<PAGE> 1
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 For the Fiscal Year Ended September 30, 1998
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)
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<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 on
Title of Each Class 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. /X/
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 November 18, 1998 November 18, 1998
- ------------------------------- -------------------------- ----------------
<S> <C> <C>
Common Stock, $.16-2/3 par value $4,908,245,869 84,807,704
Series D Convertible Preferred Stock,
$1.00 par value, $512,000
liquidation value $315,809,985 272.838
</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, 1998.
Part III incorporates by reference portions of the Proxy Statement dated
December 4, 1998.
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JOHNSON CONTROLS, INC.
Index to Annual Report on Form 10-K
Year Ended September 30, 1998
Page
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CAUTIONARY STATEMENTS FOR FORWARD-LOOKING
INFORMATION............................................................. 3
PART I.
ITEM 1. BUSINESS................................................................... 3
ITEM 2. PROPERTIES................................................................. 11
ITEM 3. LEGAL PROCEEDINGS.......................................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS...................................................... 15
EXECUTIVE OFFICERS OF THE REGISTRANT....................................... 15
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.......................................... 18
ITEM 6. SELECTED FINANCIAL DATA.................................................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................................................ 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................ 18
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE............................................................... 18
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS........................................... 18
ITEM 11. EXECUTIVE COMPENSATION..................................................... 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................................... 18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 18
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.................................................. 19
INDEX TO EXHIBITS.......................................................... 24-27
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CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
Johnson Controls, Inc. (the Company) has made forward-looking statements in this
document that are subject to risks and uncertainties. Forward-looking statements
include information concerning possible or assumed future risks preceded by,
following or that include the words "believes," "expects," "anticipates" or
similar expressions. For those statements, the Company cautions that the
numerous important factors discussed elsewhere in this document and in the
Company's Form 8-K filing (dated November 13, 1998) 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 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 North 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. Since 1978, the
Company's operations have been diversified through acquisitions and internal
growth. It currently operates in two business segments, controls ("Controls
Group") and automotive ("Automotive Systems Group").
The Controls Group segment's systems and services business is a worldwide
leader in the design, manufacture, installation and service of control systems
for nonresidential buildings. Tens of thousands of the business' control systems
are installed in buildings around the world. The segment also provides
integrated facility management services to both the commercial buildings and
government facilities markets worldwide. The segment's integrated facility
management business is a market leader in providing such services, with
approximately 1.2 billion square feet of facilities under management.
Through a number of strategic acquisitions over the last two decades, the
Company's operations were expanded to include the manufacture of automotive
seating and interior systems and automotive batteries (which currently comprise
the Automotive Systems Group), and plastic containers and plastics machinery
(plastics businesses subsequently divested; see discussion that follows). The
segment is a global leader in supplying automotive seating and interior systems,
providing seating systems, overhead systems, door systems, integrated
electronics and instrument panels to virtually every major automaker. The
Automotive Systems Group is also the largest automobile battery manufacturer in
North America, supplying batteries to the domestic replacement and original
equipment markets.
The Company has completed several key acquisitions in the past two years.
In 1997, the Company acquired Prince Holding Corporation (Prince), a major
supplier of automotive interior systems and components including overhead
systems and consoles, door panels and floor consoles. Effective July 1, 1998,
the Company acquired Becker Group, Inc. (Becker Group), a
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leading supplier of automotive door systems and instrument panels. The
integration of Prince and Becker Group provide a new platform for the Company's
growth in the global interior systems market.
In 1997, the Company divested its previous plastics operating segment by
selling the Plastic Container division. In 1998, the Company sold the Plastics
Machinery division.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Business segment financial information can be found within the 1998 Annual
Report to Shareholders, which is incorporated herein by reference, on page 20
("Business Segments" table) and on page 38 (Note 16 "Segment Information" of
Notes to Consolidated Financial Statements).
PRODUCTS AND SERVICES
AUTOMOTIVE SYSTEMS GROUP
The Automotive Systems Group consists of its seating and interior systems
business, which designs and manufactures complete automotive seating and
interior systems, and its battery business, which produces automotive batteries
for the replacement and original equipment markets.
The automotive seating and interior systems business designs and
manufactures complete seating and interior systems for manufacturers of cars and
light trucks (including vans and sport utility vehicles). The business' seating
systems products include seats, seating foam pads, mechanisms, metal frames and
trim covers. The business' interior systems products include overhead systems,
door systems, floor consoles and instrument panels, specializing in the
integration of electronics into vehicle interiors. Worldwide, the business is
among the top 20 automotive suppliers, with sales to all of the top 10
automobile companies in the world.
In addition to its domestic operations, the seating and interiors business
has operations in the Asia/Pacific region, Canada, Europe, Mexico, South
America, South Africa and Australia through wholly-owned, majority-owned and
partially-owned businesses. The business operates wholly-owned and
majority-owned manufacturing and assembly facilities in 137 locations worldwide.
The business is the world's largest supplier of automotive seating systems and
the largest independent North American supplier of automotive interior systems,
subsystems and components.
The seating and interior systems business operates 58 wholly or
majority-owned assembly plants that supply automotive manufacturers with
complete seats on a "just-in-time/in-sequence" basis. All foam and metal seating
components, covers and seat mechanisms are shipped to these plants from the
business' 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.
The Company's seating and interior systems business has grown significantly
during the last several years. Seating systems operations have expanded
principally through internal growth, while interior systems growth has been
aided by strategic acquisitions, which will provide
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platforms for growth in the next decade. In 1996, the Company acquired a
majority interest in Roth Freres S.A., which supplies seats, headliners and
other interior components, and in 1997 acquired Prince, a major supplier of
automotive interior systems. In 1998, the Company purchased the automotive
interior systems supplier Becker Group, providing an expanded opportunity for
interior systems growth, especially in the European market. Seating and interior
systems business sales represent approximately 90% of total segment sales.
The Automotive Systems Group's battery business accounts for the remaining
portion of the segment's sales. The business is a leading manufacturer of
lead-acid automotive batteries for the North American replacement and original
equipment markets. Automotive batteries are sold primarily under private label
to automotive replacement battery retailers and distributors and to automobile
manufacturers as original equipment. Batteries and plastic battery containers
are manufactured at 11 plants in the United States and, via partially-owned
affiliates, at plants in India, Mexico and South America. In 1998, the battery
business announced two significant new joint ventures to manufacture automotive
batteries in Mexico and South America. In total, the joint ventures will operate
10 manufacturing plants in those regions, enabling the battery business to
expand its global manufacturing, marketing and distribution capabilities.
CONTROLS GROUP
The Controls Group 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. The control
systems and services business engineers, manufactures and installs control
systems. The business also services building control systems, with service
performed primarily by employee sales engineers, application engineers and
mechanics working out of branch offices located in approximately 300 principal
cities throughout the world. The business manufactures a broad line of electric
and electronic products for sale to its own sales force and to original
equipment manufacturers, wholesalers and distributors of air-conditioning,
refrigeration, commercial and residential heating, water-pumping and gas-burning
equipment. Control systems products are manufactured in eight domestic and eight
foreign facilities.
The Controls Group is also a leading supplier of integrated facility
management for commercial buildings and government facilities, with over 200
locations worldwide. The integrated facility management business provides
strategic facility management services and workplace consulting, including a
wide range of on-site operations and maintenance support. Commercial facility
management services are provided to businesses in markets such as data centers
and research labs, where facilities and workplace performance is essential to
business success. Government facility management services are provided for
military bases, research and testing laboratories and other government
facilities.
Overall, approximately 40% of the Controls Group's sales are derived from
the installation and service of control systems to the existing worldwide
commercial building market, 15% from new construction, while the remaining 45%
originates from integrated facility management.
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MAJOR CUSTOMERS AND COMPETITION
As described previously, the Company is a major supplier to the automotive
industry. Sales to its major customers, as a percentage of consolidated net
sales, were as follows for the most recent three-year period:
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Customer 1998 1997 1996
- -------- ---- ---- ----
<S> <C> <C> <C>
Ford Motor Company 16% 17% 14%
General Motors Corporation 13% 13% 11%
Chrysler Corporation 10% 11% 10%
</TABLE>
AUTOMOTIVE SYSTEMS GROUP
Approximately 60% of the seating and interior systems business' sales over
the last three years were to the three automobile manufacturers listed above. In
1998, approximately 75% of these sales were domestic, 15% were generated in
Europe and 10% were attributable to other foreign markets. Because of the
importance of new vehicle sales of major automotive manufacturers to its
operations (see pages 18 through 19 of the Company's 1998 Annual Report to
Shareholders), the business is affected by general business conditions in this
industry.
The Automotive Systems Group's seating and interior systems business
supplies the automotive original equipment market and 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 business. Competition is based on
technology, quality and price. Design, engineering and product planning are
increasingly important factors.
The business' seating systems operations principally compete in North
America with Lear Corporation and Magna International, Inc. In Europe, the
seating systems operations primarily compete with Lear Corporation, Faurecia and
automotive manufacturers. The market for interior systems is highly fragmented
in both North America and Europe. In North America, the business' interior
systems operations compete with Lear Corporation; Davidson Interior Trim, a
division of Textron, Inc.; UT Automotive, a subsidiary of United Technologies,
Inc. and Visteon, a division of Ford Motor Company. In Europe, the primary
competitors are Lear Corporation and Sommer Allibert.
Approximately 85% of the Automotive Systems Group's battery business sales
in 1998 were to the automotive replacement market, with the remaining 15% to the
original equipment market. The business is the principal supplier of automotive
batteries to Interstate Battery System of America and AutoZone, and is a major
supplier of automotive batteries to Wal-Mart and Sears. Each of these customers
sell replacement batteries under their own brand labels. Original equipment and
replacement batteries are sold to a number of large manufacturers of motor
vehicles.
Sales of the battery business depend primarily on quality, price, delivery
and service, including marketing support and technical advice. The business
primarily competes in North America with
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Exide Corporation; Delphi Automotive Systems, a division of General Motors
Corporation; and GNB Batteries, a subsidiary of Pacific Dunlop Limited.
CONTROLS GROUP
The Controls Group conducts much of its control systems and services and
integrated facility management businesses through thousands of individual
contracts that are either negotiated or awarded on a competitive basis. Key
factors in awarding contracts include product and service quality, price,
reputation, design, application engineering capability and construction
management expertise. The Controls Group's primary competitors in the control
systems and services market are Honeywell, Inc.; Landis & Staefa, a division of
Siemens AG; and Siebe plc. The integrated facility management services market is
highly fragmented, with no one company being dominant.
Sales of the Controls Group's integrated facility management business are
largely dependent upon numerous individual contracts with commercial businesses
worldwide and various departments and agencies of the U.S. Federal Government.
The loss of any individual contract would not have a materially adverse effect
on the Company.
BACKLOG
The Company's backlog relates to the Controls Group's control systems and
services business, which derives a significant portion of its revenues from
long-term contracts that are accounted for on the percentage-of-completion
method. In accordance with customary industry practice, the Controls Group
progress bills customers on an estimated basis as work proceeds. Information
concerning contracts in progress for the Controls Group is as follows:
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September 30,
(in millions) 1998 1997
<S> <C> <C>
Backlog of uncompleted building systems and services contracts $2,296 $2,102
Earned revenues on uncompleted building systems and services contracts 1,460 1,342
------ ------
Unearned backlog of building systems and services contracts $ 836 $ 760
====== ======
</TABLE>
The preceding data does not include amounts associated with unearned
contracts of the Controls Group's integrated facility management business
because such contracts are typically multi-year service awards; the amount
outstanding at any given period is not necessarily indicative of the amount of
revenue to be earned in the coming fiscal period. In addition, certain of the
Company's manufacturing businesses accumulate backlog data, but the amounts,
when considered in the aggregate, are not significant to an understanding of
these businesses.
RAW MATERIALS
Raw materials used by the Automotive Systems Group's seating and interiors
business, such as steel, urethane chemicals and chromium, were readily available
during the year and such availability is expected to continue. Principal raw
materials used in the manufacture of the
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Automotive Systems Group's batteries are lead, antimony, calcium, sulfuric acid
and polypropylene, all of which are generally available in the open market. The
Controls Group is not dependent upon any single source of supply for essential
materials, parts or components.
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 a 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 United States 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, " "PENN, " "METASYS, " "HOMELINK,"
"AUTOLINK" and "TRAVELNOTE" 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."
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 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 (EPA) 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.
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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 1998 related solely to
environmental compliance were not material. It is management's opinion that the
amount of any future capital expenditures related solely to environmental
compliance will not have a material adverse effect on the Company's financial
results or competitive position in any one year.
EMPLOYEES
As of September 30, 1998, the Company employed approximately 89,000
employees, of whom 63,700 were hourly and 25,300 were salaried.
SEASONAL FACTORS
Sales of seating and interior systems and batteries 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 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.
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The Controls Group's businesses are executed on a relatively continuous
basis, with no significant fluctuation in revenues during the year.
INTERNATIONAL OPERATIONS
The Automotive Systems Group has manufacturing facilities worldwide. The
automotive seating and interior systems business has wholly-owned and
majority-owned manufacturing facilities located outside the United States,
including plants in Argentina, Australia, Austria, Belgium, Brazil, Canada, the
Czech Republic, France, Germany, Italy, Mexico, the Netherlands, Portugal,
Slovakia, South Africa, Spain, Sweden and the United Kingdom. These facilities
produce, depending on the location, complete seats, interior systems and related
components. The business also has partially-owned operations in the Asia/Pacific
region, Europe and Mexico that manufacture complete seats, headliners and/or
seating components. The Automotive Systems Group's battery business has
partially-owned affiliates in India, Mexico and South America that produce
batteries. Licensing and joint venture arrangements are also in effect with
certain foreign manufacturers of batteries and automotive parts.
Through a number of foreign subsidiaries and branches, the Controls Group
operates fully-staffed sales offices, offering engineering, installation and
service capabilities (the counterpart to the domestic controls operations), and,
in many cases, integrated facility management services. Offices are located in
Australia, Austria, Belgium, Canada, China, CIS (Russia), the Czech Republic,
Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Israel,
Italy, Korea, Malaysia, Mexico, the Netherlands, Norway, the Philippines,
Poland, Portugal, Republic of Kazakhstan, Saudi Arabia, Singapore, Slovak
Republic, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United
Arab Emirates and the United Kingdom. In addition, Controls Group products are
marketed through 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 United
States. The Controls Group also has joint venture operations in the Argentina,
Brazil, China, Italy, Japan, Kuwait, Malaysia, Singapore, Switzerland and
Thailand.
The financial results of all foreign operations are subject to currency
exchange rate fluctuations. The Company selectively uses financial instruments
to minimize its risk of loss from fluctuations in exchange rates. The Company
primarily enters into forward exchange contracts to reduce the earnings and cash
flow impact of non-functional currency denominated receivables and payables,
predominately intercompany transactions. Gains and losses from hedging
instruments offset the gains or losses on the underlying assets, liabilities and
investments being hedged. All hedging transactions are authorized and executed
pursuant to clearly defined policies and procedures, which strictly prohibit the
use of financial instruments for trading purposes.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Note 16 of Notes to Consolidated Financial Statements, "Segment
Information," on page 38 of the 1998 Annual Report to Shareholders is
incorporated herein by reference.
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RESEARCH AND DEVELOPMENT EXPENDITURES
Expenditures for research activities relating to product development and
improvement are charged against income as incurred. Such expenditures amounted
to $246 million in 1998, $232 million in 1997 and $156 million in 1996. In
addition, the Company expended $131 million in 1998, $119 million in 1997 and
$108 million in 1996 for research activities sponsored by customers.
ITEM 2 PROPERTIES
The Company has numerous wholly-owned and majority-owned manufacturing
facilities located throughout the world. 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 segment and location aggregate
approximately 28 million square feet of floor space and are owned by the Company
except as noted. In addition, hundreds of Controls Group 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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<TABLE>
<CAPTION>
AUTOMOTIVE SYSTEMS GROUP
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama Cottondale(1) Oregon Canby (Portland)
Californa Fullerton South Carolina Oconee
Livermore Tennessee Athens
Modesto Lewisburg
Stockton(1) Lexington
Delaware Middletown Linden
Florida Tampa Murfreesboro(2)
Georgia John's Creek(1) Pulaski(2)
Illinois Geneva Texas El Paso(1)
Lawrenceville Virgina Chesapeake(1)
Sycamore Wisconsin Hudson(1)
Indiana Ossian Milwaukee(2)
Kentucky Bardstown
Cadiz Argentina Cordoba(1)
Florence(1) Escobar
Georgetown(1) Rosario
Glasgow Australia Adelaide
Harrodsburg Melbourne
Leitchfield Thomastown
Maysville Austria Graz
Nicholasville Mandling
Shelbyville(1) Belgium Anderlecht(1)
Winchester(1) Geel
Louisina Shreveport(1) Brazil Curitiba
Maryland Belcamp(2) Pouso Alegre
Michigan Auburn Hills Santo Andre
Battle Creek San Bernardo(1)
Detroit Sao Jose
Holland Sao Paulo(1)
Lapeer Canada Milton
Lincoln Park(1) Orangeville
Livonia(1) Saint Mary's
Mt. Clemens(1) Stratford
Plymouth(2) Tillsonburg
Southfield(1) Czech Republic Ceska Lipa
Sterling Heights(1) Mlada Boleslav
Taylor(1) Roudnice(1)
Missouri Jefferson City Straz Pod Ralskem
Liberty(1) France Conflans
St. Joseph(1) Creutzwald
New Jersey Dayton(1) Harnes
Edison(1) Schweighouse-sur-Moder
North Carolina Winston-Salem Strasbourg(2)
Ohio Greenfield Rosny(1)
Oberlin(1)
Strongsville (1) Leased
Toledo (2)both owned and leased facilities
</TABLE>
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<TABLE>
<CAPTION>
AUTOMOTIVE SYSTEMS GROUP CONTROLS GROUP
- ---------------------------------- ------------------------------------
<S> <C> <C> <C>
Germany Boblingen(1) Florida Cape Canaveral(2)
Bochum(1) Georgia Atlanta
Burscheid Kennesaw
Ehningen(1) Indiana Goshen
Espelkamp Ohio Reynoldsburg
Grefrath(1) Oklahoma Poteau
Lahnwerk Wisconsin Milwaukee
Luneberg Watertown
Mallersdorf Germany Essen(1)
Neustadt Italy Lomagna
Radesomweld(1) Mexico Juarez
Rastatt(1) Reynosa
Schwalbach (1) The Netherlands Leeuwarden
Unterriexingen(2) United Kingdom Bournemouth(1)
Waghausel Waterlooville(1)
Wuppertal(1)
Zwickau
Hungary Solymar(2)
Italy Caserta(1)
Milan(2)
Potenza(1)
Salerno(2)
Mexico Juarez(2)
Naucalpan CORPORATE
Puebla -------------------------------------
Ramos Arizpe Wisconsin Milwaukee
The Netherlands Sittard
Portgual Nelas
Portalegre
Slovakia Bratislava(1)
South Africa Port Elizabeth(1)
Pretoria(1)
Uitenhaige(1)
Spain Alagon
Barcelona
Valencia
Sweden Goteberg(1)
United Kingdom Birmingham(1)
Chelmsford(1)
Dagenham(1)
Mansfield
Silloth
Speke(2)
Staffordshire
Telford
Warley(1)
Warwickshire(1) (1) Leased
Wednesbury (2) Both owned and leased facilities
</TABLE>
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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
that 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 60 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 1998 totaled $46 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 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
14
<PAGE> 15
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 is as
follows:
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 $64 million. The Company has been vigorously defending this
action, but is currently pursuing settlement with the agency.
