<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 March 31, 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 March 31, 1997
----- -----------------------------
Common Stock $.16 2/3 Par Value 83,720,343
<PAGE> 2
JOHNSON CONTROLS, INC.
FORM 10-Q
MARCH 31, 1997
REPORT INDEX
<TABLE>
<CAPTION>
Page No.
PART I. - FINANCIAL INFORMATION: --------
<S> <C>
Consolidated Statement of Financial Position
at March 31, 1997, September 30, 1996 and
March 31, 1996 ...................................... 3
Consolidated Statement of Income for the Three and
Six-Month Periods Ended March 31, 1997 and 1996 ..... 4
Consolidated Statement of Cash Flows for the Six-
Month Periods Ended March 31, 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 5. Other Information............................... 15
Item 6. Exhibits and Reports on Form 8-K .............. 16
SIGNATURES ............................................. 17
</TABLE>
2
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JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In millions)
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1997 1996 1996
----------- ------------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 176.6 $ 165.2 $ 124.6
Accounts receivable - net 1,532.9 1,376.7 1,294.7
Costs and earnings in excess of billings on
uncompleted contracts 210.2 212.3 194.9
Inventories 378.0 344.7 332.7
Net assets of discontinued operations 0.0 440.7 460.5
Other current assets 335.5 309.5 328.8
--------- ----------- ---------
Current assets 2,633.2 2,849.1 2,736.2
Property, plant and equipment - net 1,464.0 1,320.2 1,246.8
Goodwill - net 1,590.3 548.2 539.8
Investments in partially-owned affiliates 146.5 128.4 120.8
Other noncurrent assets 258.2 145.3 158.8
--------- ----------- ---------
Total assets $ 6,092.2 $ 4,991.2 $ 4,802.4
========= =========== =========
LIABILITIES AND EQUITY
Short-term debt $917.1 $248.1 $283.6
Current portion of long-term debt 124.5 33.2 19.8
Accounts payable 1,263.2 1,178.2 1,049.6
Accrued compensation and benefits 303.7 238.4 257.4
Accrued income taxes 93.3 44.0 47.7
Billings in excess of costs and earnings
on uncompleted contracts 110.9 83.6 98.7
Other current liabilities 453.5 357.1 345.0
--------- ----------- ---------
Current liabilities 3,266.2 2,182.6 2,101.8
Long-term debt 666.7 752.2 755.3
Postretirement health and other benefits 168.1 167.9 165.6
Other noncurrent liabilities 411.4 380.7 371.4
Shareholders' equity 1,579.8 1,507.8 1,408.3
--------- ----------- ---------
Total liabilities and equity $ 6,092.2 $ 4,991.2 $ 4,802.4
========= =========== =========
</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 Six Months
Ended March 31, Ended March 31,
-------------------- ------------------
1997 1996 1997 1996
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net sales $ 2,743.6 $ 2,245.5 $ 5,504.9 $ 4,242.5
Cost of sales 2,368.3 1,946.2 4,722.9 3,640.0
--------- --------- --------- ---------
Gross profit 375.3 299.3 782.0 602.5
Selling, general and administrative expenses 264.0 206.5 540.8 407.4
Restructuring charge 70.0 0.0 70.0 0.0
--------- --------- --------- ---------
Operating income 41.3 92.8 171.2 195.1
Interest income 1.6 2.0 3.6 3.4
Interest expense (33.5) (20.4) (66.0) (35.0)
Miscellaneous - net 0.3 (0.4) 5.9 (0.7)
--------- --------- --------- ---------
Other income (expense) (31.6) (18.8) (56.5) (32.3)
--------- --------- --------- ---------
Income before income taxes and minority interests 9.7 74.0 114.7 162.8
Provision for income taxes 4.1 29.5 48.7 66.6
Minority interests in net earnings of subsidiaries 7.2 8.2 12.7 14.6
--------- --------- --------- ---------
Income from continuing operations (1.6) 36.3 53.3 81.6
