<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5097
JOHNSON CONTROLS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-0380010
(State of Incorporation) (I.R.S. Employer
Identification No.)
5757 North Green Bay Avenue, P.O. Box 591, Milwaukee, WI 53201
(Address of principal executive office)
Registrant's telephone number, including area code (414) 228-1200
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
-- --
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1997
------ ----------------------------
Common Stock $.16 2/3 Par Value 83,773,063
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JOHNSON CONTROLS, INC.
- ----------------------
FORM 10-Q
June 30, 1997
REPORT INDEX
------------
Page No.
--------
PART I. - FINANCIAL INFORMATION:
Consolidated Statement of Financial Position
at June 30, 1997, September 30, 1996 and
June 30, 1996 ....................................... 3
Consolidated Statement of Income for the Three and
Nine-Month Periods Ended June 30, 1997 and 1996 ..... 4
Consolidated Statement of Cash Flows for the Nine-
Month Periods Ended June 30, 1997 and 1996 .......... 5
Notes to Consolidated Financial Statements ............ 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 10
PART II. - OTHER INFORMATION:
Item 1. Legal Proceedings ............................. 15
Item 4. Results of Votes of Security Holders .......... 15
Item 6. Exhibits and Reports on Form 8-K .............. 16
SIGNATURES ............................................ 17
2
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JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In millions)
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1997 1996 1996
-------- ------------- --------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 200.5 $ 165.2 $ 152.8
Accounts receivable - net 1,466.6 1,376.7 1,361.7
Costs and earnings in excess of billings on
uncompleted contracts 216.0 212.3 212.1
Inventories 359.9 344.7 334.2
Net assets of discontinued operations 0.0 440.7 462.3
Other current assets 361.1 309.5 341.3
-------- -------- --------
Current assets 2,604.1 2,849.1 2,864.4
Property, plant and equipment - net 1,488.7 1,320.2 1,242.6
Goodwill - net 1,581.3 548.2 532.7
Investments in partially-owned affiliates 145.3 128.4 143.2
Other noncurrent assets 253.5 145.3 153.2
-------- -------- --------
Total assets $6,072.9 $4,991.2 $4,936.1
======== ======== ========
LIABILITIES AND EQUITY
Short-term debt $ 643.4 $ 248.1 $ 244.8
Current portion of long-term debt 125.3 33.2 19.6
Accounts payable 1,324.9 1,178.2 1,138.8
Accrued compensation and benefits 323.9 238.4 264.7
Accrued income taxes 92.5 44.0 75.2
Billings in excess of costs and earnings on
uncompleted contracts 107.6 83.6 100.7
Other current liabilities 487.5 357.1 359.5
-------- -------- --------
Current liabilities 3,105.1 2,182.6 2,203.3
Long-term debt 819.7 752.2 760.8
Postretirement health and other benefits 166.3 167.9 167.1
Other noncurrent liabilities 349.5 380.7 366.6
Shareholders' equity 1,632.3 1,507.8 1,438.3
-------- -------- --------
Total liabilities and equity $6,072.9 $4,991.2 $4,936.1
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share; unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
-------------------- -------------------
1997 1996 1997 1996
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales $2,879.3 $2,482.0 $8,384.2 $6,724.5
Cost of sales 2,445.9 2,132.5 7,168.8 5,772.5
-------- -------- -------- --------
Gross profit 433.4 349.5 1,215.4 952.0
Selling, general and administrative expenses 271.0 222.6 811.8 630.0
Restructuring charge 0.0 0.0 70.0 0.0
----- ----- ----- -----
Operating income 162.4 126.9 333.6 322.0
Interest income 2.5 2.1 6.1 5.5
Interest expense (28.5) (18.9) (94.5) (53.9)
Miscellaneous - net 5.4 6.5 11.3 5.8
----- ----- ------ -----
Other income (expense) (20.6) (10.3) (77.1) (42.6)
----- ----- ----- -----
Income before income taxes and minority interests 141.8 116.6 256.5 279.4