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 1999 Annual Meeting of
Shareholders.
James H. Keyes, 58, was elected Chairman of the Board in 1993 and
Chief Executive Officer in 1988. He served as President from 1986 to
September 1998. Mr. Keyes joined the Company in 1966.
John M. Barth, 52, was elected President and Chief Operating Officer
in September 1998. He was elected a member of the Board of Directors in
November 1997. Previously, Mr. Barth served as an Executive Vice President
with responsibility for the Automotive Systems Group, since 1992. Mr. Barth
joined the Company in 1969.
Stephen A. Roell, 48, was elected Senior Vice President in September
1998 and has served as Chief Financial Officer since 1991. He was a Vice
President from 1991 to September 1998, and earlier served as Corporate
Controller and Assistant Secretary. Mr. Roell joined the Company in 1982.
15
<PAGE> 16
Dr. Steven J. Bomba, 61, 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, 45, was elected Vice President, Human Resources, in
1994. From August 1993, she served as Vice President of Organizational
Development for the Automotive Systems Group, the former Plastics
Technology Group and the Battery business. Ms. Davis joined the Company in
1983.
Giovanni "John" Fiori, 55, was elected a Corporate Vice President in
1992 and serves as President of automotive operations in Europe, Asia and
Africa. Previously, he served as Vice President of automotive seating
operations in Europe. Mr. Fiori joined the Company in 1987.
Michael F. Johnston, 51, was elected a Corporate Vice President in
1993, and was named President of the Automotive Systems Group's North
American operations in November 1997. Previously, he served as President of
the Company's Interior Systems and Battery businesses. Mr. Johnston joined
the Company in 1989.
John P. Kennedy, 55, 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, 63, 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.
Lou Kincaid, 51, was elected a Corporate Vice President in July 1998.
He has served as Vice President of Product Engineering Worldwide since
fiscal 1997, with responsibility for both the Automotive Seating and
Interior systems businesses. Mr. Kincaid previously served as Group Vice
President of Technical Operations for Prince, prior to the Company's
acquisition of Prince in October 1996.
Robert Netolicka, 51, was elected a Corporate Vice President in 1997
and serves as President of the Controls Group's Integrated Facility
Management business. Previously, he served as Vice President and General
Manager of the Controls Group's Systems Products business, since 1993, and
has held Controls Group management positions in Australia, Europe, Hong
Kong and America since joining the Company in 1974.
Rande S. Somma, 46, was elected a Corporate Vice President in January
1998. He has served as President of the Automotive Systems Group's Interior
Trim, Marketing and Business Development business since 1997. Mr. Somma
served in several senior management positions within the Automotive Systems
Group since joining the Company in 1988.
16
<PAGE> 17
Brian J. Stark, 49, was elected a Corporate Vice President in 1995 and
serves as President of the Controls Group's Control Systems and Services
business. Since joining the Company in 1972, Mr. Stark has held a number of
managerial positions within the Control Systems and Services field
organization, including Branch and Regional Manager; Vice President, Field
Operations; and Vice President and General Manager, World Wide Systems and
Services.
Keith E. Wandell, 49, was elected a Corporate Vice President in 1997
and serves as President of the Automotive Systems Group's Battery business.
Previously, he served in a number of management positions, most recently as
Vice President and General Manager of the Battery business' Starting,
Lighting and Ignition Division. Mr. Wandell joined the Company in 1988.
Denise M. Zutz, 47, was elected Vice President, Corporate
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, 54, was named Corporate Treasurer in 1991, when he
joined the Company. Between 1984 and 1990, he served as Assistant
Treasurer, and then Treasurer, of Borg-Warner Corporation.
Patrick J. Dennis, 47, was named Corporate Controller in September
1998. He previously served as Controller for the Automotive Systems Group,
since 1996. Mr. Dennis has held controller responsibilities for the
Automotive Systems Group since joining the Company in 1983.
Stacy L. Fox, 45, was elected Assistant Secretary in November, 1996.
She joined the Company in 1989 and serves as Group Vice President and
General Counsel of the Automotive Systems Group.
Jerome D. Okarma, 46, was elected Assistant Secretary in 1990. He has
served as Assistant General Counsel since joining the Company in 1989 and
as Group Vice President and General Counsel of the Controls Group since
1993.
Subhash "Sam" Valanju, 55, 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 that 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.
17
<PAGE> 18
PART II
The information required by Part II, Items 5, 6, 7, 7A and 8, are incorporated
herein by reference to the Company's 1998 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 18, and Note 9 "Shareholders' Equity" on page 34 of Notes to
Consolidated Financial Statements of the 1998 Annual Report to
Shareholders.
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of November 18, 1998
-------------- -----------------------
<S> <C>
Common Stock, $.16-2/3 par value 61,165
</TABLE>
<TABLE>
<S> <C>
ITEM 6 SELECTED FINANCIAL DATA - See "Five Year Summary" on page 40 of
the 1998 Annual Report to Shareholders.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - See pages 18 through 25 of the 1998
Annual Report to Shareholders.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
See "Risk Management" on pages 22 through 23 of Management's
Discussion and Analysis section of the 1998 Annual Report to
Shareholders.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - See pages 26
through 38 of the 1998 Annual Report to Shareholders.
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
</TABLE>
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 15-17
of Part I of this report, is incorporated by reference to pages 3-29 of the
Company's Proxy Statement for its 1999 Annual Meeting of Shareholders.
18
<PAGE> 19
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page in
Annual Report*
<S> <C> <C>
(a) The following documents are filed as part of this report:
(1) Financial Statements
Consolidated Statement of Income for the years
ended September 30, 1998, 1997 and 1996 ......................................... 26
Consolidated Statement of Financial Position at
September 30, 1998 and 1997...................................................... 27
Consolidated Statement of Cash Flows for the years
ended September 30, 1998, 1997 and 1996.......................................... 28
Consolidated Statement of Shareholders' Equity for
the years ended September 30, 1998, 1997 and
1996............................................................................. 29
Notes to Consolidated Financial Statements.............................................. 30-38
Report of Independent Accountants....................................................... 39
</TABLE>
*Incorporated by reference from the indicated pages of the 1998 Annual Report
to Shareholders.
<TABLE>
<CAPTION>
Page in
Form 10-K
<S> <C>
(2) Financial Statement Schedule
Report of Independent Accountants on Financial
Statement Schedule............................................................... 21
For the years ended September 30, 1998, 1997 and 1996:
II. Valuation and Qualifying Accounts........................................... 23
</TABLE>
All other schedules are omitted because they are not applicable, or the
required information is shown in the financial statements or notes thereto.
19
<PAGE> 20
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
Reference is made to the separate exhibit index contained on pages
24 though 27 filed herewith.
(b) The following Form 8-K was filed during the fourth quarter of the
Company's 1998 fiscal year or thereafter through the date of this Form
10-K:
(1) On November 13, 1998, 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 and to provide updated
disclosure of the factors that could affect any forward-looking
statements made by, or on behalf of, the Company.
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, 333-10707, 333-36311 and 333-66073.
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
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.
20
<PAGE> 21
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 19, 1998 appearing on page 39 of the 1998 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)(2) 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.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
October 19, 1998
21
<PAGE> 22
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
Senior Vice President and
Chief Financial Officer
Date: December 15, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below as of December 15, 1998, by the following persons
on behalf of the registrant and in the capacities indicated:
<TABLE>
<S> <C>
James H. Keyes John M. Barth
Chairman, Chief Executive Officer President, Chief Operating Officer
and Director and Director
Stephen A. Roell Patrick J. Dennis
Senior Vice President and Corporate Controller
Chief Financial Officer
Robert A. Cornog Paul A. Brunner
Director Director
Fred L. Brengel William H. Lacy
Director Director
Willie D. Davis
Director
</TABLE>
22
<PAGE> 23
JOHNSON CONTROLS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in millions)
_______________________________________________________________________________
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of period $20.8 $20.9 $18.6
Accounts charged off (6.4) (6.9) (4.7)
Provision charged to costs and expenses 7.1 5.2 6.8
Acquisition of businesses 0.2 2.6 1.0
Currency translation 0.1 (0.9) (0.1)
Recoveries on accounts previously charged off -- -- (1.0)
Other (0.6) (0.1) 0.3
----- ----- -----
Balance at end of period $21.2 $20.8 $20.9
===== ===== =====
DEFERRED TAX ASSETS -- VALUATION ALLOWANCE
Balance At beginning of period $81.3 $56.6 $30.9
Allowance established for new loss carryforwards
and tax credits 33.2 38.9 30.6
Allowance reversed for loss carryforwards utilized (30.9) (14.2) (4.9)
----- ----- -----
Balance at end period $83.6 $81.3 $56.6
===== ===== =====
</TABLE>
23
<PAGE> 24
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS TITLE PAGE
<S> <C> <C>
3.(i) Restated Articles of Incorporation of Johnson Controls, Inc.,
as amended January 22, 1997, (incorporated by reference to
Exhibit 3.(i) to Johnson Controls, Inc. Annual Report on Form
10-K for the year ended September 30, 1997).
3.(ii) By-laws of Johnson Controls, Inc., as amended July 22, 1998,
filed herewith. 28-42
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).
</TABLE>
24
<PAGE> 25
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS TITLE PAGE
<S> <C> <C>
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 (incorporated by reference to Exhibit
10.A to Johnson Controls, Inc. Annual Report on Form 10-K for
the year ended September 30, 1996).
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 (incorporated by
reference to Exhibit 10.D to Johnson Controls, Inc. Annual
Report on Form 10-K for the year ended September 30, 1996).
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).
</TABLE>
25
<PAGE> 26
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS TITLE PAGE
<S> <C> <C>
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 as amended through
October 1, 1998, filed herewith. 43-56
10.J Johnson Controls, Inc., Long-Term Performance Plan as amended
through October 1, 1998, filed herewith. 57-70
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 amended
through January 1, 1999, filed herewith. 71-80
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).
10.O Johnson Controls, Inc., Director Share Unit Plan,
effective November 18, 1998, filed herewith. 81-85
12 Statement regarding computation of ratio of earnings to
fixed charges for the year ended September 30, 1998,
filed herewith. 86
13 1998 Annual Report to Shareholders (incorporated sections only
in electronic filing), filed herewith. 87-109
21 Subsidiaries of the Registrant, filed herewith. 110-121
</TABLE>
26
<PAGE> 27
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS TITLE PAGE
<S> <C> <C>
23 Consent of Independent Accountants dated December 15,
1998, filed herewith. 122
27 Financial Data Schedule, (electronic filing only.)
99 Proxy Statement for Annual Meeting of Shareholders of
Johnson Controls, Inc., to be held January 27, 1999,
filed herewith. 123-181
*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.
</TABLE>
27
<PAGE> 1
EXHIBIT 3.(ii)
JOHNSON CONTROLS, INC.
BY-LAWS
(AS IN EFFECT JULY 22, 1998)
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 Wednesday 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.
28
<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 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.
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(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 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.
(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
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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 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.
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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.
(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.
(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.
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(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.
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) 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 45 days nor more than 75
days prior to the month and day in the current year corresponding
to the date on which the Corporation first mailed its proxy
materials for the prior year's annual meeting of shareholders;
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 Wednesday 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 the public announcement of the date of such meeting is first
made.
(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
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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 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.
(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
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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.
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 twelve directors divided
into three equal classes, to consist of four members each, 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 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.
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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 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
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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 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 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.
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<PAGE> 11
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.
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.
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<PAGE> 12
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 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 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
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<PAGE> 13
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 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
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<PAGE> 14
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.
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.
ARTICLE IX
NOTICES
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<PAGE> 15
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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<PAGE> 1
EXHIBIT 10.I
JOHNSON CONTROLS, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
DEFERRED OPTION QUALIFIED PLAN
(AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1998)
1. NAME
----
Johnson Controls Executive Incentive Compensation Plan
2. PURPOSE
-------
The purpose of the Plan is to:
Provide incentive to the key executives of the Company and its subsidiaries
who have the prime responsibility for the operations of the Company and its
subsidiaries by making them participants in their success.
3. DEFINITIONS
-----------
A. The term "Company" means Johnson Controls, Inc., a Wisconsin
Corporation, and any successor thereto that adopts the Plan.
B. The term "Plan" means the arrangement described herein.
C. The term "Plan Year" a fiscal year of the Company.
D. The term "Participant" means an executive of the Company or a
subsidiary who has been approved for participation in the Plan.
E. The term "Board" means the Board of Directors of the Company.
F. The term "Committee" means the Compensation Committee of the Board,
which shall consist of not less than two (2) members of the Board each
of whom is a "non-employee director" as defined in Securities and
Exchange Commission Rule 16b-3(b)(3), or as such term may be defined
in any successor regulation under Section 16 of the Securities
Exchange Act of 1934, as amended. In addition, each member of the
Committee shall be an outside director within the meaning of Section
162(m) of the Internal Revenue Code.
G. The term "Compensation" means the annualized base salary in effect for
a Participant at the close of the fiscal year (or such other date as
the Committee may specify by action taken within 90 days after the
beginning of the Plan Year), including salary being paid on a deferred
basis as well as salary being paid on a current basis.
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<PAGE> 2
H. The term "Beneficiary" means the person or persons entitled to receive
the interest of a Participant in the event of the Participant's death.
I. The term "Operating Profits" means the consolidated income before:
(1) The incentive compensation awards under this Plan.
(2) Any taxes on income.
(3) Extraordinary credits and charges to income less the related tax
effect.
(4) The cumulative effect, less the related tax effect, on prior
years of any accounting change made during the year.
(5) Company expense related to the Savings & Investment Plan.
The calculation of such Operating Profits shall be examined by the
Company's independent public accountants who shall furnish their
opinion that such calculation has been made in accordance with
generally accepted accounting principles consistently applied and in
compliance with the provisions of this Plan.
J. The term "Shareholders' Equity" for a Plan Year means the consolidated
shareholders' equity (sometimes referred to as net worth) of the
Company at the end of the preceding fiscal year of the Company, as set
forth in the Company's annual report for the preceding fiscal year,
plus or minus a proportionate allowance for any change during such
Plan year, based on the period of such change, in the amount of
shareholders' equity from newly-issued or finally-retired capital
stock.
K. For the purposes of this Agreement, business combinations treated as
an accounting pooling of interests shall be adjusted to a purchase
basis and Operating Profits and Shareholders' Equity shall be restated
accordingly.
L. The term "Return on Shareholders' Equity" for a Plan Year means the
percentage that Operating Profits for the year is of Shareholders'
Equity for the year.
M. The term division "Return on Assets" for a Plan Year means division
operating income for the year as a percentage of average division
assets employed. (See Corporate Procedure Number 3A 3580 01).
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<PAGE> 3
4. ELIGIBILITY AND PARTICIPATION
-----------------------------
A. APPROVAL
--------
Awards under the Plan are subject to shareholder approval of the Plan.
Each specific executive of the Company or a subsidiary who is approved
for participation in the Plan by the Committee shall be a Participant
as of the date designated by the Committee. Such executives shall
include corporate and other key senior managers who may be subject to
Section 162(m) of the Internal Revenue Code and who are approved for
participation in the Plan by the Committee. Written notice of such
approval shall be given to each executive so approved as soon as
practicable following date of approval.
B. TERMINATION OF APPROVAL
-----------------------
The Committee may withdraw its approval for participation for a
Participant at any time. In the event of such withdrawal, the
executive concerned shall cease to be an active Participant as of the
date selected by the Committee and the executive shall be notified of
such withdrawal as soon as practicable following such action.
C. NOTIFICATION
------------
D. TRANSFERS IN, OUT OF AND BETWEEN ELIGIBLE POSITIONS
---------------------------------------------------
(1) It is contemplated that an executive may be approved for
participation during a portion of a Plan Year and shall be
eligible to receive an award for the year based on the number of
full months as a Participant.
a. A person newly hired or transferred into an eligible
position shall have his/her participation prorated during
the first Plan Year provided the person's employment or
transfer occurs at least two months prior to the end of the
Plan Year. Alternatively, and notwithstanding anything to
the contrary herein, the Committee may at any time grant a
formula award to a Participant who is newly hired or
transferred into an eligible job position during the Plan
Year, and fix the terms of any such award, whether or not
such action qualifies for the performance-based exception
under Section 162(m) of the Code.
b. A person transferred out of an eligible position may receive
a prorated award at the discretion of the Committee provided
he/she served in the eligible position for at least two full
months during the Plan Year.
