of Incorporation or By-Laws or any provision of law
to be taken by the Board of Directors at a meeting may be taken without a
meeting if the action is taken by all members of the Board, and the action is
evidenced by one or more written consents describing the action taken, signed
by each director and retained by the corporation.
Section 12. TELEPHONIC MEETINGS. Except as herein provided and
notwithstanding any place set forth in the notice of the meeting or these
By-Laws, the Board of Directors (and any committees thereof) may participate in
a regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all participating directors may simultaneously
hear each other during the meeting, including a conference telephone call. If
a meeting is conducted through the use of such means, all participating
directors shall be informed that a meeting is taking place at which official
business may be transacted. Any participant in a meeting by such means shall
be deemed present in person at such meeting. If action is to be taken at any
meeting held by such means on (i) a plan of merger or share exchange; (ii) a
sale, lease, exchange or other disposition of substantial property or assets of
the corporation; (iii) a voluntary dissolution or the revocation of voluntary
dissolution proceedings; or (iv) a filing for bankruptcy, then the identity of
each director participating in such meeting must be verified by the disclosure
of each such director's social security number to the chairman of the meeting
or in such other manner as such chairman deems reasonable under the
circumstances before a vote may be taken on any of the foregoing matters. For
purposes of the preceding clause (ii), the phrase "substantial property or
assets" shall mean property or assets of the corporation having a net book
value on the date of such meeting equal to 10% or more of the net book
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value of all of the consolidated property and assets of the corporation on and
as of the close of the fiscal year last ended prior to the date of such
meeting. Notwithstanding the foregoing, no action may be taken at any meeting
held by such means on any particular matter which the Chairman of the Board (or
chairman of the committee) determines, in his or her discretion, to be
inappropriate under the circumstances for action at a meeting held by such
means, such determination to be made and announced in the notice of such
meeting.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The principal officers of the corporation shall be a
Chairman of the Board of Directors (said office to exist at such times as the
Board of Directors shall deem advisable), a President, one or more Vice
Presidents, a Secretary, and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the Board of Directors or, to
the extent authorized by the Board of Directors or by these By-Laws, by a duly
appointed officer of the Corporation. Any two or more offices may be held by
the same person. The Chairman of the Board, if any, and the President shall be
chosen from among the Board of Directors; the other officers need not be
directors.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
to be elected by the Board of Directors shall be elected annually at the first
meeting of the Board of Directors following the annual meeting of shareholders.
If the election of officers shall not be held at such meeting, such election
shall be held as soon thereafter as conveniently may be. Each officer shall
hold office until his successor shall have been duly elected or until his death
or until he shall resign or shall have been removed in the manner hereinafter
provided.
Section 3. RESIGNATION. An officer may resign at any time by delivering
written notice to the corporation. The resignation is effective when the notice
is delivered, unless the notice specifies a later effective date and the
corporation accepts the later effective date.
Section 4. REMOVAL. The Board of Directors may remove any officer and,
unless restricted by the By-Laws or by the Board of Directors, an officer may
remove any officer or assistant officer appointed by that officer, at any time,
with or without cause and notwithstanding the contract rights, if any, of the
officer removed. The appointment of an officer does not itself create contract
rights.
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Section 5. PRESIDENT. The President shall be the Chief Executive Officer
of the Corporation and, subject to the control of the Board of Directors, shall
in general supervise and control the business and affairs of the corporation.
He shall have authority, subject to such rules as may be prescribed by the
Board of Directors, to appoint such agents and employees of the corporation as
he shall deem necessary, to prescribe their powers, duties, and compensation
and to delegate authority to them. He shall also have authority to appoint one
or more Assistant Secretaries of the Corporation from time to time for limited
purposes, which he shall do by giving the Secretary notice of any such
appointment. Such agents, employees and officers shall hold office at the
discretion of the President. He shall have authority to sign, execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock
certificates, contracts, leases, reports and all other documents or instruments
necessary or proper to be executed in the course of the corporation's regular
business, or which shall be authorized by resolution of the Board of Directors,
and, except as otherwise provided by law or the Board of Directors, he may
authorize any Vice President or other officer or agent of the corporation to
sign, execute and acknowledge such documents or instruments in his place and
stead. In general, he shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Board of Directors
or by the Executive Committee from time to time. In the absence of the
Chairman of the Board, or the event of his death, inability or refusal to act,
the President shall preside at meetings of the shareholders and of the Board of
Directors.
Section 6. THE VICE PRESIDENTS. Any Vice President may sign deeds,
mortgages, stock certificates, contracts and other instruments in the absence
of the President and the execution of any instrument by any Vice President
shall be conclusive evidence of the absence of the President at the time of
execution of such instrument. The Vice Presidents shall perform such duties as
usually devolve upon such office and as may from time to time be assigned to
them by the Board of Directors or by the Executive Committee or by the Chief
Executive Officer.
At the request of the President, or in his absence or disability, the Vice
President designated by the President (or in the absence of such designation,
the Vice President designated by the Board of Directors or Executive Committee
or Chairman of the Board) shall perform the duties of the President, and when
so acting shall have all the powers of and be subject to all the restrictions
upon the President.
Section 7. THE SECRETARY. The Secretary shall: (a) keep as permanent
records any of the following that has been prepared: minutes of the
shareholders' and of the Board of Directors' meetings; records of actions taken
by the shareholders or the Board of Directors without a meeting; and records of
actions taken by a committee of the Board of Directors in place of the Board of
Directors and on behalf of the Corporation; (b) see that all notices are duly
given in accordance with the provisions of these by-laws or as required by law;
(c) be custodian of the corporate records and of the seal of the corporation
and see that the seal of the corporation is affixed to all documents the
execution of which on behalf of the corporation under its seal is duly
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authorized; (d) maintain or cause an authorized agent to maintain a record of
the corporation's shareholders, in a form that permits preparation of a list of
the names and addresses of all shareholders, by class or series of shares and
showing the number and class or series of shares held by each shareholder; (e)
sign with the Chairman or the President, or a Vice President, certificates for
shares of the corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the corporation; and (g) in general perform all duties
incident to the office of Secretary and have such other duties and exercise
such authority as from time to time may be delegated or assigned to him by the
Chief Executive Officer or by the Board of Directors.
Section 8. THE TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall determine.
Subject to the review of and approval by the Chief Financial Officer of all
acts affecting his duties and responsibilities as Treasurer, he shall: (a)
have charge and custody of and be responsible for all funds and securities of
the corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such banks, trust companies or other depositaries as
shall be selected in accordance with the provisions of Article V of these
By-Laws; (b) maintain appropriate accounting records for the Corporation; and
(c) in general perform all of the duties incident to the office of Treasurer
and have such other duties and exercise such other authority as from time to
time may be delegated or assigned to him by the Chief Executive Officer or by
the Board of Directors.
Section 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. There shall be
such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize and as these By-Laws or the Board of
Directors may from time to time authorize a duly appointed officer to appoint.
The Assistant Secretaries may sign with the President or a Vice President
certificates for shares of the corporation the issuance of which shall have
been authorized by a resolution of the Board of Directors. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine. The Assistant Secretaries
and Assistant Treasurers, in general, shall perform such duties and have such
authority as shall from time to time be delegated or assigned to them by the
Secretary or the Treasurer, respectively, or by the Chief Executive Officer or
the Board of Directors.
Section 10. OTHER ASSISTANTS AND ACTING OFFICERS. The Board of Directors
shall have the power to appoint any person to act as assistant to any officer,
or to perform the duties of such officer whenever for any reason it is
impracticable for such officer to act personally, and such assistant or acting
officer so appointed by the Board of Directors shall have the power to perform
all the duties of the office to which
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he is so appointed to be assistant, or as to which he is so appointed to act,
except as such power may be otherwise defined or restricted by the Board of
Directors.
Section 11. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
CONTRACTS LOANS, CHECKS
AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances.
Section 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by or under the authority of a resolution of the Board of Directors.
Such authorization may be general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation, and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as may be selected by or under the
authority of the Board of Directors.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman, the President or
a Vice President and by the Secretary or an Assistant Secretary and shall be
sealed with the
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seal of the corporation or a facsimile thereof. Such signatures upon a
certificate may be facsimiles if the certificate is countersigned by the
transfer agent, or registered by a registrar, other than the corporation itself
or an employee of the corporation. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of its
issue. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost, destroyed, or mutilated certificate a new one may be issued
therefore upon such terms and indemnity to the corporation as the Board of
Directors may prescribe.
Section 2. UNCERTIFIED SHARES. The Board of Directors hereby
authorizes the issuance of any shares of its classes or series without
certificates to the full extent that the Secretary of the corporation
determines that such issuance is allowed by applicable law and rules of
the New York Stock Exchange, any such determination to be conclusively
evidenced by the delivery to the corporation's transfer agent and
registrar by the Secretary of a certificate referring to this bylaw and
providing instructions of the Secretary to the transfer agent and
registrar to issue any such shares without certificates in accordance
with applicable law. In any event, the foregoing authorization does not
affect shares already represented by certificates until the certificates
are surrendered to the corporation.
Section 3. TRANSFER OF SHARES. Transfer of shares of the corporation
shall be made on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the corporation
and on surrender for cancellation of the certificate for such shares if such
shares are represented by certificates. The person in whose name shares stand
on the books of the corporation shall be deemed by the corporation to be the
owner thereof for all purposes.
The Board of Directors may appoint a registrar and/or transfer agent for
any stock of the corporation and may provide that all certificates of stock
issued be countersigned by such registrar and/or transfer agent.
Section 4. STOCK REGULATIONS. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with the statutes of the State of Wisconsin as they may deem expedient
concerning the issue, transfer and registration of certificates representing
shares of the corporation.
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ARTICLE VII
SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the words "JOHNSON CONTROLS,
INC., MILWAUKEE, WIS." around the circumference, and the words, "CORPORATE
SEAL" in the center.
ARTICLE VIII
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. The affirmative vote of
shareholders possessing at least four-fifths of the voting power of the then
outstanding shares of all classes of stock of the Corporation generally
possessing voting rights in elections for directors, considered for this
purpose as one class (subject to the rights of holders of any class or series
of stock having a preference over the Common Stock of the Corporation as to
dividends or upon liquidation), shall be required to amend, alter, change or
repeal Sections 4 and 13 of Article II of these By-Laws; Sections 1 and 7 of
Article III of these By-Laws; Section 2 of Article VIII of these By-Laws; and
this Section, or any provision of any of the foregoing. Subject to the
foregoing and to any other restriction contained in any specific By-Law, these
By-Laws or any provision hereof may be altered, amended or repealed by vote of
the holders of a majority interest of the stock of the corporation present or
represented at a meeting of the shareholders, annual or special (at which a
quorum shall be present), where the proposed action is properly brought before
the meeting.
Section 2. AMENDMENT BY DIRECTORS. A Requisite Vote, as defined in
Section 1 of Article III of these By-Laws, shall be required to amend, alter,
change or repeal Sections 4 and 13 of Article II of these By-Laws; Sections 1
and 7 of Article III of these By-Laws; Section 1 of Article VIII of these
By-Laws; and this Section, or any provision of any of the foregoing. Subject
to the foregoing, to action by the shareholders prohibiting the exercise of
such power generally or in particular instances and to any restriction
contained in any Specific By-Law, the Board of Directors may alter, amend, or
repeal these By-Laws or any provision hereof or may enact additional By-Laws by
a vote of the majority of the whole Board at any meeting of the Board.
By-Laws altered, amended, repealed or enacted by the directors under the
power hereby conferred may be altered or repealed by the shareholders at any
annual meeting or at any special meeting thereof.
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ARTICLE IX
NOTICES
Except as otherwise required by law or these By-Laws, any notice required
to be given by these By-Laws may be given orally or in writing, and notice may
be communicated in person, by telephone, telegraph, teletype, facsimile or
other form of wire or wireless communication, or by mail or private carrier.
Except where these By-Laws require a notice to be delivered to or received by
the recipient of the notice, written notice required to be given by these
By-Laws is effective, if communicated (i) by mail, when deposited in the United
States, if mailed postpaid and correctly addressed, (ii) by private carrier,
when delivered to the carrier, and (iii) by telegram, when the telegram is
delivered to the telegraph company.
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EXHIBIT 10.A
JOHNSON CONTROLS, INC.
1992 Stock Option Plan
(Amended January 24, 1996)
1. ESTABLISHMENT. JOHNSON CONTROLS, INC. (the "Company") hereby
establishes a stock option plan for certain officers and other key
employees, as described herein, which shall be known as the JOHNSON
CONTROLS, INC. 1992 STOCK OPTION PLAN (the "Plan"). It is intended that
certain of the stock options issued pursuant to the Plan may constitute
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code ("Incentive Stock Options") and the remainder of the options
issued pursuant to the Plan shall constitute nonqualified options.
Incentive Stock Options and nonqualified stock options are hereinafter
jointly referred to as "Options." The Committee may also award stock
appreciation rights along with Options issued pursuant to the Plan and,
subject to certain limitations, apart from Options issued pursuant to the
Plan.
2. PURPOSE. The purpose of the Plan is to induce certain officers and
other key employees to remain in the employ of the Company or its
subsidiaries and to encourage such employees to secure or increase on
reasonable terms their stock ownership in the Company. The Board of
Directors of the Company (the "Board of Directors") believes that the
Plan will promote continuity of management and increased incentive and
personal interest in the welfare of the Company by those who are
responsible for shaping and carrying out the long-range plans of the
Company and securing its continued growth and financial success.
3. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan is the date
of its adoption by the Board of Directors, September 23, 1992, subject to
the approval of the Plan by the shareholders of the Company within twelve
months of the effective date. Any and all Options granted prior to such
approval shall be subject to such approval.
4. STOCK SUBJECT TO THE PLAN. Subject to adjustment in accordance with
the provisions of paragraph 19, the total number of shares of the common
stock of the Company ("Common Stock"), available for awards during the
term of this Plan shall not exceed 4,000,000 shares. Shares of Common
Stock to be delivered upon exercise of Options or settlement of stock
appreciation rights under the Plan shall be made available from presently
authorized but unissued Common Stock of the Company or authorized and
issued shares of Common Stock reacquired and held as treasury shares, or
a combination thereof. If any Option or stock appreciation right shall
be canceled, expire or terminate without having been exercised in full,
or to the extent a stock appreciation right is settled in cash, the
shares of Common Stock allocable to the unexercised, canceled, forfeited
portion of such Option or stock appreciation right, or portion of such
stock appreciation right which is settled in cash, shall again be
available for the purpose of the Plan. The surrender of any Options (and
the surrender of any related stock appreciation rights
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granted under paragraph 18) in connection with the receipt of stock
appreciation rights as provided in paragraph 18A shall, as to such
Options, have the same effect under this paragraph 4 as the cancellation
or termination of such Options without having been exercised. If any
stock appreciation rights are granted under the Plan separate and apart
from Options (including any grant in connection with the surrender of
outstanding Options), as provided in paragraph 18A, and shares of Common
Stock may be issuable in connection with such stock appreciation rights,
then the grant of such stock appreciation rights shall be deemed to have
the same effect under this paragraph 4 as the grant of Options; provided,
however, if any such stock appreciation rights shall be canceled, expire
or terminate without having been exercised in full, or to the extent a
stock appreciation right is settled in cash, the shares of Common Stock
allocable to the unexercised, canceled, forfeited portion of such stock
appreciation right, or portion of such stock appreciation right which is
settled in cash, shall again be available for the purpose of the Plan.
5. ADMINISTRATION. (a) The Plan shall be administered by the Compensation
Committee (the "Committee") consisting of not less than three members of
the Board of not less than three members of the Board of Directors
appointed from time to time by the Board of Directors. No member of the
Committee shall be, nor at any time during the preceding one-year period
have been, eligible to receive stock, stock options or stock appreciation
rights of the Company or of its subsidiaries pursuant to the Plan or any
other plan of the Company or its subsidiaries, other than a plan for
directors of the Company who are not officers or employees of the Company
which provides for automatic grants without exercise of discretion by any
member of the Board of Directors, or by any officer or employee of the
Company.
(b) Subject to the express provisions of the Plan, the Committee shall
have authority to establish such rules and regulations as it deems
necessary or advisable for the proper administration of the Plan, and in
its discretion, to determine the individuals (the "Participants") to
whom, and the time or times at which, Options and stock appreciation
rights shall be granted, the type of Options, the Option periods,
limitations on Option exercise, and the number of shares to be subject to
each Option. In making such determinations, the Committee may take into
account the nature of the services rendered by the respective employees,
their present and potential contributions to the success of the Company
or its subsidiaries, and such other factors as the Committee, in its
discretion, shall deem relevant.
(c) Subject to the express provisions of the Plan, the Committee shall
also have complete authority to interpret the Plan, to prescribe, amend,
and rescind rules and regulations relating to it, to determine the terms
and provisions of the respective Option Agreements (which need not be
identical) and to make all other determinations necessary or advisable
for the administration of the Plan. The Committee s determinations on
the matters referred to in this paragraph 5 shall be conclusive and
binding upon all parties.
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(d) Neither the Committee nor any member thereof shall be liable for any
act, omission, interpretation, construction or determination made in
connection with the Plan in good faith, and the members of the Committee
shall be entitled to indemnification and reimbursement by the Company in
respect of any claim, loss, damage or expense (including attorneys fees)
arising therefrom to the full extent permitted by law and under any
directors and officers liability insurance that may be in effect from
time to time.
(e) A majority of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by a majority of the Committee
without a meeting, shall be the acts of the Committee.
6. ELIGIBILITY. Options and stock appreciation rights may be granted to
officers and other key employees of the Company and of any of its present
and future subsidiaries. The maximum number of shares of Common Stock
covered by Options which may be granted to any Participant within any two
consecutive calendar year periods shall not exceed 250,000 shares in the
aggregate. No Option or stock appreciation right shall be granted to any
person who owns, directly or indirectly, shares of stock possessing more
than 10% of the total combined voting power of all classes of stock of
the Company. A director of the Company or of a subsidiary who is not
also an employee of the Company or of a subsidiary will not be eligible
to receive any Option or stock appreciation right hereunder.
7. RIGHTS OF EMPLOYEES. Nothing in this Plan or in any Option or stock
appreciation right shall interfere with or limit in any way the right of
the Company and any of its subsidiaries to terminate any Participant s or
employee s employment at any time, nor confer upon any Participant or
employee any right to continue in the employ of the Company and its
subsidiaries.
8. OPTION AGREEMENTS. All Options and stock appreciation rights granted
under the Plan shall be evidenced by written agreements (an "Option
Agreement") in such form or forms as the Committee shall determine.
9. OPTION PRICE. The per share Option price for Options and for stock
appreciation rights granted under paragraph 18, and the per share grant
price for stock appreciation rights granted under paragraph 18A, as
determined by the Committee, shall be an amount not less than 100% of the
fair market value of the stock on the date such Options or stock
appreciation rights are granted (or, if the Committee so determines, in
the case of any stock appreciation right granted under paragraph 18A upon
the surrender of any outstanding Option, on the date of grant of such
Option). The fair market value of a share of stock on any date shall be
the average of the highest and lowest market prices of sales of the
Common Stock on that date, or on the next preceding trading day if such
date was not a trading day as reported on the New York Stock Exchange or
as otherwise determined by the Committee.
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10. OPTION PERIOD. The term of each Option and stock appreciation right
shall be as determined by the Committee but in no event shall the term of
an Option or stock appreciation right exceed a period of ten (10) years
from the date of its grant. Each Option and stock appreciation right
granted hereunder may granted at any time on or after the effective date
of the Plan, and prior to its termination, provided that no Option or
stock appreciation right may be granted later than ten years after the
date this Plan is adopted. The Committee shall determine whether any
Option or stock appreciation right shall become exercisable in cumulative
or non-cumulative installments or in full at any time. An exercisable
Stock Option or stock appreciation right, or portion thereof, may be
exercised in whole or in part only with respect to whole shares of Common
Stock.
11. MAXIMUM VALUE OF INCENTIVE STOCK OPTIONS. The aggregate fair market
value (as defined in paragraph 9) of the Common Stock for which any
Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year under the Plan or any other plan of
the Company or any subsidiary shall not exceed $100,000. To the extent
the fair market value of the shares of Common Stock attributable to
Incentive Stock Options first exercisable in any calendar year exceeds
$100,000, the excess portion of the Incentive Stock Options shall be
treated as nonqualified options.