Provision for income taxes 60.2 47.3 108.9 113.9
Minority interests in net earnings of subsidiaries 7.2 5.8 19.9 20.4
---- ---- ----- -----
Income from continuing operations 74.4 63.5 127.7 145.1
Discontinued operations
Income (loss) from discontinued operations,
adjusted for applicable provision (benefit) for income
taxes of $0, $5.0, ($1.0) and $6.1, respectively,
and minority interests 0.0 5.8 (1.1) 7.6
Gain on sale of discontinued operations, net of $66.0
of income taxes 0.0 0.0 69.0 0.0
----- ----- ------ ------
Net income $74.4 $69.3 $195.6 $152.7
===== ===== ====== ======
Earnings available for common shareholders $72.1 $66.9 $188.5 $145.6
===== ===== ====== ======
Earnings per share from continuing operations
Primary $0.85 $0.73 $1.42 $1.65
===== ===== ===== =====
Fully diluted $0.81 $0.69 $1.37 $1.57
===== ===== ===== =====
Earnings (loss) per share from discontinued operations
Primary $0.00 $0.07 ($0.01) $0.09
===== ===== ====== =====
Fully diluted $0.00 $0.07 ($0.01) $0.09
===== ===== ====== =====
Earnings per share from gain on sale of discontinued
operations
Primary $0.00 $0.00 $0.82 $0.00
===== ===== ===== =====
Fully diluted $0.00 $0.00 $0.76 $0.00
===== ===== ===== =====
Earnings per share
Primary $0.85 $0.80 $2.23 $1.74
===== ===== ===== =====
Fully diluted $0.81 $0.76 $2.12 $1.66
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions; unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $127.7 $145.1
Adjustments to reconcile income from continuing operations
to cash provided by operating activities of continuing operations
Depreciation 212.2 174.4
Amortization of intangibles 51.2 25.1
Equity in earnings of partially-owned affiliates (16.5) (9.4)
Deferred income taxes (58.3) (10.8)
Restructuring charge 70.0 0.0
Other (21.0) 14.0
Changes in working capital, excluding acquisition and divestiture of businesses
Receivables (44.3) (219.3)
Inventories (19.0) (38.9)
Other current assets (52.5) (29.8)
Accounts payable and accrued liabilities 188.8 194.3
Accrued income taxes (17.2) 40.0
Billings in excess of costs and earnings on
uncompleted contracts 25.3 13.8
----- -----
Cash provided by operating activities of continuing operations 446.4 298.5
Cash (used) provided by operating activities of discontinued operations (8.4) 38.1
----- -----
Cash provided by operating activities 438.0 336.6
----- -----
INVESTING ACTIVITIES
Capital expenditures (239.5) (222.8)
Sale of property, plant and equipment-net 10.1 11.6
Acquisition of businesses, net of cash acquired (1,261.9) (119.2)
Divestiture of businesses 645.6 0.0
Increase in long-term investments - net (12.5) (23.1)
Investing activities of discontinued operations (19.5) (32.3)
Other 0.0 0.7
------ ------
Cash used by investing activities (877.7) (385.1)
------ ------
FINANCING ACTIVITIES
Increase in short-term debt 570.0 99.2
Issuance of long-term debt 6.5 152.2
Repayment of long-term debt (29.3) (79.5)
Payment of cash dividends (62.9) (60.1)
Net financing activities of discontinued operations 16.5 11.8
Other (25.8) (2.8)
----- -----
Cash provided by financing activities 475.0 120.8
----- -----
Increase in cash and cash equivalents $35.3 $72.3
===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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JOHNSON CONTROLS, INC.
- ----------------------
FORM 10-Q, JUNE 30, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. Financial Statements
--------------------
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position, results
of operations, and cash flows for the periods presented. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto contained in the Company's Annual Report to Shareholders for
the year ended September 30, 1996 (contained in the Form 8-K filed March 10,
1997). The results of operations for the three and nine months ended June 30,
1997 are not necessarily indicative of the results which may be expected for
the Company's 1997 fiscal year because of seasonal and other factors.