(2) Participants transferred between eligible positions having
different award formulae will receive awards prorated to months
served in each eligible position.
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<PAGE> 4
E. TERMINATION OF EMPLOYMENT
-------------------------
The Committee shall have the discretion not to make or to reduce an
incentive award for a Plan Year for a Participant whose employment
with the Company or subsidiary is terminated during the year for
reasons other than retirement due to age under the Company's or
subsidiary's retirement program, total and permanent disability, or
death.
5. ANNUAL AWARDS TO PARTICIPANTS
-----------------------------
A. AWARDS BASED ON FORMULA
-----------------------
Prior to, or within 90 days after, the beginning of each Plan Year, a
formula award shall be determined for each Participant who is eligible
to receive an award for the year. The award (which is communicated
individually) shall be expressed as a percentage of Compensation
resulting from a formula based on Return on Shareholders Equity (or
division Return on Assets) and growth in Operating Profits.
Irrespective of the formula, no amounts in excess of two million five
hundred thousand dollars ($2,500,000) may be paid to any one
Participant for any Plan Year. Payments are subject to certification
in writing by the Committee prior to payment that the performance
goals and other material terms of the Plan were in fact satisfied.
B. DISCRETIONARY REDUCTIONS TO FORMULA AWARDS
------------------------------------------
Upon recommendation by the President, the Committee may approve
reductions to a Participant's formula award based upon the
individual's performance and attainment of objectives during the Plan
Year. Awards may be reduced to no less than .8 times the formula
percentage yield.
6. PAYMENT OF INCENTIVE AWARDS
---------------------------
A. CURRENT PAYMENT
---------------
A Participant's award for a Plan Year, which is not deferred in
accordance with the provisions of Item 6.B. hereof, and a
Participant's award, whether or not he elected deferred payment
thereof, for the Plan Year in which his employment terminates, shall
be paid in cash to the Participant, or his Beneficiary in the event of
his death, between the 60th day and the 75th day following the end of
the Plan Year. Should the Committee elect to postpone the payments
for any reason, the Committee may, in its discretion, also elect to
pay interest at a reasonable rate for the period between the 75th day
following the end of the Plan Year and the day on which the payments
are in fact made.
B. DEFERRED PAYMENT
----------------
(1) ELECTION
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<PAGE> 5
Before the first day of each Plan Year, a Participant may
irrevocably elect in writing to have a part or all of his award
for the year under the Plan (but not less than $1,000) deferred
and, at his election, part or all such deferred payment may be
converted to Share Units, as provided below, and credited to a
bookkeeping reserve account which shall be established for the
Participant and set up on the books of the Company and known as
his "Share Unit Account", and/or the dollar amount of part or all
of such deferred payment may be credited to a bookkeeping reserve
account which shall be established for the Participant and set up
on the books of the Company and known as his "Interest Account"
and/or the dollar amount of part or all of such deferred payment
may be credited to a bookkeeping reserve account which shall be
established for the Participant and set up on the books of the
Company and known as his "Equity Fund Account." The term "Share
Unit" means a measure of participation under the Plan having a
value based on the market value of a share of the common stock of
the Company and other characteristics specified herein. Any
other provision of this Plan to the contrary notwithstanding, the
aggregate number of Share Units to be awarded under this Plan
shall not exceed two (2) percent of the number of issued and
outstanding shares of the Company's Common Stock. Subject to
this limitation, a Participant may also irrevocably elect, once
each year and effective on the next date on which conversions are
made under Item 6.B.2., to convert all or part of an Interest
Account or an Equity Fund Account to the Participant's Share Unit
Account. Such conversions shall be made in the same manner as
set forth in Item 6.B.2., as if the amount for which an election
was made was an award being made effective on that date.
(2) CONVERTING AWARDS TO SHARE UNITS
When a Participant has elected to have a part or all of his award
under the Plan converted to Share Units, it shall be converted as
of the same date on which cash payments are made or would have
been made. Each award shall be converted into Share Units in the
following manner:
a. Determine the market value of a share of common stock of the
Company.
b. Divide the award by such market value.
c. The quotient resulting from such division indicates the
Share Units to be credited.
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<PAGE> 6
(3) CONVERTING DIVIDEND AWARDS TO SHARE UNITS
-----------------------------------------
Whenever the Company declares a dividend on its Common Stock, in
cash or in property, at a time when Participants have Share Units
credited to their accounts in the Plan, a dividend award shall be
made to all Participants as of the date of payment of the
dividend. The dividend award for a Participant shall be
determined by multiplying the Share Units credited to a
Participant's account on the date of payment by the amount of the
dividend paid on each share of common stock. The dividend award
shall be converted into Share Units in the same manner that an
award is converted into Share Units under Item 6.B.(2). In
making this conversion, the market value of a share of the common
stock of the Company shall be determined as of the date the
dividend on the common stock is paid. Any other provision of
this Plan to the contrary notwithstanding, if a dividend is
declared on the common stock of the Company in the form of a
right or rights to purchase shares of capital stock of the
Company or of any entity acquiring the Company, such dividend
award shall not be converted to Share Units, but each Share Unit
credited to a Participant's Share Unit Account at the time such
dividend is paid and each Share Unit thereafter credited to the
Participant's Share Unit Account at a time when such rights are
attached to shares of the Company's common stock shall thereafter
be valued as of any point in time on the basis of the aggregate
of the then market value of one share of the common stock of the
Company plus the then market value of such right or rights then
or previously attached to one share of the common stock of the
Company.
(4) ADJUSTMENTS
-----------
In the event of a stock dividend on the common stock of the
Company, or any split up or combination of shares of the common
stock of the Company, or other change therein, an appropriate
adjustment shall be made in the aggregate number of Share Units
then standing to the credit of a Participant so as to give effect
to the extend practicable to such change in the capital structure
of the Company and to the purpose and intent of the Plan.
(5) CREDITS TO INTEREST ACCOUNT
---------------------------
When a Participant has elected to have a part or all of his award
credited to an "Interest Account", the unpaid balance in such
account shall be credited with a simple annual interest
equivalent, as follows: As of the January 1 next following the
Plan Year for which the deferred award was made such award shall
become part of the unpaid balance of such Interest Account. Such
Interest Account shall be credited on December 31 of each year
with an amount equal to interest on the unpaid balance of such
account from time to time outstanding during the year ending on
such December 31 at
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<PAGE> 7
the rate determined by adding together the prime rate in effect
at the First Wisconsin National Bank of Milwaukee on the last
banking day prior to the beginning of such year and the prime
rate in effect at said bank on the last banking days of each of
the calendar months of January through November of such year and
dividing such total by 12. In the event that the Interest
Account shall be terminated for any reason prior to December 31
of any year, such account shall upon such termination date be
credited with an amount equal to interest at the average prime
rate determined as aforesaid on the unpaid balance from time to
time outstanding during that portion of such year prior to the
date of termination.
(6) CREDITS TO EQUITY FUND ACCOUNT
------------------------------
When a Participant has elected to have a part or all of his award
credited to an "Equity Fund Account" the unpaid balance in such
account shall be credited or debited, with an annual investment
return equivalent as follows: As of the day next following the
close of each Plan Year for which an award was made, such award
shall become part of the unpaid balance of such Equity Fund
Account. Such Equity Fund Account shall be treated as if it had
been invested as an integral part of the Equity Fund (or such
other fund designated by the Committee) under the Johnson
Controls Savings and Investment Plan and shall be credited or
debited as of the last day of each Plan year with an amount equal
to the net gain or loss in value, as the case may be, which would
have been realized on an amount equal to the unpaid balance of
such Equity Fund Account if it had been invested in such Equity
Fund throughout such Plan Year. In the event that the Equity
Fund Account shall be terminated for any reason prior to
September 30 of any year, such account shall upon such
termination date be credited or debited with an amount equal to
the net gain or loss in value which would have been realized on
an amount equal to the unpaid balance of such Equity Fund Account
if it had been invested in such Equity Fund during the part of
such Plan Year commencing on the first day thereof and ending on
the date of termination of such account.
(7) DISTRIBUTION UPON TERMINATION OF EMPLOYMENT
-------------------------------------------
Upon termination of a Participant's employment with the Company
or subsidiary for any reason, the Participant, or his/her
Beneficiary in the event of his/her death, shall be entitled to
ten approximately equal annual installment payments. The amount
accumulated in such Participant's Interest Account, Share Unit
Account and/or Equity Fund Account, as the case may be, shall be
distributed as hereinafter provided.
a. If the Participant elects the Interest Account and/or Equity
Fund Account, the amount, if any, shall be paid in cash as
follows:
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<PAGE> 8
i. The first annual payment shall be made no earlier than
the fifteenth day of the first quarter of the calendar
year following the date of termination of employment,
and shall be in an amount equal to the value of 1/10th
of the total amount credited to the Participant's
Interest Account and/or Equity Fund Account as of
January 1 next following date of termination.
ii. A second annual payment shall be made no earlier than
the fifteenth day of the first quarter of the calendar
year following the year during which the first
anniversary of the date of termination of employment
occurs, and shall be in an amount equal to the value
of 1/9th of the amount credited to the Participant's
Interest Account and/or Equity Fund Account as of
January 1 next following the first anniversary of the
termination of employment.
iii. Each succeeding installment payment shall be
determined in a similar manner, i.e., the fraction of
Participant's Interest Account and/or Equity Fund
Account balance to be paid out shall increase each
year to 1/8th, 1/7th, etc., until the tenth
installment which shall equal the then remaining
balance of the account.
b. If the Participant elects the Share Unit Account, the
amount, if any, shall be paid in cash as follows:
i. The first annual payment shall be made no earlier than
the fifteenth day of the first quarter of the calendar
year following the date of termination of employment,
and shall be in an amount equal to the value of 1/10th
of the number of Share Units credited to the
Participant's account as of the date of termination of
employment. The value of each Share shall be
determined by multiplying the market value of a share
of common stock of the Company on the date of
termination of employment by the number of such Share
Units. Payment shall be made by the Company in cash.
After the amount of the first installment has been
determined, 1/10 of the Share Units credited to the
Participant's account on the date of termination of
employment shall be cancelled as of the date of
termination of employment.
ii. A second annual payment shall be made no earlier than
the fifteenth day of the first quarter of the calendar
year following the year during which the first
anniversary of the
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<PAGE> 9
date of termination of employment occurs, and shall be
in an amount equal to the value of 1/9th of the number
of Share Units credited to the Participant's account
as of the first anniversary of the date of termination
of employment. The value of such Share Units shall be
determined by multiplying the market value of a share
of the common stock of the Company on the first
anniversary of the date of termination of employment
by the number of such Share Units. Payment shall be
made by the Company in cash.
Each succeeding installment payment shall be
determined in a similar manner, the tenth annual
installment being an amount equal to the value of the
total number of Share Units credited to the account of
the Participant on the ninth anniversary of the date
of termination of employment.
(8) DISTRIBUTION IN EVENT OF FINANCIAL EMERGENCY
--------------------------------------------
If requested by a Participant while in the employ of the Company or a
subsidiary and the Committee determines that a financial emergency has
occurred in the financial affairs of the Participant, the Interest,
Share Unit and/or Equity Fund Accounts of the Participant on the date
the Participant makes the request may be paid out at the sole
discretion of the Committee in the same manner they would have been
paid out had the Participant terminated his employment with the
Company or Subsidiary on the date of such request. In the event of a
payout due to the financial emergency, a second Interest, Share Unit
or Equity Fund Account shall be established for the Participant and
any awards made to the Participant thereafter shall be credited to
this second Interest, Share Unit or Equity Fund Account. The
Participant's rights to the second Interest, Share Unit or Equity Fund
Account shall be the same as his rights to the initial Interest, Share
Unit or Equity Fund Account.
(9) ACCELERATION OF PAYMENTS
------------------------
Notwithstanding the provisions in Item 6.B.(7) and (8), if the amount
remaining in a Participant's Interest Account, Share Unit or Equity
Fund Account at any time is less than $50,000, or in the event of a
financial emergency occurring in the personal affairs of the
Participant, or his Beneficiary in case of his death, during the
payout period, the Committee may elect to accelerate the payout
thereafter of the Participant's Interest, Share Unit or Equity Fund
Account.
(10) MARKET VALUE
------------
51
<PAGE> 10
The market value of a share of the common stock of the Company on a
particular day shall be determined by the Committee. The market value
shall be the closing price on the New York Stock Exchange on the day
in question, or the day of the last previous sale, if there shall not
be any sale on the day in question.
(11) BENEFICIARY DESIGNATION
-----------------------
A Participant may designate a Beneficiary who is to receive, upon his
death, the distributions that otherwise would have been paid to him.
All designations shall be in writing and shall be effective only if
and when delivered to the Secretary of the Company during the lifetime
of the Participant. If a Participant designates a Beneficiary without
providing in the designation that the Beneficiary must be living at
the time of each distribution, the designation shall vest in the
Beneficiary all of the distribution whether payable before or after
the Beneficiary's death, and any distributions remaining upon the
Beneficiary's death shall be made to the Beneficiary's estate.
A Participant may from time to time during his lifetime change his
Beneficiary by a written instrument delivered to the Secretary of the
Company. In the event a Participant shall not designate a Beneficiary
as aforesaid, or if for any reasons such designation shall be
ineffective, in whole or in part, the distribution that otherwise
would have been paid to such Participant shall be paid to his estate
and in such event the term "Beneficiary" shall include his estate.
(12) CORPORATE CHANGES
-----------------
a. DISSOLUTION OR LIQUIDATION OF COMPANY
-------------------------------------
Notwithstanding any provision herein to the contrary, upon the
dissolution or liquidation of the Company, the Share Units
credited to Participant's Share Unit Accounts shall be converted
to dollars as of the day preceding the date of dissolution or
liquidation, using the method applied in Item 6.B.(6) hereof to
determine installment payments. The Company shall cause such
dollar balance to be paid out in cash in a lump sum to the
participants, or their Beneficiaries, as the case may be, within
60 days following the date of dissolution or liquidation.
b. MERGER, CONSOLIDATION OR SALE OF ASSETS
---------------------------------------
Notwithstanding anything herein to the contrary, in the event
that the Company desires to consolidate with, merge into, or
transfer all or substantially all of its assets to another
corporation (hereinafter
52
<PAGE> 11
referred to as "Successor Corporation"), such Successor
Corporation may assume the obligation under this Plan, provided
that appropriate amendments are made to the Plan. In the event
the Plan is not continued within a reasonable period of time by
the Successor Corporation, then as of the date preceding the date
of such consolidation, merger, or transfer, the account of each
Participant shall be converted into dollars and distributed.
7. RIGHTS OF PARTICIPANTS
----------------------
No Participant or Beneficiary shall have any interest in any fund or in any
specific asset or assets of the Company (or any subsidiary) by reason of
any account under the Plan. It is intended that the Company has merely a
contractual obligation to make payments when due hereunder and it is not
intended that the Company (or any subsidiary) hold any funds in reserve or
trust to secure payments hereunder. No Participant may assign, pledge, or
encumber his/her interest under the Plan, or any part thereof, except that
a Participant may designate a Beneficiary as provided herein.
Nothing contained in this Plan shall be construed to:
A. Give any employee or Participant any right to receive any award other
than in the sole discretion of the Committee;
B. Give a Participant any rights whatsoever with respect to share(s) of
common stock of the Company;
C. Limit in any way the right of the Company or subsidiary to terminate a
Participant's or other employee's employment at any time; or
D. Be evidenced of any agreement or understanding, express or implied,
that a Participant or other employee will be retained in any
particular position or at any particular rate of remuneration.
53
<PAGE> 12
8. ADMINISTRATION
--------------
The Plan shall be administered by the Committee. The Committee may, from
time to time, establish rules for the administration of the Plan that are
not inconsistent with the provisions of the Plan.
9. AMENDMENT OR TERMINATION
------------------------
The Committee may modify or amend, in whole or in part, any or all of the
provisions of the Plan, except as to those terms or provisions that are
required Section 162(m) of the Internal Revenue Code to be approved by the
shareholders, or suspend or terminate it entirely; provided, however, that
no such modifications, amendment, or suspension or termination may, without
the consent of the Participant, or his Beneficiary in the case of his/her
death, reduce the right of a Participant, or his/her Beneficiary, as the
case may be, to any payment due under the Plan.
10. CHANGE OF CONTROL
-----------------
Notwithstanding any other provision of this Plan, within 30 days of a
Change of Control (as defined below), each participant shall be entitled to
receive a lump sum payment in cash equal to the product of (x) such
participant's formula ward for the year in which the Change of Control
occurs, based on maximum achievable award for such Participant under the
Plan and (y) a fraction, the numerator of which is the number of days after
January 1 in the year in which the Change of Control occurs and the
denominator of which is 365. In addition, the Company shall pay to each
Participant a lump sum amount in cash within 30 days of the Change of
Control all amounts accumulated in such Participant's Interest, Share Unit
and Equity Fund Account under the Plan. In determining the amount
accumulated in a Participant's Share Unit Account, each Share Unit shall
have a value equal to the higher of (x) the highest reported sales price,
regular way, of a share of the Company's common stock 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 of Control of the Company
and (y) if the Change of Control of the Company is the result of a
transaction or series of transactions described in paragraphs A. or C. of
the definition of Change of Control of the Company set forth below, the
highest price per share of common stock of the Company paid in such
transaction or series of transactions. A Change of Control means any of
the following events:
A. 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 Act"))
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either:
(1) The then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or
54
<PAGE> 13
(2) 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 in Control of the Company; or
B. 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
C. 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 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
D. 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,
55
<PAGE> 14
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 entitles 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.
11. TAX WITHHOLDING
---------------
The Company shall have the right to deduct from all cash payments any
federal, state, or local taxes required by law to be withheld with respect
to such cash payments and, in case of awards paid in Common Stock, the
Participant or other person receiving such Common Stock may be required to
pay to the Company the amount of any such taxes which the Company is
required to withhold with respect to such Common Stock.