12. TRANSFERABILITY OF OPTION OR STOCK APPRECIATION RIGHT. No Option or
stock appreciation right granted hereunder shall be transferable other
than by will or by the laws of descent and distribution, or, in the case
of a nonqualified option, pursuant to a "Qualified Domestic Relations
Order" as defined in Section 414(p) of the Internal Revenue Code, and
such Options and stock appreciation rights may be exercised during the
life of the Participant only by the Participant or, if applicable, by the
alternate payee designated under a Qualified Domestic Relations Order.
13. EXERCISE OF OPTION. The Committee shall prescribe the manner in which
a Participant may exercise an Option which is not inconsistent with the
provisions of this Plan. However, no Option shall be exercisable, in
whole or in part, for a period of at least six months commencing on the
date of grant, except as provided in paragraph 22 in the event of a
Change in Control. An Option may be exercised, subject to limitations on
its exercise contained in the Option Agreement and in this Plan, in full,
at any time, or in part, from time to time, only by (a) written notice of
intent to exercise the Option with respect to a specified number of
shares, and (b) by payment in full to the Company at the time of
exercise, of the Option of the option price of the shares being
purchased. Payment of the Option price may be made (i) in cash, (ii) if
permitted by the applicable Option Agreement, by delivery of shares of
Common Stock equivalent in fair market value (as defined in paragraph 9),
or (iii) if permitted by the applicable Option Agreement, partly in cash
and partly in shares of Common Stock.
14. WITHHOLDING. If permitted by the applicable Option Agreement, a
Participant may be permitted to satisfy the Company s withholding tax
requirements by electing (i) to have the Company withhold shares of
Common Stock of the Company, or (ii) to deliver to the Company shares of
Common Stock of the Company having a fair market value on the date
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<PAGE> 5
income is recognized on the exercise of a nonqualified option equal to
the minimum amount required to be withheld, or such greater amount as may
be requested by the Participant. The election shall be made in writing
and according to such rules and in such form as the Committee shall
determine.
Notwithstanding the foregoing, the election and satisfaction of any
withholding requirement through the withholding of Common Stock or the
tender of shares of Company Stock may be made only at such times as are
permitted, without incurring liabilities, by Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, or such other securities laws, rules or
regulations as may be applicable.
15. [intentionally omitted]
16. [intentionally omitted]
17. TERMINATION OF EMPLOYMENT. (a) In the event a Participant s employment
with the Company or any of its subsidiaries shall be terminated for any
reason, except early retirement or total and permanent disability, all
rights to exercise an Option or stock appreciation right shall terminate
immediately.
(b) If the Participant should die while employed by the Company or any
subsidiary prior to the expiration of the term of the Option or stock
appreciation right, the Option or stock appreciation right may be
exercised by the person to whom it is transferred by will or by the
applicable laws of descent and distribution to the extent it could have
been exercised by the Participant had he lived, by giving notice as
provided in paragraph 13, at any time within twelve months after the date
of death unless such Option or stock appreciation right expires earlier
under the terms of the Option Agreement. For purposes of this paragraph,
the six-month limitation imposed pursuant to paragraph 13 shall not
be applicable.
(c) In the event of termination of employment with the Company due to
early or normal retirement, or due to total and permanent disability
prior to the expiration of the term of an Option or stock appreciation
right, the Option or stock appreciation right may be exercised by the
Participant, to the extent it could have been exercised had the
Participant remained actively employed, at any time within thirty-six
months (except Incentive Stock Options which may be exercised within
three months) after the date of such early or normal retirement or total
permanent disability, as the case may be, unless such Option or stock
appreciation right expires earlier under the terms of the Option
Agreement. For purposes hereof, a Participant's employment shall be
deemed to have terminated due to (a) early or normal retirement if such
Participant is then eligible to receive early or normal retirement
benefits under the provisions of any of the Company's or its subsidiaries
pension plans and (b) total and permanent disability if he is permanently
disabled within the meaning of Section 22(e)(3) of the Internal Revenue
Code, as in effect from time to time.
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<PAGE> 6
For purposes of this Plan: (a) a transfer of an employee from the Company
to a 50% or more owned subsidiary, partnership, joint venture or other
affiliate (whether or not incorporated) or vice versa, or from one
subsidiary, partnership, joint venture or other affiliate to another or
(b) a leave of absence duly authorized in writing by the Company,
provided the employee s right to re-employment is guaranteed either by
statute or by contract, shall not be deemed a termination of employment
under the Plan.
Notwithstanding the foregoing, from and after a Change of
Control, as defined in paragraph 22, Options (other than Incentive Stock
Options granted prior to May 24, 1989) and stock appreciation rights
shall continue to be exercisable for three months after a Participant's
termination of employment.
18. STOCK APPRECIATION RIGHTS. Stock appreciation rights may be granted in
conjunction with all or part of any Option granted under the Plan. Stock
appreciation rights may be exercised by a Participant by surrendering the
related Option or applicable portion thereof. Upon such exercise and
surrender, the Participant shall be entitled to receive the economic
value of such stock appreciation rights determined in the manner
prescribed in subparagraph (b) of the Paragraph 18 and in the form
prescribed in subparagraph (c) of this Paragraph 18. Options which have
been so surrendered, in whole or in part, shall no longer be
exercisable.
Stock appreciation rights shall be subject to such terms and
conditions not inconsistent with other provisions of the Plan as shall be
determined by the Committee, which shall include the following:
(a) Stock appreciation rights shall be exercisable or transferable at
such time or times and only to the extent that the Option to which they
relate is exercisable or transferable.
(b) Upon the exercise of stock appreciation rights, a Participant shall
be entitled to receive the economic value thereof, which value shall be
equal to the excess of the fair market value of one share of Common Stock
of the Company on the date of exercise over the Option price per
share, multiplied by the number of shares in respect of which the stock
appreciation rights shall have been exercised.
(c) The Committee shall have sole discretion either (i) to determine the
form in which payment of such economic value will be made (i.e. cash,
stock, or any combination thereof) or (ii) to consent to or disapprove
the election of the Participant to receive cash in full or partial
payment of such economic value.
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<PAGE> 7
(d) The exercise of stock appreciation rights by a Participant pursuant
to the Plan may be made only at such times as are permitted by Rule 16b-3
of the Securities Exchange Act of 1934, without liabilities, or such
other securities laws or rules as may be applicable.
(e) Stock appreciation rights shall be exercisable only when the fair
market value of the Common Stock subject to the Option to which the stock
appreciation rights relate exceeds the exercise price of such Option.
18A. OTHER STOCK APPRECIATION RIGHTS. Stock appreciation rights may also be
granted separate from any Option granted under the Plan to any
Participant who at the time of grant is not then an officer of the
Company for purposes of Section 16 of the Securities Exchange Act of
1934, as amended (a "Section 16 Officer"). The Committee may also grant
stock appreciation rights under this paragraph 18A to any person who is
not then a Section 16 Officer in connection with the surrender of any
outstanding Option granted under the Plan prior to September 22, 1993
(and the surrender of any related stock appreciation rights granted under
paragraph 18). Such stock appreciation rights may be exercised by a
Participant by written notice of intent to exercise the stock
appreciation rights delivered to the Committee, which notice shall state
the number of shares of stock in respect of which the stock appreciation
rights are being exercised. Upon such exercise, the Participant shall be
entitled to receive the economic value of such stock appreciation rights
determined in the manner described in subparagraph (b) of this paragraph
18A and in the form prescribed in subparagraph (c) of this paragraph 18A.
Stock appreciation rights shall be subject to terms and conditions not
inconsistent with other provisions of the Plan as shall be determined by
the Committee, which shall include the following:
(a) Stock appreciation rights granted in connection with the surrender of
an Option shall be exercisable or transferable at such time or times and
only to the extent that the Option to which they related was exercisable
or transferable. The Committee shall have complete authority to
determine the terms and conditions applicable to other stock appreciation
rights, including the periods applicable to such rights, limitations on
exercise and the number of shares of stock in respect to which such stock
appreciation rights are exercisable.
(b) Upon the exercise of stock appreciation rights, a Participant shall
be entitled to receive the economic value thereof, which value shall be
equal to the excess of the fair market value of one share of Common Stock
of the Company on the date of exercise over the grant price per share,
multiplied by the number of shares in respect of which the stock
appreciation rights shall have been exercised. Stock appreciation rights
which have been so exercised shall no longer be exercisable in respect of
such number of shares.
(c) The Committee shall have the sole discretion either (i) to determine
the form in which payment of such economic value will be made (i.e.,
cash, stock, or any combination thereof) or (ii) to consent to or
disapprove the election of the Participant to receive cash in
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<PAGE> 8
full or partial payment of such economic value.
(d) The exercise of stock appreciation rights by a Participant pursuant
to the Plan may be made only at such times as are permitted by Rule 16b-3
of the Securities Exchange Act of 1934, without liabilities, or such
other securities laws or rules as may be applicable.
(e) Stock appreciation rights shall be exercisable only when the fair
market value of the Common Stock to which the stock appreciation rights
relate exceeds the grant price of such stock appreciation rights.
19. ADJUSTMENT PROVISIONS. In the event of any change in the shares of the
Common Stock of the Company by reason of a declaration of a stock
dividend (other than a stock dividend declared in lieu of an ordinary
cash dividend), spin-off, merger, consolidation recapitalization, or
split-up, combination or exchange of shares, or otherwise, the aggregate
number and class of shares available under this Plan, the number and
class of shares subject to each outstanding Option and stock appreciation
right, the option price for shares subject to each outstanding Option,
and the option price or grant price and economic value of any stock
appreciation rights shall be appropriately adjusted by the Committee,
whose determination shall be conclusive.
20. TERMINATION AND AMENDMENT OF PLAN. The Plan shall terminate on
September 22, 2002, unless sooner terminated as hereinafter provided.
The Board of Directors may at any time terminate the Plan, or amend the
Plan as it shall deem advisable including (without limiting the
generality of the foregoing) any amendments deemed by the Board of
Directors to be necessary or advisable to assure conformity of the Plan
and any Incentive Stock Options granted thereunder to the requirements of
Section 422 of the Internal Revenue Code as now or hereafter in effect
and to assure conformity with any requirements of other state and federal
laws or regulations now or hereafter in effect; provided, however, that
the Board of Directors may not, without further approval by the
shareholders of the Company, make any modifications which, by applicable
law, require such approval. No termination or amendment of the Plan may,
without the consent of the Participant to whom any Option or stock
appreciation rights shall have been granted, adversely affect the rights
of such Participant under such Option or stock appreciation rights. The
Board of Directors may also, in its discretion, permit any Option or
stock appreciation right to be exercised prior to the earliest date fixed
for exercise thereof under the Option Agreement.
21. RIGHTS OF A SHAREHOLDER. A Participant shall have no rights as a
shareholder with respect to shares covered by his or her Option until the
date of issuance of the stock certificate to the participant and only
after such shares are fully paid or with respect to stock appreciation
rights. No adjustment will be made for dividends or other rights for
which the record date is prior to the date such stock is issued.
22. CHANGE OF CONTROL. Notwithstanding the foregoing, upon Change of
Control, all previously granted Options and stock appreciation rights
shall immediately become
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<PAGE> 9
exercisable to the full extent of the original grant. For purposes of
this Plan, a "Change of Control" means any of the following events:
(i) the acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended from time to time) (the
"Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (A) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Company Voting Securities"), provided,
however, that any acquisition by (x) the Company of any of its
subsidiaries, or any employee benefit plan (or related trust) sponsored
or maintained by the Company or any of its subsidiaries or (y) any
corporation with respect to which, following such acquisition, more than
60% of respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Company Voting Securities immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior
to such acquisition of the Outstanding Company Common Stock and Company
Voting Securities, as the case may be, shall not constitute a change in
control of the Company; or (ii) individuals who, as of May 24, 1989,
constitute the Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board,
provided that any individual becoming a director subsequent to May 24,
1989, whose election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act); or (iii) approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination"), in
each case, with respect to which all or substantially all of the of the
individuals and entities who were the respective beneficial owners of the
Outstanding Company Common Stock and Company Voting Securities
immediately prior to such Business Combination do not, following such
Business Combination, beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of
the corporations resulting from such Business Combination in
substantially the same proportion as their ownership immediately prior to
such Business Combination or the Outstanding Company Common Stock and
Company Voting Securities, as the case may be; or (iv) (A) a complete
liquidation or dissolution of the company or a (B) sale or other
disposition of all or substantially all of the assets of the Company
other than to a
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<PAGE> 10
corporation with respect to which, following such sale or disposition,
more than 60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors is
then owned beneficially, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Company Voting
Securities immediately prior to such sale or disposition in substantially
the same proportion as their ownership of the Outstanding Company Common
Stock and Company Voting Securities, as the case may be, immediately
prior to such sale or disposition.
23. LSARs. Notwithstanding the foregoing, during the sixty-day period from
and after a Change in Control of the Company, each optionee shall have
the right (the "LSAR") with respect to any Option [other than (x) an
Incentive Stock Option granted prior to May 24, 1989 and (y) an Option
granted to an officer or director of the Company (within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended from time
to time) unless such Option was granted more than six months prior to the
Change of Control of the Company], in lieu of the payment of the full
Option price for the shares of Common Stock ("Shares") subject to such
Option, to elect (within such sixty-day period) to surrender all or a
part of the Option to the Company and to receive in lieu thereof cash in
the amount by which the fair market value per Share on the date of such
election shall exceed the option price per Share under the Option
multiplied by the number of Shares granted under the Option as to which a
LSAR granted hereunder shall have been exercised. As used in this
paragraph 23, the fair market value of a Share on the date of exercise
shall mean with respect to an election by an optionee to receive cash in
respect of a Stock Option, the higher of (x) the highest reported sales
price, regular way, of a Share on the Composite Tape for New York Stock
Exchange Listed Stocks (the "Composite Tape") during the sixty-day period
prior to the date of the Change in Control of the Company and (y) if the
Change in Control of the Company is the result of a transaction or a
series of transactions described in paragraphs (i) or (ii) of the
definition of Change in Control of the Company set forth in paragraph 22,
the highest price per Share paid in such transaction or series of
transactions.
24. GOVERNING LAW. The Plan, all awards hereunder, and all determinations
made and actions taken pursuant to the Plan shall be governed by the laws
of the State of Wisconsin and construed in accordance therewith, to the
extent not otherwise governed by the laws of the United States.
25. UNFUNDED PLAN. This Plan shall be unfunded. No person shall have any
rights greater than those of a general creditor of the Company.
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<PAGE> 11
FURTHER INFORMATION
This prospectus contains certain information concerning the Company, its Common
Stock, the Rights and the 1992 Plan, but it does not contain all information
set forth in the Registration Statement and exhibits thereto filed with the
Securities and Exchange Commission (the "SEC") in Washington, D.C., under the
Securities Act of 1933, as amended. The Company will provide without charge,
upon written or oral request by any person to whom this Prospectus is
delivered, copies of the documents incorporated by reference in Item 3 of Part
II of the Registration Statement. Such documents are hereby incorporated by
reference into this Prospectus. The Company will also provide without charge,
upon written or oral request of any person to whom this Prospectus is
delivered, copies of all other documents required to be delivered pursuant to
SEC Rule 428(b). Any such request should be directed to John P. Kennedy,
Secretary, Johnson Controls, Inc., 5757 North Green Bay Avenue, P.O. Box 591,
Milwaukee, Wisconsin 53201 (telephone: 414/228-1200).
THE COMPANY
The Company is a Wisconsin corporation with principal executive offices at 5757
North Green Bay Avenue, P.O. Box 591, Milwaukee, Wisconsin 53201. The
Company's telephone number is 414/228-1200. The shares offered hereby are
shares of the Company's authorized Common Stock with attached Rights.
THE 1992 PLAN
GENERAL
The 1992 Plan was approved by the Company's Board of Directors on September 23,
1992, and was amended by the Board of Directors on January 27, 1993, and
September 22, 1993. The 1992 Plan was approved and ratified by the Company's
shareholders on January 27, 1993, and amended by the shareholders on January
24, 1996.
The 1992 Plan authorized the grant of options which are intended to be
Incentive Stock Options ("ISOs") as defined in Section 422 of the Internal
Revenue Code, as well as Nonqualified Stock Options ("NSOs"). It also provides
that Stock Appreciation Rights ("SARs") may be granted either in conjunction
with all or any part of an option granted under the 1992 Plan, or, provided the
recipient is not an officer of the Company subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), separate from
options subject to grant under the 1992 Plan. SARs granted in conjunction with
options are exercisable at the related option price at such time or times and
only to the extent that the option to which they relate is exercisable. SARs
granted separate from options are exercisable at the grant price, subject to
terms and conditions not inconsistent with the Plan as determined by the
Committee. SARs entitle the holders thereof to receive an amount equal to the
excess of the fair market value of the Common Stock and Rights on the date of
surrender over the option or grant price of the SAR. In the case of SARs
granted in conjunction with options, the holder must surrender the related
option or applicable portion thereof. Options which are surrendered upon
exercise of SARs will no longer be exercisable. The Committee (as defined in
Item 5) has sole discretion to determine the medium of
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<PAGE> 12
payment of the economic value of the SARs and to consent or disapprove the
election by a holder of an option to receive cash in full or partial payment of
such economic value.
The 1992 Plan is not required to be qualified under Section 401(a) of the
Internal Revenue Code and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974 (commonly known as "ERISA").
RIGHTS
Effective as of November 30, 1994, the Board of Directors of Johnson Controls,
Inc., (the "Company") declared a dividend of one common share purchase right (a
"Right") for each outstanding share of common stock, par value $.16-2/3 per
share (the "Common Shares"), of the Company. The dividend is payable on
November 30, 1994 (the "Record Date") to the stockholders of record on that
date. Each Right entitles the registered holder to purchase from the Company
one Common Share of the Company at a price of $175.00 per share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are
set forth in a Rights Agreement (the "Rights Agreement") between the Company
and Firstar Trust Company, as Rights Agent (the "Rights Agent"). Except as
described below, the Rights and the Rights Agreement is substantially similar
to the rights agreement previously in effect between the Company and the Rights
Agent (the "Old Rights Agreement") and the rights previously issued thereunder
(the "Old Rights"). The Old Rights and the Old Rights Agreement expired by
their terms on November 30, 1994.
Until the earlier to occur of (i) 10 days following a public announcement that
a person or group of affiliated or associated persons (an "Acquiring Person")
have acquired beneficial ownership of 20% or more of the outstanding Common
Shares or (ii) 10 business days (or such later date as may be determined by
action of the Board of Directors prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or public consummation of which would result in the beneficial ownership by a
person or group of 20% or more of the outstanding Common Shares (the earlier of
such dates being called the "Distribution Date"), the Rights will be evidenced,
with respect to any of the Common Share certificates outstanding as of the
Record Date, by such Common Share certificate.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with
and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation, will also constitute the transfer
of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
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The Rights are not exercisable until the Distribution Date. The Rights will
expire on November 30, 2004 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Common Shares or other securities
or property issuable, upon exercise of the Rights are subject to adjustment
from time to time to prevent dilution (i) in the event of a stock dividend on,
or a subdivision, combination or reclassification of, the Common Shares, (ii)
upon the grant to holders of the Common Shares of certain rights or warrants to
subscribe for or purchase Common Shares at a price, or securities convertible
into Common Shares with a conversion price, less than the then-current market
price of the Common Shares or (iii) upon the distribution to holders of the
Common Shares of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in Common Shares ) or of subscription rights or warrants (other than
those referred to above).
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right. In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of Common Shares having a
market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior to
the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one Common Share per Right
(subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of a least 1% in such
Purchase Price. No fractional Common Shares will be issued and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Common Shares of the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
Common Shares, the Board of Directors of the Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time on such basis
with such conditions as the Board of Directors in its sole discretion may
establish.
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Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the Company
without the consent of the holders of the Rights, including an amendment to
lower certain thresholds described above to not less than the greater of (i)
the sum of .001% and the largest percentage of the outstanding Common Shares
then known to the Company to be beneficially owned by any person or group of
affiliated or associated persons and (ii) 10%, except that from and after such
time as any person or group of affiliated or associated persons becomes an
Acquiring Person, no such amendment may adversely affect the interests of the
holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of the Company, including, without limitation the right to vote
or to receive dividends.