2. Acquisition and Divestiture of Businesses
-----------------------------------------
ACQUISITION
Effective October 1, 1996, the Company completed the acquisition of Prince
Holding Corporation (Prince) for 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 was accounted for as a purchase. The excess of the
purchase price over the fair value of the acquired net assets, which
approximates $1.1 billion, was recorded as goodwill. The Company used the
after-tax proceeds from the sale of its Plastic Container division (PCD) (see
below) and debt securities to finance the purchase.
DIVESTITURE
On February 28, 1997, the Company completed the sale of its Plastic
Container division (PCD) to Schmalbach-Lubeca AG/Continental Can Europe (a
member of the VIAG Group) for approximately $650 million, a portion of which is
deferred. The Company recorded a gain on the sale of $135 million ($69 million
or $.82 per primary share and $.76 per fully diluted share, after-tax).
The results of PCD have been reported separately as discontinued
operations in the Consolidated Statement of Income. The results of the
discontinued operations do not reflect any interest expense or management fees
allocated by the Company. Prior year consolidated financial statements have
been restated to present PCD as a discontinued operation.
Revenues of PCD were $242 million for the five months ended February 28,
1997 and $608 million for the nine months ended June 30, 1996. These amounts
are not included in sales as reported in the Consolidated Statement of Income.
6
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JOHNSON CONTROLS, INC.
- ----------------------
Form 10-Q, June 30, 1997
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma results of operations of the Company
give effect to the acquisition of Prince, the divestiture of PCD and the
application of the after-tax proceeds from the PCD sale, as though these
transactions had occurred on October 1, 1995 (amounts in millions, except per
share data).
For the Nine Months
Ended June 30,
1997(1) 1996
---------- ----------
Net sales $ 8,384.2 $ 7,380.0
Income from continuing operations $ 133.7 $ 160.0
Earnings per share from continuing
operations
Primary $ 1.49 $ 1.83
Fully diluted $ 1.43 $ 1.74
(1) Amounts include restructuring charge (see note 3 below) of $70.0 million
($40.3 million or $.48 per primary share and $.44 per fully diluted share,
after-tax).
The unaudited pro forma financial information presented is not necessarily
indicative of either the results of operations that would have occurred had the
acquisition of Prince and the divestiture of PCD taken place on October 1, 1995
or the future results of operations of the combined companies.
3. Restructuring Charge
--------------------
In the second quarter of 1997, the Company recorded a restructuring
charge, including related asset writedowns, of $70.0 million ($40.3 million or
$.48 per primary share and $.44 per fully diluted share, after-tax). Details of
the restructuring charge are as follows (in millions):
Writedown of long-lived assets $ 43.6
Employee severance and termination benefits 10.7
Other 15.7
-------
$ 70.0
=======
The restructuring initiatives involve the Company's automotive and
controls groups and include four plant closings and the elimination of certain
underperforming business lines which will result in workforce reductions of
approximately 650 employees and the writedown of certain long-lived assets,
including goodwill. These actions, which will take place in both the United
States and Europe, resulted in restructuring charges of $37.0 million and $33.0
million for the automotive and controls groups, respectively. The automotive
group charges primarily relate to its European business where certain
manufacturing capacity is being eliminated or realigned with future customer
sourcing requirements, and product development resources are being
consolidated. Most significantly, the Company has decided to close a complete
seat manufacturing facility located in Belgium due to the announcement by
Renault of the closure of their automobile manufacturing operations in that
country. In addition, the Company is converting a seat cushion facility in
Portugal from a specialized rubberized hair to a new foam operation as a result
7
<PAGE> 8
JOHNSON CONTROLS, INC.
- ----------------------
Form 10-Q, June 30, 1997
of the loss of certain General Motors business in Spain. Within the controls
group, the Company is restructuring a business which provides low-end
maintenance services as it no longer provides a means of penetrating more
lucrative markets. In addition, the Company has exited domestic cable
installation activities.