56
<PAGE> 1
EXHIBIT 10.J
JOHNSON CONTROLS, INC.
LONG TERM PERFORMANCE PLAN
(AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1998)
57
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PURPOSE .........................................................................60
ARTICLE II. EFFECTIVE DATE AND TERMINATE DATE........................................60
Section 2.01. Effective Date......................................................60
Section 2.02. Termination Date....................................................60
ARTICLE III. DEFINITIONS..............................................................60
ARTICLE IV. ELIGIBILITY..............................................................61
ARTICLE V. ADMINISTRATION...........................................................61
Section 5.01. Amendment or Termination............................................61
Section 5.02. The Committee.......................................................61
Section 5.03. Committee Authority.................................................61
ARTICLE VI. ASSIGNMENT OF CONTINGENT PERFORMANCE AWARDS..............................62
Section 6.01. Assignments.........................................................62
Section 6.02. Shareholder Approval Requirements...................................62
Section 6.03. New Hired and Transferred Employees.................................62
ARTICLE VII. PERFORMANCE GOALS........................................................62
Section 7.01. Criterion for Measuring Performance.................................62
Section 7.02. Establishment of ROE Performance Goals..............................62
ARTICLE VIII. PAYMENT..................................................................63
Section 8.01. Evaluating Performance and Computing Awards.........................63
Section 8.02. Computing Awards....................................................63
Section 8.03. Timing and Form of Payment..........................................63
Section 8.04. Distribution Upon Termination of Employment.........................65
Section 8.05. Change of Control...................................................66
Section 8.06. Distribution in Event of Financial Emergency and
Acceleration of Payments............................................68
ARTICLE IX. TERMINATION..............................................................69
Section 9.01. Termination for Death or Disability.................................69
Section 9.02. Termination for Normal Retirement...................................69
Section 9.03. Termination for Other Reasons.......................................69
ARTICLE X. ADJUSTMENTS..............................................................69
</TABLE>
58
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE XI. OTHER CONSIDERATIONS.....................................................69
Section 11.01. Beneficiary Designation.............................................69
Section 11.02. Dissolution or Merger...............................................70
Section 11.03. Claim to Performance Awards and Employment Rights...................70
Section 11.04. Nontransferability..................................................70
Section 11.05. Tax Withholding.....................................................70
Section 11.06. Administrative Expenses.............................................70
Section 11.07. Governing Law.......................................................70
Section 11.08. Gender and Number...................................................70
</TABLE>
59
<PAGE> 4
ARTICLE I. PURPOSE
The purpose of this Plan is to motivate top executives to achieve
longer term objectives which will result in long term increased value to the
shareholders of the Company.
ARTICLE II. EFFECTIVE DATE AND TERMINATE DATE
Section 2.01. Effective Date. The Plan shall be effective as of
October 1, 1987.
Section 2.02. Termination Date. The Plan shall terminate with respect
to the assignment of contingent Performance Awards on September 30, 2003;
provided, however, that the Committee may terminate the Plan or the assignment
of contingent Performance Awards at any time prior to that date. Termination of
the Plan shall not cancel, reduce or otherwise impair the rights of Participants
to receive any contingent Performance Awards assigned prior to termination of
the Plan.
ARTICLE III. DEFINITIONS
Section 3.01. The "Company" is Johnson Controls, Inc., a Wisconsin
corporation, and any successor thereto that adopts the Plan.
Section 3.02. The "Plan" is the Johnson Controls, Inc. Long Term
Performance Plan adopted on September 23, 1987 as from time amended and in
effect.
Section 3.03. The "Board" is the Board of Directors of the Company.
Section 3.04. The "Committee" means the Compensation Committee of the
Board, which shall consist of not less than two (2) members of the Board each of
whom is a "non-employee director" as defined in Securities and Exchange
Commission Rule 16b-3(b)(3), or as such term may be defined in any successor
regulation under Section 16 of the Securities Exchange Act of 1934, as amended.
In addition, each member of the Committee shall be an outside director within
the meaning of Section 162(m) of the Internal Revenue Code.
Section 3.05. A "Participant" is an executive of the Company or a
subsidiary who has been approved for participation in the Plan.
Section 3.06. The "Base Salary" of a Participant is the annual rate of
base pay in effect for such Participant as of the last day of the Performance
Period (or such other date as the Committee may specify by action taken within
90 days after the beginning of the Performance Period).
Section 3.07. The "Beneficiary" is the person or persons entitled to
receive any amounts due to a Participant in the event of the Participant's
death.
60
<PAGE> 5
Section 3.08. "Income" is consolidated income before income taxes, as
stated in the Consolidated Statement of Income in the Company's Annual Report.
Section 3.09. "Shareholders' Equity" for a fiscal year is calculated
for purposes hereunder by taking the arithmetic average of consolidated
shareholders' equity of the Company, as set forth in the Consolidated Statement
of Financial Position in the Company's Quarterly and Annual Reports to
shareholders, over five points in time, which shall include the end of the
preceding year and the end of each quarter of the current fiscal year.
Section 3.10. "Return on Shareholders' Equity (ROE)" is the percentage
relationship of Income to Shareholders' Equity for each fiscal year.
Section 3.11. "Earnings Per Share (EPS)" is Company net income per
share of Common Stock, on a fully diluted basis, as reported in the Company's
Annual Report to Shareholders.
Section 3.12. "Performance Award" is an amount whose final value will
be earned and paid to a Participant if certain predetermined requirements are
met.
Section 3.13. "Performance Period" is a period of three successive
fiscal years, as determined by the Committee, with respect to which an
assignment of Performance Awards is made pursuant to this Plan.
ARTICLE IV. ELIGIBILITY
Only officers and other key executives of the Company who have a
significant influence upon the long-term performance of the Company will be
eligible to participate in the Plan. Participation in one award, however, will
not automatically guarantee participation in subsequent years. Participation for
each award under the Plan will be approved by the Committee after consultation
with the Chief Executive Officer.
ARTICLE V. ADMINISTRATION
Section 5.01. Amendment or Termination. The Committee may modify or
amend, in whole or in part, any or all of the provisions of the Plan, except as
to those terms or provisions that are required by Section 162(m) of the Internal
Revenue Code to be approved by the shareholders, or suspend or terminate the
Plan entirely; provided, however, that no such modification, amendment,
suspension or termination may, without the consent of the Participant or his or
her Beneficiary in the case of his or her death, reduce the right of a
Participant, or his or her beneficiary, as the case may be, to any payment due
under the Plan.
Section 5.02. The Committee. The Plan shall be administered by the
Committee.
Section 5.03. Committee Authority. Except as otherwise specifically
provided by the Plan, the Committee shall have full and exclusive authority to
execute the responsibilities
61
<PAGE> 6
given to it by the Plan. Any determinations, rulings, or interpretations made by
the Committee shall be final and binding on all persons, including the Company,
shareholders of the Company, Participants, and other employees. The Committee
may make such reasonable rules and regulations concerning the administration of
the Plan as it deems necessary or appropriate. In its administration of the
Plan, the Committee shall apply such rules and regulations and shall otherwise
interpret the provisions of the Plan in a reasonable and consistent manner.
ARTICLE VI. ASSIGNMENT OF CONTINGENT PERFORMANCE AWARDS
Section 6.01. Assignments. The Committee shall assign to each
Participant a contingent Performance Award (expressed as a percentage of the
Participant's Base Salary) that it deems appropriate prior to the commencement
of the Performance Period to which the Performance Award applies, or within 90
days following the beginning of such Performance Period.
Section 6.02. Shareholder Approval Requirements. The Committee, in its
discretion, may make all or any portion of the assignment of awards contingent
upon receiving subsequent shareholder approval sufficient to qualify payment
thereunder as deductible for the Corporation. The Committee may take such action
without the consent of participants.
Section 6.03. New Hired and Transferred Employees. Notwithstanding
anything to the contrary herein, in the case of a person who is newly hired into
an eligible position or transferred into an eligible position after the
beginning of a Performance Period, the Committee may at any time grant a
contingent Performance Award, and fix the terms of any such award, whether or
not such action qualifies for the performance-based exception under Section
162(m) of the Code.
ARTICLE VII. PERFORMANCE GOALS
Section 7.01. Criterion for Measuring Performance. The criteria to be
used to measure the financial performance of the Company shall be its Return on
Equity (ROE). The Company's Return on Equity shall be compared to performance
goals as established in Section 7.02.
Section 7.02. Establishment of ROE Performance Goals. The Committee
shall establish performance goals prior to, or within 90 days after the
beginning of, each Performance Period and set those goals forth in its meeting
minutes.
62
<PAGE> 7
ARTICLE VIII. PAYMENT
Section 8.01. Evaluating Performance and Computing Awards. As soon as
practicable following the close of the Performance Period, the Company shall
determine the award amount applicable to that Performance Period, provided that
the maximum award amount for any Participant with respect to any Performance
Period shall be three million dollars ($3,000,000). All awards are subject to
certification in writing by the Committee prior to payment that the performance
goals and other material terms of the Plan were in fact satisfied.
Section 8.02. Computing Awards. Award amounts will be calculated from
a table which will be issued to each participant at the time of grant.
Section 8.03. Timing and Form of Payment.
(a) When the payment due to the Participant has been determined as
aforesaid, unless otherwise deferred in accordance with Sections 8.03(b) or (c)
or to be paid on a current basis in accordance with Section 8.03(d), the payment
due the participant shall be credited to a bookkeeping reserve account which
shall be established for the Participant and set up the books of the Company and
known as his "Interest Account". The unpaid balance in the Interest Account
shall be credited with a simple annual interest equivalent as follows: As of
January 1 next following the close of the Performance Period for which the
deferred award was made, such award shall become part of the unpaid balance of
such Interest Account. Such Interest Account shall be credited on December 31 of
each year with an amount equal to interest on the unpaid balance of such account
from time to time outstanding during the year ending on such December 31 at the
rate determined by adding together the prime rate in effect at the Firstar Bank
Milwaukee, N.A. (or any successor thereto) on the last banking day prior to the
beginning of such year and the prime rate in effect at said bank on the last
banking day of each of the calendar months of January through November of such
year and dividing such total by 12. In the event the Interest Account shall be
terminated for any reason prior to December 31 of any year, such account shall
upon such termination date be credited with an amount equal to interest at the
average prime rate determined as aforesaid on the unpaid balance from time to
time outstanding during that portion of such year prior to the date of
termination.
(b) A Participant may elect that part or all of the payment due be
converted to "Share Units", as provided below, and credited to a bookkeeping
reserve account which shall be established for the Participant and set upon on
the books of the Company and known as his "Share Unit Account". The term "Share
Unit" means a measure of participation under the Plan having a value based on
the market value or a share of the common stock of the Company and other
characteristics specified herein. When a participant has elected to have a part
or all of his award under the Plan converted to Share Units, it shall be
converted between the 60th and 75th day immediately after the close of the
Performance Period. Any other provision of this Plan to the contrary
notwithstanding, the aggregate number of Share Units to be awarded under this
Plan shall not exceed two (2) percent of the number of issued and outstanding
shares of the Common Stock of the Company. Each award shall be converted into
Share Units in the following manner:
63
<PAGE> 8
(i) Determine the market value of a share of the common stock of the
Company. The market value shall be the closing price on the New
York Stock Exchange on the day in question, or the day of the
last previous sale, if there shall not be any sale on the day in
question.
(ii) Divide the award by such market value.
(iii) The quotient resulting from such division indicates the Share
Units to be credited. Whenever the Company declares a dividend
on its common stock, in cash or in property, at a time when
Participants have Share Units credited to their accounts in the
Plan, a dividend award shall be made to all Participants as of
the date of payment of the dividend. The dividend award for a
Participant shall be determined by multiplying the Share Units
credited to a Participant's account on the date of payment by
the amount of the dividend paid on each share of common stock.
The dividend award shall be converted into Share Units in the
same manner that an award is converted into Share Units. In
making this conversion, the market value of a share of the
common stock of the Company shall be determined as of the date
the dividend on the common stock is paid.
(c) A Participant may also elect to have part or all of the payment
due credited to a bookkeeping reserve account which shall be established for the
Participant and set up on the books of the Company and known as his "Equity Fund
Account". When a Participant has elected to have a part or all of his award
credited to an Equity Fund Account, the unpaid balance in such account shall be
credited or debited with an annual investment return equivalent as follows: As
of the date on which an award would be payable in cash immediately following the
close of each Performance Period for which an award was made, such award shall
become part of the unpaid balance of such Equity Fund Account. Such Equity Fund
Account shall be treated as if it had been invested as an integral part of the
Equity Fund (or such other fund designated by the Committee) under the Johnson
Controls Savings and Investment Plan and shall be credited or debited as of the
last day of each fiscal year with an amount equal to the net gain or loss in
value, as the case may be, which would have been realized on an amount equal to
the unpaid balance of such Equity Fund Account if it had been invested in such
Equity Fund throughout such fiscal year. In the event that the Equity Fund
Account shall be terminated for any reason prior to September 30, of any year,
such account shall upon such termination date be credited or debited with an
amount equal to the net gain or loss in value which would have been realized on
an amount equal to the unpaid balance of such Equity Fund Account if it had been
invested in such Equity Fund during the part of such fiscal year commencing on
the first day thereof and ending on the date of termination of such account.
(d) A Participant may also elect, subject to the approval of the
Committee, that part or all of the payment due to such Participant with respect
to any Performance Period shall be paid to him on a current (rather than a
deferred basis). For any Performance Period for which a Participant elects
payment on a current basis, the payment due shall be paid to the Participant, in
the sole discretion of the Committee, in a lump sum, or in installments (which
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need not be equal) commencing in the first quarter following the close of the
Performance Period, over a period not to exceed five years.
(e) An election under Sections 8.03(b), (c), or (d) with respect to
any Performance Period must be filed in writing with the Committee not later
than the last day of the second fiscal year in such Performance Period. Any such
election shall be irrevocable. Any Participant may file with the Committee a
written waiver of his right to elect payment on a current basis pursuant to
Section 8.03(d). Such waiver may be filed at any time so long as the Participant
has not previously filed an election under Section 8.03(d). Any such waiver
shall be irrevocable.
(f) A Participant may also irrevocably elect, one each year and
effective on the next date on which conversions are made under paragraph
8.03(b), to convert all or part of an Interest Account or an Equity Fund Account
to the Participant's Share Unit Account. Such conversions shall be made in the
same manner as set forth in paragraph 8.03(b), as if the amount for which an
election was made was an award being made effective on that date.
Section 8.04. Distribution Upon Termination of Employment. Upon
termination of a Participant's employment with the Company or subsidiary for any
reason, the Participant, or his/her Beneficiary in the event of his/her death,
shall be entitled to receive the amounts accumulated in such Participant's
Interest Account, Share Unit Account and/or Equity Fund Account, as the case may
be, in ten approximately equal annual installment payments as hereinafter
provided.
(a) The amounts in the Interest Account and/or the Equity Fund
Account shall be paid in cash as follows:
(i) The first annual payment shall be made no earlier than the
fifteenth day of the first quarter of the calendar year
following the date of termination of employment, and shall be in
an amount equal to the value of 1/10th of the total amount
credited to the Participant's Interest Account and/or Equity
Fund Account as of January 1 next following the date of
termination.
(ii) A second annual payment shall be made no earlier than the
fifteenth day of the first quarter of the calendar year
following the year during which the first anniversary of the
date of termination of employment occurs, and shall be in an
amount equal to the value of 1/9th of the amount credited to the
Participant's Interest Account and/or Equity Fund Account as of
January 1 next following the first anniversary of the
termination of employment.
(iii) Each succeeding installment payment shall be determined in a
similar manner, i.e., the fraction of the Participant's Interest
Account and/or Equity Fund Account balance to be paid out shall
increase each year to 1/8th, 1/7th, etc., until the tenth
installment which shall equal the then remaining balance of the
account.
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(b) The amounts in the Share Unit Account shall be paid in cash as
follows:
(i) The first annual payment shall be made no earlier than the
fifteenth day of the first quarter of the calendar year
following the date of termination of employment, and shall be in
an amount equal to the value of 1/10th of the number of Share
Units credited to the Participant's account as of the date of
termination of employment. The value of each Share shall be
determined by multiplying the market value of a share of common
stock of the Company on the date of termination of employment by
the number of such Share Units. Payment shall be made by the
Company in cash. After the amount of the first installment has
been determined, 1/10th of the Share Units credited to the
Participant's account on the date of termination of employment
shall be cancelled as of the date of termination of employment.
(ii) A second annual payment shall be made no earlier than the
fifteenth day of the first quarter of the calendar year
following the year during which the first anniversary of the
date of termination of employment occurs, and shall be in an
amount equal to the value of 1/9th of the number of Share Units
credited to the Participant's account as of the first
anniversary of the date of termination of employment. The value
of such Share Units shall be determined by multiplying the
market value of a share of the common stock of the Company on
the first anniversary of the date of termination of employment
by the number of such Share Units. Payment shall be made by the
Company in cash. After the amount of the second installment has
been determined, 1/9th of the Share Units credited to the
account of the Participant on the first anniversary of the date
of termination of employment shall be cancelled as of the first
anniversary of the date of termination of employment.
(iii) Each succeeding installment payment shall be determined in a
similar manner and Share Units shall be cancelled in a similar
manner, the tenth annual installment being an amount equal to
the value of the total number of Share Units credited to the
account of the Participant on the ninth anniversary of the date
of termination of employment.