OTHER RESTRICTIONS
Persons who wish to sell shares of Common Stock and Rights received under the
1992 Plan and who are directors of officers of the Company, or who by stock
ownership or otherwise may be deemed to control the affairs of the Company at
the time of sale, may sell such shares only (1) pursuant to an effective
applicable registration statement under the Securities Act of 1933, as amended,
(2) in compliance with Rule 144 under said Act, or (3) in a transaction
otherwise exempt from registration thereunder and (4) in compliance with state
securities laws. In addition, optionees who are subject to the provisions of
Section 16 under the Securities Exchange Act of 1934, as amended, are subject
to the liability provisions of Section 16(b) on the resale of shares of Common
Stock and Rights received under the 1992 Plan. Section 16(b) provides, in
general, that any "profit" arising from the purchase and sale of company Common
Stock within any period of less than six months must be paid to the Company.
Accordingly, such optionees should consult with counsel regarding the
implications under Section 16 of grants and exercises of options and SARs and
sales of the underlying shares.
Certificates for shares of Common Stock and Rights acquired pursuant to the
1992 Plan through exercise of Incentive Stock Options will be held in escrow
for one year by the Company. Such certificates shall be issued in the name of
the optionee exercising the option, but will not be transferable by the
optionee while the shares are held in escrow. The certificates will be held in
escrow so long as a disposition of the shares of Common Stock and Rights
represented by the certificates would give rise to ordinary income
considerations or possible withholding liability of the Company for federal,
state and local income or other taxes by virtue of such a disposition.
However, the certificates may be released from escrow if the optionee makes
arrangements, satisfactory to the Company in its sole discretion, to satisfy
any reporting or withholding liability the Company may have for such ordinary
income or taxes.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of significant federal income tax consequences of
Incentive Stock Options, Nonqualified Stock Options and Stock Appreciation
Rights. The following discussion is
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not a complete discussion of all the federal income tax aspects of the 1992
Plan. Future changes in the laws and regulations may affect the tax
consequences described herein. No discussion of state income tax treatment has
been included. The optionee should consult with his or her own tax advisor
with respect to the tax consequences of participation in the 1992 Plan.
INCENTIVE STOCK OPTIONS
Options granted under the 1992 Plan which constitute Incentive Stock Options
("ISOs") will, in general, be subject to the following federal income tax
treatment:
i) The grant of an ISO will give rise to no federal income tax
consequences to either the Company or the optionee.
ii) An optionee's exercise of an ISO will result in no federal income tax
consequences to the Company.
iii) An optionee's exercise of an ISO will not result in ordinary federal
taxable income to the optionee, but may result in the imposition of or an
increase in Alternative Minimum Tax (see section entitled "Incentive Stock
Options and the Alternative Minimum Tax"). If shares acquired upon exercise of
an ISO are not disposed of within the same taxable year of the ISO exercise,
the excess of the Fair Market Value ("FMV") of the shares at the time the ISO
is exercised over the option price is included in the optionee's computation of
Alternative Minimum Taxable Income.
iv) If shares acquired upon the exercise of an ISO are disposed of within
two years of the date of the option grant, or within one year of the date of
the option exercise, the optionee will realize ordinary federal taxable income
at the time of the disposition to the extent that the FMV of the shares at the
time of exercise exceeds the option price, but not in an amount greater than
the excess, if any, of the amount realized on the disposition over the option
price.
Short-term or long-term capital gain will be realized by the optionee at
the time of such a disposition to the extent that the amount of proceeds from
the sale exceeds the FMV at the time of the exercise of the ISO.
Short-term or long-term capital loss will be realized by the optionee at
the time of such a disposition to the extent that the option price exceeds the
amount of proceeds from the sale. If the option shares were subject to a
Disqualifying Disposition and the FMV was added to the optionee's ordinary
income in the one year following date of exercise and the proceeds from the
sale are less than the FMV, a short- or long-term capital loss will be
realized.
If a disposition is made as described in this section, the Company will be
entitled to a federal income tax deduction in the taxable year in which the
disposition is made in an amount equal to the amount of ordinary federal
taxable income realized by the optionee.
v) If shares acquired upon the exercise of an ISO are disposed of after
the later of two years from the date of the option grant or one year from the
date of the option exercise, the optionee
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will realize long-term capital gain or loss in an amount equal to the
difference between the amount realized by the optionee on the disposition and
the optionee's federal income tax basis in the shares, usually the option
price. In such event, the Company will not be entitled to any federal income
tax deduction with respect to the ISOs.
NONQUALIFIED STOCK OPTIONS
Options granted under the Stock Option Plan which do not qualify as ISOs
("Nonqualified Stock Options") will, in general, be subject to the following
federal income tax treatment:
i) The grant of a Nonqualified Stock Option ("NSO") will give rise to no
federal income tax consequences to either the Company or the optionee.
ii) An exercise of an NSO will generally result in ordinary federal
taxable income to the optionee in the amount equal to the excess of the FMV of
the shares at the time of exercise over the option price. A deduction from
federal taxable income will be allowed to the Company in an amount equal to the
amount of ordinary income recognized by the optionee, provided the Company
deducts and withholds all appropriate federal withholding tax.
iii) Upon a subsequent disposition of shares, an optionee will recognize a
short-term or long-term capital gain (or loss) equal to the difference between
the amount received and the tax basis of the shares, usually FMV at the time of
exercise.
STOCK APPRECIATION RIGHTS
The grant of Stock Appreciation Rights ("SARs") or Limited Stock Appreciation
Rights ("LSARs") will give rise to no federal income tax consequences to either
the Company or the Optionee. Upon exercise of SARs or LSARs, an optionee will
recognize ordinary income computed as the difference between the fair market
value of the Johnson Controls common stock on the date of exercise and the
option price paid for SARs or LSARs. The fair market value is calculated by
using the average of the high and low prices for the Johnson Controls stock on
the New York Stock Exchange on the date of exercise. The applicable taxes due
on the exercise will be withheld from the amount paid to the optionee. The
Company will receive a federal income tax deduction in an amount equal to the
income realized by the optionee.
U.S. optionees will have the income generated from the exercise and applicable
taxes paid included on their W-2.
For foreign nationals exercising SARs, the Payroll Department at the optionee's
place of work will be notified to add the income generated from the exercise to
the next salary check due the employee. Applicable taxes will be withheld.
CERTAIN MODIFICATIONS
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It should be noted that in certain circumstances changes in the terms of an
Incentive Stock Option in order to grant additional benefits to an optionee
could result in disqualification of the option for ISO tax treatment and make
the nonqualified stock option rules applicable.
EXERCISE OF STOCK OPTION WITH COMMON STOCK
Shares of the Company's common stock owned by the optionee are used as payment
for the new option shares. The shares being exchanged are valued at the
average of the high and low prices of the Johnson Controls stock on the New
York Stock Exchange on the date of exercise. If the entire cost of the
exercise price is not covered by the shares presented, the additional amount is
to be paid by check. When enough shares are presented for the exchange, there
is a small amount due for the difference between the value of the common stock
and the option cost. This amounts to less than the cost of one share.
INCENTIVE STOCK OPTIONS EXERCISED WITH COMMON STOCK
There are no regular income tax consequences when paying for the cost of the
option through the exchange (also called a "swap") of shares if the shares used
in the swap are not ISO shares acquired within the past twelve months. The
spread on the exercise is an item of tax preference and must be considered for
Alternative Minimum Tax purposes (see section entitled "Incentive Stock Options
and the Alternative Minimum Tax").
There is a regular income tax liability at the time ISO shares are sold.
Ordinary income treatment applies if the stock is sold within one year of the
date of exercise. If the stock is sold after the one-year period, the profit
is treated as a capital gain.
Except as discussed below, the exercise of an option by using previously owned
Common Stock to pay the exercise price of the option will not result in
immediate taxation of any previously unrealized appreciation in the value of
the Common Stock surrendered. The aggregate cost basis in the shares of Common
Stock acquired upon exercise of an ISO with Common Stock will be the same as it
was in the Common Stock used to pay the exercise price of the option. With
respect to the shares of newly acquired Common Stock equal in number to the
shares of Common Stock used to pay the exercise price of the option, the
optionee's basis will be the same as it was in the Common Stock used to pay the
exercise price of the option and the optionee's basis in any additional shares
of the newly acquired Common Stock will be zero. The period of time during
which the previously owned Common Stock was held will be included in computing
the capital gain holding period for the number of shares of new Common Stock
equal to the number of shares used to pay the exercise price. The holding
period of the excess newly acquired Common Stock begins on the date the option
is exercised. If any shares of Common Stock acquired upon exercise of an ISO
by using previously owned Common Stock to pay the exercise price of the option
are disposed of in a "Disqualifying Disposition," the shares of newly acquired
Common Stock having zero basis will be deemed to have been disposed of first.
If a person exercises an ISO by delivery of shares previously acquired by the
optionee under another incentive stock option or certain other types of
employee plans; and, if the required
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holding period for the surrendered shares has not been satisfied, the delivery
will constitute a "Disqualifying Disposition" of the surrendered shares. The
result will be recognition of ordinary income by the optionee in an amount
equal to the difference between the option price paid to acquire the
surrendered shares and their FMV at the time the previous option was exercised.
If the previous option was exercised by the payment of the option price in
cash, the basis of the number of shares of new Common Stock equal to the number
of shares used to pay the exercise price of the option will be equal to the FMV
of the surrendered shares of Common Stock at the time the previous option was
exercised and such shares will have a carryover holding period. If the
previous option was exercised by payment of the option price with previously
acquired shares of Common Stock, the number of new shares equal to the number
of surrendered shares which were deemed to have a zero basis under the rules
discussed above will have a basis equal to the amount of ordinary income
recognized (by the person because of the Disqualifying Disposition) and a
holding period which includes the holding period of such surrendered shares.
The number of new shares equal to the difference between the number of such
surrendered shares and the total number of surrendered shares will be deemed to
have a carryover basis and holding period. In either case, the basis of the
remainder of the shares (i.e., the number of new shares received in excess of
the number surrendered) will be zero and their holding period will begin on the
date the second option is exercised.
NONQUALIFIED STOCK OPTIONS EXERCISED WITH COMMON STOCK
When a Nonqualified Stock Option ("NSO") is exercised by using Common Stock to
pay for the exercise price, the optionee will take a carryover basis in the
shares of newly acquired Common Stock equal to the basis in the number of
shares of Common Stock used to pay the exercise price of the options. The
exchanged shares' holding period will carry over for this limited number of new
shares of Common Stock. The optionee's basis in any other shares of newly
acquired Common Stock will be their FMV on the date income is recognized and
the holding period for excess shares will begin on this date. If an optionee
exercises an NSO by delivery of shares previously acquired by the optionee
under an ISO, such delivery will not be a Disqualifying Disposition,
notwithstanding that the shares so surrendered are not held for the applicable
holding periods. However, the number of new shares issued equal to the number
of shares delivered shall be treated as stock acquired pursuant to the exercise
of an ISO and will be subject to the rules regarding Disqualifying
Dispositions. Any shares acquired in excess of the shares delivered will be
treated as stock acquired pursuant to the exercise of an NSO.
INCENTIVE STOCK OPTIONS AND THE ALTERNATIVE MINIMUM TAX
The "minimum tax" concept grew out of a concern within government that the tax
laws permitted some individuals with large incomes to pay little or no tax,
while other individuals with far less income were required to pay a higher
percentage of their income in tax. This undermining of the progressive rate
structure and unfair allocation of the tax burden was believed to be caused by
the existence of a favored tax status afforded certain types of income. As a
result, the minimum tax was introduced to prevent taxpayers with substantial
economic income from avoiding tax liability.
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The computation of a taxpayer's alternative minimum tax ("AMT") liability first
requires a determination of his or her alternative minimum taxable income
("AMTI"). AMTI is computed by adjusting the taxpayer's taxable income for
certain items, called "Adjustments," and then adding tax "Preference Items."
The exercise of an Incentive Stock Option ("ISO") may require an Adjustment to
taxable income for purposes of computing the taxpayer's AMTI. As a general
rule, the Adjustment is computed as the difference between the FMV of the
shares at the date of exercise and the option price paid for the shares (the
"Spread"). If the taxpayer disposes of the ISO shares in the same year as the
purchase, the Spread is taxed as regular income and is no longer a Preference
Item for AMT. Taxpayers should complete IRS Form 6251 (Alternative Minimum Tax
- - - Individuals) to determine whether the AMT applies.
The optionee may be entitled to a credit against his or her regular tax in
later years to the extent the individual pays AMT with respect to ISOs. AMT
that results from other Adjustments, however, may not give rise to an income
tax credit. In general, the payment of AMT as a result of ISO exercises
generates a minimum Tax Credit that can be applied dollar for dollar against
future year's regular income tax. The Tax Credit applies against any
subsequent years' regular income tax in excess of the AMT and can be carried
forward indefinitely. For purposes of claiming a Tax Credit, taxpayers should
consult IRS Form 8801 "Credit for Prior Minimum Tax."
The calculation of the AMT, if any, is complicated and the optionee should
discuss it with a personal tax advisor.
WITHHOLDING
If the Company determines that it is required to withhold state or federal
income tax as a result of the exercise of any option or SAR, it may require the
optionee to make arrangements satisfactory to the Company in order to enable
the Company to satisfy such withholding requirements. If such arrangements are
not made, the Company may refuse to issue funds or issue and transfer shares of
Common Stock upon exercise of the options or SARs.
If an optionee delivers shares of Common Stock to satisfy withholding
requirements, the transaction will be treated as if the Company had redeemed
the shares for an amount equal to their FMV. Assuming that the redemption is
treated as a sale of the shares for federal income tax purposes, the difference
(if any) between the FMV on the date income is recognized on the option or SAR
and the tax basis of such shares will be a long-term or a short-term capital
gain or loss, depending on the holding period.
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EXHIBIT 10.D
JOHNSON CONTROLS, INC.
COMMON STOCK PURCHASE PLAN FOR EXECUTIVES
SECTION 1
PURPOSE
The purpose of this Plan is to facilitate the acquisition of Company shares by
those executives subject to the Executive Stock Ownership Policy previously
adopted by the Board of Directors and as amended from time to time.
SECTION 2
EFFECTIVE DATE AND TERMINATION DATE
2.1 The Plan shall be effective as of October 1, 1995. The Plan is subject
to shareholder approval at the Annual Meeting of Shareholders of the
Company on January 24, 1996. If the shareholders do not approve the Plan
at that time, then all amounts contributed by Participants will be
returned to the Participants, without interest or credit for gains or
losses on shares purchased or sold under the Plan.
2.2 The Plan shall terminate as of September 30, 2000.
SECTION 3
DEFINITIONS
3.1 The "Company" is Johnson Controls, Inc., a Wisconsin corporation, and any
successor thereto that adopts the Plan.
3.2 The "Plan" is the Johnson Controls, Inc. Common Stock Purchase Plan for
Executives adopted on September 27, 1995, by the Board of Directors of the
Company.
3.3 The "Board" is the Board of Directors of the Company.
3.4 A "Participant" is an officer or key executive of the Company or a
subsidiary who has elected to participate in the Plan.
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SECTION 4
ELIGIBILITY
All officers and key executives of the Company or a subsidiary subject to the
Company's Executive Stock Ownership Policy may participate in the Plan. All
other employees of the Company who reside in the United States, Canada, or
Puerto Rico and have reached the age of majority in their states may
participate in the Company's Common Stock Purchase Plan without complying with
the requirements of this Plan.
SECTION 5
ADMINISTRATION
5.1 Administration of the Plan, except as otherwise provided herein, shall be
the same as, and shall be conducted as part of, the administration of the
Common Stock Purchase Plan for the Company, as set forth in JCI
Publication 8777 (Rev. 3/93). The Company's transfer agent and registrar,
Firstar Trust Company, is responsible for the administration of the Plan,
subject to the supervision and control of the Compensation Committee of
the Board of Directors of the Company.
5.2 Prior to participating in the Plan, a Participant shall enter into a
written agreement with the Company in which the Participant shall agree
that any derivative security related to the Plan shall not be transferable
other than by will or descent or pursuant to a qualified domestic
relations order.
5.3 The price of each share of the Company's Common Stock purchased under the
Plan shall be 100% of the average price of shares purchased by Firstar
Trust Company as agent for the Participants. No brokerage fee or
commission shall be charged. Funds representing cash dividends (both on
stock held in the name of the Participant and on any full or fractional
shares held under the Plan) will be applied to the purchase of Common
Stock of the Company under the Plan on the cash dividend payment date or
as soon as practicable thereafter, in the same manner as under the Common
Stock Purchase Plan.
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5.4 Except for a Participant's initial election to purchase shares under the
Plan, the purchase of shares by a Participant pursuant to payroll
deduction, an increase of amounts deducted from pay, the termination of
payroll deductions, the sale of shares, or the closure of the account
shall be made only pursuant to an irrevocable election made by the
Participant at least six months in advance of the designated transaction.
5.5 Participants that terminate payroll deductions, sell shares, or close
accounts shall be prohibited from participating again in the Plan until
six months after such transaction.
5.6 The maximum amount that may be deducted from a Participant's pay each
month shall be $2,500.
5.7 The Company shall bear the expenses of administering the Plan.
5.8 The Board of Directors of the Company may amend the Plan from time to
time; however, any amendments requiring approval of the shareholders of
the Company pursuant to Rule 16b-3 of the Securities and Exchange Act of
1934 shall be effective only upon such shareholder approval.
5.9 This Plan shall be construed, administered and governed in all respects
in accordance with the laws of the State of Wisconsin.
5.10 Except when otherwise indicated by the context, any masculine terminology
used herein shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
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EXHIBIT 10.L
JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
1. PURPOSE
The purpose of this Johnson Controls Equalization Benefit Plan (hereinafter
referred to as the "Plan") is to restore retirement benefits to certain
participants in the Company's pension or savings plans whose benefits under
said plans are or will be limited by reason of Sections 401(a)(17), 401(k),
401(m) 402(g) or 415 of the Internal Revenue Code of 1986, as amended,
("Code"), and/or by reason of the election of such employees to defer
income or reduce salary pursuant to this Plan or the Johnson Controls, Inc.
Executive Incentive Compensation Plan ("Incentive Plan").
This Plan is completely separate from the tax-qualified pension plans
maintained by the Company and is not funded or qualified for special tax
treatment under the Code.
2. EFFECTIVE DATE
The Plan became effective as of January 1, 1980, and was most recently
amended and restated effective May 24, 1989.
3. DEFINITIONS
The following additional terms as used herein shall have the meanings set
forth below.
a. "Company" means Johnson Controls, Inc., a Wisconsin Corporation.
b. "Participant" means an employee of the Company who is a
participant in both the Incentive Plan and in one or more of the
Retirement Plans or the Savings Plan, and who is designated for
participation herein by the Compensation Committee of the Board of
Directors of the Company.
c. "Savings Plan" means the defined contribution plan maintained by
the Company pursuant to Section 401(k) of the Internal Revenue Code
known as the Johnson Controls Savings and Investment Plan and any
successor to such plan maintained by the Company or any successor or
affiliate of the Company.
d. "Retirement Plans" means the defined benefit pension plans
maintained by the Company known as the Johnson Controls Pension Plan
Salaried Employees and the Johnson Controls Pension Plan Battery
Division Salaried Employees and any successor to either of such plans
maintained by the Company or any successor or affiliate of the
Company.
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e. "Retirement Plan Benefits" means the aggregate monthly benefits
payable under the terms of the Retirement Plan.
4. ADMINISTRATION
The Plan shall be administered by the Compensation Committee (hereinafter
referred to as the "Committee") of the Board of Directors of the Company.
Decisions and determinations by the Committee shall be final and binding on
all parties. The Committee shall have the authority to interpret the Plan,
to promulgate and revise rules and regulations relating to the Plan and to
make any other determinations which it deems necessary or advisable for the
administration thereof.
5. RETIREMENT PLAN SUPPLEMENT
Any Participant who retires under one of the Retirement Plans on or after
January 1, 1980, or such Participant's spouse or other beneficiary, shall
be entitled to a benefit payable hereunder in accordance with this Section
5, equal to the excess, if any of
a. The amount of such Participant's, surviving spouse's or other
beneficiaries' Retirement Plan Benefits computed under the provisions
of the Retirement Plans, without regard to the limitations imposed by
reason of Section 415 of the Code or the limit on considered
compensation under Section 401(a)(17) of the Code, and on the
assumption that all amounts of income which the Participant elected to
defer under the Incentive Plan and/or under Section 6 of this Plan
were paid as "Compensation" as defined in the Retirement Plan (to the
extent not already included in such "Compensation" under the
applicable Retirement Plan definition); over
b. The amount of Retirement Plan Benefits actually payable to such
Participant, surviving spouse or other beneficiary for each month
under the Retirement Plans, as computed under the provisions of the
Retirement Plans and subject to the above mentioned limitations.