For plants to be closed and business lines eliminated, the tangible assets
to be disposed of have been written down to their estimated fair value, less
cost of disposal. All intangible asset carrying values associated with the
plant closings and elimination of business lines have been eliminated. The
write-down of long-lived assets of $43.6 million approximates the carrying
value of those assets as fair value of the tangible assets less costs to sell
is negligible. Considerable management judgment is necessary to estimate fair
value, accordingly, actual results could vary significantly from such
estimates.
The cash and noncash elements of the restructuring charge approximate
$15.6 million and $54.4 million, respectively. It is expected that these
restructuring actions will be substantially completed by approximately mid-year
of fiscal 1998.
4. Stock Split
-----------
On January 22, 1997, the Company's Board of Directors
authorized a two-for-one stock split to be distributed on March
31, 1997 to shareholders of record on March 7, 1997. All share
and per share information has been restated to reflect the split.
5. Issuance of Long-Term Debt
--------------------------
On July 10, 1997, the Company issued $150 million of 7.125% notes due in
2017. The proceeds were used to refinance commercial paper borrowings
associated with the Prince acquisition. Accordingly, at June 30, 1997, $150
million of short-term debt was classified as long-term debt.
6. Financial Instruments
---------------------
In March 1997, the Company renewed its 50 million Deutschemark (DM)
cross-currency interest rate swap for a period of up to three years. Under the
swap, the Company receives interest based on a floating three-month U.S. dollar
LIBOR rate on $30 million and pays interest based on a three-month floating DM
LIBOR rate on 50 million DM.
Also in March 1997, the Company settled its 50 million DM forward contract
by paying 50 million DM in exchange for receiving $30 million.
7. 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.
Income taxes paid during the nine months ended June 30, 1997 and 1996 (net
of income tax refunds) totaled approximately $240 million and $68 million,
respectively. The increase primarily relates to the earnings of Prince,
payment of estimated taxes on
8
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JOHNSON CONTROLS, INC.
- ----------------------
Form 10-Q, June 30, 1997
the gain on the sale of PCD, and an IRS audit
adjustment paid in the second quarter of 1997. Total interest paid on both
long-term and short-term debt was $98 million and $53 million for the nine
months ended June 30, 1997 and 1996, respectively.
8. 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. The cost of other inventories is determined on the first-in,
first-out (FIFO) method.
Inventories were comprised of the following:
June 30,
1997 1996
------- -------
(in millions)
Raw materials and supplies $ 153.2 $ 133.8
Work-in-process 110.4 104.2
Finished goods 137.6 141.2
-------- --------
FIFO inventories 401.2 379.2
LIFO reserve 41.3 45.0
-------- --------
LIFO inventories $ 359.9 $ 334.2
======== ========
9. Income Taxes
------------
The provision for income taxes is determined by applying an estimated
annual effective income tax rate to income before income taxes. The estimated
annual effective income tax rate is based on the most recent annualized
forecast of pretax income, permanent book/tax differences, and tax credits. It
also includes the effect of any valuation allowance expected to be necessary at
the end of the year.
10. Earnings Per Share
------------------
Primary earnings per share are computed by dividing net income, after
deducting dividend requirements on the Company's 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 $1.4 million for the three
months ended June 30, 1997 and 1996 and $4.1 million and $4.2 million for the
nine months ended June 30, 1997 and 1996, 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 computations of primary
and fully diluted earnings per share were as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(in millions)
Primary 84.9 83.8 84.7 83.5
Fully diluted 90.9 89.9 90.6 89.7
9
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JOHNSON CONTROLS, INC.
- ----------------------
Form 10-Q, June 30, 1997
11. Future Accounting Changes
-------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share." This
statement establishes revised standards for computing and presenting earnings
per share. The statement is effective for the Company's fiscal 1998 first
quarter. All prior periods are required to be restated. The adoption of this
standard will not have a material impact on the Company's reported earnings per
share.
12. Contingencies
-------------
The Company is involved in a number of proceedings and potential
proceedings relating to environmental matters. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
DISCONTINUED OPERATIONS
On December 6, 1996, the Company and Schmalbach-Lubeca AG/Continental Can
Europe (a member of the VIAG Group) signed a definitive agreement under which
Schmalbach-Lubeca would purchase the Plastic Container division (PCD) of the
Company for approximately $650 million. The transaction was completed on
February 28, 1997. The Company recorded a gain on the sale of $135 million
($69 million or $.82 per primary share and $.76 per fully diluted share,
after-tax).