Section 8.05. Change of Control. Notwithstanding any other provision
of this Plan, within 30 days of a Change of Control (as defined below), each
participant shall be entitled to receive a lump sum payment in cash equal to the
product of (x) such participant's formula award for the year in which the Change
of Control occurs, based on maximum achievable award for such Participant under
the Plan and (y) a fraction, the numerator of which is the number of days after
January 1 in the year in which the Change of Control occurs and the denominator
of which is 365. In addition, the Company shall pay to each Participant a lump
sum amount in cash within 30 days of the Change of Control all amounts
accumulated in such Participant's Interest, Share Unit and Equity Fund Account
under the Plan. In determining the amount accumulated in a Participant's Share
Unit Account, each Share Unit shall have a value equal to the higher of (x)
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<PAGE> 11
the highest reported sales price, regular way, of a share of the Company's
common stock on the Composite Tape for New York Stock Exchange Listed Stocks
(the "Composite Tape") during the sixty-day period prior to the date of Change
of Control of the Company and (y) if the Change of Control of the Company is the
result of a transaction or series of transactions described in paragraphs (a) or
(c) of the definition of Change of Control of the Company set forth below, the
highest price per share of common stock of the Company paid in such transaction
or series of transactions. A Change of Control means any of the following
events:
(a) 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 Act")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either:
(i) The then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or
(ii) 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 in Control of the Company; or
(b) 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
(c) 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
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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 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
(d) 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 entitles 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.
Section 8.06. Distribution in Event of Financial Emergency and
Acceleration of Payments. The Committee may in its sole discretion elect to make
or accelerate payments of the amounts remaining in the Participant's Interest,
Share Unit or Equity Fund Accounts either prior to termination of employment or
thereafter if the unpaid balance at any time is less than $50,000, or in the
event the Committee determines that financial emergency has occurred in the
personal affairs of the Participant or his Beneficiary in case of his death. If
requested by a Participant while in the employ of the Company or a subsidiary
and the Committee determines that a financial emergency has occurred in the
financial affairs of the Participant, the Interest, Share Unit and/or Equity
Fund Accounts of the Participant on the date the Participant makes the request
may be paid out at the sole discretion of the Committee in the same manner they
would have paid out had the Participant terminated his employment with the
Company or subsidiary on the date of such request. In the event of a payout due
to financial emergency, a second Interest, Share Unit and Equity Fund Account
shall be established for the participant and any wards made to the Participant
thereafter shall be credited to such second Interest, Share Unit or Equity Fund
Account. The Participant's rights to the second Interest, Share Unit of Equity
Fund Account shall be the same as his rights to the initial Interest, Share Unit
or Equity Fund Account.
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ARTICLE IX. TERMINATION
Section 9.01. Termination for Death or Disability. If a Participant's
employment is terminated during a Performance Period by reason of death or
disability, payments shall be determined and paid under Section 8, as if the
fiscal year during which termination takes place is the last fiscal year of the
particular Performance Period.
Section 9.02. Termination for Normal Retirement. If a Participant's
employment is terminated during a Performance Period by reason of normal
retirement, payments shall be determined and paid under Section 8 as if the
fiscal year during which such termination takes place is the last fiscal year of
the particular Performance Period. However, before such determination is made,
the Performance Award for such Performance Period shall, as of the date of
normal retirement, be reduced to a number calculated by multiplying the
Performance Award by a fraction. The numerator of the fraction shall be the
number of full months during which the Participant was an employee of the
Company during the Performance Period and the denominator of which is the number
of full months the Performance Period would have lasted had the normal
retirement not occurred.
Section 9.03. Termination for Other Reasons. The Committee shall have
the discretion to cancel an award if the Participant's employment is terminated
during a Performance Period for any reason other than death, total and permanent
disability, or normal retirement.
ARTICLE X. ADJUSTMENTS
In the event of any change in the outstanding shares of Common Stock
by reason of any stock dividend or split, recapitalization, reclassification,
merger, consolidation or exchange of shares or other similar corporate change,
then if the Committee shall determine, in its sole discretion, that such change
necessarily or equitably requires an adjustment in the Performance Awards or
Share Units then held by Participants, such adjustments shall be made by the
Committee and shall be conclusive and binding for all purposes of this Plan. No
adjustment shall be made in connection with the issuance by the Company of any
warrants, rights, or options to acquire additional shares of Common Stock or of
securities convertible into Common Stock.
ARTICLE XI. OTHER CONSIDERATIONS
Section 11.01. Beneficiary Designation. A Participant may designate a
Beneficiary or Beneficiaries who, upon the Participant's death, are to receive
the distributions that otherwise would have been paid to the Participant. All
designations shall be in writing and shall be effective only if and when
delivered to the Committee during the lifetime of the Participants. If a
Participant designates a Beneficiary without providing in the designation that
the Beneficiary must be living at the time of each distribution, the designation
shall vest in the Beneficiary all of the distributions whether payable before or
after the Beneficiary's death, and any distribution remaining upon the
Beneficiary's death shall be made to the Beneficiary's estate. A participant may
from time to time during his lifetime change his Beneficiary by a written
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<PAGE> 14
instrument delivered to the Secretary of the Company. In the event a Participant
shall not designate a Beneficiary as aforesaid, or if for any reason such
designation shall be ineffective, in whole or in part, the distribution that
otherwise would have been paid to such Participant shall be paid to the
Participant's estate and in such event the term "Beneficiary" shall include his
estate.
Section 11.02. Dissolution or Merger. If the Company should be
liquidated and/or dissolved, or if the Company should become a party to a merger
or consolidation in which it is not the surviving corporation, every outstanding
Performance Award under this Plan shall become vested and payable to a
Participant as though each applicable Performance Award's Performance Period had
run its term as of the date of such event, and any payment, shall be made as per
termination in accordance with Section 8.03.
Section 11.03. Claim to Performance Awards and Employment Rights. No
employee or other person shall have any claim or right to be assigned
Performance Awards under this Plan. Neither this Plan nor any action taken
hereunder shall be construed as giving any employee any right to be retained in
the employ of the Company.
Section 11.04. Nontransferability. A Participant's rights and
interests under this Plan, including amounts payable, may not be assigned,
pledged, or transferred except in the event of the Participant's death, to his
designated Beneficiary as provided in this Plan, or in the absence of such
designation, by Will or the laws of descent and distribution.
Section 11.05. Tax Withholding. The Company shall have the right to
deduct from all cash payments any federal, state, or local taxes required by law
to be withheld with respect to such cash payments and, in case of awards paid in
Common Stock, the Participant or other person receiving such Common Stock may be
required to pay to the Company the amount of any such taxes which the Company is
required to withhold with respect to such Common Stock.
Section 11.06. Administrative Expenses. The Company shall bear the
expenses of administering the Plan.
Section 11.07. Governing Law. This Plan shall be construed,
administered and governed in all respects in accordance with the laws of the
State of Wisconsin.
Section 11.08. Gender and Number. 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
JANUARY 1, 1999
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 January 1, 1999.
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.
e. "Retirement Plan Benefits" means the aggregate monthly benefits
payable under the terms of the Retirement Plan.
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JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
JANUARY 1, 1999
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 shall be
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<PAGE> 3
JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
JANUARY 1, 1999
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. An additional amount shall be credited or charged to the Savings
Accounts established pursuant to this Section 6.
i. The additional credit (or charge) for employer
contribution subaccounts will be determined on a
quarterly basis and will be equal to the product of
the balance of each such subaccount as of the last
day of the next previous calendar quarter (the "Prior
Balance") and the rate of return experienced by the
Savings Plan's Company Stock Fund during the quarter.
In the event that the Savings Plan Company Stock Fund
should experience a loss for a given quarter,
employer contribution subaccounts will be reduced in
accordance with the procedures specified above to
reflect such loss.
ii. The additional credit for before-tax deposit
subaccounts shall be determined in accordance with
the following procedure.
(a) For periods prior to January 1, 1999, the
additional credit (or charge) for the before-tax
deposits subaccounts will be determined on a
quarterly basis and will be equal to the product
of the Prior Balance of such subaccount and the
rate of return experienced by the Savings Plan's
Fixed Income fund during the quarter.
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<PAGE> 4
JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
JANUARY 1, 1999
(b) For periods after December 31, 1998, the
additional credit (or charge) with respect to
each Participant's before-tax deposits
subaccount will be based upon the investment
gain (or loss) that the Participant would have
realized had his before-tax deposits subaccount
been invested, in accordance with the
Participant's written election, in one or more
of the Savings Plan Fixed Income Fund, Saving
Plan US Equity Index Commingled Pool or Savings
Plan Company Stock Fund. The additional credit
(or charge) shall be the sum, separately
calculated for each of the available investment
options, of the product obtained by multiplying
the portion (if any) of the Participant's Prior
Balance of the before-tax deposits subaccount
that is deemed to have been invested in each
investment option and the rate of return
experience by that investment option under the
Savings Plan during the quarter.
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<PAGE> 5
JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
JANUARY 1, 1999
(c) In accordance with uniform rules prescribed by
the Committee, each participant shall designate,
in writing, the investment option or options in
which his before-tax deposit subaccount is
deemed to be invested for purposes of
subparagraph (B) above. When selecting more than
one investment option, the Participant shall
designate, in whole multiples of ten percent
(10%), the percentage of his before tax deposits
subaccount that is deemed to be invested in each
investment option. If the Participant fails to
make a timely and properly completed investment
designation, he shall be deemed to have elected
that one hundred percent (100%) of his before
tax deposits subaccount be deemed to have been
invested in the Fixed Income Fund. A
Participant's election or deemed election (or
revision to a prior election or deemed election)
made in any calendar year shall, unless
superceded by a subsequent election made during
the same calendar year, become effective on
January 1 of the following calendar year, and
shall remain in effect unless and until modified
by a subsequent election that becomes effective
in accordance with the rules of this
subparagraph (C). An effective investment
election shall operate both (i) to reallocate
the Participant's existing before-tax deposits
subaccount as of the effective date of the
election among the available investment options,
and (ii) to determine the allocation of future
before-tax deposits credited to the
Participant's before-tax deposits subaccount on
or after the effective date of the designation.
Other than the reallocation of a Participant's
before-tax deposits subaccount pursuant to a
revised investment election submitted by the
Participant, the deemed investment allocation of
the Participant's before-tax deposits subaccount
will not be adjusted to reflect differences in
the relative investment return realized by the
various hypothetical investment options that the
Participant has designated.
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JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
JANUARY 1, 1999
NOTE: SECTION 16(b) INSIDERS: A TRANSFER OF EXISTING
ACCOUNT BALANCES INTO OR OUT OF THE JOHNSON
CONTROLS STOCK FUND IN OUR EXCESS BENEFITS PLAN
(INCLUDING REBALANCING CAUSED BY A CHANGE IN
CONTRIBUTION RATE) IS CONSIDERED A
"DISCRETIONARY TRANSACTION" FOR SEC REPORTING
PURPOSES. THIS TRANSACTION CAN BE MATCHED
AGAINST A SIMILAR CHOICE (FUND SWITCHING
TRANSACTION) IN YOUR 401(K) PLAN. IF YOU HAVE
MOVED OUT OF THE JOHNSON CONTROLS STOCK IN OUR
401(K) PLAN WITHIN THE LAST SIX MONTHS OF THE
DATE OF THIS ELECTION, BE SURE TO CHECK THE
STATUS WITH OUR FILING COORDINATOR, ARLENE GUMM,
BEFORE MAKING THIS SELECTION.
(d) In the event that the Savings Plan Fixed Income
Fund, Savings Plan US Equity Index Commingled
Pool or Savings Plan Company Stock Fund should
experience a loss for a given year, the
before-tax deposits subaccounts of Participants
who have elected a deemed investment in any such
option will be reduced in accordance with the
procedures specified above 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 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
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<PAGE> 7
JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
JANUARY 1, 1999
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.
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.
77
<PAGE> 8
JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
JANUARY 1, 1999
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 Act")) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more or
either:
78
<PAGE> 9
JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
JANUARY 1, 1999
(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
79
<PAGE> 10
JOHNSON CONTROLS, INC.
EQUALIZATION BENEFIT PLAN
JANUARY 1, 1999
to vote generally in the election of directors, as the
case may be, of the corporation resulting from 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.
80
<PAGE> 1
EXHIBIT 10.O
JOHNSON CONTROLS, INC.
DIRECTOR SHARE UNIT PLAN
NOVEMBER 18, 1998
1. ESTABLISHMENT. JOHNSON CONTROLS, INC, a Wisconsin corporation (the
"Company"), hereby establishes a plan, as described herein, for the
members of its Board of Directors (the "Board") who are not officers or
employees of the Company, or any of its subsidiaries (the "Outside
Directors"), which plan shall be known as the JOHNSON CONTROLS, INC.
DIRECTOR SHARE UNIT PLAN (the "Plan").
2. PURPOSE. The purpose of the Plan is to advance the Company's growth and
success, and to advance its interests, by attracting and retaining
well-qualified Outside Directors upon whose judgment the Company is
largely dependent for the successful conduct of its operations and by
providing such individuals with incentives to put forth maximum efforts
for the long-term success of the Company's business, thereby aligning
their interests more closely with the interests of shareholders.
3. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan is the date
of its approval by the Board or November 18, 1998.
4. ADMINISTRATION.
(a) Subject to review by the Board, the Plan shall be
administered by the Directors Committee of the Board;
provided, however, that if the requisite number of members of
the Directors Committee of the Board are not Non-Employee
Directors (as defined below), then the Plan shall be
administered by a committee, all of the members of which are
Non-Employee Directors, appointed by the Board and consisting
of two or more Non-Employee Directors with full authority to
act (the "Committee"). As used herein, the term "Non-Employee
Director" means a person who is so defined for purposes of
Rule 16b-3 under the Securities Exchange Act of 1934, or any
successor provision.
(b) Subject to the express provisions of the Plan, the Committee
shall have authority to interpret the Plan, to the extent
provided by law. Such interpretation by the Committee of any
provision of the Plan or any related documents shall be
final.
(c) 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.
(d) 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.
81
<PAGE> 2
JOHNSON CONTROLS, INC.
DIRECTOR SHARE UNIT PLAN
NOVEMBER 18, 1998
5. RETIREMENT ACCOUNTS. Each Outside Director shall have an account under
this Plan which shall be deemed the Outside Director's "Retirement
Account." An Outside Director's Retirement Account shall be credited
with "Share Units" and otherwise subject to adjustment as follows:
(a) Conversion of Accrued Benefits. For each Outside Director of
the Company as of December 1, 1998, the Committee shall
calculate the value of such Outside Director's accrued
benefits under the Company's Director Retirement Plan as of
September 30, 1998. Each such Outside Director's Retirement
Account shall be credited with a number of Share Units equal
to the result obtained by (i) dividing (A) the value of such
Outside Director's accrued benefits under the Company's
Director Retirement Plan as of September 30, 1998 by (B) the
Stock Price (as defined below) as of the first trading day in
December 1998 and (ii) rounding the quotient to the nearest
multiple of 100. For purposes of this Plan, the term "Stock
Price" shall mean the closing sale price of a share of Common
Stock (as defined below) on the New York Stock Exchange, Inc.
(the "NYSE") on the date in question. For purposes of this
Plan, the term "Common Stock" shall mean the Company's common
stock, $0.16 par value.
(b) Annual Credit of Share Units. On the Effective Date, and
thereafter on the date of each succeeding regular meeting of
the Board held in November, the Retirement Account of each
person who is then an Outside Director shall be credited with
a number of additional Share Units equal to the result
obtained by (i) dividing (A) $25,000 by (B) the Stock Price
as of the first trading day in the December in question and
(ii) rounding the quotient to the nearest multiple of 100
(the "Annual Credit").
(c) Interim Election. Any Outside Directors whose election to the
Board is first effective at any time other than the regular
meeting of the Board held in November shall have credited to
his or her Retirement Accounts a proportionate share of the
Annual Credit at the time of effectiveness of his or her
election.
(d) Cash Dividends and Share Accounts. Whenever cash dividends
are paid by the Company on outstanding Common Stock, on the
payment date therefor the Retirement Account of each person
who then has Share Units credited to his or her Retirement
Account shall be credited with a number of additional Share
Units equal to the result obtained by (i) dividing (A) the
aggregate dividend that would be payable on outstanding
shares of Common Stock equal to the number of Share Units in
such Retirement Account on the record date for the dividend
by (B) the Stock Price as of the closing prince on last
business day of such quarter, and (ii) rounding the quotient
up to the next whole number.
(e) Adjustment Provisions. In the event of any change in the
shares of the Common Stock 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, each
82
<PAGE> 3
JOHNSON CONTROLS INC.
DIRECTOR SHARE UNIT PLAN
NOVEMBER 18, 1998
Retirement Account shall be appropriately adjusted by the
Committee, but any such adjustment to each Retirement Account
shall be only such as is necessary to maintain the
proportionate interest of the Outside Director and preserve,
without exceeding, the value reflected by the Outside
Director's Retirement Account.
(f) Payment. Upon a Retirement Payment as provided in Section 6,
the number of Share Units in an Outside Director's Retirement
Account shall be adjusted pursuant to Section 6.
6. PAYMENT.
(a) Distributions. An Outside Director's Retirement Account shall
become payable as soon as practicable following the earliest
of (i) the retirement date selected by the Outside Director,
(ii) the Outside Director's death, (iii) the Outside
Director's total and permanent disability, as determined by
the Committee, or (iv) any other event whereby the Outside
Director ceases to serve on the Board (the earliest such
date, the "Payout Date").
(b) Form of Payments. All payments from an Outside Director's
Retirement Account shall be made in cash in an amount
determined pursuant to subsections (c) and (d) (the
"Retirement Payment").
(c) Manner of Payments. Each Outside Director shall elect to
receive his or her Retirement Payment either in a lump sum or
in ten annual installments; provided, however, that (i) any
such election (including any change to an outstanding
election) must be made no later than the date one year prior
to the date of the director's voluntary retirement from the
Board, if any, and (ii) if the Outside Director fails to make
this election, then his or her Retirement Payment shall be
made in a lump sum. In the event of an Outside Director's
death either during or after his or her Board service,
payment of any remaining portion of the Retirement Payment
will be made in a lump sum, pursuant to subsection (e), as
soon as practicable following the Outside Director's death.
(d) Amount of Payments.
(i) The amount of cash for each Outside Director receiving
his or her Retirement Payment in a lump sum shall be
determined by multiplying the number of Share Units in
the Outside Director's Retirement Account by the Stock
Price for the first trading day after the Payout Date.