Discontinued operations
Income (loss) from discontinued operations,
adjusted for applicable provision (benefit) for income
taxes of $0.5, $0.1, ($1.0) and $1.1, respectively,
and minority interests 0.7 0.1 (1.1) 1.8
Gain on sale of discontinued operations, net of $66
of income taxes 69.0 -- 69.0 --
--------- --------- --------- ---------
Net income $ 68.1 $ 36.4 $ 121.2 $ 83.4
========= ========= ========= =========
Earnings available for common shareholders $ 65.6 $ 34.1 $ 116.4 $ 78.7
========= ========= ========= =========
(Loss) earnings per share from continuing operations
Primary ($0.06) $ 0.40 $ 0.57 $ 0.92
========= ========= ========= =========
Fully diluted ($0.03) $ 0.39 $ 0.56 $ 0.88
========= ========= ========= =========
Earnings (loss) per share from discontinued operations
Primary $ 0.01 $ 0.00 ($0.01) $ 0.02
========= ========= ========= =========
Fully diluted $ 0.01 $ 0.00 ($0.01) $ 0.02
========= ========= ========= =========
Earnings per share from gain on sale of discontinued
operations
Primary $ 0.82 $ 0.00 $ 0.82 $ 0.00
========= ========= ========= =========
Fully diluted $ 0.76 $ 0.00 $ 0.76 $ 0.00
========= ========= ========= =========
Earnings per share
Primary $ 0.77 $ 0.40 $ 1.38 $ 0.94
========= ========= ========= =========
Fully diluted $ 0.74 $ 0.39 $ 1.31 $ 0.90
========= ========= ========= =========
</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 Six Months
Ended March 31,
------------------------
1997 1996
--------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 53.3 $ 81.6
Adjustments to reconcile income from continuing operations
to cash provided by operating activities of continuing operations
Depreciation 142.9 116.4
Amortization of intangibles 35.4 18.9
Equity in earnings of partially-owned affiliates (10.7) (6.0)
Deferred income taxes (20.4) (4.6)
Restructuring charge 70.0 0.0
Other 1.8 11.4
Changes in working capital, excluding acquisition of businesses
Accounts receivable (92.0) (129.8)
Inventories (36.1) (37.9)
Other current assets (21.0) (12.3)
Accounts payable and accrued liabilities 18.5 81.6
Accrued income taxes (17.0) 14.5
Billings in excess of costs and earnings on
uncompleted contracts 28.3 11.7
--------- ------
Cash provided by operating activities of continuing operations 153.0 145.5
Cash (used) provided by operating activities of discontinued operations (8.4) 8.5
--------- ------
Cash provided by operating activities 144.6 154.0
--------- ------
INVESTING ACTIVITIES
Capital expenditures (145.8) (154.3)
Sale of property, plant and equipment-net 7.3 10.5
Acquisition of businesses, net of cash acquired (1,230.4) (119.0)
Business divestitures 645.6 0.0
Increase in long-term investments - net (15.4) (11.6)
Investing activities of discontinued operations (19.5) (26.2)
Other 0.0 0.7
--------- ------
Cash used by investing activities (758.2) (299.9)
--------- ------
FINANCING ACTIVITIES
Increase in short-term debt 666.5 130.5
Issuance of long-term debt 3.6 154.5
Repayment of long-term debt (31.0) (79.9)
Payment of cash dividends (41.9) (39.9)
Net financing activities of discontinued operations 16.5 22.8
Other 11.3 2.0
--------- ------
Cash provided by financing activities 625.0 190.0
--------- ------
Increase in cash and cash equivalents $ 11.4 $ 44.1
========= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
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 six months ended March 31,
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 $384 million for the six months ended March 31, 1996. These amounts
are not included in sales as reported in the Consolidated Statement of Income.
6
<PAGE> 7
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).