Operating results, net assets and cash flows of PCD have been segregated
as discontinued operations in the accompanying consolidated financial
statements. Net (loss) earnings of PCD were ($1.1) million (($.01) per fully
diluted share) and $7.6 million ($.09 per fully diluted share) on sales of $242
million and $608 million for the five months ended February 28, 1997 and nine
months ended June 30, 1996, respectively.
COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 1997
- -------------------------------------------------------------------------------
AND JUNE 30, 1996
- -----------------
CONTINUING OPERATIONS
Consolidated net sales increased to $2,879 million for the third quarter
of fiscal 1997, a 16% increase from third quarter sales of $2,482 million for
the prior year.
10
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JOHNSON CONTROLS, INC.
- ----------------------
Form 10-Q, June 30, 1997
Automotive segment sales for the quarter of $2,106 million were 21% higher
than the prior year's $1,738 million. Almost two-thirds of the increase
reflects the addition of Prince, the interior systems company acquired in
October 1996. North American seating sales rose from the prior year quarter
despite a slight decrease in industry vehicle production levels. Higher
seating sales were the result of the Company's participation with new and
successful vehicle models such as the Ford Expedition and General Motors'
minivans. European seating sales were slightly higher than the prior year
quarter before the impact of lower currency exchange rates. Sales of
automotive batteries were up over the prior year period due to higher unit
shipments to both the replacement and original equipment markets.
Controls segment sales improved to $774 million, a 4% increase from the
prior period's $744 million. The increase was largely due to a higher level of
performance contracting activity in the North American existing buildings
market and increased integrated facility management sales in the commercial
domestic and European markets.
Consolidated operating income for the third fiscal quarter of 1997
increased to $162 million, up 28% from the prior year's $127 million. The
Company incurred approximately $8 million ($.05 per fully diluted share) in
costs during the quarter primarily associated with a strike at Chrysler's Mound
Road engine facility.
Automotive segment operating income increased from the prior year period
despite the impact of the Chrysler strike. Improved operating income was
primarily due to the addition of income from Prince and the automotive battery
business.
Operating income for the controls segment for the third quarter improved
from the prior year due to the volume increases noted above. Worldwide orders
for control systems increased due to higher North American performance
contracting activity.
Other expense increased $10 million over the comparable prior year
quarter. Net interest expense increased $9 million as a result of the
financing associated with the Prince acquisition.
The effective income tax rate on continuing operations was 42.5% for the
three-month period ended June 30, 1997 compared to 40.6% for the comparable
quarter last year. The increase primarily reflects the non-deductible goodwill
amortization associated with the acquisition of Prince.
Income from continuing operations for the third quarter was $74 million,
an increase of 17% compared with the prior year's quarter of $64 million. The
current quarter's growth was due to the improvements in operating income,
offset by higher interest expense, as noted above. Primary and fully diluted
earnings per share from continuing operations for the quarter ended June 30,
1997, were $.85 and $.81, respectively, up from $.73 and $.69 in the prior
year.
11
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JOHNSON CONTROLS, INC.
- ------------------------
Form 10-Q, June 30, 1997
COMPARISON OF OPERATING RESULTS FOR THE NINE-MONTH PERIODS ENDED JUNE 30, 1997
- ------------------------------------------------------------------------------
AND JUNE 30, 1996
- -----------------
CONTINUING OPERATIONS
Sales totaled $8,384 million for the nine months ended June 30, 1997, an
increase of 25% from the same period one year ago. The majority of the
increase for the fiscal year-to-date was attributable to a higher level of
activity in the automotive segment.