Retirement Plan Supplement benefits under this Section 5. shall become
payable when a Participant or the Participant's spouse or other
beneficiary begins to receive Retirement Plan payments and shall be
payable in the same manner and subject to all the same options,
conditions, privileges and restrictions as are applicable to the
benefits payable to the Participant, his spouse or other beneficiary
under the Retirement Plans.
6. SAVINGS PLAN SUPPLEMENT
a. For each calendar year beginning on or after December 31, 1986,
each Participant may elect that, in the event the Participant's
ability to make Before-Tax Matched Deposits under the Savings Plan is
limited by reason of Sections 401(k), 402(g) or 415 of the Code and/or
the limit on considered compensation under Section 401(a)(17) of the
Code, then the difference between the Participant's actual Before-Tax
Matched Deposits under the Savings Plan for any calendar year and the
amount that would have been contributed as Before-Tax Matched Deposits
but for such limits
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shall be credited, as of December 31 of such year, to a "Savings
Account" on the Company's books in the name of such Participant. Such
Savings Account shall also be credited as of each December 31 with an
amount equal to the difference between the amount of Employer
Contributions actually credited to the Participant's Savings Plan
Accounts for the year and the amount of Employer Contributions that
would have been so credited if the amount determined under the
preceding sentence had actually been contributed to the Savings Plan
(determined without regard to the limitations imposed by Sections
401(m) and 415 of the Code). An election under this Section 6 shall
constitute an election by the participant to reduce the Participant's
salary by the amount determined under the first sentence of this
subsection (a), and shall remain in effect from time to time unless
and until terminated prospectively by the Participant by written
notice to the Compensation Committee.
b. Amounts credited to a Participant's Savings Account hereunder to
the extent derived from Before-Tax Matched Deposits, will be credited
to a before-tax deposits subaccount of the Participant's Savings
Account, and amounts derived from employer contributions will be
credited to an employer contributions subaccount of the Participant's
Savings Account.
c. As of each December 31, commencing December 31, 1985, an
additional amount shall be credited to Savings Accounts established
pursuant to this Section 6. The additional credit for before-tax
deposit subaccounts will be equal to the product of the balance in
each such subaccount as of December 31 of the next previous year (the
"Prior Balance") and the rate of return experienced by the Savings
Plan's Fixed Income Fund during the year. The additional credit for
employer contribution subaccounts will be equal to the product of the
Prior Balance in each such subaccount and the rate of return
experienced by the Savings Plan's Company Stock Fund during the year.
In the event that either the Savings Plan Fixed Income Fund or the
Savings Plan Company Stock Fund (or both) should experience a loss for
a given Contribution Year, Savings Accounts will be reduced in
accordance with procedures similar to those described in this
subsection (c) to reflect such losses.
d. Payment of the amounts credited to a Participant's Savings
Account hereunder shall commence during the month of January
immediately following the Participant's termination of employment with
the Company and shall be made in ten (10) annual installments,
provided that the minimum annual installment shall be $10,000. The
first such installment shall equal the total value of the Savings
Account as of the date of distribution divided by ten (10). Each
subsequent installment shall be an equivalent amount, plus any
additional amount credited for the preceding calendar year on the
unpaid balance in the Savings Account in accordance with paragraph (c)
above. Each payment shall be drawn from each subaccount on a pro-rata
basis.
7. EQUALIZATION BENEFIT PLAN ACCOUNTS
The Company shall establish bookkeeping reserves ("Accounts") with respect
to each type of benefit offered under this Plan. The first such reserve
shall be
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known as the "Retirement Supplement Account" and shall relate to the
benefits to be paid pursuant to Section 5. above. The second such reserve
shall be known as the "Savings Supplement Account" and shall be comprised
of the individual Participant Savings Accounts (and subaccounts) described
in Section 6. Each account will be administered as follows:
a. The Account shall serve solely as a device for determining the
amount of the accrued deferred liability for the benefit payments
provided herein, and shall not constitute or be treated as a trust
fund of any kind, it being expressly provided that the amounts
credited to the Account shall be and remain the sole property of the
Company and that no Participant shall have any proprietary rights of
any nature whatsoever with respect thereto or with respect to any
investments the Company may make to aid it in meeting its obligations
hereunder.
b. With respect to each fiscal year of the Company while the Plan is
in effect, the Retirement Supplement Account shall be credited or
charged with such annual amounts as shall be determined to be
appropriate based upon assumptions acceptable to the Compensation
Committee, and the Savings Supplement Account shall be credited or
charged with such amounts as are prescribed in Section 6.
c. No funds or other assets of the Company shall be segregated and
attributable to the amounts that may from time to time be credited to
the Accounts. Benefit payments under the Plan shall be made from the
general assets of the Company at the time any such payment becomes due
and payable. To the extent that any person acquires a right to
receive payments from the Company hereunder, such right shall be no
greater than the right of an unsecured creditor.
8. NON-ALIENATION OF PAYMENTS
Benefits payable under the Plan shall not be subject in any manner to
alienation, sale, transfer, assignment, pledge, attachment, garnishment or
encumbrance of any kind, by will, or by inter vivos instrument. Any
attempt to alienate, sell, transfer, assign, pledge or otherwise encumber
any such benefit payment, whether currently or thereafter payable, shall
not be recognized by the Compensation Committee or the Company. Any
benefit payment due hereunder shall not in any manner be liable for or
subject to the debts or liabilities of any Participant or other person
entitled thereto. If any such person shall attempt to alienate, sell,
transfer, assign, pledge or encumber any benefit payments to be made to
that person under the Plan or any part thereof, or if by reason of such
person's bankruptcy or other event happening at any time, such payments
would devolve upon anyone else or would not be enjoyed by such person, then
the Compensation Committee,in its discretion, may terminate such person's
interest in any such benefit payment, and hold or apply it to or for the
benefit of that person, the spouse, children or other dependents thereof,
or any of them, in such manner as the Compensation Committee deems proper.
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9. LIMITATION OF RIGHTS AGAINST THE COMPANY
Participation in this Plan, or any modifications thereof, or the payments
of any benefits hereunder, shall not be construed as giving to any person
any right to be retained in the service of the Company, limiting in any way
the right of the Company to terminate such person's employment at any time,
evidencing any agreement or understanding that the Company will employ such
person in any particular position or at any particular rate of compensation
or guaranteeing such person any right to receive any other form or amount
of remuneration from the Company.
10. APPLICABLE LAWS
The Plan shall be construed, administered and governed in all respects
under and by the laws of the State of Wisconsin.
11. LIABILITY
Neither the Company nor any shareholder, director, officer or other
employee of the Company or any other person shall be liable for any act or
failure to act hereunder except for gross negligence or fraud.
12. AMENDMENT OR TERMINATION
a. The Company, by action of its Board of Directors, reserves the
right to amend or terminate this Plan at any time, provided that no
such amendment or modification shall adversely affect the rights of
any Participant, spouse or other beneficiary then receiving benefits
under this Plan or deprive any such person of the right to receive
amounts previously credited to the Participant's Savings Account,
unless the Company shall have substituted therefor an equivalent
amount of immediate or deferred compensation under some other plan,
program or individual agreement with such individual.
b. It is understood that an individual's entitlement to retirement
supplement benefits under Section 5. of this Plan may be automatically
reduced as the result of an increase in his Retirement Plan Benefits.
Nothing herein shall be construed in any way to limit the right of the
Company to amend or modify the Retirement Plans or Savings Plan.
c. Notwithstanding any other provision of this Plan, upon a Change
of Control, all amounts credited to each of a Participant's Accounts
under the Plans shall vest immediately and all amounts credited to
each such Account of a Participant shall be paid to each Participant
in a lump sum in cash within 30 days of a Change of Control. A
"Change of Control" shall mean any of the following events:
i. The acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange
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Act")) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more or
either:
(a) The then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(b) The combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the "Company
Voting Securities"), provided, however, that any
acquisition by (x) the Company or any of its
subsidiaries, or any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of
its subsidiaries or (y) any corporation with respect to
which, following such acquisition, more than 60% of,
respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the
then outstanding voting securities of such corporation
entitled to vote generally in the election of directors
is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Company Voting
Securities immediately prior to such acquisition in
substantially the same proportion as their ownership,
immediately prior to such acquisition, of the Outstanding
Company Common Stock and Company Voting Securities, as
the case may be, shall not constitute a Change of
Control; or
ii. Individuals who, as of May 24, 1989, constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any
individual becoming a director subsequent to May 24, 1989 whose
election or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of the Directors of the Company (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
iii. Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business
Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Company Common
Stock and Company Voting Securities immediately prior to such
Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from
94
<PAGE> 7
such Business Combination in substantially the same proportion
as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and
Company Voting Securities, as the case may be; or
iv. A complete liquidation or dissolution of the Company or
sale or other disposition of all or substantially all of the
assets of the Company other than to a corporation with respect
to which, following such sale or disposition, more than 60% of,
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors is then owned beneficially, directly or indirectly,
by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Company Voting Securities immediately
prior to such sale or disposition in substantially the same
proportion as their ownership of the Outstanding Company Common
Stock and Company Voting Securities, as the case may be,
immediately prior to such sale or disposition.
95
<PAGE> 1
EXHIBIT 11
JOHNSON CONTROLS, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE
(in millions, except per share data)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net Income $234.7 $195.8 $165.2
Preferred dividends, net of tax
benefit (9.5) (9.4) (9.3)
------ ------ ------
Earnings available for common
shareholders $225.2 $186.4 $155.9
------ ------ ------
Average common shares outstanding
Common stock 41.3 40.9 40.6
Common stock equivalents -
Assumed exercise of stock options 0.5 0.3 0.4
------ ------ ------
41.8 41.2 41.0
------ ------ ------
Primary earnings per share $ 5.39 $ 4.53 $ 3.80
====== ====== ======
FULLY DILUTED EARNINGS PER SHARE
Net Income $234.7 $195.8 $165.2
After tax compensation expense
which would arise from the assumed
conversion of the Series D
Convertible Preferred Stock (5.6) (5.8) (5.9)
------ ------ ------
Fully diluted earnings 229.1 190.0 159.3
------ ------ ------
Average common shares outstanding
Common stock 41.3 40.9 40.6
Conversion of Series D Convertible
Preferred Stock 3.0 3.1 3.3
Common stock equivalents -
Assumed exercise of stock options 0.6 0.5 0.4
------ ------ ------
44.9 44.5 44.3
------ ------ ------
Fully diluted earnings per share $ 5.10 $ 4.27 $ 3.60
====== ====== ======
</TABLE>
96
<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, 1996
------------------
<S> <C>
Net Income $234.7
Provision for income taxes 181.6
Minority interest in earnings of consolidated subsidiaries 26.5
Undistributed earnings of partially-owned affiliates (2.3)
Amortization of previously capitalized interest 3.8
------
444.3
Fixed charges:
Interest incurred and amortization of debt expense 87.2
Estimated portion of rent expense 34.3
------
Fixed charges 121.5
Less: Interest capitalized during period (7.5)
------
114.0
------
Earnings $558.3
======
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 of 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.
97
<PAGE> 1
EXHIBIT 13
Incorporated by Reference Sections of the Annual Report to Shareholders.
<TABLE>
<CAPTION>
Common Stock Price Range Dividends
- - -------------------------------------------------------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
First Quarter $57-3/4 - 69-3/4 $45-7/8 - 50-3/8 $ .41 $ .39
Second Quarter 64-5/8 - 75-5/8 45-3/4 - 52-1/2 .41 .39
Third Quarter 67 - 75-1/8 50-5/8 - 58-1/4 .41 .39
Fourth Quarter 62-1/2 - 76-1/2 56-3/8 - 66 .41 .39
- - -------------------------------------------------------------------------------------
Year $57-3/4 - 76-1/2 $45-3/4 - 66 $1.64 $1.56
=====================================================================================
</TABLE>
<PAGE> 2
BUSINESS SEGMENTS(1)
<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>
1996
Automotive $5,308.1 $298.9 $2,349.9 $161.7 $190.8
Controls 2,959.8 118.6 1,180.1 53.4 61.7
Plastics 967.6 24.0 724.9 75.1 58.1
Battery 773.9 58.5 574.5 39.5 59.8
Unallocated - - 293.2 - -
- - ------------------------------------------------------------------------------------------------------------
Consolidated $10,009.4 $500.0 $5,122.6 $329.7 $370.4
============================================================================================================
1995
Automotive $3,945.3 $232.8 $1,690.3 $131.8 $212.0
Controls 2,630.3 105.8 1,073.1 46.9 56.5
Plastics 1,082.7 63.6 796.9 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 $2,982.1 $153.6 $1,352.0 $102.0 $168.3
Controls 2,259.9 94.5 929.1 44.8 28.7
Plastics 890.1 62.4 678.6 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
============================================================================================================
</TABLE>
(1)Prior year segment information has been reclassified to conform to the
current year's presentation.
<PAGE> 3
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
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>
1996
Net sales $2,186.3 $2,440.4 $2,705.6 $2,677.1 $10,009.4
Gross profit $ 313.4 $ 310.2 $ 373.1 $ 391.7 $ 1,388.4
Net income $ 47.0 $ 36.4 $ 69.3 $ 82.0 $ 234.7
Earnings per share
Primary $ 1.07 $ .82 $ 1.60 $ 1.90 $ 5.39
Fully diluted $ 1.02 $ .78 $ 1.51 $ 1.79 $ 5.10
- - ---------------------------------------------------------------------------------------------------------
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
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended September 30,
- - ----------------------------------------------------------------------------------
(in millions, except per share data) 1996 1995 1994
<S> <C> <C> <C>
Net Sales $10,009.4 $8,330.3 $6,870.5
Cost of sales 8,621.0 7,072.6 5,762.0
- - ----------------------------------------------------------------------------------
Gross profit 1,388.4 1,257.7 1,108.5
Selling, general and administrative expenses 888.4 808.9 743.3
- - ----------------------------------------------------------------------------------
Operating income 500.0 448.8 365.2
- - ----------------------------------------------------------------------------------
Interest income 8.0 6.2 4.4
Interest expense (77.1) (57.4) (40.7)
Miscellaneous - net 11.9 (9.7) (2.5)
- - ----------------------------------------------------------------------------------
Other income (expense) (57.2) (60.9) (38.8)
- - ----------------------------------------------------------------------------------
Income before income taxes and minority interests 442.8 387.9 326.4
Provision for income taxes 181.6 162.9 140.3
Minority interests in net earnings of subsidiaries 26.5 29.2 20.9
- - ----------------------------------------------------------------------------------
Net income $ 234.7 $ 195.8 $ 165.2
- - ----------------------------------------------------------------------------------
Earnings available for common shareholders $ 225.2 $ 186.4 $ 155.9
- - ----------------------------------------------------------------------------------
Earnings per share
Primary $ 5.39 $ 4.53 $ 3.80
Fully diluted $ 5.10 $ 4.27 $ 3.60
- - ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
September 30,
- - --------------------------------------------------------------------------------
(in millions) 1996 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 164.1 $ 103.8
Accounts receivable, less allowance for doubtful
accounts of $22.6 and $22.2, respectively 1,676.5 1,287.5
Inventories 421.1 355.5
Other current assets 331.8 317.1
- - --------------------------------------------------------------------------------
Current assets 2,593.5 2,063.9
Property, plant and equipment - net 1,679.1 1,518.8
Goodwill, less accumulated amortization
of $155.8 and $128.7, respectively 602.7 519.1
Investments in partially-owned affiliates 128.4 90.8
Other noncurrent assets 118.9 128.3
- - --------------------------------------------------------------------------------
Total assets $5,122.6 $4,320.9
- - --------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Short-term debt $ 250.0 $ 130.2
Current portion of long-term debt 35.5 67.7
Accounts payable 1,272.9 983.5
Accrued compensation and benefits 248.3 258.5
Accrued income taxes 42.9 35.5
Billings in excess of costs and
earnings on uncompleted contracts 83.6 87.8
Other current liabilities 369.0 346.3
- - --------------------------------------------------------------------------------
Current liabilities 2,302.2 1,909.5
- - --------------------------------------------------------------------------------
Long-term debt 756.5 630.0
Postretirement health and other benefits 169.3 168.8
Other noncurrent liabilities 386.8 272.4
Shareholders' equity 1,507.8 1,340.2
- - --------------------------------------------------------------------------------
Total liabilities and equity $5,122.6 $4,320.9
- - --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
- - ------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $234.7 $195.8 $165.2
Adjustments to reconcile net income to cash provided
by operating activities
Depreciation 292.1 256.3 230.4
Amortization of intangibles 37.6 32.2 27.9
Equity in earnings of partially-owned affiliates (15.9) (1.6) (9.4)
Deferred income taxes 39.5 4.3 (12.8)
Other 8.6 - 1.5
Changes in working capital,
excluding acquisition of businesses
Accounts receivable (184.0) (216.4) (103.3)
Inventories (42.3) (40.0) (8.0)
Other current assets (15.6) (40.6) (19.6)
Accounts payable and accrued liabilities 133.8 181.0 186.7
Accrued income taxes (17.4) (11.6) (10.3)
Billings in excess of costs and earnings on
uncompleted contracts (3.5) 10.8 (1.1)
- - ------------------------------------------------------------------------------------------------------
Cash provided by operating activities 467.6 370.2 447.2
- - ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (370.4) (450.7) (347.5)
Sale of property, plant and equipment 16.8 17.3 28.3
Acquisition of businesses (153.8) (30.6) (167.9)
Additions of long-term investments (12.5) (6.4) (21.7)
Proceeds from long-term investments 11.9 18.1 11.5
Other .7 .3 .2
- - ------------------------------------------------------------------------------------------------------
Cash used by investing activities (507.3) (452.0) (497.1)
- - ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in short-term debt 101.1 107.1 (17.5)
Issuance of long-term debt 155.4 218.8 202.8
Repayment of long-term debt (83.7) (206.8) (26.5)
Payment of cash dividends (80.0) (76.3) (71.4)
Other 6.9 9.7 4.4
- - ------------------------------------------------------------------------------------------------------
Cash provided by financing activities 99.7 52.5 91.8
- - ------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents .3 .5 3.0
- - ------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 60.3 $(28.8) $ 44.9
- - ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned Capital in Treasury Cumulative
Preferred Compensation Common Excess of Retained Stock, Translation
Total Stock - ESOP Stock Par Value Earnings at Cost Adjustments
- - ------------------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
Net income 234.7 - - - - 234.7 - -
Reduction of guaranteed ESOP debt 9.0 - 9.0 - - - - -
Cash dividends
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $2.7 million tax benefit (9.5) - - - - (9.5) - -
Common ($1.64 per share) (67.8) - - - - (67.8) - -
Translation adjustments (13.8) - - - - - - (13.8)
Other, including options exercised 15.0 (5.5) - .1 14.5 - 5.9 -
- - ------------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1996 $1,507.8 $154.6 $(129.7) $7.2 $535.0 $1,010.7 $(49.0) $(21.0)
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 8
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.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts and related disclosures. Actual results could
differ from those estimates.
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 $5.6 million, $5.8 million and $5.9 million in 1996, 1995 and
1994, 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) 1996 1995 1994
<S> <C> <C> <C>
Primary 41.8 41.2 41.0
Fully diluted 44.9 44.5 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.
FUTURE ACCOUNTING CHANGES:
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The Statement is effective for the Company's
1997 fiscal year. The financial statement effect of adoption is currently under
review.
<PAGE> 9
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based
Compensation." This Statement requires either recognition of compensation
expense in the financial statements for those companies that adopt the fair
value based accounting method or expanded disclosure of pro forma net income
and earnings per share information for those companies that retain the current
accounting method set forth in Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees." The Company plans to retain the
current accounting method set forth in APB 25 and will begin expanded
disclosure in its fiscal 1997 financial statements.