Upon payment of this lump sum, the Outside Director's
Retirement Account balance shall be reduced to zero.
(ii) The amount of each cash installment for each Outside
Director receiving his or her Retirement Payment in ten
annual installments shall be determined by (A) dividing
(1) the number of Share Units remaining in each Outside
Director's Retirement Account immediately prior to the
time of the installment payment in question by (2) the
number of remaining annual installments (including the
installment in question) and (B) multiplying that
quotient by the Stock Price on the
83
<PAGE> 4
JOHNSON CONTROLS INC.
DIRECTOR SHARE UNIT PLAN
NOVEMBER 18, 1998
first trading day after the Payout Date or anniversary date
of the Payout Date for the year in which the installment
payment in question is paid, as the case may be. Upon the
payment of an annual installment, the number of Share Units
remaining in each Outside Director's Retirement Account shall
be reduced by subtracting the quotient determined pursuant to
clause (A) above from the Outside Director's Retirement
Account.
Designation of Beneficiary. Each Outside Director entitled to
payment hereunder from time to time may designate any
beneficiary or beneficiaries (who may be designated
concurrently, contingently, or successively) to whom any such
Retirement Payment is to be paid in case of the Outside
Director's death before receipt of any or all of such
Retirement Payment. Any designation will revoke all prior
designations by the Outside Director, shall be in a form
prescribed by the Company and will be effective only when
filed by the Outside Director or former Outside Director,
during his or her lifetime, in writing with the Secretary of
the Company. References in this Plan to an Outside Director's
"beneficiary" at any date shall include such persons
designated as concurrent beneficiaries on the Outside
Director's beneficiary designation form then in effect. In
the absence of any such designation, any balance remaining in
an Outside Director's or former Outside Director's retirement
account at the time of the Outside Director's death shall be
paid to such Outside Director's estate in a lump *sum.
7. TERMS AND CONDITIONS.
(a) No Assets. No stock, cash or other property will be
deliverable to an Outside Director in respect of the Outside
Director's Retirement Payment until the date or dates
identified pursuant to Section 6, and all Retirement Accounts
shall be reflected in one or more unfunded accounts
established for the Outside Director by the Company. Payment
of the Company's obligation will be from general funds, and
no special assets (stock, cash or otherwise) have been or
will be set aside as security for this obligation.
(b) No Transfers. An Outside Director's rights to payments under
Section 6 are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance,
or garnishment by an Outside Director's creditors or the
creditors of his or her beneficiaries, whether by operation
of law or otherwise, and any attempted sale, transfer,
assignment, pledge, or encumbrance with respect to such
payment shall be null and void, and shall be without legal
effect and shall not be recognized by the Company.
(c) Unsecured Creditor. The right of an Outside Director to
receive payments under Section 6 is that of a general,
unsecured creditor of the Company, and the obligation of the
Company to make payments constitutes a mere promise by the
Company to pay such benefits in the future. Further, the
arrangements contemplated by this Plan are intended to be
unfunded for tax purposes and for purposes of Title I of
ERISA.
84
<PAGE> 5
JOHNSON CONTROLS INC.
DIRECTOR SHARE UNIT PLAN
NOVEMBER 18, 1998
(d) Retention as Director. Nothing contained in the Plan shall
interfere with or limit in any way the right of the shareholders
of the Company to remove any Director from the Board, nor confer
upon any Director any right to continue in the service of Company
as a Director.
8. TERMINATION AND AMENDMENT OF PLAN. The Board may at any time
terminate the Plan. The Board may amend the Plan as it shall deem
advisable; provided, however, that (a) the Board may not amend the
Plan more than once every six months, other than amendments the
Board deems necessary or advisable to assure the conformity of the
Plan with any requirements of state and federal law or regulations
now or hereafter in effect, and (b) no amendment shall affect
adversely any of the rights of any Outside Director, without such
Outside Director's consent, under any election theretofore in effect
under the Plan.
9. RIGHTS AS A SHAREHOLDER. An Outside Director shall have no rights as a
shareholder with respect to Share Units granted under this Plan.
10. GOVERNING LAW. The Plan, all credits hereunder, and all determinations
made and actions taken pursuant to the Plan shall be governed by the
internal laws of the state of Wisconsin, to the extent not otherwise
governed by the Internal Revenue Code or the laws of the United States.
11. UNFUNDED PLAN. This Plan shall be unfunded. No person shall have any
rights greater than those of a general creditor of the Company.
12. WITHHOLDING. The Company shall have the right to deduct from all
amounts deferred pursuant to this Plan and/or payments made under the
Plan any federal, state, or local income taxes or FICA required to be
withheld with respect to such compensation. Each Outside Director shall
be entitled to irrevocably elect to have the Company withhold such
amounts from his or her Retirement Payment, equal to the amount
required to be withheld.
13. CHANGE OF CONTROL. Anything in this Plan to the contrary
notwithstanding, each Outside Director's Retirement Account shall
become payable in cash in a lump sum upon the occurrence of a Change of
Control (as such term is defined in the Johnson Controls, Inc. 1992
Stock Option Plan, as amended). The amount of cash shall be determined
by multiplying the number of Share Units in the Retirement Account by
the Stock Price as of the last trading day prior to the occurrence of a
Change of Control.
14. HEADINGS. The headings of sections and subsections herein are
included solely for the convenience of reference and shall not
affect the meaning of any of the provisions of the Plan.
85
<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, 1998
------------------
<S> <C>
Net income $ 337.7
Provision for income taxes 256.0
Undistributed earnings of partially-owned affiliates (9.2)
Minority interests in net earnings of subsidiaries 23.1
Amortization of previously capitalized interest 3.4
--------
611.0
--------
Fixed charges:
Interest incurred and amortization of debt expense 150.8
Estimated portion of rent expense 38.3
--------
Fixed charges 189.1
Less: Interest capitalized during the period (11.1)
--------
178.0
--------
Earnings $ 789.0
========
Ratio of earnings to fixed charges (1) 4.2
========
</TABLE>
For the purpose of computing this ratio, "earnings" consist of (a) income
from continuing operations before income taxes (adjusted for undistributed
earnings or recognized losses of partially-owned affiliates, minority
interest in earnings or losses of consolidated subsidiaries, and
amortization of previously capitalized interest), plus (b) fixed charges,
minus (c) interest capitalized during the period. "Fixed charges" consist
of (a) interest incurred and amortization of debt expense plus (b) the
portion of rent expense representative of the interest factor.
(1) Included in earnings is a $59.9 million pre-tax gain on the sale of the
Plastics Machinery division, as disclosed in Note 2 to the Company's
consolidated financial statements. Excluding this gain, the ratio of
earnings to fixed charges would be 3.9.
86
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
This discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity of the Company for the
three-year period ended September 30, 1998. This discussion should be read in
conjunction with the Letter to Shareholders, Consolidated Financial Statements
and Notes to Consolidated Financial Statements included elsewhere in this annual
report.
Comparability of results between the years presented is affected by certain
significant nonrecurring transactions that occurred during the three-year
period. In 1997, the Company divested its plastics operating segment by selling
the Plastic Container division (see "Discontinued Operations"). In addition, the
Company recorded a $70 million charge in the second quarter of fiscal 1997 to
restructure certain Automotive Systems and Controls Group businesses. Finally,
the Company recorded a gain in 1998 on the sale of the Plastics Machinery
division. Management believes operating results from continuing operations
before the effect of these nonrecurring items provide the most meaningful
indicators of the Company's performance.
<TABLE>
<CAPTION>
Common Stock Price Range Dividends
- ------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $ 42 1/4-51 $35 3/4-42 11/16 $0.23 $0.215
Second Quarter 43 9/16-61 5/16 39 3/8-45 11/16 0.23 0.215
Third Quarter 53 5/8-61 7/8 35 3/8-43 7/8 0.23 0.215
Fourth Quarter 42 3/16-58 1/4 41-49 13/16 0.23 0.215
- ------------------------------------------------------------------------------------------------
Year $42 3/16-61 7/8 $35 3/8-49 13/16 $0.92 $ 0.86
- ------------------------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
SALES
Consolidated net sales for the year ended September 30, 1998 rose to a record
$12.6 billion, 13% higher than the prior year total of $11.1 billion. Both of
the Company's operating segments reported sales growth, with the majority of the
overall increase attributable to the Automotive Systems Group.
Automotive Systems Group sales of $9.3 billion for 1998 were 15% higher than the
prior year's sales of $8.0 billion. The segment's seating and interior systems
business achieved strong sales growth in North America, Europe and South
America. Seating and interior systems sales in North America improved at a
faster rate than the vehicle production level due to new contracts and strong
demand for vehicles that the Company supplies. The increase in European seating
sales was led by new programs and increased production levels with Mercedes and
Volkswagen. Seating sales in South America rose, reflecting the Company's launch
of new seating programs in that market. Current year automotive battery sales
were also higher as shipments reached a record level, stemming from growth with
existing aftermarket customers and a new contract to supply Sears DieHard
Gold(R) brand batteries. These increases more than offset the effect on seating
and interior systems sales of the North American General Motors (GM) strike that
occurred during the second half of fiscal 1998.
Controls Group sales for 1998 improved to $3.3 billion, 6% higher than the prior
year's $3.1 billion. The increased sales were attributable to improvements in
both the segment's integrated facility management and control systems and
services businesses. The integrated facility management business achieved
significant sales growth in the worldwide commercial buildings market,
reflecting the addition of new contracts and the expansion of existing
contracts. Sales of installed control systems to the new construction and
existing buildings markets also increased from the prior year.
Management expects consolidated net sales in fiscal 1999 to exceed current year
revenues. Automotive Systems Group sales are expected to increase approximately
20% to 25%, provided automotive production levels in North America and Europe
remain relatively stable. Growth is expected to be driven by higher sales of
vehicles for which the Company supplies seating and interior systems and the
launch of new programs worldwide. Sales growth will also be aided by the
addition of Becker Group, Inc. ("Becker Group"), the automotive interior systems
supplier acquired in July 1998 (see "Acquisition"). Becker Group will provide a
new platform for the Company's interior systems growth, especially in the
European market.
Management anticipates Controls Group sales growth of 10% to 15% in 1999. The
expected increase is based on the continued expansion of integrated facility
management activity in the commercial market and higher installed systems sales,
particularly in the North American market for existing buildings. Sales growth
will also result from the consolidation of Yokogawa Johnson Controls (YJC)
Corporation, the control systems and services joint venture in Japan. YJC's
results, previously accounted for by the equity method, will be consolidated in
1999 to reflect the Company's increased investment in this affiliate. At
September 30, 1998, the unearned backlog of installed control systems contracts
(excluding integrated facility management) to be executed within the next fiscal
year was $836 million. The increase from the prior year amount of $760 million
was primarily due to increased bookings for existing buildings worldwide.
OPERATING INCOME
The Company's consolidated operating income in 1998 reached a record $664
million, 11% higher than the prior year's $597 million
<PAGE> 2
19
Johnson Controls, Inc.
(before a $70 million restructuring charge; see discussion in "Fiscal 1997
Compared to Fiscal 1996"). Both of the Company's business segments contributed
double-digit growth compared to the prior year.
The Automotive Systems Group's operating income rose to $530 million, an 11%
increase from the prior year's $478 million (before the restructuring charge).
The segment's operating income increase over the prior year was primarily
associated with higher sales and income from seating and interior systems
operations in North America and Europe. European seating systems' operating
margins improved due to reduced engineering and operating costs. Operating
income improved despite the GM strike in the latter half of fiscal 1998, which
reduced the segment's operating income by approximately $30 million. Losses
associated with seating plant start-up costs in South America also reduced the
segment's operating income.
Operating income for the Controls Group increased to $134 million, up 12% from
the prior year's $119 million (before the restructuring charge). Controls Group
operating income increased from the prior year due to volume increases and the
control systems and services business' improved productivity and contract
execution.
The Company expects consolidated operating income to increase in 1999,
reflecting higher sales and additional efficiencies. The Automotive Systems
Group's operating income is expected to be higher year-over-year due to new
seating and interior systems business worldwide, continued involvement in
successful, maturing vehicle programs and the integration of Becker Group.
Seating operations in South America are expected to continue operating at a loss
due to the economic slowdown in that market, although the magnitude of the
losses is expected to decline.
The Automotive Systems Group 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 significantly offset any sales price
changes with cost reductions from design changes, productivity improvements and
similar programs with its own suppliers.
Controls Group operating income is expected to increase due to continued
expansion of integrated facility management and control systems and services
activity in the commercial market. The facility management business continues to
benefit from its strategic focus on servicing customers in industries in which a
reliable building environment is critical. Control systems and services
operating income is also expected to increase due to higher sales to the
existing buildings market.
OTHER INCOME/EXPENSE
Net interest expense (interest expense less interest income) totaled $119
million in 1998 compared with $113 million in the prior year. The increased
expense was primarily attributable to financing costs associated with the
purchase of Becker Group in the Company's fourth fiscal quarter. The Company
expects net interest expense in 1999 to increase from the current year level,
reflecting a full year's interest expense on the additional debt incurred to
finance this acquisition, which was approximately $548 million in cash and the
assumption of approximately $372 million of debt.
The $59.9 million pre-tax gain on the sale of a business recorded in 1998
resulted from the Company's sale of its Plastics Machinery division for
approximately $190 million on September 30, 1998. The plastics machinery
business had annual sales of approximately $190 million. The Company used the
after-tax proceeds from the sale to reduce debt.
PROVISION FOR INCOME TAXES
The effective income tax rate was 41.5% for 1998 compared with 42.5% for the
prior year. The rate declined due primarily to a lower effective state tax rate
and improved performance by certain of the Company's European operations,
partially offset by the losses of start-up operations in emerging markets. The
effective rate for the fiscal year was higher than the combined domestic federal
and state statutory rate of approximately 39% due mostly to nondeductible
goodwill amortization associated with recent acquisitions and higher foreign
effective rates.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for 1998 rose to $338 million or $3.63 per
diluted share. The Company's income from continuing operations before the $35
million after-tax gain on the sale of the Plastics Machinery division was $303
million, up 16% from the prior year's $261 million (before $40 million
restructuring charge, after-tax). The growth reflects the improvements in
operating income and a lower effective income tax rate, offset in part by higher
interest expense. Diluted earnings per share from continuing operations (before
the gain on sale of business of $.38 per diluted share, after-tax) were $3.25,
compared with $2.81 in the prior year (before restructuring charge of $.44 per
diluted share, after-tax).
FISCAL 1997 COMPARED TO FISCAL 1996
SALES
Consolidated net sales for 1997 reached $11.1 billion, representing a 21%
increase over 1996 sales of $9.2 billion. The Company's Automotive Systems Group
was the principal contributor to the year's increased sales.
Automotive Systems Group sales for 1997 rose 28% to $8.0 billion, up from the
prior year's $6.2 billion. Approximately one-half of the increase was
attributable to the acquisition of Prince Holding Corporation (Prince), the
interior systems company acquired in October 1996. North American seating sales
were strong despite a slight decline in industry vehicle production levels in
1997 compared with the prior year. The sales growth reflected the Company's
<PAGE> 3
20
participation with certain new vehicle models for Ford and GM. Seating sales in
Europe were higher during the year, despite the impact of lower currency
exchange rates, due to successful new programs with Ford, Chrysler and
Volkswagen. Sales of automotive batteries increased due to higher unit shipments
to existing customers and the addition of a new customer, Western Auto Parts
America.
Controls Group sales increased 6% to $3.1 billion from $3.0 billion in 1996. A
higher level of integrated facility management activity in the commercial market
worldwide was the source of most of the segment's growth. Sales were also higher
in the non-residential building construction markets in the Asia/Pacific region
and the United States.
OPERATING INCOME
Consolidated operating income for 1997 was $527 million, including a $70 million
restructuring charge recorded in the second quarter of fiscal 1997 (see
discussion that follows). Operating income before the restructuring charge was
$597 million, a 25% increase over the prior year's $479 million.
The Automotive Systems Group's operating income, excluding the segment's portion
of the restructuring charge, rose to $478 million, a 32% increase from the prior
year's $361 million. The inclusion of earnings from Prince and higher seating
shipments in North America and Europe contributed to the segment's increased
operating income. Higher automotive battery volumes also contributed to the
segment's overall operating income growth. Start-up and engineering investments
related to new seating programs worldwide, especially in Europe and South
America, and strikes at two of the Company's automotive facilities also affected
segment operating income.
Operating income for the Controls Group, excluding the segment's portion of the
restructuring charge, increased to $119 million, up 2% from the prior year. The
improvement was largely due to increased integrated facility management activity
in the commercial market, both in North America and continental Europe. This
improvement was partially offset by lower operating margins in the domestic
systems and services market as investments outpaced revenues.
In the second quarter of fiscal 1997, the Company recorded a restructuring
charge, including related asset writedowns, of $70 million involving its
Automotive Systems and Controls Groups. The automotive initiatives primarily
related to European operations where certain manufacturing capacity was
realigned with future customer sourcing requirements, and product development
resources were consolidated. The charge associated with the Controls Group
principally addressed the Company's decision to restructure certain low-margin
service activities that were outside its core controls and facility management
businesses. As of September 30, 1998, costs of $62 million had been charged
against the reserve, comprised of asset writedowns of $44 million, employee
severance and termination benefits of $10 million, and $8 million of other costs
relating to the restructuring initiatives. The balance of the reserve is
expected to be used for additional severance and termination costs associated
with a restructured facility management business in the United Kingdom. These
costs are expected to be incurred during the first half of fiscal 1999.