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
1997(1) 1996
--------- --------
<S> <C> <C>
Net sales $5,504.9 $4,665.6
Income from continuing operations $ 59.3 $ 86.3
Earnings per share from continuing
operations
Primary $ .64 $ .98
Fully diluted $ .62 $ .93
</TABLE>
(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):
<TABLE>
<S> <C>
Writedown of long-lived assets $43.6
Employee severance and termination benefits 10.7
Other 15.7
-----
$70.0
</TABLE>
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
of the loss of certain General Motors business in Spain. Within the controls
group, the Company is divesting 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 the end of fiscal
1997.
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. 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.
6. 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 six months ended March 31, 1997 and 1996
(net of income tax refunds) totaled approximately $139 million and $49 million,
respectively. The increase primarily relates to the acquisition of Prince and
an IRS audit adjustment paid in the second quarter of 1997. Total interest
paid on both long-term and short-term debt was $66 million and $30 million for
the six months ended March 31, 1997 and 1996, respectively.
8
<PAGE> 9
7. 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:
<TABLE>
<CAPTION>
March 31,
1997 1996
-------- --------
(in millions)
<S> <C> <C>
Raw materials and supplies $ 163.5 $ 131.9
Work-in-process 96.3 99.3
Finished goods 159.5 146.5
------- -------
FIFO inventories 419.3 377.7
LIFO reserve 41.3 45.0
------- -------
LIFO inventories $ 378.0 $ 332.7
======= =======
</TABLE>
8. 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.
9. 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 March 31, 1997 and 1996 and $2.7 million and $2.8 million for the
six months ended March 31, 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ----------------------------- ----
(in millions)
<S> <C> <C> <C> <C>
Primary 84.9 83.7 84.5 83.4
Fully diluted 90.8 90.0 90.6 89.8
</TABLE>
9
<PAGE> 10
10. 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.
11. 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
(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 share
on a fully diluted basis) and $1.8 million ($.02 per share on a fully diluted
basis) on sales of $242 million and $384 million for the five months ended
February 28, 1997 and six months ended March 31, 1996, respectively.
COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED MARCH 31,
1997 AND MARCH 31, 1996
CONTINUING OPERATIONS
Consolidated net sales for the second quarter of fiscal 1997 rose 22% to
$2,744 million, up from $2,246 million for the prior year quarter.
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Automotive segment sales for the second quarter of $1,980 million were
28% higher than the prior year's $1,541 million. Approximately one-half of the
increase reflects the addition of Prince, the interior systems company acquired
in October 1996. North American seating sales experienced growth in excess of
the 8% increase in industry vehicle production levels, resulting from 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 slightly higher than the prior year quarter despite an
unfavorable exchange rate impact on sales. 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 increased 8% to $764 million from $705 million in
the prior year primarily due to a higher level of integrated facilities
management activity in both the commercial and government markets worldwide.
The segment also experienced an increase in the nonresidential new construction
market, primarily in North America and the Pacific Rim and within its North
American service business. Orders from the commercial buildings market in the
second quarter of fiscal 1997 were level with a year ago.
Consolidated operating income for the second fiscal quarter of 1997 was
$41 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 exit certain low-margin service activities which are outside its
core controls and facilities management businesses. Also impacting the quarter
was $6 million in costs associated with strikes at two of the Company's
automotive facilities and a strike at a General Motors facility which the
Company supplies. Operating income before these nonrecurring costs was $117
million, a 26% improvement over the prior year's $93 million.
The automotive segment's operating income (before strike costs of $6
million and restructuring charge of $37 million) grew as a result of the volume
increases, however, at a lower rate than sales. Margins were impacted by
several factors including start-up and engineering investments related to new
seating programs, and start-up investments in the emerging South American and
Pacific Rim markets.
Operating income for the controls segment (before restructuring charge of
$33 million) improved at a rate slightly less than sales. Operating margins
associated with the segment's rapidly growing integrated facility management
business are lower than those of the systems installation and service
businesses.