NOTE 1 - INVENTORIES
<TABLE>
<CAPTION>
September 30,
- - ----------------------------------------------
(in millions) 1996 1995
<S> <C> <C>
Raw materials and supplies $183.0 $145.1
Work in process 118.2 112.9
Finished goods 150.5 149.6
- - ----------------------------------------------
FIFO inventories 451.7 407.6
LIFO reserve (30.6) (52.1)
- - ----------------------------------------------
LIFO inventories $421.1 $355.5
- - ----------------------------------------------
</TABLE>
Inventories valued by the LIFO method of accounting were approximately 50% and
53% of total inventories at September 30, 1996 and 1995, respectively.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
September 30,
- - --------------------------------------------------------
(in millions) 1996 1995
<S> <C> <C>
Buildings and improvements $ 726.2 $ 594.8
Machinery and equipment 2,422.9 2,168.1
Construction in progress 168.4 220.7
- - --------------------------------------------------------
3,317.5 2,983.6
Land 68.5 57.9
- - --------------------------------------------------------
3,386.0 3,041.5
Less accumulated depreciation 1,706.9 1,522.7
- - --------------------------------------------------------
Property, plant
and equipment - net $1,679.1 $1,518.8
- - --------------------------------------------------------
</TABLE>
Interest costs capitalized during 1996, 1995, and 1994 were $7.5 million, $11.0
million and $5.9 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 $39 million and $26 million at September 30, 1996 and 1995,
respectively.
Other facilities and equipment are leased under arrangements which are
accounted for as operating leases. Total rental expense was $103 million in
1996, $89 million in 1995 and $73 million in 1994.
Future minimum capital and operating lease payments and the related present
value of capital lease payments at September 30, 1996 were as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
- - ------------------------------------------------
(in millions)
<S> <C> <C>
1997 $ 5.8 $ 66.5
1998 5.8 51.0
1999 6.2 35.2
2000 4.5 22.0
2001 4.3 12.1
After 2001 19.7 51.1
- - ------------------------------------------------
Total minimum lease payments 46.3 $237.9
- - ------------------------------------------------
Interest 13.8
- - -------------------------------------
Present value of net
minimum lease payments $32.5
- - -------------------------------------
</TABLE>
NOTE 4 - SHORT-TERM DEBT AND CREDIT AGREEMENTS
Short-term debt at September 30, 1996 and 1995 consisted entirely of bank
borrowings. At September 30, 1996, the Company had unsecured lines of credit
available from banks totalling $2,049 million. The lines of credit are subject
to the usual terms and conditions applied by banks. Domestic lines of credit
totalling $1,605 million are available for support of outstanding commercial
paper including $1,100 million, expiring in September 1997, to support the
interim financing for the Prince acquisition (see Note 13). The average
short-term debt outstanding during 1996 and 1995 was $340 million and $211
million, respectively. The weighted average interest rate on short-term debt
outstanding at September 30, 1996 and 1995 was 5.48% and 5.76%, respectively.
Total interest paid on both long-term and short-term debt was $79 million, $66
million and $43 million in 1996, 1995 and 1994, respectively.
<PAGE> 10
NOTE 5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30,
- - ---------------------------------------------------------------------
(in millions) 1996 1995
<S> <C> <C>
Unsecured notes
6.15% due in 1996 $ - $ 30.0
6.92% due in 1998 30.0 30.0
7.7% due in 2015 124.8 124.8
8.2% due in 2024 125.0 125.0
6.95% due in 2045 125.0 -
Industrial revenue bonds due through
2006, net of unamortized discount
of $2.6 million in 1996 and
$3.0 million in 1995 51.0 51.4
Medium-term notes due in 1997 and 1999
at an average interest rate of 7.4% 103.0 123.0
Guaranteed ESOP debt due in increasing
annual installments through 2004 at
an average interest rate of 7.24%
(tied in part to LIBOR) 129.7 138.7
Capital lease obligations 32.5 26.4
Other 71.0 48.4
- - ---------------------------------------------------------------------
792.0 697.7
Less current portion 35.5 67.7
- - ---------------------------------------------------------------------
Long-term debt $756.5 $630.0
- - ---------------------------------------------------------------------
</TABLE>
In December 1995, the Company issued $125 million of 6.95%, 50 year debentures.
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.
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, 1996 and 1995 had a weighted average interest rate of 6.3%.
Variable rate bonds of $27 million at September 30, 1996 and 1995 had weighted
average interest rates of 4.1% and 4.7%, respectively.
In 1989 the Company established an employee stock ownership plan (ESOP). The
ESOP was financed with $175 million of 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 1996,
1995, and 1994 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: 1997 - $36 million, 1998 - $108
million, 1999 - $23 million, 2000 - $85 million and 2001 - $21 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 which was $762 million
and $665 million at September 30, 1996 and 1995, respectively, 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.
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 in the same period 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 $150
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.
<PAGE> 11
In December 1995, the Company entered into a seven-year amortizing French Franc
(FRF) cross currency interest rate swap to hedge a portion of its $160 million
of net investments in its French subsidiaries. Under the swap, the Company
receives interest based on a fixed U.S. dollar interest rate of 6.95% and pays
a floating rate, indexed to the level of the six-month DM LIBOR rate, on the
outstanding notional principal amounts in dollars and francs, respectively. The
initial notional principal amounts of $80 million and FRF 400 million will
remain outstanding until December 1, 1999. Under the terms of the contract, the
Company will pay 100 million FRF in exchange for $20 million on the first
business day in December 1999 and in each of the subsequent three years through
December 2, 2002. On December 2, 2002 the swap will terminate with a final
principal settlement of 100 million FRF paid by the Company in exchange for $20
million.
Related foreign exchange gains and losses on the notional principal values of
these instruments are deferred in the cumulative translation adjustments
account (CTA) within shareholders' equity. The net pretax exchange loss
deferred in CTA of approximately $11 million at September 30, 1996 was offset
by translation gains and losses on the underlying net investments. Gains and
losses on the interest component of the swaps are included in interest expense
in the Consolidated Statement of Income on a current basis. The fair value of
these instruments approximate their carrying value at September 30, 1996 and
1995.
All contracts are executed with major international financial institutions and,
as such, the Company does not anticipate that these institutions will fail to
perform.
The following additional forward contracts, by which the Company sold or
purchased currencies, were outstanding at September 30, 1996:
<TABLE>
<CAPTION>
Currency Currency Contract
Sold Purchased Amount
- - ------------------------------------------------
(in millions)
<S> <C> <C>
British Pounds German DM $ 99
British Pounds U.S. Dollars 81
Canadian Dollars U.S. Dollars 54
Spanish Peseta German DM 34
German DM U.S. Dollars 18
French Franc German DM 16
Italian Lira U.S. Dollars 15
U.S. Dollars German DM 13
Others 85
- - ------------------------------------------------
$415
- - ------------------------------------------------
</TABLE>
The fair value of these forward contracts approximate their carrying value at
September 30, 1996 and 1995.
NOTE 7 - SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
- - ---------------------------------------------------------------------
(in millions of shares) 1996 1995
<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 41.5 41.1
- - ---------------------------------------------------------------------
</TABLE>
*302.0084 and 312.7224 shares of Series D Convertible Preferred Stock were
outstanding at September 30, 1996 and 1995, 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, 1996 and 1995 resulting
from the above transactions was $25 million and $21 million, respectively.
<PAGE> 12
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 $51.20 in cash, 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, 1996, 3.0 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 1.5 million shares of its common stock in treasury at
September 30, 1996. 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 2.5 million at September 30, 1996.
Following is a summary of activity in the stock option plans for 1996 and 1995:
<TABLE>
<CAPTION>
Weighted Shares
Average Subject to
Option Price Option SARs
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
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 47.32 1,577,642 395,803
Granted 63.69 738,815 174,565
Exercised 42.80 226,328 41,112
Cancelled 52.28 103,092 3,994
- - -----------------------------------------------------------------------
Outstanding,
September 30, 1996(1) 53.66 1,987,037 525,262
- - -----------------------------------------------------------------------
Exercisable,
September 30, 1996 44.10 475,849 141,108
- - -----------------------------------------------------------------------
</TABLE>
(1) Option exercise prices range from $33.13 to $63.69 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 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 $50 million of consolidated retained earnings at September 30,
1996 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) 1996 1995 1994
<S> <C> <C> <C>
Service cost $31.6 $28.0 $25.6
Interest cost on projected
benefit obligation 51.7 46.5 41.7
Actual return on plan assets (105.9) (75.6) (16.7)
Net amortization and deferral 47.6 21.6 (33.6)
- - ------------------------------------------------------
Net pension expense $25.0 $20.5 $17.0
- - ------------------------------------------------------
</TABLE>
<PAGE> 13
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 an assumed discount rate of 7.75% at September 30, 1996 and 1995. Pension
expense was determined using assumed discount rates of 7.75% in 1996, 8.0% in
1995 and 8.25% in 1994. The assumed long-term rate of return on plan assets was
9.75% in 1996 and 1995, and 10% in 1994. The average rate of compensation
increase assumed was 6.0% in 1996, 1995 and 1994.
<TABLE>
<CAPTION>
September 30,
- - -------------------------------------------------------------------------
1996 1995
Assets ABO Assets ABO
Exceed Exceeds Exceed Exceeds
(in millions) ABO Assets ABO Assets
- - -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations
Vested $455.6 $ 87.0 $408.5 $ 97.0
Nonvested 28.1 3.8 26.7 4.7
- - -------------------------------------------------------------------------
Accumulated benefit obligation 483.7 90.8 435.2 101.7
Effect of projected
salary increases 118.8 15.0 117.2 12.5
- - -------------------------------------------------------------------------
Total projected
benefit obligation 602.5 105.8 552.4 114.2
Plan assets at fair value 664.0 40.7 546.6 49.1
- - -------------------------------------------------------------------------
(Deficit) excess of plan
assets over projected
benefit obligation 61.5 (65.1) (5.8) (65.1)
Unrecognized transitional asset (22.9) (2.7) (27.2) (9.9)
Unrecognized net (gain) loss (11.3) 6.7 49.7 11.1
- - -------------------------------------------------------------------------
Prepaid (accrued)
pension expense $ 27.3 $(61.1) $ 16.7 $(63.9)
- - -------------------------------------------------------------------------
</TABLE>
At the measurement dates of June 30, 1996 and 1995, plan assets included
approximately 412,000 and 402,000 shares, respectively, of Johnson Controls,
Inc. common stock with total market values of $28.7 million and $22.7 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, 1996,
approximately 1,464,000 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 $8 million in 1996,
$6 million in 1995, and $5 million in 1994. Total compensation expense recorded
by the Company was $19 million in 1996 and 1995 and $13 million in 1994.
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 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.
Net postretirement benefit expense included the following components:
<TABLE>
<CAPTION>
Year ended September 30,
- - -------------------------------------------------------
(in millions) 1996 1995 1994
<S> <C> <C> <C>
Service cost $ 3.7 $ 4.3 $ 4.5
Interest cost on accumulated
benefit obligation 10.8 11.2 11.0
Net amortization and deferral (2.1) (1.9) (1.6)
- - -------------------------------------------------------
Net postretirement
benefit expense $12.4 $13.6 $13.9
- - -------------------------------------------------------
</TABLE>
The status of the Company's postretirement benefit plans is as follows:
<TABLE>
<CAPTION>
September 30,
- - -------------------------------------------------------------
(in millions) 1996 1995
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation
Retirees $ 96.0 $ 84.5
Vested active plan participants 12.4 15.5
Other plan participants 41.1 44.5
- - -------------------------------------------------------------
149.5 144.5
- - -------------------------------------------------------------
Unrecognized prior service cost 28.2 30.4
Unrecognized net gain 3.7 4.6
- - -------------------------------------------------------------
Accrued postretirement benefit obligation $181.4 $179.5
- - -------------------------------------------------------------
</TABLE>
<PAGE> 14
The accumulated postretirement benefit obligation was determined using an
assumed discount rate of 7.75% at September 30, 1996 and 1995. Assumed discount
rates of 7.75% in 1996, 8.0% in 1995 and 8.25% in 1994 were used to determine
postretirement benefit expense. The September 30, 1996 accumulated
postretirement benefit obligation was determined using assumed healthcare cost
trend rates of 11% and 8% for pre-65 and post-65 years of age employees,
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. 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 $9 million at September
30, 1996, and the sum of the service and interest costs in 1996 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 - RESEARCH AND DEVELOPMENT
Expenditures for research activities relating to product development and
improvement are charged against income as incurred. Such expenditures amounted
to $165 million in 1996, $137 million in 1995 and $124 million in 1994.
NOTE 10 - INCOME TAXES
Components of income before income taxes and minority interests included the
following:
<TABLE>
<CAPTION>
Year ended September 30,
- - -------------------------------------------------------
(in millions) 1996 1995 1994
<S> <C> <C> <C>
Domestic $380.2 $307.6 $271.3
Foreign 62.6 80.3 55.1
- - -------------------------------------------------------
Income before income taxes $442.8 $387.9 $326.4
- - -------------------------------------------------------
</TABLE>
Components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
Year ended September 30,
- - -------------------------------------------------------
(in millions) 1996 1995 1994
<S> <C> <C> <C>
Current
Federal $ 98.1 $110.2 $109.7
State 19.8 24.0 22.3
Foreign 24.2 24.4 21.1
- - -------------------------------------------------------
142.1 158.6 153.1
- - -------------------------------------------------------
Deferred
Federal 31.9 (1.4) (17.1)
State 4.1 (.6) (1.3)
Foreign 3.5 6.3 5.6
- - -------------------------------------------------------
39.5 4.3 (12.8)
- - -------------------------------------------------------
Provision for income taxes $181.6 $162.9 $140.3
- - -------------------------------------------------------
</TABLE>
An analysis of effective income tax rates is shown below:
<TABLE>
<CAPTION>
Year ended September 30,
- - -------------------------------------------------------
(in millions) 1996 1995 1994
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 4.1 4.2 4.2
Foreign tax expense at
different rates and foreign
losses without tax benefit 1.3 .7 2.3
Other .6 2.1 1.5
- - -------------------------------------------------------
41.0% 42.0% 43.0%
- - -------------------------------------------------------
</TABLE>
Deferred taxes were classified in the Consolidated Statement of Financial
Position as follows:
<TABLE>
<CAPTION>
September 30,
- - ---------------------------------------------
(in millions) 1996 1995
<S> <C> <C>
Other current assets $62.7 $87.6
Other noncurrent assets 10.0 8.8
Other noncurrent liabilities (6.2) -
- - ---------------------------------------------
Net deferred tax asset $66.5 $96.4
- - ---------------------------------------------
</TABLE>
<PAGE> 15
Temporary differences and carryforwards which gave rise to deferred tax assets
and liabilities included:
<TABLE>
<CAPTION>
September 30,
- - --------------------------------------------------------------
(in millions) 1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS
Accrued expenses and reserves $114.5 $128.2
Postretirement and postemployment benefits 79.8 78.7
Operating loss and foreign tax
credit carryforwards 68.3 67.1
Other 17.9 10.7
- - --------------------------------------------------------------
280.5 284.7
Valuation allowance (61.4) (31.8)
- - --------------------------------------------------------------
219.1 252.9
- - --------------------------------------------------------------
DEFERRED TAX LIABILITIES
Property, plant and equipment 88.3 81.0
Employee benefits 13.2 15.6
Inventories 6.4 6.6
Long-term contracts 29.7 18.7
Other 15.0 34.6
- - --------------------------------------------------------------
152.6 156.5
- - --------------------------------------------------------------
Net deferred tax asset $ 66.5 $ 96.4
- - --------------------------------------------------------------
</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 1997 to 2003.
Income taxes paid during 1996, 1995 and 1994 were $116 million, $164 million
and $162 million, respectively.
Domestic income taxes have not been provided on undistributed earnings of
foreign subsidiaries of $248 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 11 - CONTINGENCIES
The Company is involved in a number of proceedings and potential proceedings
relating to environmental matters. At September 30, 1996, the Company had an
accrued liability of approximately $32 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.
Because of the uncertainties associated with environmental assessment and
remediation activities, the Company's 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 12 - SEGMENT INFORMATION
Reference is made to pages 23 through 29 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.
<PAGE> 16
All four of the Company's business segments have sales to the automotive
industry. Each of four major automobile manufacturers accounted for between
approximately 5% and 12% of the Company's net sales in each of the years 1996,
1995 and 1994. As of September 30, 1996, the Company had accounts receivable
totalling $385 million from these manufacturers.
Product transfers from domestic to foreign locations amounted to $72 million in
1996, $48 million in 1995 and $56 million in 1994. Product transfers from
foreign to domestic locations were $71 million in 1996, $107 million in 1995
and $43 million in 1994. 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) 1996 1995 1994
<S> <C> <C> <C>
NET SALES
Domestic $ 6,526.9 $5,873.6 $5,294.9
European 2,942.9 1,960.6 1,171.9
Other foreign 539.6 496.1 403.7
- - ----------------------------------------------------------------
Consolidated $10,009.4 $8,330.3 $6,870.5
- - ----------------------------------------------------------------
OPERATING INCOME
Domestic $ 430.8 $ 356.9 $ 316.2
European 50.8 52.5 10.7
Other foreign 19.1 40.7 37.9
Eliminations (.7) (1.3) .4
- - ----------------------------------------------------------------
Consolidated 500.0 448.8 365.2
Other income (expense) (57.2) (60.9) (38.8)
- - ----------------------------------------------------------------
Income before income
taxes and minority
interests $ 442.8 $ 387.9 $ 326.4
- - ----------------------------------------------------------------
ASSETS (YEAR END)
Domestic $ 2,796.4 $2,557.9 $2,261.6
European 1,698.5 1,275.7 991.5
Other foreign 334.5 209.5 169.1
Unallocated 293.2 277.8 384.7
- - ----------------------------------------------------------------
Consolidated $ 5,122.6 $4,320.9 $3,806.9
- - ----------------------------------------------------------------
</TABLE>
NOTE 13 - SUBSEQUENT EVENT
The Company completed the acquisition of Prince Holding Corporation (Prince)
effective October 1, 1996, for a cash purchase price of approximately $1.3
billion. Prince, based in Holland, Michigan, supplies automotive interior
systems and components including overhead systems and consoles, door panels,
floor consoles, visors and armrests.
The acquisition will be accounted for as a purchase. As such, the excess of the
purchase price over the estimated fair value of the acquired net assets, which
approximates $1.1 billion, will be recorded as goodwill.
The acquisition price will initially be financed with commercial paper. Various
permanent financing alternatives are still under consideration.
The following unaudited pro forma results of operations of the Company give
effect to the acquisition of Prince as though the transaction had occurred on
October 1, 1994.
<TABLE>
<CAPTION>
Year Ended September 30,
- - ------------------------------------------------------------------------
(in millions, except per share data; unaudited) 1996 1995
<S> <C> <C>
Net sales $10,876.1 $9,031.8
Net income $ 228.1 $ 160.8
Earnings available for common shareholders $ 218.6 $ 151.4
Earnings per share
Primary $ 5.23 $ 3.68
Fully diluted $ 4.95 $ 3.48
- - ------------------------------------------------------------------------
Weighted average shares
Primary 41.8 41.2
Fully diluted 44.9 44.5
- - ------------------------------------------------------------------------
</TABLE>
The unaudited pro forma financial information presented is not necessarily
indicative of either the results of operations that would have occurred had the
acquisition taken place on October 1, 1994 or the future results of operations
of the combined companies.
<PAGE> 17
REPORT OF MANAGEMENT
Johnson Controls management has primary responsibility for the consolidated
financial statements and other information included in this annual report and
for ascertaining that the data fairly reflect the Company's financial position
and results of operations. The Company prepared the consolidated financial
statements in accordance with generally accepted accounting principles
appropriate in the circumstances, and such statements necessarily include
amounts that are based on best estimates and judgements with appropriate
consideration given to materiality.
The Company's system of internal control is designed to provide reasonable
assurance that Company assets are safeguarded from loss or unauthorized use or
disposition and that transactions are executed in accordance with management's
authorization and are properly recorded to permit the preparation of financial
statements in accordance with generally accepted accounting principles. This
system is augmented by a careful selection and training of qualified personnel,
a proper division of responsibilities, and dissemination of written policies
and procedures. An internal audit program monitors the effectiveness of this
control system.
The Audit Committee of the Board of Directors consists entirely of directors
who are not employees of the Company. The Audit Committee reviews audit plans,
internal controls, financial reports and related matters and meets regularly
with the internal auditors and independent accountants, both of whom have open
access to the Committee.
Price Waterhouse LLP, independent accountants, audited the Company's
consolidated financial statements and issued the opinion below.
James H. Keyes
Chairman and Chief Executive Officer
Stephen A. Roell
Vice President and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Johnson Controls, Inc.
In our opinion, the statements appearing on pages 30 through 42 of this report
present fairly, in all material respects, the financial position of Johnson
Controls, Inc. and its subsidiaries at September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996, 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.