Automotive segment sales for the first nine months of 1997 rose to $6,116
million, up 32% from $4,643 in the prior year. Approximately one-half of the
increase reflects the acquisitions of Prince, the interior systems company
acquired in October 1996, and Roth Freres, the seating and interior systems
company acquired in December 1995. Although industry vehicle production levels
for the first nine months of the fiscal year were flat, North American seating
sales experienced strong growth reflecting the Company's participation with new
and successful vehicle models such as Ford's Expedition and F-150 light trucks
and General Motors' minivans. European seating sales were higher due to new
programs with Ford, Chrysler and Volkswagen. South American seating sales also
increased. Sales of automotive batteries were up over the prior year period due
to higher unit shipments to the replacement market (including a new customer,
Western Auto) and the original equipment market.
The controls segment experienced 9% sales growth, from $2,081 million in
1996 to $2,269 million for the first nine months of 1997. Most of the revenue
growth was associated with higher integrated facilities management activity in
both the commercial and government markets worldwide. New construction and
domestic performance contracting sales were also higher.
Consolidated operating income for the first nine months of 1997 was $334
million. This amount includes nonrecurring costs of $76 million. The Company
recorded a restructuring charge, including related asset writedowns, of $70
million involving its automotive and controls groups. The automotive
initiatives primarily relate to its European operations where certain
manufacturing capacity is being realigned with future customer sourcing
requirements, and product development resources are being consolidated.
Charges associated with the controls business principally address the Company's
decision to restructure certain low-margin service activities which are outside
its core controls and facilities management businesses. Strikes at two of the
Company's automotive facilities also affected the first nine months of the
year. These strike-related costs, not including costs associated with lost
production, totaled $6 million during the period. Operating income before
these nonrecurring costs was $410 million, a 27% increase from the prior year's
$322 million.
The automotive segment's operating income, excluding strike costs and the
restructuring charge, was higher than the prior year's total. The increase for
the first nine months of the fiscal year was the result of the volume increases
noted above. Operating margins, however, were affected by start-up and
engineering investments related to new seating programs, start-up
12
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JOHNSON CONTROLS, INC.
- ----------------------
Form 10-Q, June 30, 1997
investments in the emerging South American and Pacific Rim markets, and
strike-related costs.
Operating income for the controls segment (before the restructuring
charge) increased from the prior period due to the volume increases noted
above.
Management believes that consolidated sales and operating income for the
remainder of fiscal 1997 will exceed prior year levels. Automotive segment
sales for the year are expected to increase approximately 25%-30%. The
projected increase is attributable to the Prince acquisition (October 1996),
the first quarter impact of the Roth acquisition (December 1995), the launch of
new seating business worldwide, and higher battery sales. Management
anticipates an increase in controls segment sales of approximately 5%-10%. A
higher level of activity in the commercial integrated facilities management
market and performance contracting are expected to drive the overall controls
segment increase.
Other expense for the first nine months of 1997 increased $35 million
compared to the prior year. Net interest expense increased $40 million as a
result of the financing associated with the Prince acquisition. Miscellaneous
income increased approximately $6 million due to an increase in equity earnings
from the automotive segment's affiliates.
The effective income tax rate on continuing operations was 42.5% for the
first nine months of 1997 compared to 40.8% for the prior year period. The
increase primarily reflects the non-deductible goodwill amortization associated
with the acquisition of Prince.
The Company's income from continuing operations for the first nine months
of 1997 was $128 million or $1.42 per primary share and $1.37 per fully diluted
share. Before nonrecurring costs ($44 million or $.52 per primary share and
$.48 per fully diluted share, after-tax), income from continuing operations
totaled $171 million, which represents an 18% increase from the prior year's
$145 million. The increase was attributable to improvements in operating
income, offset by higher interest expense, as noted above. Primary and fully
diluted earnings per share from continuing operations (before nonrecurring
costs) were $1.94 and $1.85, respectively, up from $1.65 and $1.57 in the prior
year.
COMPARISON OF FINANCIAL CONDITION
Working Capital and Cash Flow
- -----------------------------
The Company's working capital (excluding "Net assets of discontinued
operations") was a negative $501 million at June 30, 1997, compared with $226
million and $199 million at September 30, 1996 and June 30, 1996, respectively.