Other expense increased $13 million over the comparable prior year
quarter. Net interest expense increased $14 million as a result of the
financing associated with the Prince acquisition.
11
<PAGE> 12
The effective income tax rate on continuing operations was 42.5% for the
three-month period ended March 31, 1997 compared to 39.9% for the comparable
quarter last year. The increase primarily reflects the non-deductible goodwill
amortization associated with the acquisition of Prince.
The Company's second quarter loss from continuing operations was $2
million or $.06 per primary share and $.03 per fully diluted share. Prior to
the nonrecurring costs ($44 million or $.52 per primary share and $.48 per
fully diluted share, after-tax), income from continuing operations was $42
million, an increase of 16% from the prior year quarter's $36 million. This
increase 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 (before nonrecurring costs) for the quarter ended
March 31, 1997, were $.46 and $.45, respectively, up from $.40 and $.39 in the
prior year.
COMPARISON OF OPERATING RESULTS FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1997
AND MARCH 31, 1996
CONTINUING OPERATIONS
For the six months ended March 31, 1997, sales totaled $5,505 million, an
increase of 30% from the year ago period. A substantial portion of the
increase resulted from a higher level of activity in the automotive segment.
Automotive segment sales for the first half of 1997 were $4,010 million,
up 38% from $2,906 in the prior year. Over 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 half
of the fiscal year were up 3%, 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 also higher resulting from new programs
with Ford, Chrysler and Volkswagen. Sales of automotive batteries were up over
the prior year period due to higher unit shipments to the replacement market
(including new customer, Western Auto) and the original equipment market.
The controls segment experienced 12% sales growth, from $1,337 million to
$1,495 million for the first half of 1997. Most of the revenue growth was
associated with higher integrated facilities management activity in both the
commercial and government markets worldwide. Nonresidential new construction
sales were also higher, primarily in North America and the Pacific Rim.
The overall sales growth experienced in the first half of 1997 is
expected to continue throughout the year. Automotive segment sales are
expected to increase approximately 25%-30%. The projected increase is due to
the Prince acquisition (October 1996), the first quarter impact of the Roth
acquisition (December 1995), the strength of the domestic automotive market,
the launch of new seating business worldwide, and higher battery sales.
Management expects an increase in controls segment sales of
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<PAGE> 13
approximately 10%-15%. The anticipated driver of this increase is a higher
level of activity in the commercial integrated facilities management market.
Consolidated operating income for the first half of 1997 was $171
million. Prior to the nonrecurring costs of $76 million previously discussed,
operating income of $247 million was 27% higher than the prior year's $195
million.
Operating income of the automotive segment (before strike costs and
restructuring charge) was higher than the prior year resulting from the volume
increases noted above. Operating margins, however, were impacted by several
factors including start-up and engineering investments related to new seating
programs, and start-up investments in the emerging South American and Pacific
Rim markets.
Operating income for the controls segment (before the restructuring
charge) improved at a rate slightly less than sales. As previously noted, the
operating margins associated with the integrated facility management business
are lower than those of the systems installation and service businesses.
Other expense for the first half of 1997 increased $24 million compared
to the prior year. Net interest expense increased $31 million as a result of
the financing associated with the Prince acquisition. Miscellaneous income
increased approximately $7 million due to an increase in equity earnings from
the automotive segment's European and Mexican seating affiliates.
The effective income tax rate on continuing operations was 42.5% for the
first half of 1997 compared to 40.9% for the comparable period last year. 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 half of
1997 was $53 million or $.57 per primary share and $.56 per fully diluted
share. Before the nonrecurring costs ($44 million or $.52 per primary share
and $.48 per fully diluted share, after-tax), income from continuing operations
was $97 million or 19% higher than the prior year's $82 million. This increase
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 (before nonrecurring costs) were $1.09 and $1.04,
respectively, up from $.92 and $.88 in the prior year.