Price Waterhouse LLP
Milwaukee, Wisconsin
October 21, 1996
<PAGE> 18
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
Year ended September 30,
- - ------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share data) 1996 1995 1994 1993(1) 1992
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $10,009.4 $8,330.3 $6,870.5 $6,181.7 $5,156.5
Operating income $ 500.0 $ 448.8 $ 365.2 $ 313.4 $ 274.1
Income before cumulative
effect of accounting changes $ 234.7 $ 195.8 $ 165.2 $ 137.9 $ 123.0
Net income $ 234.7 $ 195.8 $ 165.2 $ 15.9 $ 123.0
Earnings per share before
cumulative effect of accounting changes
Primary $ 5.39 $ 4.53 $ 3.80 $ 3.16 $ 2.86
Fully diluted $ 5.10 $ 4.27 $ 3.60 $ 2.98 $ 2.73
Earnings per share
Primary $ 5.39 $ 4.53 $ 3.80 $ .17 $ 2.86
Fully diluted $ 5.10 $ 4.27 $ 3.60 $ .17(2) $ 2.73
Return on average
shareholders' equity 17% 16% 15% 13%(3) 11%
Capital expenditures $ 370.4 $ 450.7 $ 347.5 $ 298.3 $ 237.4
Depreciation $ 292.1 $ 256.3 $ 230.4 $ 212.1 $ 188.8
Number of employees 65,800 59,200 54,800 50,100 46,800
FINANCIAL POSITION
Working capital $ 291.3 $ 154.4 $ 262.1 $ 247.1 $ 279.1
Total assets $ 5,122.6 $4,320.9 $3,806.9 $3,230.8 $3,179.5
Long-term debt $ 756.5 $ 630.0 $ 670.3 $ 500.4 $ 503.3
Total debt $ 1,042.0 $ 827.9 $ 714.3 $ 552.0 $ 677.8
Shareholders' equity $ 1,507.8 $1,340.2 $1,202.8 $1,079.0 $1,194.2
Total debt to total capitalization 41% 38% 37% 34% 36%
Book value per share $ 35.76 $ 32.09 $ 29.10 $ 26.30 $ 29.47
COMMON SHARE INFORMATION
Dividends per share $ 1.64 $ 1.56 $ 1.44 $ 1.36 $ 1.28
Market prices
High $ 76-1/2 $ 66 $ 61-1/4 $ 59-1/8 $ 43-3/4
Low $ 57-3/4 $ 45-3/4 $ 44-7/8 $ 38-5/8 $ 30-3/8
Number of shareholders 44,636 37,971 33,227 30,483 27,464
Weighted average shares (in millions)
Primary 41.8 41.2 41.0 40.8 40.1
Fully diluted 44.9 44.5 44.3 44.3 43.8
- - ------------------------------------------------------------------------------------------------------------------------
</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.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Below is a list of all direct and indirect subsidiaries of the company,
including all wholly-owned and partially-owned subsidiaries, in alphabetical
order.
<TABLE>
<CAPTION>
JURISDICTION
WHERE
SUBSIDIARY IS
NAME INCORPORATED
- - --------------------------------------------------------------------------------
<S> <C>
Academy Mechanical Services Ltd. Canada
Acropol-Johnson Controls (S) Pte. Ltd. Singapore
Adwest Johnson Controls Ltd. U.K.
Apple Container Corp. Delaware
Braune und Wulsch Industrietechnik und Vertriebs GmbH Germany
B+W Kunststoffmaschinenbau Handelsgesellschaft Germany
Beijing Johnson Controls Automotive Trim Co., Ltd. China
Beijing Johnson Controls Co., Ltd China
C.E.E.E. SARL France
Canadian Fabricated Products Ltd. Canada
CEMIS S.A. France
CESA S.A. France
Controles de Presion de Ciudad Juarez Mexico
Controles Reynosa SA de CV Mexico
Desarrollo y Pl. SA Mexico
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Ensamble de Interiores Automotrices, S.A. de C.V. Mexico
Eurosit SA Spain
Factory for Thread and Synthetic Manufacturing Slovakia
Johnson Controls - NTU GmbH
Fluid Engineering Services Ltd. Canada
Forsythe Complete Seating, Inc. Georgia
G-U Export, Inc. Wisconsin
G-U, Inc. (NV) Nevada
Gaz Grunder u. Anwendungszentrum f.F.&A. GmbH Germany
Global Energy Systems, S.A. de C.V. Mexico
Globe International Delaware, Inc. Delaware
Globe-Union, Inc. (DE) Delaware
Haydon & Company Limited U.K.
Haydon Distribution Limited U.K.
Haydon Group Limited U.K.
Haydon Management Services Limited U.K.
Hoover Universal, Inc. Michigan
Hyperion Corp. Michigan
Ikeda-Hoover Co. Ltd. U.K.
INDU TECNO spol s.r.o. Czech Republic
Industrias IAMSA SA de CV Mexico
Interstate Battery System International, Inc. Delaware
J.C. Capital Corporation Minnesota
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
J.R.I. Technologies Ltd. U.K.
JC Beteiligungs GmbH Germany
JC Export Inc. Barbados
JC S.A.R.L. Luxembourg Luxembourg
JCI Beteiligungs GmbH Germany
JCI Canfab Ltd. Canada
JCI Regelungstechnik GmbH (A) Austria
JCI Regelungstechnik GmbH (G) Germany
Johnson Control International Sp. z.o.o. Poland
Johnson Control Products, Ltd. Nevada
Johnson Control SpA Italy
Johnson Control Systems Ltd. U.K.
Johnson Control Systems Pensions Ltd. U.K.
Johnson Controles de Engenharia Ltda. Brazil
Johnson Controles Ltda. Brazil
Johnson Controls (Barbados) Inc. Barbados
Johnson Controls (India) Pvt. Ltd. India
Johnson Controls (M) SDN BHD Malaysia
Johnson Controls (Mauritius) Private Limited Mauritius
Johnson Controls (Portugal) Componentes de Automoveis Lda. Portugal
Johnson Controls (Proprietary) Limited South Africa
Johnson Controls (s) Pte. Ltd. Singapore
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Johnson Controls (Suisse) S.A. Delaware
Johnson Controls (Thailand) Co., Ltd. Thailand
Johnson Controls (UK) Ltd. U.K.
Johnson Controls Alagon, S.A. Spain
Johnson Controls Australia Pty. Ltd. Australia
Johnson Controls Austria Gesellschaft m.b.H Austria
Johnson Controls Automation Systems BV Netherlands
Johnson Controls Automobilovy Soucastky s.r.o. Czech Republic
Johnson Controls Automotive (PTY) Ltd. South Africa
Johnson Controls Automotive (UK) Ltd. U.K.
Johnson Controls Automotive Components Group Ltd. U.K.
Johnson Controls Automotive Components Ltd U.K.
Johnson Controls Automotive Foam Ltd. U.K.
Johnson Controls Automotive France S.A. France
Johnson Controls Automotive Mexico SA de CV Mexico
Johnson Controls Automotive NV Belgium
Johnson Controls Automotive South Africa (Pty) Ltd. South Africa
Johnson Controls Automotive Spain S.A. Spain
Johnson Controls Automotive Systems S.A. Argentina
Johnson Controls Automotive Trim (Pty) Ltd. South Africa
Johnson Controls Battery (U.K.) Ltd. U.K.
Johnson Controls Battery de Mexico, SA de CV Mexico
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Johnson Controls Battery Group, Inc. Wisconsin
Johnson Controls de Mexico SA de CV Mexico
Johnson Controls DISC, Inc. Delaware
Johnson Controls do Brasil Automotive Ltda. Brazil
Johnson Controls Engineering, Inc. Wisconsin
Johnson Controls Espana Spain
Johnson Controls Facilities, Inc. Wisconsin
Johnson Controls France S.A. France
Johnson Controls GmbH Germany
Johnson Controls GmbH & Co. KG Germany
Johnson Controls Holding Company de Mexico, S.A. de C.V Mexico
Johnson Controls Holding Company, Inc. Delaware
Johnson Controls Hong Kong Ltd. Hong Kong
Johnson Controls I.F.M. GmbH & Co. KG Germany
Johnson Controls I.F.M. SpA Italy
Johnson Controls I.F.M. Verwaltungs GmbH Germany
Johnson Controls Integrated Facility Management, S.A. Spain
Johnson Controls Integrated Facility Management Catering GmbH Germany
Johnson Controls Integrated Facility Management Nordic AB Sweeden
Johnson Controls Integrated Facility Management Reinigung GmbH Germany
Johnson Controls Integrated Facility Management Sicherheit GmbH Germany
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Johnson Controls Integrated Facilty Management Verwaltungs GmbH Germany
Johnson Controls II Assentos de Espuma Lda. Portugal
Johnson Controls Integrated Facility Management, B.V. Netherlands
Johnson Controls International B.V. Netherlands
Johnson Controls International Kft Hungary
Johnson Controls International NV/SA Belgium
Johnson Controls International, Inc. Delaware
Johnson Controls International spol s.r.o. Czech Republic
Johnson Controls International spol s.r.o. Slovakia
Johnson Controls Investment Company, Inc. Delaware
Johnson Controls Jersey Limited Jersey, Channel Islands
Johnson Controls Lahnwerk Beteiligungs GmbH Germany
Johnson Controls Lahnwerk GmbH & Co. KG Germany
Johnson Controls Ltd. Canada
Johnson Controls Management Company Minnesota
Johnson Controls Managment Systems, Inc. Florida
Johnson Controls Martorell, S.A. Spain
Johnson Controls Maschinenbau GmbH & Co. KG Germany
Johnson Controls Maschineubau Verwaltungs-und Beteiligungs GmbH Germany
Johnson Controls Nederland BV Netherlands
Johnson Controls Nederland Holding BV Netherlands
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
Johnson Controls Network Integration Services, Inc Delaware
Johnson Controls Nevada, Inc. Norway
Johnson Controls Objekt Bochum GmbH & Co. KG Germany
Johnson Controls Objekt Bochum Verwaltungs GmbH Germany
Johnson Controls Objekt Zwickau GmbH & Co. KG Germany
Johnson Controls Objekt Zwickau Verwaltungs GmbH Germany
Johnson Controls Plastics C.I.S.A. Greece
Johnson Controls Plastics Ltd. U.K.
Johnson Controls Plastics Mexico, S.A. de C.V. Mexico
Johnson Controls Plastics NV/SA Belgium
Johnson Controls Plastics S.A. Argentina
Johnson Controls Plastics S.A. France
Johnson Controls Plastics S.A. Spain
Johnson Controls Plastics SpA Italy
Johnson Controls Plastics-Holding NV/ Belgium
Johnson Controls Roth Freres Insitu-Technologie GmbH Germany
Johnson Controls S.I.M. SpA Italy
Johnson Controls SA/NV Belgium
Johnson Controls Schwalbach GmbH Germany
Johnson Controls Seating Products SARL France
Johnson Controls Services Company Minnesota
Johnson Controls Services Ltd. Cayman Islands
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
Johnson Controls Services Mexico S.A. de C.V. Mexico
Johnson Controls Shanghai Ltd. China
Johnson Controls Software (Asia) Pvt. Ltd. India
Johnson Controls SpA Italy
Johnson Controls Systems S.A. Switzerland
Johnson Controls Technologies, Inc. Michigan
Johnson Controls Technology Company Michigan
Johnson Controls V.I., Inc. Virgin Islands
Johnson Controls World Services Inc. Florida
Johnson Controls World Services Ltd. Canada
Johnson Controls World Services (Thailand) Co., Ltd. Thailand
Johnson Controls, SA de CV Mexico
Johnson Controls/ Naue Engineering GmbH & Co. KG Germany
Johnson Controls/Naue Engineering Verwaltungs GmbH Germany
Johnson International Trade Co. Michigan
Johnson Service Co. (DE) Delaware
Johnson Service Co. (NV) Nevada
Johnson Yokogawa Corporation Delaware
JOROCA, NV Belgium
Joventa USA Inc. Nevada
Kata Aragon S.A. Spain
Kentair (Wholesale) Limited U.K.
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
Maintenance Automation Corporation Florida
MAJOR, SA France
Major SKT A.S. Turkey
Naue de Mexico SA de CV Mexico
Nicco Batteries Ltd. India
Paul Carter (Environmental) Services Limited U.K.
Perfekta Algemeine Industrie - und Handels GmbH Germany
Plastics USA Corporation Michigan
Portable Energy Products, Inc. Delaware
Price Johnson Controls (Hong Kong) Limited Hong Kong
Price Johnson Controls (M) Sdn Bhd Malaysia
Price Johnson Controls Pte. Ltd. Singapore
Procord Limited U.K.
Propel-Johnson Controls (M) Sdn. Bhd. Malaysia
R.J.T. S.A. France
R.P.L. Ltd. U.K.
Recticel JCI Formschaum GmbH Germany
Roth Johnson Technologie France
Roth Products Ltd. U.K.
Roth SA France
Roth S.A.R.L. France
Royal LePage Facility Management Services Ltd Canada
</TABLE>
<PAGE> 10
<TABLE>
<S> <C>
S.E.A. B.V. Netherlands
Semco-Johnson Controls Gerenciamento de Ativos Ltda. Brazil
Setex, Inc. Ohio
Shanghai Johnson Battery Company Limited China
Shanghai Johnson Controls Co. Ltd. China
Shanghai Johnson Controls Factory Ltd. China
Sicar B.V. Netherlands
Sistemas Automotrice Summa SA de CV ("SAS") Mexico
St. Thomas Energy Exports, Inc. Virgin Islands
Syncro Partners N.V. Belgium
Tata Johnson Controls Automotive Pvt. Ltd. India
TechnoTrim, Inc. Michigan
Tecnoconfort S.A. Spain
Tegg Corporation Delaware
TGS Technology, Inc. Delaware
Tolena S.A. Spain
Trim Masters Inc. Kentucky
Trimco spol s.r.o. Czech Republic
Uniloy S.r.L. Italy
Uniloy (U.K.) Ltd. U.K.
Uniloy de Mexico SA de CV Mexico
Uniloy France S.A. France
</TABLE>
<PAGE> 11
<TABLE>
<S> <C>
Urban Engineering Co. Illinois
Vanpro Assentos Lda. Portugal
Vanpro GmbH Entwicklungsges.f.Autositze Germany
Varta Batteries Canada Ltd Canada
Vintec Co. Michigan
YJC Engineering Chiba Company Japan
Yokogawa Johnson Controls Corporation Japan
</TABLE>
<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 21, 1996 appearing on page 43 of the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 37 of this Form 10-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-8 (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)
10. Registration Statement on Form S-3 (Registration No. 333-10707)
11. Registration Statement on Form S-3 (Registration No. 333-13525)
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
December 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 164,100
<SECURITIES> 0
<RECEIVABLES> 1,699,100
<ALLOWANCES> 22,600
<INVENTORY> 421,100
<CURRENT-ASSETS> 2,593,500
<PP&E> 3,386,000
<DEPRECIATION> 1,706,900
<TOTAL-ASSETS> 5,122,600
<CURRENT-LIABILITIES> 2,302,200
<BONDS> 756,500
0
154,600
<COMMON> 7,200
<OTHER-SE> 1,346,000
<TOTAL-LIABILITY-AND-EQUITY> 5,122,600
<SALES> 10,009,400
<TOTAL-REVENUES> 10,009,400
<CGS> 8,621,000
<TOTAL-COSTS> 8,621,000
<OTHER-EXPENSES> 861,200
<LOSS-PROVISION> 7,300
<INTEREST-EXPENSE> 77,100
<INCOME-PRETAX> 442,800
<INCOME-TAX> 181,600
<INCOME-CONTINUING> 234,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 234,700
<EPS-PRIMARY> 5.39
<EPS-DILUTED> 5.10
</TABLE>
<PAGE> 1
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JANUARY 22, 1997
To the Shareholders of Johnson Controls, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders of Johnson
Controls, Inc., a Wisconsin corporation, will be held in the Superior Room,
Milwaukee Athletic Club, 758 North Broadway Street, Milwaukee, Wisconsin, on
Wednesday, January 22, 1997, at 2:00 o'clock P.M. (Central Standard Time), for
the following purposes:
(1) To elect four directors of the class to serve for a term of three years
expiring at the annual meeting to be held in 2000 or until the
director's earlier retirement;
(2) To consider and act upon a proposal to ratify the appointment of Price
Waterhouse as auditors for 1997; and
(3) To consider and act upon any other matters which may properly come
before the meeting or any adjournments thereof.
Holders of Common Stock and Preferred Stock units of record at the close of
business on December 2, 1996, will be entitled to vote at the meeting and any
adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS,
JOHN KENNEDY
John P. Kennedy, Secretary
Milwaukee, Wisconsin
December 13, 1996
A PROXY FOR THE MEETING AND A PROXY STATEMENT ARE ENCLOSED HEREWITH. YOU ARE
REQUESTED TO FILL IN AND SIGN THE ENCLOSED FORM OF PROXY, WHICH IS SOLICITED BY
THE COMPANY'S BOARD OF DIRECTORS, AND TO MAIL IT PROMPTLY. SHAREHOLDERS WHO
EXECUTE PROXIES RETAIN THE RIGHT TO REVOKE THEM AT ANY TIME BEFORE THEY ARE
VOTED.
<PAGE> 2
JOHNSON CONTROLS, INC.
5757 NORTH GREEN BAY AVENUE
P.O. BOX 591
MILWAUKEE, WISCONSIN 53201
DECEMBER 13, 1996
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY 22, 1997
This proxy statement is furnished to the shareholders of Johnson Controls, Inc.
(the Company), in connection with the solicitation by the Board of Directors of
the Company of proxies for use at the annual meeting of shareholders to be held
at the Milwaukee Athletic Club at 758 North Broadway Street, Milwaukee,
Wisconsin, on January 22, 1997, at 2:00 o'clock P.M., Central Standard Time, and
any adjournments of such meeting.
Execution of a proxy given in response to this solicitation will not affect a
shareholder's right to attend the meeting and to vote in person. Presence at the
meeting of a shareholder who has signed a proxy does not alone revoke a proxy.
Any shareholder giving a proxy may revoke it at any time before it is exercised
by giving notice thereof to the Company in writing. Unless so revoked, the
shares represented by proxies will be voted at the meeting and at any
adjournments thereof. Where a shareholder specifies a choice by means of a
ballot provided in the proxy, the shares will be voted in accordance with such
specification.
Only owners of the Company's Common Stock and Preferred Stock units of record on
December 2, 1996, will be entitled to vote at the meeting. As of December 2,
1996, there were 41,520,242 shares of the Company's Common Stock outstanding,
each having one vote per share. As of December 2, 1996, there were also 300.3896
shares of the Company's Preferred Stock outstanding. Each share of Preferred
Stock consists of 10,000 units, each having one vote. On October 31, 1996, the
directors, nominees for directors, and officers of the Company as a group were
beneficial owners of 747,168 shares of the Company's Common Stock (including
418,810 shares subject to options exercisable within 60 days) constituting
approximately 1.82% of the outstanding shares of Common Stock, and 9,171 units
of the Company's Preferred Stock, constituting approximately 3.04% of the
outstanding units.
Effective as of November 30, 1994, rights (Rights) declared as a dividend by the
Board of Directors of the Company were approved and issued to shareholders as of
November 30, 1994. The Rights are not presently exercisable, but ten days after
a
1
<PAGE> 3
person or group acquires 20% or more of the Company's Common Stock or ten
business days (subject to extension) after a person or group announces a tender
offer to acquire at least 20% of the Company's Common Stock, the Rights will
become exercisable. Such Rights will entitle each holder of Common Stock of the
Company to purchase one share of authorized but unissued Common Stock of the
Company for each Right. The exercise price of each Right is $175.00. Upon the
occurrence of certain events, including the acquisition by any person or group
of 20% or more of the Common Stock, each Right, other than Rights held by an
acquiring party, will entitle the holder to purchase, at the exercise price,
Common Stock having a market value of two times the exercise price. The Rights
Agreement excludes from the effects thereof the inadvertent acquisition of 20%
or more of the Company's Common Stock, provided there is prompt divestment to
less than 20%. The Rights may be redeemed as provided and subject to the
limitations set forth in the agreement setting forth the terms of the Rights;
otherwise, such rights expire on November 30, 2004. None of the shareholdings or
percentages of outstanding shares reported in this proxy statement reflect the
Rights or shares of Common Stock which may be purchased upon the exercise of the
Rights. The Company has prepared a Summary of Rights to Purchase Common Shares,
a copy of which is available free of charge from the Company.