The significant decrease in working capital relates to the increase in
short-term debt used to finance the acquisition of Prince. Working capital,
excluding debt and cash, was lower than the comparable prior year periods
largely due to higher accounts payable and accrued liabilities related, in
part, to the restructuring charge.
13
<PAGE> 14
JOHNSON CONTROLS, INC.
- ------------------------
Form 10-Q, June 30, 1997
Operating activities of continuing operations provided cash of $446
million for the first nine months of the year compared to $299 million in the
prior year. The increase was due to higher income, adjusted for non-cash
items, coupled with lower working capital.
Capital Expenditures and Other Investments
- ------------------------------------------
Capital expenditures for property, plant and equipment related to
continuing operations were approximately $240 million for the first nine months
of fiscal 1997, an increase of $17 million from the $223 million incurred
during the first nine months of fiscal 1996. Management projects that capital
spending for the full year will be approximately $350-$375 million. The
majority of the spending will be for new automotive seating and interior
product lines and facilities. Cost reduction projects in both segments have
been initiated during the first nine months of the fiscal year and are planned
to continue during the final fiscal quarter.
Goodwill of $1,581 million at June 30, 1997 was $1,033 million higher than
at September 30, 1996 due to the acquisition of Prince.
Investments in partially-owned affiliates of $145 million were
approximately $17 million higher than the September 30, 1996 balance. The
increase primarily relates to the recording of equity income and an investment
in a Brazilian automotive battery joint venture.
Capitalization
- --------------
The Company's total capitalization at June 30, 1997 of $3,220 million
included short-term debt of $643 million, long-term debt, including current
portion, of $945 million and shareholders' equity of $1,632 million. Total
capitalization at September 30, 1996 and June 30, 1996 was $2,541 million and
$2,464 million, respectively. Total debt as a percentage of total
capitalization increased to 49% from 41% at the 1996 fiscal year-end and 42%
one year ago. The increase is attributable to the issuance of debt in
conjunction with the Prince acquisition. However, the ratio has declined
significantly from the December 31, 1996 ratio of 60% as the Company used the
after-tax proceeds from the sale of PCD to reduce its short-term debt. The
Company expects its debt to capitalization ratio to remain below 50% at the end
of fiscal 1997.
On July 10, 1997, the Company refinanced a portion of commercial paper
borrowings associated with the Prince acquisition by issuing $150 million of
notes. The 7.125% notes, due July 15, 2017, were issued under the $1.5 billion
shelf registration statement on file with the Securities and Exchange
Commission. Accordingly, at June 30, 1997, $150 million of short-term debt was
classified as long-term debt.
The Company believes its capital resources and liquidity position at June
30, 1997 are adequate 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
borrowings, if required, to meet peak seasonal needs.
14
<PAGE> 15
JOHNSON CONTROLS, INC.
- ------------------------
Form 10-Q, June 30, 1997
Backlog
- -------
The unearned backlog of commercial building systems, services and
integrated facilities management contracts to be executed within the next year
at June 30, 1997 was $1,256 million, compared with $1,168 million at September
30, 1996 and $1,247 million at June 30, 1996. The increase from September 30
and the prior year primarily represents higher performance contracting and
integrated facilities management activity.
The unearned backlog of government facilities management contracts, which
reflects only the noncancellable portion of uncompleted contracts was $603
million at June 30, 1997 compared to $424 million at September 30, 1996 and
$299 million last year. The increase from September 30 and the prior year
reflects the successful rebid of a multi-year contract to provide facilities
management services for Los Alamos National Laboratories.
Risk Factors
- ------------
Except for the historical information contained herein, certain matters
discussed in this Form 10-Q 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.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
- ------ -----------------
There have been no significant changes in status since the last Report.
Item 4. Results of Votes of Security Holders
- ------ ------------------------------------
Reference is made to Item 4 of the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996, for a description of the results of
votes of security holders at the Annual Meeting of Shareholders held January
22, 1997.
15
<PAGE> 16
JOHNSON CONTROLS, INC.
- ------------------------
Form 10-Q, June 30, 1997
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
11 Statement regarding computation of primary and fully
diluted earnings per share.