COMPARISON OF FINANCIAL CONDITION
Working Capital and Cash Flow
The Company's working capital (excluding "Net assets of discontinued
operations") totaled a negative $633 million at March 31, 1997, compared with
$226 million and $174 million at September 30, 1996 and March 31, 1996,
respectively. The large 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
13
<PAGE> 14
due to higher accrued liabilities partially related to the restructuring
charge.
Operating activities of continuing operations provided cash of $153
million for the first half of the year compared to $146 million in the prior
year. Higher income, adjusted for non cash items, was largely offset by higher
working capital.
Capital Expenditures and Other Investments
Capital expenditures for property, plant and equipment related to
continuing operations were approximately $146 million for the first half of
fiscal 1997, a decline of $8 million from the $154 million incurred during the
first half of fiscal 1996. Management projects that capital spending for the
full year will be approximately $375-$400 million. The majority of the
spending will be for new automotive seating and interior product lines and
facilities. Cost reduction projects in both segments are planned for fiscal
1997.
Goodwill of $1,590 million at March 31, 1997 was $1,042 million higher
than at September 30 due to the acquisition of Prince.
Investments in partially-owned affiliates of $147 million were
approximately $18 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 March 31, 1997 of $3,288 million
included short-term debt of $917 million, long-term debt, including current
portion, of $791 million and shareholders' equity of $1,580 million. Total
capitalization at September 30, 1996 and March 31, 1996 was $2,541 million and
$2,467 million, respectively. Total debt as a percentage of total
capitalization increased to 52% from 41% at the 1996 fiscal year-end and 43%
one year ago. The increase is attributable to the issuance of commercial paper
in conjunction with the Prince acquisition. However, the ratio is below 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 currently intends
to refinance a portion of the remaining commercial paper under the $1.5 billion
shelf registration statement on file with the Securities and Exchange
Commission. The Company expects its debt to capitalization ratio to
approximate 45%-50% by the end of fiscal 1997.
The Company believes its capital resources and liquidity position at
March 31, 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
Backlog
The unearned backlog of commercial building systems, services and
integrated facilities management contracts to be executed within the next year
at March 31, 1997 was $1,200 million, compared with $1,168 million at September
30, 1996 and $1,120 million at March 31, 1996. The increase from September 30
and the prior year primarily represents higher new construction and performance
contracting activity worldwide.
The unearned backlog of government facilities management contracts, which
reflects only the noncancellable portion of uncompleted contracts was $258
million compared to $424 million at September 30, 1996 and $321 million last
year. The decrease from September 30 primarily reflects the timing of contract
renewals. The reduction from last year reflects the loss of certain contracts.
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.
Item 5. Other Information
(a) Robert Netolicka was named Vice President and General
Manager, Integrated Facility Management-Commercial. Since
1993, Mr. Netolicka has serviced as Vice President and General
Manager of the Company's Systems Products Business. He joined
the Company in 1974.
(b) Keith E. Wandell was named Vice President and General
Manager, Battery. Since joining the Company in 1988, he has
served in a number of management positions of increasing
responsibility, including most recently as
15
<PAGE> 16
Vice President and General Manager of the Company's SLI
battery business.
(c) Stacy L. Fox was named an Assistant Secretary and Corporate
Officer. Ms. Fox is Vice President and Division General
Counsel of the Company's Automotive Systems Group. She joined
the Company in 1989.
(d) Patrick J. Dennis was named Controller and was elected a
Corporate Officer. Since joining the Company in
1983, Mr. Dennis had held controller
responsibilities for the Automotive Systems Group.
(e) James H. Pell and Robert C. Dickhaus left the Company.
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) The following Form 8-K's were filed during the second quarter
or thereafter through the date of this report:
(i) On March 10, 1997, the Company filed two Form 8-K's. One of
the Form 8-K's was filed to provide the reclassified financial
statements of the Company which presented PCD as a discontinued
operation and presented the effect of the stock split. The
second Form 8-K provided the historical financial statements of
Prince and pro forma financial information related to the sale
of PCD.