BUSINESS SEGMENTS Year ended September 30,
<TABLE>
<CAPTION>
Operating Assets Depreciation/ Capital
(in millions) Net Sales Income(1) (Year End) Amortization Expenditures
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Automotive Systems Group $ 9,263.9 $ 529.7 $ 6,232.6 $ 327.2 $ 414.6
Controls Group 3,322.9 134.3 1,219.0 57.0 53.7
Unallocated -- -- 490.5 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Consolidated $ 12,586.8 $ 664.0 $ 7,942.1 $ 384.2 $ 468.3
- -----------------------------------------------------------------------------------------------------------------------------
1997
Automotive Systems Group $ 8,022.1 $ 440.6 $ 4,456.2 $ 295.6 $ 309.7
Controls Group 3,123.3 86.5 1,143.4 59.3 61.2
Unallocated -- -- 449.0 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Consolidated $ 11,145.4 $ 527.1 $ 6,048.6 $ 354.9 $ 370.9
- -----------------------------------------------------------------------------------------------------------------------------
1996
Automotive Systems Group $ 6,250.2 $ 361.2 $ 2,970.5 $ 209.1 $ 260.6
Controls Group 2,959.8 117.7 1,177.1 53.4 61.7
Unallocated -- -- 402.9 -- --
Net assets of discontinued
operations -- -- 440.7 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Consolidated $ 9,210.0 $ 478.9 $ 4,991.2 $ 262.5 $ 322.3
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Operating income for 1997 includes a restructuring charge (see Note 14) of
$70.0 million, with $37.0 million charged to the automotive segment and
$33.0 million charged to the controls segment.
<PAGE> 4
21
Johnson Controls, Inc.
OTHER INCOME/EXPENSE
Net interest expense in 1997 was $113 million, $47 million higher than the prior
year. The increase was primarily the result of financing associated with the
acquisition of Prince for approximately $1.3 billion at the beginning of the
Company's 1997 fiscal year.
Miscellaneous-net income of $11 million increased by $3 million over the prior
year. The improvement was primarily due to higher equity income, with
contributions from the Automotive Systems Group's partially-owned affiliates in
North America and Europe.
PROVISION FOR INCOME TAXES
The effective income tax rate on continuing operations was 42.5% for 1997
compared with 40.8% for the prior year. The increase primarily reflected
nondeductible goodwill amortization associated with the acquisition of Prince.
The effective rate for the fiscal year was higher than the combined domestic
federal and state statutory rate of approximately 39% due mostly to the
nondeductible goodwill amortization of Prince and higher foreign effective
rates.
INCOME FROM CONTINUING OPERATIONS
The Company's income from continuing operations for 1997 was $221 million or
$2.37 per diluted share. Before the restructuring charge ($40 million,
after-tax), income from continuing operations totaled $261 million, which
represented a 17% increase from the prior year's $223 million. The increase was
attributable to improvements in operating income, offset in part by higher net
interest expense. Diluted earnings per share from continuing operations (before
the restructuring charge of $.44 per diluted share, after-tax) were $2.81, up
from $2.42 in the prior year.
Discontinued Operations
On February 28, 1997, the Company completed the sale of the Plastic Container
division (PCD) to Schmalbach-Lubeca AG/Continental Can Europe (a member of the
VIAG Group) for approximately $650 million, with a portion of the proceeds
deferred. The Company recorded a gain on the sale of $135 million ($69 million,
after-tax). Accordingly, operating results, net assets and cash flows of PCD
have been segregated as discontinued operations in the accompanying consolidated
financial statements. For the year ended September 30, 1997, the loss per basic
and diluted share from discontinued operations was $.01, with a gain on the sale
of discontinued operations of $.83 per basic share and $.76 per diluted share.
For the year ended September 30, 1996, earnings per basic and diluted share from
discontinued operations were $.14 and $.13, respectively.
CAPITAL EXPENDITURES AND OTHER INVESTMENTS
Capital expenditures associated with continuing operations were $468 million,
$371 million and $322 million in 1998, 1997 and 1996, respectively. Capital
spending for Automotive Systems Group projects accounted for the majority of
total capital expenditures in all three years. Most of the segment's spending in
1998 was for new and expanded automotive seating and interior systems facilities
and product lines worldwide and cost reduction projects. Controls Group spending
was primarily for projects relating to information technology. Capital
expenditures of approximately $425 to $450 million are anticipated for 1999,
with the majority expected to be associated with automotive seating and interior
systems expansion. Controls Group spending is expected to be focused on
information technology and building systems technology, and the construction of
a controls technology center.
Goodwill was $2.1 billion at September 30, 1998, $524 million higher than the
prior year balance. The increase is due to businesses acquired during 1998, with
the majority relating to the purchase of Becker Group in July 1998. All
acquisitions were accounted for as purchases.
Total investments in partially-owned affiliates were $166 million at fiscal year
end, approximately $22 million higher than the prior year total. The increase
reflects the formation of a number of new joint ventures by both segments, as
well as equity income earned by affiliates, primarily from the Automotive
Systems Group's domestic and European subsidiaries. The increases were partially
offset by dividend distributions.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW
The Company's working capital was a negative $884 million at September 30, 1998,
compared with a negative $443 million at September 30, 1997. The decreased level
of working capital is primarily attributable to the increase in short-term debt
used to finance the acquisition of Becker Group. Working capital, excluding cash
and debt, of $311 million at fiscal year end exceeded the prior year amount due
primarily to increased accounts receivable associated with the current year's
higher sales and the classification of assets and liabilities held for sale as
net current assets.
Cash of $558 million was provided by operating activities of continuing
operations during 1998 compared with $617 million in 1997, as the current
period's higher income was offset by an increase in accounts receivable and
other current assets. The Company expects to use cash flow generated by its
operations to fund investments in its businesses and retire debt.
CAPITALIZATION
The Company's capitalization of $4.3 billion at September 30, 1998 included
short-term debt of $1.3 billion, long-term debt
<PAGE> 5
22
(including the current portion) of $1.1 billion and shareholders' equity of $1.9
billion. Total debt as a percentage of total capitalization increased to 55%
from 46% at September 30, 1997. The increase is attributable to the issuance of
short-term debt to finance the acquisition of Becker Group.
In February 1998, the Company issued $175 million of ten-year 6.3% notes. The
notes were used to refinance a portion of commercial paper borrowings and were
issued under the $1.5 billion shelf registration statement on file with the
Securities and Exchange Commission.
In July 1998, the Company entered into a new one-year $1.2 billion revolving
credit facility to support increased commercial paper balances associated with
the Becker Group purchase. The Company also has a $600 million revolving credit
facility, with an option to increase the facility to $1.0 billion, which has a
maturity of May 2002. At September 30, 1998, $1.3 billion of short-term
borrowings were outstanding compared with $538 million at 1997 fiscal year end.
The Company plans to secure permanent financing for a portion of its short-term
debt in the first half of fiscal 1999.
At the close of 1998, the Company enjoyed high credit ratings from Moody's (A2),
Fitch (A), and Standard & Poor's (A-) on its long-term debt.
Management believes the Company's capital resources and liquidity position are
sufficient to meet projected needs. Requirements for working capital, capital
expenditures, dividends and debt maturities in fiscal 1999 are expected to be
funded from operations, supplemented by short-term or long-term borrowings, if
required.
RISK MANAGEMENT
The Company selectively uses financial instruments to reduce market risk
associated with changes in foreign exchange and interest rates and, to a lesser
extent, commodity prices. All hedging transactions are authorized and executed
pursuant to clearly defined policies and procedures, which strictly prohibit the
use of financial instruments for trading purposes. Analytical techniques used to
manage and monitor foreign exchange and interest rate risk include market
valuation and sensitivity analysis.
A discussion of the Company's accounting policies for derivative financial
instruments is included in the Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements, and further disclosure relating to
financial instruments is included in Note 8 - Financial Instruments.
FOREIGN EXCHANGE
The Company has manufacturing, sales and distribution facilities around the
world and thus makes investments and enters into transactions denominated in
various foreign currencies. In order to maintain strict control and achieve the
benefits of the Company's global diversification, foreign exchange exposures for
each currency are netted internally so that only the Company's net foreign
exchange exposures may be hedged with financial instruments. The Company
primarily enters into forward exchange contracts to reduce the earnings and cash
flow impact of non-functional currency denominated receivables and payables,
predominately intercompany transactions. Gains and losses resulting from hedging
instruments offset the gains or losses on the underlying assets, liabilities and
investments being hedged. The Company's forward exchange contracts generally
have maturities that do not exceed 12 months, and the maturities coincide with
the settlement dates of the related transactions. Realized and unrealized gains
and losses on these contracts are recognized in the same period as gains and
losses on the hedged items. The Company has entered into four cross-currency
interest rate swaps to hedge portions of its net investments in Germany, France
and Japan. The currency effects of these swaps are reflected in the cumulative
translation adjustments account within shareholders' equity where they offset
gains and losses on the net investments in Germany, France and Japan.
The currencies that the Company was primarily exposed to at September 30, 1998
were the German Mark, French Franc, Spanish Peseta, Czech Republican Koruna,
British Pound and the Japanese Yen. Because the Company has significant
operations across member countries of the European Monetary Union, the
introduction of the euro on January 1, 1999 is expected to decrease the volume
of required foreign exchange contracts.
Sensitivity Analysis
The following table indicates the U.S. dollar equivalents of the net foreign
exchange contracts, cross-currency interest rate swaps and non-functional
currency denominated debt (instruments) outstanding by currency and the
corresponding impact on the value of these instruments assuming both a 10%
appreciation and depreciation of the respective currencies. The resulting
functional currency gains and losses are translated at the U.S. dollar spot rate
on September 30, 1998. As noted above, the Company's policy prohibits the
trading of financial instruments for profit. It is important to note that gains
and losses indicated in the sensitivity analysis would be offset by gains and
losses on underlying payables, receivables and net investments in foreign
subsidiaries.
<PAGE> 6
23
Johnson Controls, Inc.
<TABLE>
<CAPTION>
September 30, 1998
- ---------------------------------------------------------------------------
Foreign Exchange Gain/(Loss) from:
-----------------------------------------
Net Amount 10% Appreciation 10% Depreciation
of Instruments of the Functional of the Functional
CURRENCY Long/(Short) Currency Currency
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
(dollars in millions)
German Marks $(177) $18 $(18)
French Francs (71) 7 (7)
Spanish Pesetas (27) 3 (3)
Czech Republican
Korunas (15) 1 (1)
British Pounds (14) 1 (1)
Japanese Yen (12) 1 (1)
Other (17) 2 (2)
- ---------------------------------------------------------------------------
TOTAL $(333) $33 $(33)
- ---------------------------------------------------------------------------
</TABLE>
INTEREST RATES
The Company uses interest rate swaps to modify the Company's exposure to
interest rate movements. Certain cross-currency interest rate swaps are
designated as hedges of the Company's related foreign net investment exposures.
Net interest payments or receipts from interest rate swaps are recorded as
adjustments to interest expense in the Consolidated Statement of Income on a
current basis. The Company's earnings exposure related to adverse movements in
interest rates is primarily derived from outstanding floating rate debt
instruments that are indexed to U.S. short-term money market rates. A 10%
increase or decrease in the average cost of the Company's variable rate debt and
cross-currency interest rate swaps would result in a change in pre-tax interest
expense of approximately $6 million.
COMMODITIES
The Company's exposure to commodity price changes relates to certain
manufacturing operations that utilize raw commodities. The Company manages its
exposure to changes in those prices primarily through the terms of its supply
and procurement contracts. This exposure is not material to the Company.
ACQUISITION
Effective July 1, 1998, the Company completed the acquisition of Becker Group
for approximately $548 million, plus the assumption of approximately $372
million of debt. Becker Group, based in Michigan and Germany, is a major
supplier of automotive interior systems, particularly door systems and
instrument panels. The acquisition was accounted for as a purchase. The excess
of the purchase price over the estimated fair value of the acquired net assets,
which approximated $500 million, was recorded as goodwill. Annualized sales for
Becker Group, after planned divestitures (see discussion that follows), are
approximately $925 million. Becker Group's results
QUARTERLY FINANCIAL DATA Year ended September 30,
<TABLE>
<CAPTION>
First Second Third Fourth Full
(in millions, except per share data; unaudited) Quarter Quarter(1) Quarter Quarter(2) Year(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Net sales $ 3,056.3 $ 3,007.3 $ 3,189.5 $ 3,333.7 $ 12,586.8
Gross profit $ 434.2 $ 416.3 $ 470.4 $ 489.7 $ 1,810.6
Net income $ 65.3 $ 52.5 $ 83.9 $ 136.0 $ 337.7
Earnings per share
Basic $ 0.75 $ 0.59 $ 0.97 $ 1.58 $ 3.89
Diluted $ 0.70 $ 0.56 $ 0.90 $ 1.47 $ 3.63
- ------------------------------------------------------------------------------------------------------------------------------------
1997
Net sales $ 2,761.3 $ 2,743.6 $ 2,879.3 $ 2,761.2 $ 11,145.4
Gross profit $ 406.7 $ 375.3 $ 433.4 $ 444.4 $ 1,659.8
Income (loss) from continuing operations $ 54.9 $ (1.6) $ 74.4 $ 92.9 $ 220.6
Discontinued operations, net of tax $ (1.8) $ 69.7 -- -- $ 67.9
Net income $ 53.1 $ 68.1 $ 74.4 $ 92.9 $ 288.5
Earnings (loss) per share from continuing
operations
Basic $ 0.64 $ (0.06) $ 0.86 $ 1.08 $ 2.52
Diluted $ 0.59 $ (0.03) $ 0.81 $ 1.00 $ 2.37
Earnings per share
Basic $ 0.62 $ 0.78 $ 0.86 $ 1.08 $ 3.34
Diluted $ 0.57 $ 0.74 $ 0.81 $ 1.00 $ 3.12
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Second quarter earnings for 1997 include (per diluted share) the effects of
a restructuring charge equal to $(.44), earnings from discontinued
operations of $.01 and a gain on the sale of discontinued operations of
$.76; full year earnings include a loss from discontinued operations of
$(.01). Excluding these items would result in earnings per diluted share of
$.41 for the second quarter and $2.81 for the year.
(2) Fourth quarter and full year earnings for 1998 include a gain on the sale of
the Plastics Machinery division of $.38 per diluted share. Excluding the
gain would result in earnings per diluted share of $1.09 for the fourth
quarter and $3.25 for the year.
<PAGE> 7
24
have been included in the Company's consolidated financial statements from the
date of acquisition. The purchase was initially financed with commercial paper
and it is anticipated that a portion will be refinanced with long-term debt.
As part of the Becker Group acquisition, the Company recorded a restructuring
reserve of $48 million. The reserve was established for anticipated costs
associated with consolidating certain of Becker Group's European and domestic
manufacturing, engineering and administrative operations with existing capacity
of the Company. The majority of the reserve was attributable to expected
employee severance and termination benefit costs and plant closure costs.
Workforce reductions of approximately 1,250 employees are expected as part of
the consolidation plan. No significant charges were made to the reserve as of
September 30, 1998. The restructuring activities are expected to be completed by
the end of fiscal 1999.
Certain businesses acquired in the Becker Group purchase have been classified as
net assets held for sale in the Consolidated Statement of Financial Position at
September 30, 1998. At the date of acquisition, the Company identified several
operations of Becker Group that were outside of the Company's core businesses
and, as such, will be sold. The net assets of the businesses were valued at fair
value less estimated costs to sell, including cash flows during the holding
period. The Company expects to complete the sale of these businesses in fiscal
1999. The operating results of the businesses to be sold, which were not
material for fiscal 1998, have been excluded from the Company's consolidated
operating results.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement is effective October 1, 1999 for the
Company. It requires all derivative instruments to be recorded in the statement
of financial position at their fair value. Changes in fair value of derivatives
are required to be recorded each period in current earnings or other
comprehensive income, depending on whether the derivative is designated as part
of a hedge transaction and if it is, the type of hedge transaction. The effect
of adoption of this statement on the Company's earnings or statement of
financial position has not yet been determined.
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.
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 non-Company owned 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 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 1998 related solely to environmental
compliance were not material. Environmental remediation, compliance and
management expenses incurred by the Company in 1998 were approximately $12
million. At September 30, 1998, an accrued liability of approximately $46
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.
In 1995, the Company asked the Wisconsin Court of Appeals to overturn a
Milwaukee County Circuit Court order which dismissed the Company's complaint
against Employers Insurance of Wausau and other insurance companies which sought
to recover environmental
<PAGE> 8
25
Johnson Controls, Inc.
response costs at 21 sites. On October 13, 1998, the Court of Appeals decided
the case should be returned to the Circuit Court to determine which of the 21
sites would be eligible for insurance coverage for related environmental costs.
The Company believes that at least certain of its environmental costs should be
reimbursed by the defendant insurance companies but also believes that the
insurers will continue to claim that the costs are not recoverable at any of the
sites. Appeal of the October 13, 1998 decision is under consideration both by
the Company and defendant insurers. The Company has not recorded any anticipated
recoveries of future insurance proceeds, and therefore the outcome of this case
should have no adverse impact on the Company's consolidated financial
statements.
If future Environmental and Worker Safety Laws contain more stringent
requirements than currently anticipated, expenditures could be expected to 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.
OTHER MATTERS
YEAR 2000
The Company has established a process to identify and resolve the business
issues associated with the Year 2000. A global team has been assigned
responsibility for addressing the business issues and monitoring progress toward
their resolution. The team has conducted surveys of the Company's information
systems, products, infrastructure and manufacturing systems to identify,
prioritize and remediate potential problems related to the Year 2000.
Many of the Company's systems are currently Year 2000 ready. The balance of the
Company's systems are currently being modified or replaced, with all significant
systems targeted for Year 2000 readiness by September 30, 1999. The need for
contingency plans will be evaluated as this target date approaches. In most
instances, the Company has replaced, or is in the process of replacing, older
software with new programs and systems, rather than modifying existing systems
solely to become Year 2000 ready. Replacing these systems results in a
significant upgrade in systems and capabilities, as well as providing the
ability to properly interpret Year 2000 data. Although the timing of the system
replacements is influenced by the Year 2000, in most instances these systems
would have been replaced in the normal course of business. The Company has spent
approximately $25 million during the last two fiscal years to upgrade and
replace its systems to ensure Year 2000 readiness. The Company estimates it will
incur additional costs of approximately $15 to $25 million to upgrade and
replace its systems, the majority of which will be incurred in fiscal 1999.