Set forth below is a tabulation indicating those persons whom the management of
the Company believes to be beneficial owners of more than 5% of any class of the
Company's securities. The following information is based on reports on Schedules
13G filed with the Securities and Exchange Commission or other information
believed to be reliable.
<TABLE>
<CAPTION>
Amount and
Name and Address of Nature of Percent
Title of Class Beneficial Owner Ownership of Class
- - --------------------- ---------------------------------- ---------- --------
<S> <C> <C> <C>
Common Stock FMR Corporation 4,996,452 (1) 11.6%
$0.16 2/3 Par Value 82 Devonshire Street
Boston, MA 02109
Series D Convertible Fidelity Management Trust Company 301.310 (2) 100%
Preferred Stock 82 Devonshire Street
$1.00 Par Value Boston, MA 02109
</TABLE>
- - -------------------------
(1) FMR Corporation reported as of October 31, 1996, sole voting power with
respect to 144,782 shares, and sole dispositive power with respect to
4,996,452 shares. The report includes shares beneficially owned by Fidelity
Management and Research Company, a wholly-owned subsidiary of FMR Corp.
(2) Fidelity Management Trust Company reported that, as of October 31, 1996, it
held shared voting power and sole dispositive power with respect to the
shares indicated above in its capacity as trustee of the Johnson Controls,
Inc. Employee Stock Ownership Trust.
2
<PAGE> 4
ELECTION OF DIRECTORS
The Board of Directors consists of 13 members of whom approximately one-third
are elected each year to serve for terms of three years or until the director's
earlier retirement pursuant to the Board of Directors Retirement Policy(1). It
is intended that the enclosed form of proxy will be voted for the election of
Messrs. Paul A. Brunner, Southwood J. Morcott, and Gilbert R. Whitaker, Jr., and
Ms. Martha R. Seger, all of whom are now members of the Board, for three-year
terms or until the director's earlier retirement.
Directors are elected by a plurality of the votes cast by the holders of the
Company's Common Stock and Preferred Stock units at a meeting at which a quorum
is present. "Plurality" means that the individuals who receive the largest
number of votes cast are elected as directors up to the maximum number of
directors to be chosen at the meeting. Consequently, any shares not voted
(whether by abstention, broker nonvote or otherwise) have no impact in the
election of directors except to the extent the failure to vote for an individual
results in another individual receiving a larger number of votes.
- - -------------------------
(1) The Board of Directors has adopted a Retirement Policy that requires a
director to retire as of the last regular Board of Directors' meeting held
in the year of his or her 70th birthday or, in the event a shareholders'
meeting is held on that date, then such retirement shall be effective the
next day. The Retirement Policy does not apply to Mr. Brengel.
3
<PAGE> 5
The Directors Committee of the Board of Directors has no reason to believe that
any of such nominees will be unable or unwilling to serve as a director if
elected, but if any nominee should be unable or for good cause unwilling to
serve, the shares represented by proxies solicited by the Board of Directors
will be voted for the election of such other person for the office of director
as the Board of Directors may recommend in place of such nominee. Set forth
below is information with respect to the nominees and the other directors on the
Board.
<TABLE>
<S> <C>
CLASS OF 2000 (ALL OF WHOM ARE NOMINEES)
[PICTURE] PAUL A. BRUNNER Director since 1983
Age 61
President and Chief Executive Officer, Spring Capital, Inc.,
Stamford, Connecticut (investment management) since 1985.
President and Chief Executive Officer, ASEA, Inc., 1982-1984.
President and Chief Executive Officer, Crouse Hinds Co.,
1967-1982. Chairman of Audit Committee and member of
Compensation Committee.
[PICTURE] SOUTHWOOD J. MORCOTT Director since 1993
Age 58
Chairman since 1990, President from 1986 to 1996, and Chief
Executive Officer since 1989 of Dana Corporation, Toledo, Ohio
(vehicular and industrial component manufacturer). Mr. Morcott
is a director of CSX Corporation, Dana Corporation, and
Phelps-Dodge Corporation. Member of Compensation Committee and
Directors Committee.
</TABLE>
4
<PAGE> 6
<TABLE>
<S> <C>
[PICTURE] MARTHA R. SEGER Director since 1991
Age 64
Visiting Distinguished Professor of Economics at Hillsdale
College from 1996 to present. Visiting Distinguished Professor
of Finance at Central Michigan University from 1993 to 1996.
John M. Olin Distinguished Fellow in the Karl Eller Center for
the Study of the Private Market Economy, School of Business and
Public Administration, University of Arizona, Tucson, Arizona,
from 1991 to 1993. Member of the Federal Reserve Board from
1984 to 1991. Dr. Seger is a director of Amoco Corp., Fluor
Corp., Kroger, Inc., Providian Corp., Tucson Electric Power,
and Xerox Corp. Member of Pension and Benefits Committee.
[PICTURE] GILBERT R. WHITAKER, JR. Director since 1986
Age 65
Professor of Business Economics, University of Michigan,
1979-Present. Provost and Executive Vice-President for Academic
Affairs, University of Michigan, 1990-1995. Mr. Whitaker served
as Dean, School of Business Administration, University of
Michigan, from 1979 to 1990. Mr. Whitaker is a director of
Handleman Company, Lincoln National Corporation, and Structural
Dynamics Research Corp. Member of Pension and Benefits
Committee.
CLASS OF 1999
[PICTURE] FRED L. BRENGEL Director since 1964
Age 73
Chairman of the Board, Johnson Controls, Inc., Milwaukee,
Wisconsin, from 1985 to 1993. Mr. Brengel served as the Chief
Executive Officer of Johnson Controls, Inc., from 1967 to 1988.
Mr. Brengel is a director of Rexworks, Inc. Member of Executive
Committee.
</TABLE>
5
<PAGE> 7
<TABLE>
<S> <C>
[Picture] ROBERT A. CORNOG Director since 1992
Age 56
President, Chief Executive Officer and Chairman of the Board of
Directors of Snap-on Incorporated (tool manufacturer) since
1991. Mr. Cornog is a director of Snap-on Incorporated,
Wisconsin Electric Power Company, and Wisconsin Energy
Corporation. Member of Audit Committee and Executive Committee.
[Picture] JAMES H. KEYES Director since 1985
Age 56
Chairman and Chief Executive Officer, Johnson Controls, Inc.,
Milwaukee, Wisconsin. In 1985 Mr. Keyes was named Executive
Vice President and subsequently became Chief Operating Officer
and a member of the Board of Directors. He became President of
Johnson Controls, Inc., in 1986, its Chief Executive Officer in
1988, and Chairman in 1993. Mr. Keyes is a director of Firstar
Corp., LSI Logic Corporation, and Universal Foods Corporation.
Chairman of Executive Committee.
[Picture] R. DOUGLAS ZIEGLER Director since 1979
Age 69
Chairman, Principal Preservation Portfolios, Inc., West Bend,
Wisconsin (mutual funds) and The Ziegler Companies, Inc., West
Bend, Wisconsin (holding company-financial services and
environmental services). Mr. Ziegler served as the Chief
Executive Officer of The Ziegler Companies, Inc., through 1990.
Mr. Ziegler is a director of Principal Preservation Portfolios,
Inc., and The Ziegler Companies, Inc. Chairman of Pension and
Benefits Committee and member of Executive and Directors
Committees.
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C>
CLASS OF 1998
[Picture] WILLIAM F. ANDREWS Director since 1991
Age 65
Chairman of Schrader-Bridgeport International, Inc. and
Chairman of Scovill Fasteners Inc., since 1995. Chairman,
President and Chief Executive Officer, Amdura Corporation from
1993-1995. President and Chief Executive Officer, UNR
Industries, Inc., Chicago, Illinois (diversified manufacturer)
from 1991 to 1993, President of Massey Investment Company,
Nashville, Tennessee (private investment company) from 1989 to
1990, and Chairman, CEO and President of Singer Sewing Machine
Company (SSMC) Inc., Shelton, Connecticut (diversified
manufacturer) from 1986 to 1989. Mr. Andrews is a director of
Black Box Corp., Corrections Corporation of America, Katy
Industries, Navistar International Corporation, Northwestern
Steel & Wire Co., and Southern New England Telecommunications
Corporation. Member of Compensation and Directors Committees.
[Picture] ROBERT L. BARNETT Director since 1986
Age 56
Corporate Vice President, iDen Group, Motorola, Schaumburg,
Illinois, since 1995. Consultant in the field of international
communications from 1992 to 1995. Vice-Chairman, Ameritech and
President, Ameritech Bell Group, American Information
Technologies Corporation, Chicago, Illinois
(telecommunications) from 1989 to 1993 and President, Ameritech
Enterprise Group, from 1987 to 1989. Mr. Barnett is a director
of USG Corp. Member of Executive and Pension and Benefits
Committees and Chairman of Directors Committee.
[Picture] WILLIE D. DAVIS Director since 1991
Age 62
President of All Pro Broadcasting Incorporated, Los Angeles,
California (radio broadcasting) since 1977. Mr. Davis is a
director of Alliance Bank Co., Dow Chemical Company, Kmart
Corporation, MGM Grand, Inc., Sara Lee Corporation, and WICOR,
Inc. Mr. Davis is also a director of 42 funds for which Strong
Capital Management, Inc. is the investment adviser. Member of
Audit Committee.
</TABLE>
7
<PAGE> 9
<TABLE>
<S> <C>
[Picture] DONALD TAYLOR Director since 1975
Age 69
Principal in Sullivan Associates, Milwaukee, Wisconsin
(specialists in board of directors searches) since 1992. Mr.
Taylor served as Managing Director U.S.A., Anatar Investments,
Ltd., (venture capital specialist) from 1989 to 1992, and
previously as Chairman of Rexnord, Inc., Milwaukee, Wisconsin.
Mr. Taylor is a director of Banta Corporation, Harnischfeger
Industries, Inc., and Superior Services, Inc. (waste handling).
Chairman of Compensation Committee and member of Executive and
Audit Committees.
[Picture] RICHARD F. TEERLINK Director since 1994
Age 60
President and Chief Executive Officer of Harley-Davidson, Inc.,
Milwaukee, Wisconsin, since 1989, and Chairman since May, 1996.
Mr. Teerlink has served as President and Chief Operating
Officer of Harley-Davidson since 1988. Mr. Teerlink is a
director of Firstar Bank Milwaukee and Outboard Marine
Corporation. Member of Audit Committee.
</TABLE>
Each of the directors or nominees for director has had the principal occupation
indicated or in certain instances has served in another executive position with
the employer indicated or an affiliate thereof during the last five years.
The Audit Committee of the Board of Directors met three times during fiscal
1996. Its functions include, but are not necessarily limited to, the following:
(1) to review the adequacy of internal controls established by management; (2)
to assess the adequacy of the financial reporting process and selection of
accounting policies; (3) to review management's evaluation and proposed
selection of independent accountants, including the appropriateness of fees, and
to recommend to the Board of Directors the appointment of independent
accountants subject to the ratification by the shareholders; (4) to review the
adequacy of audit plans prepared by internal audit and independent accountants;
(5) to review periodically the status of significant issues and internal control
recommendations; (6) to meet and to consult with the Company's internal auditors
and accounting and financial personnel and with independent public accountants
concerning the foregoing matters; (7) to report on the results of these
activities periodically to the Board of Directors; (8) to review significant
issues concerning litigation, contingent liabilities, and tax and insurance; (9)
to review management information systems of the Company; and (10) to monitor
compliance procedures of the Company and their implementation.
8
<PAGE> 10
The Compensation Committee of the Board of Directors met four times during
fiscal 1996. Its functions include, but are not necessarily limited to, the
following: (1) to consider and make recommendations to the Board of Directors
regarding the selection and retention of elected officers and certain other
principal officers and key employees of the Company and its subsidiaries; (2) to
consider and make recommendations regarding salary structure, officer gradings,
and salaries for elected officers; (3) to administer, make grants and awards,
make rules, and recommend amendments to the Company's executive compensation
plans; (4) to consider and make recommendations to the Board concerning bonus
awards, perquisites, and other remuneration to executive officers; (5) to
consider and make recommendations concerning the total compensation package for
all elected officers and to approve the disclosure of such information in the
Company's proxy statement; (6) to oversee the selection of, and to meet with,
outside consultants to review the Company's executive compensation programs as
appropriate; (7) to review and make recommendations concerning management
succession; and (8) to recommend to the Board of Directors the selection of the
Chief Executive Officer of the Company.
The Directors Committee of the Board of Directors met three times during fiscal
1996. Its function includes, but is not necessarily limited to, the following:
(1) to review the qualifications of, and to make recommendations to the Board of
Directors concerning, nominees for directors; (2) to review and consider
candidates for election as directors submitted by the shareholders; (3) to
consider and make recommendations concerning the size and composition of the
Board of Directors; (4) to develop and recommend guidelines and criteria to
determine the qualifications of directors; (5) to recommend an overall
compensation program for directors; (6) to review and recommend committees and
committee structure for the Board; (7) to recommend performance criteria for the
Board of Directors and to review its performance; and (8) to review conflicts of
interest that may affect directors. Shareholders wishing to propose director
candidates for consideration by the Directors Committee may do so by writing to
the Secretary of the Company, giving the candidate's name, biographical data and
qualifications. Further, the Company's By-Laws set forth certain requirements
for shareholders wishing to nominate director candidates for consideration by
shareholders. With respect to elections of directors to be held at an annual
meeting, among other things, a shareholder must give written notice of an intent
to make such a nomination complying with the By-Laws to the Secretary of the
Company not less than 60 days nor more than 90 days prior to the fourth Tuesday
in the month of January.
The Executive Committee of the Board of Directors met twice during fiscal 1996.
Its functions include the exercise of certain powers of the Board of Directors
in the
9
<PAGE> 11
general supervision and control of the business and affairs of the Company
during intervals between meetings of the Board of Directors.
The Pension and Benefits Committee of the Board of Directors met five times
during fiscal 1996. Its functions include, but are not necessarily limited to,
the following: (1) to review annually actuarial assumptions and actuarial
valuation of the pension plans of the Company; (2) to review investment policy
of the funds of the employee benefit plans of the Company; (3) to select and to
terminate investment managers as appropriate; (4) to review with investment
advisors past performance and current investment strategy; (5) to review and
approve the adoption of any new trust agreements or master trusts implementing
the plans; (6) to monitor and oversee Company policies affecting employee
benefit plans; and (7) to oversee administration of plans, to review annually
plan provisions, and to recommend amendments to the plans as appropriate.
During fiscal 1996, the Board of Directors met seven times. Each director
attended 80% or more of the total number of meetings held during fiscal 1996
while he or she was a member of the Board, including meetings of committees of
which the director is a member.
Directors who are not employees receive a $34,500 annual retainer, plus $1,200
for each Board meeting they attend, $1,200 for each meeting they attend of Board
committees of which they are members, $1,500 for each meeting they attend of
Board committees of which they are chairmen, plus expenses.
Directors, who are not covered by other insurance and who are under 65 years of
age, may purchase medical coverage on the same basis as Company employees. A
director who retires after attaining the age of 65 and 6 years of service as a
director will be paid the annual retainer in effect upon his or her retirement
for life. The value of this retirement plan per annum depends on life expectancy
at retirement, the retainer at retirement and the number of years of Board
Service. The annual value for current directors ranges from $8,021 to $23,278.
Under the Stock Plan for Outside Directors adopted on January 27, 1993, up to
50% of the retainer fee will be paid in Common Stock each year. The remainder
will be paid in cash at the same time. The stock will be priced as of the date
of the Annual Meeting. In addition, new directors receive an initial grant of
200 shares of Common Stock upon election or appointment. New directors also
receive a pro rata share of the annual retainer for the remainder of that year,
and the stock provided as part of the annual retainer will be priced as of the
date of the first meeting of the Board at which the new director participates.
10
<PAGE> 12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below shows the compensation for the past three
fiscal years of each of the Company's five most highly compensated executive
officers, including the Chief Executive Officer (the named executive officers).
STOCK OPTION/STOCK APPRECIATION RIGHT GRANTS
The Company has in effect employee stock option plans pursuant to which options
to purchase Common Stock of the company and stock appreciation rights (SARs),
which are rights, granted in tandem with an option, to receive cash payments
equal to any appreciation in value of the shares subject to option from the date
of the option grant to the date of exercise in lieu of exercise of the option,
are granted to officers and other key employees of the Company and its
subsidiaries. The table on page 12 shows Options/SAR grants in fiscal 1996 to
the named executive officers. Of the stock options shown in the Summary
Compensation Table below and the Option/SAR Grant Table on page 12, 50% of the
options were options with tandem SARs.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR AND OPTION/SAR VALUE TABLE
The table on page 12 shows information concerning the exercise of stock options
or tandem SARs during fiscal 1996 by each of the named executive officers and
the fiscal year-end value of unexercised options and SARs.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation --------------------
----------------------------------- Long-Term
Other Annual Incentive All Other
Fiscal Compensation Options/ Payout Compensation
Name and Principal Position Year Salary($) Bonus($) ($) (1) SARs (#) ($) ($) (2)
- - ------------------------------ ------ --------- -------- ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James H. Keyes 1996 787,503 575,000 -- 40,000 450,000 62,925
Chairman and Chief Executive 1995 731,250 599,400 -- 30,000 363,000 54,858
Officer 1994 662,500 628,560 -- 51,000 330,000 30,515
John M. Barth 1996 441,249 260,000 -- 24,000 204,000 31,693
Executive Vice-President 1995 407,496 264,649 -- 20,000 165,000 27,230
1994 367,500 268,114 -- 24,000 145,000 15,598
Joseph W. Lewis 1996 365,247 171,000 -- 17,000 188,000 24,550
Executive Vice-President 1995 346,000 175,463 -- 15,000 156,200 22,791
1994 326,750 210,367 -- 19,000 137,000 13,455
Stephen A. Roell 1996 324,999 188,000 -- 17,000 101,000 23,789
Vice-President and Chief 1995 302,496 200,136 -- 15,000 79,200 19,123
Financial Officer 1994 250,000 189,168 -- 20,000 72,000 9,407
John P. Kennedy 1996 280,503 172,000 -- 12,000 91,000 18,492
Vice-President, Secretary, and 1995 248,500 144,547 -- 7,000 78,100 15,241
General Counsel 1994 221,250 131,162 -- 8,500 71,000 7,633
</TABLE>
- - -------------------------
(1) The aggregate amount of "Other Annual Compensation," which includes
perquisites and personal benefits was less than the required reporting
threshold (the lesser of $50,000 or 10% of the officer's annual salary and
bonus for the year).
(2) "All Other Compensation" consists of contributions by the Company on behalf
of the named individuals to the Company's savings and investment plans.
11
<PAGE> 13
OPTIONS/SAR GRANTS IN FISCAL 1996(1)
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
- - ----------------------------------------------------------------------- Value at Assumed Annual
% of Total Rates of Stock Price
Options/SARs Exercise Appreciation for Full
Granted to or Base Option Term
Options/SARs Employees in Price Expiration -----------------------
Name Granted Fiscal 1996 ($/Share) Date 5% 10%
- - ----------------- ------------ ------------ --------- ---------- ---------- ----------
OPTIONS/SARs GRANTED November 16, 1995
<S> <C> <C> <C> <C> <C> <C>
James H. Keyes 40,000 5.41% $63.6875 11/15/05 $1,602,109 $4,060,059
John M. Barth 24,000 3.25% $63.6875 11/15/05 $ 961,265 $2,436,035
Joseph W. Lewis 17,000 2.30% $63.6875 11/15/05 $ 680,896 $1,725,525
Stephen A. Roell 17,000 2.30% $63.6875 11/15/05 $ 680,896 $1,725,525
John P. Kennedy 12,000 1.62% $63.6875 11/15/05 $ 480,633 $1,218,018
</TABLE>
- - -------------------------
(1) The Stock Option/SAR plans are administered by the Compensation Committee of
the Board of Directors, which has authority to determine the individuals to
whom and the terms at which option and SAR grants shall be made, certain
terms of the options, and the number of shares to be subject to each option.