12 Statement regarding the computation of the ratio of
earnings to fixed charges.
27 Financial Data Schedule (electronic filing only).
(b) There were no reports on Form 8-K filed during the three months ended
June 30, 1997.
16
<PAGE> 17
JOHNSON CONTROLS, INC.
- ------------------------
Form 10-Q, June 30, 1997
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSON CONTROLS, INC.
Date: August 14, 1997 By: Stephen A. Roell
Vice President and
Chief Financial Officer
17
<PAGE> 1
EXHIBIT 11
JOHNSON CONTROLS, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE
(In millions, except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- -------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net Income $74.4 $69.3 $195.6 $152.7
Preferred dividends, net of tax
benefit (2.3) (2.4) (7.1) (7.1)
----- ----- ------ ------
Earnings available for common
shareholders $72.1 $66.9 $188.5 $145.6
Average common shares outstanding
Common stock 83.8 82.8 83.5 82.5
Common stock equivalents -
Assumed exercise of stock options 1.1 1.0 1.2 1.0
----- ----- ------ ------
84.9 83.8 84.7 83.5
----- ----- ------ ------
Primary earnings per share $0.85 $0.80 $2.23 $1.74
===== ===== ===== =====
FULLY DILUTED EARNINGS PER SHARE
Net Income $74.4 $69.3 $195.6 $152.7
After tax compensation expense
which would arise from the assumed
conversion of the Series D
Convertible Preferred Stock (1.4) (1.4) (4.1) (4.2)
----- ----- ------ ------
Fully diluted earnings $73.0 $67.9 $191.5 $148.5
Average common shares outstanding
Common stock 83.8 82.8 83.5 82.5
Conversion of Series D Convertible
Preferred Stock 5.8 6.1 5.8 6.2
Common stock equivalents -
Assumed exercise of stock options 1.3 1.0 1.3 1.0
----- ----- ----- -----
90.9 89.9 90.6 89.7
----- ----- ----- -----
Fully diluted earnings per share $0.81 $0.76 $2.12 $1.66
===== ===== ===== =====
</TABLE>
18
<PAGE> 1
EXHIBIT 12
JOHNSON CONTROLS, INC.
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30, 1997
-------------------
<S> <C>
Income from continuing operations $127.7
Provision for income taxes 108.9
Undistributed earnings of partially-owned affiliates (4.6)
Minority interests in net earnings of subsidiaries 19.9
Amortization of previously capitalized interest 3.2
------
255.1
------
Fixed charges:
Interest incurred and amortization of debt expense 104.4
Estimated portion of rent expense 28.3
------
Fixed charges 132.7
Less: Interest capitalized during the period (5.7)
------
127.0
------
Earnings $382.1
======
Ratio of earnings to fixed charges 2.9
======
</TABLE>
For the purpose of computing this ratio, "earnings" consist of (a) income
from continuing operations before income taxes (adjusted for
undistributed earnings or recognized losses of partially-owned affiliates
which are less than 50% owned, minority interests in net earnings of
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.
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 200,500
<SECURITIES> 0
<RECEIVABLES> 1,704,600
<ALLOWANCES> 22,000
<INVENTORY> 359,900
<CURRENT-ASSETS> 2,604,100
<PP&E> 2,999,500
<DEPRECIATION> 1,510,800
<TOTAL-ASSETS> 6,072,900
<CURRENT-LIABILITIES> 3,105,100
<BONDS> 819,700
0
148,800
<COMMON> 14,400
<OTHER-SE> 1,469,100
<TOTAL-LIABILITY-AND-EQUITY> 6,072,900
<SALES> 8,384,200
<TOTAL-REVENUES> 8,384,200
<CGS> 7,168,800
<TOTAL-COSTS> 7,168,800
<OTHER-EXPENSES> 861,000
<LOSS-PROVISION> 3,400
<INTEREST-EXPENSE> 94,500
<INCOME-PRETAX> 256,500
<INCOME-TAX> 108,900
<INCOME-CONTINUING> 127,700
<DISCONTINUED> 67,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195,600
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.12
</TABLE>