16
<PAGE> 17
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: May 7, 1997 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 Six Months
Ended March 31, Ended March 31,
-------------------- ------------------
1997 1996 1997 1996
------- ------- ------ ------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net Income $ 68.1 $ 36.4 $ 121.2 $83.4
Preferred dividends, net of tax
benefit (2.5) (2.3) (4.8) (4.7)
-------- ------ -------- -----
Earnings available for common
shareholders $ 65.6 $ 34.1 $ 116.4 $78.7
-------- ------ -------- -----
Average common shares outstanding
Common stock 83.5 82.7 83.3 82.4
Common stock equivalents -
Assumed exercise of stock options 1.4 1.0 1.2 1.0
-------- ------ -------- -----
84.9 83.7 84.5 83.4
-------- ------ -------- -----
Primary earnings per share $ 0.77 $ 0.40 $ 1.38 $0.94
======== ====== ======== =====
FULLY DILUTED EARNINGS PER SHARE
Net Income $ 68.1 $ 36.4 $ 121.2 $83.4
After tax compensation expense
which would arise from the assumed
conversion of the Series D
Convertible Preferred Stock (1.4) (1.4) (2.7) (2.8)
-------- ------ -------- -----
Fully diluted earnings $ 66.7 $ 35.0 $ 118.5 $80.6
-------- ------ -------- -----
Average common shares outstanding
Common stock 83.5 82.7 83.3 82.4
Conversion of Series D Convertible
Preferred Stock 5.9 6.1 5.9 6.2
Common stock equivalents -
Assumed exercise of stock options 1.4 1.2 1.4 1.2
-------- ------ -------- -----
90.8 90.0 90.6 89.8
-------- ------ -------- -----
Fully diluted earnings per share $ 0.74 $ 0.39 $ 1.31 $0.90
======== ====== ======== =====
</TABLE>
18
<PAGE> 1
EXHIBIT 12
JOHNSON CONTROLS, INC.
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
For the Six Months
Ended March 31, 1997
--------------------
<S> <C>
Income from continuing operations $ 53.3
Provision for income taxes 48.7
Undistributed earnings of partially-owned affiliates (8.0)
Minority interests in net earnings of subsidiaries 12.7
Amortization of previously capitalized interest 2.3
------------
109.0
------------
Fixed charges:
Interest incurred and amortization of debt expense 73.4
Estimated portion of rent expense 18.9
------------
Fixed charges 92.3
Less: Interest capitalized during period (3.6)
------------
88.7
------------
Earnings $ 197.7
============
Ratio of earnings to fixed charges 2.1
============
</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
representatave of the interest factor.
19
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000053669
<NAME> JOHNSON CONTROLS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 176,600
<SECURITIES> 0
<RECEIVABLES> 1,763,100
<ALLOWANCES> 20,000
<INVENTORY> 378,000
<CURRENT-ASSETS> 2,633,200
<PP&E> 2,921,600
<DEPRECIATION> 1,457,600
<TOTAL-ASSETS> 6,092,200
<CURRENT-LIABILITIES> 3,266,200
<BONDS> 666,700
0
151,100
<COMMON> 14,400
<OTHER-SE> 1,414,300
<TOTAL-LIABILITY-AND-EQUITY> 6,092,200
<SALES> 5,504,900
<TOTAL-REVENUES> 5,504,900
<CGS> 4,722,900
<TOTAL-COSTS> 4,722,900
<OTHER-EXPENSES> 599,800
<LOSS-PROVISION> 1,500
<INTEREST-EXPENSE> 66,000
<INCOME-PRETAX> 114,700
<INCOME-TAX> 48,700
<INCOME-CONTINUING> 53,300
<DISCONTINUED> 67,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,200
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.31
</TABLE>