The per share option/SAR prices are the fair market value of the Company's
Common Stock on the date of the grant, and the term of the options is 10
years. Fifty percent of each award is exercisable two years after the grant,
and the remainder is exercisable three years after the grant.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Number of Unexercised In-the-Money
Shares/SARs Options/SARs at FY-End Options/SARs at FY-End
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- - ----------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
James H. Keyes 0 $ 0 96,500 / 95,500 $3,157,593 / $1,751,468
John M. Barth 20,000 $630,000 12,000 / 56,000 $252,750 / $1,032,500
Joseph W. Lewis 0 $ 0 38,100 / 41,500 $1,263,518 / $773,718
Stephen A. Roell 10,000 $312,499 10,000 / 42,000 $210,625 / $784,250
John P. Kennedy 0 $ 0 19,450 / 23,250 $669,115 / $402,703
</TABLE>
12
<PAGE> 14
LONG-TERM INCENTIVE PLAN AWARDS
The following table shows each Contingent Performance Award made to any named
executive officer for the 1997 fiscal year under the Company's Long-Term
Performance Plan (LTPP). Payouts of awards are tied to the Company's weighted
average return on shareholder's equity for fiscal years 1997, 1998 and 1999
compared to the median return on shareholder's equity of the Standard & Poor's
Manufacturers (Diversified Industrial) Index (S&P index) during the same
three-year period. Performance in the third year of the award is multiplied by
3/6, performance in the second year is multiplied by 2/6, and performance in the
first year is multiplied by 1/6 to establish a weighted average. If the
Company's average level of return is: (1) less than the 45th percentile of the
return for companies in the S&P index, no award is earned; (2) equal to or
greater than the 45th percentile, the threshold amount is earned; (3) equal to
or greater than the 50th percentile, the target amount is earned; (4) equal to
or greater than the 55th percentile, 110% of the target amount is earned; and
(5) equal to or greater than the 60th percentile, the maximum amount is earned.
In fiscal 1996, based upon the data available at the time of this proxy, LTPP
participants were paid 100% of the maximum amount available under the criteria
established by the Compensation Committee. When the remaining comparison
companies have reported, these awards could decrease.
<TABLE>
<CAPTION>
Amount of Performance
Contingent Period Until
Performance Maturation or Threshold Target Maximum
Name Award ($) Payout ($) ($) ($)
- - --------------------- ----------- ------------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
James H. Keyes....... 720,000 1997-1999 576,000 720,000 864,000
John M. Barth........ 315,000 Fiscal Years 252,000 315,000 378,000
Joseph W. Lewis...... 222,000 178,000 222,000 266,000
Stephen A. Roell..... 198,000 158,000 198,000 238,000
John P. Kennedy...... 160,000 128,000 160,000 192,000
</TABLE>
EMPLOYMENT CONTRACTS
The Company has employment agreements with each of the executive officers of the
Company including the named executive officers. These agreements provide that
employment shall continue for continuous terms, unless terminated by either the
Company or the employee as provided therein; the term of the agreements,
however, does not extend automatically after the employee reaches age 65. These
agreements provide for termination by the Company for cause, for death or
disability and under certain circumstances without cause. In the event of
termination without cause the
13
<PAGE> 15
employees under any of the contracts will be entitled to receive benefits in an
amount equal to the greater of two times the Company's termination allowance
policy for administrative employees or an amount equal to 52 weeks' earnings of
the employee. In the event of termination by the Company for cause, the
employee's compensation is terminated immediately. Change of control agreements
have also been entered into by the Company with these executives. In the event
of a change of control, these agreements provide for a severance payment equal
to three times the executive's annual compensation at the time plus a lump sum
payment for the actuarial equivalent of lost benefits under the applicable
retirement plan if the executive is terminated other than for cause or has good
reason to terminate his or her employment. If the amount to be paid upon
termination exceeds certain amounts established under the Internal Revenue Code,
so as to require the payment of additional federal taxes, the executive receives
an additional payment such that, after payment by the executive of all taxes
payable in connection with the agreement, the executive will retain the full
amount of the payments to which he is entitled under the agreement. The
executive has a 30-day period at the end of the first year after a change of
control to terminate his or her employment for any reason and receive this
benefit.
The Company has in effect an Executive Survivor Benefits Plan for certain
executives. Coverage under this plan is in lieu of the Company's regular group
life insurance coverage. In the event of the death of a participating executive
while he is employed by the Company, his beneficiary is entitled to payments of
between 90% and 100% (depending on the executive's age) of the executive's final
base annual salary for a period of 10 years.
The Executive Incentive Compensation Plan (EICP) provides that, in the event of
a change of control of the Company, certain participants, including the named
executive officers, may re-elect to receive early payment of deferred amounts,
and a participant may direct the Company to cause a letter of credit be issued
in an amount sufficient to provide for all payments due to such participant
under the Plan. The Long-Term Performance Plan also provides that, in the event
of a change of control of the Company, certain participants, including the named
executive officers, shall be entitled to receive early payment of deferred
amounts.
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is the tabulation indicating as of October 31, 1996, the shares
of the Company's Common Stock beneficially owned by each director and nominee,
each of the named executive officers, and directors and executive officers of
the Company as a group. No executive officer or director owns more than 1% of
the outstanding shares of Common Stock.
14
<PAGE> 16
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
Amount and
Nature(1) of Units Representing
Name of Stock Deferred(3)
Beneficial Owner Ownership Compensation
- - ----------------------------------------- ----------------- ------------------
<S> <C> <C>
James H. Keyes 199,919(2) 47,193 units
John M. Barth 51,209(2) 7,827 units
Joseph W. Lewis 116,221(2) 25,484 units
Stephen A. Roell 36,476(2) 833 units
John P. Kennedy 30,172(2) 4,488 units
William F. Andrews 2,459 0 units
Robert Barnett 1,448 7,515 units
Fred L. Brengel 109,327 11,767 units
Paul A. Brunner 6,100 0 units
Robert A. Cornog 2,109 1,473 units
Willie D. Davis 1,300 0 units
Southwood J. Morcott 1,094 1,132 units
Martha R. Seger 1,167 611 units
Donald Taylor 3,241 836 units
Richard F. Teerlink 1,328 0 units
Gilbert R. Whitaker, Jr. 2,420 2,674 units
R. Douglas Ziegler 12,900 0 units
All directors and executive officers as a group (not including deferred shares
referred to in footnote 3) TOTAL 747,168(2)
TOTAL PERCENT OF CLASS OF COMMON STOCK 1.82%
</TABLE>
- - -------------------------
(1) Includes all shares with respect to which each officer or director directly,
through any contract, arrangement, understanding, relationship or otherwise,
has or shares the power to vote or to direct voting of such shares or to
dispose or to direct the disposition of such shares.
(2) Includes shares of Common Stock which, as of October 31, 1996, were subject
to outstanding stock options exercisable within 60 days as follows: Mr.
Keyes, 137,000; Mr. Barth, 34,000; Mr. Lewis, 55,100; Mr. Roell, 27,500; and
Mr. Kennedy, 27,200.
(3) Includes deferred shares under the EICP, LTPP, Deferred Compensation Plan
for Certain Directors, or other deferred compensation plans. Units will not
be distributed in the form of Common Stock.
15
<PAGE> 17
COMPENSATION COMMITTEE REPORT
EXECUTIVE COMPENSATION PRINCIPLES
The Company's Executive Compensation Program is based on guiding principles
designed to align executive compensation with Company values and objectives,
business strategy, management initiatives, and business financial performance.
The Johnson Controls Vision, approved by the Board of Directors, identifies
customer satisfaction, technology, growth, market leadership, and shareholder
value as the Company's primary objectives. In applying these principles the
Compensation Committee (the Committee) has established a program to:
- - - Attract and retain key executives critical to the long-term success of the
Company and each of its business groups.
- - - Reward executives for long-term strategic management and the enhancement of
shareholder value.
- - - Integrate compensation programs with both the Company's annual and long-term
strategic planning and measuring processes, which focus on after-tax return on
shareholder equity, return on investment, growth, market share, and cost
reduction.
- - - Support a performance-oriented environment that rewards performance not only
with respect to Company goals but also Company performance as compared to that
of industry performance levels.
- - - Take steps to assure that future executive compensation payments remain tax-
deductible.
EXECUTIVE COMPENSATION PROGRAM
The total compensation program involves a market comparison of total
compensation, based on surveys provided to the Company by an independent
compensation consultant. A survey of 22 companies with annual sales between $1
billion and $13 billion, comparing all elements of executive officer
compensation, was provided by an independent compensation consultant with
respect to compensation for officers and senior managers. Average sales of these
22 companies was $5 billion; adjustments were made to account for differences in
annual sales between the Company and those companies in the survey. The level of
comparison is the 50th percentile for total compensation.
The program consists of both cash and equity-based compensation. The annual
compensation consists of a base salary and an annual bonus under the EICP. The
Committee determines the level of salary for key executive officers and a salary
range
16
<PAGE> 18
for other executive officers. Factors considered in determining salary amounts
or ranges include prior year salary, changes in individual job responsibilities,
past performance of individuals, and, most importantly, achievement or trends
toward achievement of specified Company goals and the salary comparison survey
results. Generally, all executive officers participate in the EICP. For each
fiscal year, the Committee determines in advance and communicates to the
executive the formula for the award, which is based on specified benchmarks for
return on shareholders' equity, or return on group or division assets, increase
in market share, or cost reduction. These benchmarks are consistent with the
Company's annual and long-term strategic planning objectives based on
achievement of business plans approved by the Board of Directors that include
goals of improved performance over the previous year and take into account
industry growth and cycles. At the end of the fiscal year, the Committee applies
the formula to objective performance results to determine an executive's award
for the year. Except under the EICP Qualified Plan, where discretionary
increases to the bonus amount may no longer be made, adjustments may then be
made by the Committee, within specified ranges, for the executive's achievement
of specified objectives and individual job performance.
Long-term incentives are provided through both the LTPP and stock options. The
Committee reviews and approves the participation of executive officers of the
Company and its subsidiaries under the LTPP. Generally, all named executive
officers participate in the LTPP, which is intended to motivate executives to
achieve longer-term objectives by providing incentive compensation based on
Company performance over a three-year period. For each award under the LTPP, the
Committee assigns an executive a contingent performance award, which the
executive has the opportunity to earn based upon the Company's return on equity
during the specified three-year period. Currently, LTPP awards are based upon a
specified level of return on shareholders' equity relative to the Standard &
Poor's Manufacturers (Diversified Industrial) Index median return on
shareholders' equity. The specified level of return is consistent with the
Company's strategic planning objectives. At the end of the period, the Committee
applies the specified goal to objective performance results to determine the
executive's LTPP award.
The Committee grants stock options and stock appreciation rights (SARs) under
the 1992 Stock Option Plans. The Committee has the authority to determine the
individuals to whom stock options and SARs are awarded, the terms at which
option grants shall be made, the terms of the options, and the number of shares
subject to each option. Compensation to executives through stock options and
SARs and the LTPP, taken together, is targeted at the 50th percentile of such
compensation granted by similar companies as identified in the survey. Current
stock ownership by executives, the
17
<PAGE> 19
number of unexercised options that may be outstanding for an executive or
executives as a whole, and other factors may be considered only for new or
promoted officers. Through the award of stock option grants, the objective of
aligning executive officers' long-range interests with those of the shareholders
is met by providing the executive officers with the opportunity to build a
meaningful stake in the Company.
Executive officers may also participate in the Company's Savings and Investment
Plan (401k Plan), which includes Company contributions to the Plan, an
Equalization Benefit Plan under which certain executives, including the named
executive officers, are entitled to additional benefits that cannot be paid
under qualified plans due to Internal Revenue Code limitations and in addition
other benefit plans generally available to all levels of salaried employees.
Also, certain executive officers may elect to defer certain awards or
compensation under plans. Deferred awards are accounted for as if invested in
various accounts.
The Board of Directors has adopted an Executive Stock Ownership Policy, which
requires that all officers and senior managers in each business group, within
five years of becoming subject to the Policy, hold Common Stock of the Company
in an amount, depending upon the officer or manager, of one to three times their
annual salary. Total compensation to be received by these individuals is not
affected by the policy. The 1995 Common Stock Purchase Plan for Executives
(CSPPE) facilitates the acquisition of common stock by executives subject to the
Executive Stock Ownership Policy. All officers and key executives may
participate in the CSPPE. Participants in the CSPPE may deduct from their pay up
to a maximum of $2,500 per month to purchase shares of the Company's Common
Stock. The price of each share of such stock will be 100% of the average price
of shares purchased by Firstar Trust Company as agent for the participants. No
brokerage fees or commissions will be charged, and the Company will bear the
expenses of administering the CSPPE.
Approximately 50% of the total compensation paid in the executive officer group
is performance related, which is comparable to the average of the companies
identified in the executive compensation survey.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee relied on the same approach in determining the Chief Executive
Officer's compensation as it used for compensation of other executive officers.
The Chief Executive Officer of the Company received a base salary in fiscal 1996
of $800,000, which represented an increase of 6.7% over the previous year. The
Chief Executive Officer's base salary remained below the average base salary for
chief executive officers for the 22 companies reviewed. His fiscal 1996 EICP
award of
18
<PAGE> 20
$575,000 was based upon the return on shareholder's equity for the Company for
fiscal 1996 and represented 45% of the maximum amount available under the
criteria established by the Committee. In fiscal 1996, the Chief Executive
Officer received payments under the LTPP of $450,000, based upon the Company's
return on shareholder's equity over the past three fiscal years, and it
represented 100% of the maximum amount available under the criteria established
by the Committee. When the remaining comparison companies have reported, this
award could subsequently decrease. Stock options were awarded in November 1995,
when the Chief Executive Officer received an option award of 40,000 shares.
Approximately 66% of the total compensation paid to the Chief Executive Officer
is performance related, which is comparable to the average for the companies
identified in the survey.
COMPENSATION COMMITTEE
Donald Taylor, Chairman
William F. Andrews
Paul A. Brunner
Southwood J. Morcott
19
<PAGE> 21
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on the market price of the Common
Stock and assuming reinvestment of dividends, with the cumulative total return
of companies on the Standard & Poor's 500 Stock Index and the S&P Manufacturers
(Diversified Industrial) Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG S&P 500 INDEX, S&P MANUFACTURERS (DIVERSIFIED
INDUSTRIAL) INDEX AND JOHNSON CONTROLS, INC.
<TABLE>
<CAPTION>
MANUFACTUR-
ERS (DIVER-
MEASUREMENT PERIOD SIFIED
(FISCAL YEAR COVERED) S&P 500 INDUSTRIAL) JCI
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 111.05 105.07 123.97
1993 125.49 124.56 173.81
1994 130.11 138.41 163.43
1995 168.82 184.35 213.84
1996 203.14 237.50 259.46
</TABLE>
ASSUMES $100 INVESTED ON SEPTEMBER 30, 1991, IN S&P 500 INDEX S&P MANUFACTURERS
(DIVERSIFIED INDUSTRIAL) INDEX AND JOHNSON CONTROLS, INC., AND THAT DIVIDENDS
ARE REINVESTED AT THE END OF MONTH IN WHICH THEY ARE PAID.
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PENSION PLANS
PENSION PLAN TABLE
The following table shows the maximum annual retirement benefits payable in
dollars under the Company's plans (including amounts attributable to the
Company's Equalization Benefit Plan) at the normal retirement age for specified
remunerations and years of service under provisions in effect on September 30,
1996, and assuming retirement on that date. Compensation for purposes of the
plans for the named executive officers generally corresponds with the aggregate
of the earned salary, plus bonus or Executive Incentive Compensation Plan awards
for each such person.
<TABLE>
<CAPTION>
Maximum Annual Pension at Normal Retirement Age
Average Annual After Years of Participating Service
Compensation in (Prior to Adjustment for Social Security
Highest 5 Consecutive Years Covered Compensation)
of Last 10 Years -----------------------------------------------
Before Retirement 25 Years 30 Years 35 Years 40 Years
- - --------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
100,000 42,500 51,000 56,750 62,500
200,000 85,000 102,000 113,500 125,000
250,000 106,250 127,500 141,875 156,250
300,000 127,500 153,000 170,250 187,500
400,000 170,000 204,000 227,000 250,000
500,000 212,500 255,000 283,750 312,500
600,000 255,000 306,000 340,500 375,000
700,000 297,500 357,000 397,250 437,500
800,000 340,000 408,000 454,000 500,000
900,000 382,500 459,000 510,750 562,500
1,000,000 424,992 509,988 567,492 624,996
1,100,000 467,496 561,000 624,252 687,492
1,200,000 510,000 612,000 681,000 750,000
1,300,000 552,500 663,000 737,750 812,500
1,400,000 595,000 714,000 794,500 875,000
</TABLE>
As of September 30, 1996, the persons named in the Summary Compensation Table
were credited with the following years of service under the Company's pension
plan: Mr. Keyes, 27 years; Mr. Barth, 26 years; Mr. Lewis, 35 years; Mr. Roell,
13 years; and Mr. Kennedy, 11 years.
Pension plans of the Company generally apply to all regular employees, including
officers of the Company. The Johnson Controls Pension Plan (the Plan), effective
January 1, 1989, generally covers all salaried and non-union hourly employees of
the Company. The Plan has been amended from time to time. Under the Plan,
benefits are accrued according to the following formula: 1.15% of Participant's
Average Monthly Compensation multiplied by the Participant's years of Benefit
Service plus 0.55% of
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Average Monthly Compensation in excess of the Participant's Covered Compensation
multiplied by the Participant's years of Benefit Service. The amounts actually
payable may be actuarially adjusted to reflect the Participant's marital status,
early retirement or termination, and, in some circumstances, age. "Average
Monthly Compensation" is defined as the average monthly compensation for the
highest five consecutive years in the last 10 years. "Benefit Service" generally
means the number of years worked for the Company. "Covered Compensation" means
the average of compensation subject to Social Security taxes for the 35-year
period ending in the year the Participant attains Social Security Retirement
Age; i.e. the age at which the Participant will be entitled to full Social
Security payments.
Participants become entitled to benefits under the Plan after five years of
service with the Company or any of its subsidiaries, and the normal retirement
date is a Participant's 65th birthday.
The Internal Revenue Code places maximum limitations on the amount of benefits
that may be paid under the Plan. The Company has adopted an Equalization Benefit
Plan under which certain executives, including the named executive officers, are
entitled to the additional pension benefits that cannot be paid under the
qualified plan due to these limitations and because they have elected to defer a
portion of their award under an incentive compensation plan.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten-percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by the Company,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, since October 1, 1995,
all filing requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with.
SELECTION OF AUDITORS
Management will propose the adoption of a resolution ratifying the Board of
Directors' decision to appoint Price Waterhouse as auditors. If the shareholders
fail to ratify such selection, the Board will reconsider it. Representatives of
Price Waterhouse are expected to be present at the shareholders' meeting with
the opportunity to make a
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<PAGE> 24
statement if they desire to do so and to be available to respond to appropriate
questions.
SHAREHOLDERS' PROPOSALS
Proposals of shareholders which are intended to be presented at the 1998 annual
meeting must be received by the Company no later than August 15, 1997, to be
included in the Company's proxy materials for that meeting. Further, a
shareholder who otherwise intends to present business at the 1998 annual meeting
must comply with the requirements set forth in the Company's By-Laws. Among
other things, to bring business before an annual meeting, a shareholder must
give written notice thereof, complying with the By-Laws, to the Secretary of the
Company not less than 60 days and not more than 90 days prior to the fourth
Tuesday of the month of January. The 1998 annual meeting will be held on January
28, 1998, or on such other date designated by the Board of Directors.
OTHER MATTERS
The matters referred to in the notice of meeting and in the proxy statement are,
as far as management now knows, the only matters which will be presented for
consideration at the meeting. If any other matters properly come before the
meeting, the persons named in the accompanying form of proxy will vote on them
in accordance with their best judgment.
The cost of soliciting proxies will be borne by the Company. The Company expects
to solicit proxies primarily by mail. Proxies also may be solicited personally
and by telephone by certain officers and regular employees of the Company. D.F.
King & Co., Inc., has been retained for solicitation of all brokers and nominees
at a cost of approximately $11,000 plus customary out-of-pocket expenses. The
Company may reimburse brokers and other nominees for their expenses in
communicating with the persons for whom they hold stock of the Company.
The Company's 1996 Annual Report has already been mailed to the shareholders.
JOHNSON CONTROLS, INC.
John P. Kennedy
John P. Kennedy, Secretary
December 13, 1996
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[JOHNSON CONTROLS LOGO]
<TABLE>
<C> <S>
Johnson Controls, Inc.
Post Office Box 591
Milwaukee, Wisconsin 53201 NOTICE OF 1997
Tel: 414/228 1200 ANNUAL MEETING OF
SHAREHOLDERS AND
PROXY STATEMENT
</TABLE>