The Company believes it continues to appropriately reduce the risks of not being
Year 2000 ready through the identification and remediation process described
above. The Company's three largest customers, which account for a significant
portion of consolidated sales, have assessed the Company's internal systems as
having a "low" risk of not being Year 2000 ready. The Company's information
technology professionals are currently evaluating the Year 2000 readiness of the
recently acquired Becker Group; the costs to ensure its readiness to process
Year 2000 data are not yet estimable.
The Company does not at present anticipate any material business disruptions due
to the Year 2000 that would be associated with its own systems, products or
services. The Company believes the most significant risks associated with the
Year 2000 are external to its operations. The Company could face a material
financial risk if its customers or suppliers are unable to complete critical
Year 2000 readiness efforts in a timely manner. The Company is currently working
with its customers and suppliers to evaluate Year 2000 readiness, identify
material risks and develop solutions so that all critical processes needed to
conduct its business are Year 2000 ready. In addition, the Company's exposure to
these external risks is partially mitigated by the size and sophistication of
its primary customers, as well as by the diversity of its products, suppliers
and geographic locations.
EURO CONVERSION
On January 1, 1999, member countries of the European Monetary Union (EMU) will
begin a three-year transition from their national currencies to a new common
currency, the "euro." In the first phase, the permanent rates of exchange
between the members' national currency and the euro will be established and
monetary, capital, foreign exchange, and interbank markets will be converted to
the euro. National currencies will continue to exist as legal tender and may
continue to be used in commercial transactions. By January 2002, euro currency
will be issued and by July 2002, the respective national currencies will be
withdrawn. The Company has significant operations in member countries of the EMU
and, accordingly, has established action plans that are currently being
implemented to address the euro's impact on information systems, currency
exchange rate risk, taxation, contracts, competition and pricing. Based on its
current assessment, management believes that the costs of the euro conversion
will not have a material impact on the operations, cash flows or financial
condition of the Company.
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
The Company has made forward-looking statements in this document that are
subject to risks and uncertainties. Forward-looking statements include
information concerning possible or assumed future risks in the "Risk Management"
section of this document and those preceded by, following or that include the
words "believes," "expects," "anticipates" or similar expressions. For those
statements, the Company cautions that the numerous important factors discussed
elsewhere in this document and in the Company's Form 8-K filing (dated November
13, 1998), 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.
<PAGE> 9
26
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
(in millions, except per share data) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 12,586.8 $ 11,145.4 $ 9,210.0
Cost of sales 10,776.2 9,485.6 7,878.3
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 1,810.6 1,659.8 1,331.7
Selling, general and administrative expenses 1,146.6 1,062.7 852.8
Restructuring charge -- 70.0 --
- -----------------------------------------------------------------------------------------------------------------------------
Operating income 664.0 527.1 478.9
- -----------------------------------------------------------------------------------------------------------------------------
Interest income 14.8 9.9 7.9
Interest expense (133.5) (122.7) (73.4)
Gain on sale of business 59.9 -- --
Miscellaneous - net 11.6 11.3 8.1
- -----------------------------------------------------------------------------------------------------------------------------
Other income (expense) (47.2) (101.5) (57.4)
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interests 616.8 425.6 421.5
Provision for income taxes 256.0 180.9 171.8
Minority interests in net earnings of subsidiaries 23.1 24.1 27.0
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 337.7 220.6 222.7
Discontinued operations
(Loss) income from discontinued operations, adjusted for applicable
(benefit) provision for income taxes of $(1.0) and $9.8, respectively,
and minority interests -- (1.1) 12.0
Gain on sale of discontinued operations, net of $66.0 of income taxes -- 69.0 --
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 337.7 $ 288.5 $ 234.7
- -----------------------------------------------------------------------------------------------------------------------------
Earnings available for common shareholders $ 328.2 $ 279.0 $ 225.2
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share from continuing operations
Basic $ 3.88 $ 2.52 $ 2.58
Diluted $ 3.63 $ 2.37 $ 2.42
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $ 3.88 $ 3.34 $ 2.72
Diluted $ 3.63 $ 3.12 $ 2.55
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 10
27
Johnson Controls, Inc.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
(in millions) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 134.0 $ 111.8
Accounts receivable, less allowance for doubtful accounts of $21.2 and $20.8, respectively 1,821.1 1,467.4
Costs and earnings in excess of billings on uncompleted contracts 191.7 217.2
Inventories 428.2 373.4
Net assets held for sale 231.9 --
Other current assets 597.3 359.5
- ------------------------------------------------------------------------------------------------------------------------------
Current assets 3,404.2 2,529.3
Property, plant and equipment - net 1,882.9 1,533.0
Goodwill, less accumulated amortization of $220.1 and $173.7, respectively 2,084.5 1,560.3
Investments in partially-owned affiliates 166.2 144.6
Other noncurrent assets 404.3 281.4
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,942.1 $ 6,048.6
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Short-term debt $ 1,289.5 $ 537.8
Current portion of long-term debt 39.4 118.4
Accounts payable 1,625.2 1,341.9
Accrued compensation and benefits 376.1 303.3
Accrued income taxes 119.6 78.8
Billings in excess of costs and earnings on uncompleted contracts 127.5 107.6
Other current liabilities 711.1 484.9
- ------------------------------------------------------------------------------------------------------------------------------
Current liabilities 4,288.4 2,972.7
Long-term debt 997.5 806.4
Postretirement health and other benefits 166.7 167.2
Other noncurrent liabilities 548.1 414.4
Shareholders' equity 1,941.4 1,687.9
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 7,942.1 $ 6,048.6
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 11
28
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
(in millions) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 337.7 $ 220.6 $ 222.7
Adjustments to reconcile income from continuing operations to cash provided by
operating activities of continuing operations
Depreciation 311.2 283.6 226.6
Amortization of intangibles 73.0 71.3 35.9
Equity in earnings of partially-owned affiliates (19.2) (20.4) (15.9)
Deferred income taxes (41.3) (45.4) 34.3
Gain on sale of business (59.9) -- --
Restructuring charge -- 70.0 --
Other (1.8) 29.4 11.1
Changes in working capital, excluding acquisition and divestiture of
businesses
Receivables (229.8) (70.8) (202.4)
Inventories (34.8) (41.7) (43.1)
Other current assets (77.2) (15.5) (9.3)
Accounts payable and accrued liabilities 247.2 181.1 160.6
Accrued income taxes 33.0 (70.7) (14.5)
Billings in excess of costs and earnings on uncompleted contracts 20.2 25.8 (3.5)
- -------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities of continuing operations 558.3 617.3 402.5
Cash (used) provided by operating activities of discontinued
operations -- (8.4) 65.1
- -------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 558.3 608.9 467.6
- -------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (468.3) (370.9) (322.3)
Sale of property, plant and equipment - net 26.2 14.5 12.3
Acquisition of businesses, net of cash acquired (546.0) (1,264.5) (148.3)
Divestiture of businesses 212.0 650.7 --
Additions of long-term investments (41.4) (39.6) (12.5)
Proceeds from long-term investments 14.8 15.7 11.9
Investing activities of discontinued operations -- (19.5) (49.1)
Other -- -- 0.7
- -------------------------------------------------------------------------------------------------------------------------------
Cash used by investing activities (802.7) (1,013.6) (507.3)
- -------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in short-term debt - net 271.0 330.8 101.1
Issuance of long-term debt 188.3 164.8 155.4
Repayment of long-term debt (102.8) (56.7) (83.7)
Payment of cash dividends (93.8) (83.4) (80.0)
Net financing activities of discontinued operations -- 16.5 24.4
Other 9.7 (13.4) 6.9
- -------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 272.4 358.6 124.1
- -------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (5.8) (7.3) 0.3
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 22.2 $ (53.4) $ 84.7
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 12
29
Johnson Controls, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned Capital in Treasury Cumulative
Preferred Compensation Common Excess of Retained Stock, Translation
(in millions) Total Stock - ESOP Stock Par Value Earnings at Cost Adjustments
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AT SEPTEMBER 30, 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 $2.7 million tax benefit (9.5) -- -- -- -- (9.5) -- --
Common ($.82 per share) (67.8) -- -- -- -- (67.8) -- --
Translation adjustments (13.8) -- -- -- -- -- -- (13.8)
Other, including options exercised 15.0 (5.5) -- 0.1 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)
Net income 288.5 -- -- -- -- 288.5 -- --
Reduction of guaranteed ESOP debt 10.3 -- 10.3 -- -- -- -- --
Cash dividends
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $2.1 million tax benefit (9.6) -- -- -- -- (9.6) -- --
Common ($.86 per share) (71.7) -- -- -- -- (71.7) -- --
Translation adjustments (58.2) -- -- -- -- -- -- (58.2)
Two-for-one split of common stock -- -- -- 7.2 (7.2) -- -- --
Other, including options exercised 20.8 (11.2) -- -- 24.8 -- 7.2 --
- -----------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1997 1,687.9 143.4 (119.4) 14.4 552.6 1,217.9 (41.8) (79.2)
Net income 337.7 -- -- -- -- 337.7 -- --
Reduction of guaranteed ESOP debt 11.6 -- 11.6 -- -- -- -- --
Cash dividends
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $1.5 million tax benefit (9.5) -- -- -- -- (9.5) -- --
Common ($.92 per share) (82.8) -- -- -- -- (82.8) -- --
Translation adjustments (19.7) -- -- -- -- -- -- (19.7)
Other, including options exercised 16.2 (3.3) -- 0.1 17.3 -- 2.1 --
- -----------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1998 $ 1,941.4 $ 140.1 $ (107.8) $ 14.5 $ 569.9 $1,463.3 $ (39.7) $ (98.9)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 13
30
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 recorded in the cumulative translation adjustments
(CTA) account within 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. An impairment would be
determined based on a comparison of the undiscounted future operating cash flows
anticipated to be generated during the remaining life of the goodwill to the
carrying value. Measurement of any impairment loss would be based on discounted
operating cash flows.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has written policies and procedures that place all financial
instruments under the direction of corporate treasury and restrict all
derivative transactions to those intended for hedging purposes. The use of
financial instruments for trading purposes is strictly prohibited. The Company
uses financial instruments to manage the market risk from changes in foreign
exchange rates and interest rates. The Company has global operations and enters
into forward exchange contracts to hedge certain of its foreign currency
commitments. Forward points on forward exchange contracts are amortized to
income over the life of the contracts. Gains and losses derived from the change
in the spot rate on these contracts that hedge assets and liabilities are
deferred and recognized when the hedged transaction is settled. Gains and losses
on forward contracts that hedge net foreign investments are deferred in the CTA
account within shareholders' equity. The criteria for hedge accounting are met
by designating the hedging instrument to an existing non-functional currency
asset or liability or net foreign investment position after demonstrating that
the hedging instrument is effective in offsetting changes in underlying foreign
exchange exposure. The Company ensures the effectiveness of all hedges by not
engaging in proxy hedging.
The Company uses interest rate swap agreements to modify its exposure to
interest rate movements and reduce borrowing costs. Cross-currency interest rate
swap agreements are also used to hedge a portion of the Company's net
investments in foreign subsidiaries. Related foreign exchange gains and losses
on the notional principal values of cross-currency swaps are deferred in CTA.
Net interest payments or receipts from interest rate swaps and the interest
component of cross-currency interest rate swaps are recorded as adjustments to
interest expense in the Consolidated Statement of Income on a current basis. In
evaluating the appropriate accounting for an interest rate swap, the terms of
the swap are compared to the related asset or liability to which the swap is
designated.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective October 1, 1999
for the Company. It requires all derivative instruments to be recorded in the
statement of financial position at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether the derivative is designated as part
of a hedge transaction and if it is, the type of hedge transaction. The effect
of adoption of this statement on the Company's earnings or statement of
financial position has not yet been determined.
REVENUE RECOGNITION
The Company recognizes revenue from long-term contracts of the controls 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
Basic 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 outstanding. Diluted earnings per share
are computed by dividing net income, after deducting the after-tax compensation
expense that would arise from the assumed conversion of the Series D Convertible
Preferred Stock, by diluted weighted average shares outstanding. Diluted
weighted average shares assume the conversion of the Series D Convertible
Preferred Stock, if dilutive, plus the dilutive effect of common stock
equivalents which would arise from the exercise of stock options.
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.
<PAGE> 14
31
Johnson Controls, Inc.
NOTE 1
- --------------------------------------------------------------------------------
ACQUISITIONS
BECKER
Effective July 1, 1998, the Company completed the acquisition of Becker Group,
Inc. (Becker Group) for approximately $548 million, plus the assumption of
approximately $372 million of debt. Becker Group, based in Michigan and Germany,
is a major supplier of automotive interior systems, particularly door systems
and instrument panels. The acquisition was accounted for as a purchase. The
excess of the purchase price over the estimated fair value of the acquired net
assets, which approximated $500 million, was recorded as goodwill. Becker
Group's results have been included in the Company's consolidated financial
statements from the date of acquisition. The purchase was initially financed
with commercial paper and it is anticipated that a portion will subsequently be
financed with long-term debt. Pro forma results of operations to reflect this
acquisition have not been presented because the Company believes such
information would not be meaningful given the planned restructuring activities
and sale of non-core businesses, as described below.
As part of the Becker Group acquisition, the Company recorded a restructuring
reserve of $48 million. The reserve was established for anticipated costs
associated with consolidating certain of Becker Group's European and domestic
manufacturing, engineering and administrative operations with existing capacity
of the Company. The majority of the reserve was attributable to expected
employee severance and termination benefit costs and plant closure costs.
Workforce reductions of approximately 1,250 employees are expected as part of
the consolidation plan. No significant charges were made to the reserve as of
September 30, 1998. The restructuring activities are expected to be completed by
the end of fiscal 1999.
Certain businesses acquired in the Becker Group purchase have been classified as
net assets held for sale in the Consolidated Statement of Financial Position at
September 30, 1998. At the date of acquisition, the Company identified several
operations of Becker Group that were outside of the Company's core businesses
and, as such, will be sold. The net assets of the businesses were valued at fair
value less estimated costs to sell, including cash flows during the holding
period. The Company expects to complete the sale of these businesses in fiscal
1999. The operating results of the businesses to be sold, which were not
material for fiscal 1998, have been excluded from the Company's consolidated
operating results.
PRINCE
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 approximated $1.1
billion, was recorded as goodwill. The Company used the after-tax proceeds from
the sale of its Plastic Container division (see Note 2) and debt securities to
finance the purchase.
NOTE 2
- --------------------------------------------------------------------------------
DIVESTITURES
PLASTICS MACHINERY DIVISION
On September 30, 1998, the Company completed the sale of the Plastics Machinery
division to Milacron, Inc. for approximately $190 million. The plastics
machinery business had annual sales of approximately $190 million. The Company
used the after-tax proceeds from the sale to reduce its debt. The Company
recorded a gain on the sale of $59.9 million ($35.0 million or $.41 per basic
share and $.38 per diluted share, after-tax).
PLASTIC CONTAINER DIVISION
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 $.83 per
basic share and $.76 per 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.
Revenues of PCD were $242 million for the five months ended February 28, 1997
and $799 million for the year ended September 30, 1996. These amounts are not
included in sales as reported in the Consolidated Statement of Income. For the
year ended September 30, 1997, the loss per basic and diluted share from
discontinued operations was $.01, with a gain on the sale of discontinued
operations of $.83 per basic share and $.76 per diluted share. For the year
ended September 30, 1996, earnings per basic and diluted share from discontinued
operations were $.14 and $.13, respectively.
NOTE 3
- --------------------------------------------------------------------------------
INVENTORIES
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------
(in millions) 1998 1997
- -------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $236.9 $ 196.8
Work in process 71.2 79.0
Finished goods 157.3 137.3
- -------------------------------------------------------
FIFO inventories 465.4 413.1
LIFO reserve (37.2) (39.7)
- -------------------------------------------------------
LIFO inventories $428.2 $ 373.4
- -------------------------------------------------------
</TABLE>
Inventories valued by the LIFO method of accounting were approximately 43% and
53% of total inventories at September 30, 1998 and 1997, respectively.
<PAGE> 15
32
<TABLE>
<CAPTION>
NOTE 4
- -------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
September 30,
- -------------------------------------------------------------
(in millions) 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $ 950.7 $ 811.6
Machinery and equipment 2,318.5 2,049.5
Construction in progress 291.2 152.6
- -------------------------------------------------------------
3,560.4 3,013.7
Land 91.6 86.4
- -------------------------------------------------------------
3,652.0 3,100.1
Less accumulated depreciation (1,769.1) (1,567.1)
- -------------------------------------------------------------
Property, plant and equipment - net $ 1,882.9 $ 1,533.0
- -------------------------------------------------------------
</TABLE>
Interest costs capitalized during 1998, 1997, and 1996 were $11.1 million, $7.5
million and $5.3 million, respectively.
NOTE 5
- --------------------------------------------------------------------------------
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
$58 million and $23 million at September 30, 1998 and 1997, respectively.
Other facilities and equipment are leased under arrangements which are accounted
for as operating leases. Total rental expense was $115 million in 1998, $97
million in 1997 and $83 million in 1996.
Future minimum capital and operating lease payments and the related present
value of capital lease payments at September 30, 1998 were as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
- ----------------------------------------------------------
(in millions)
- ----------------------------------------------------------
<C> <C> <C>
1999 $ 7.2 $ 72.9
2000 7.5 48.4
2001 6.9 42.3
2002 6.6 32.2
2003 6.6 28.3
After 2003 60.2 72.7
- ----------------------------------------------------------
Total minimum lease payments 95.0 $ 296.8
- ----------------------------------------------------------
Interest 36.3
- -------------------------------------------
Present value of net minimum lease
payments $ 58.7
- -------------------------------------------
</TABLE>
NOTE 6
- --------------------------------------------------------------------------------
SHORT-TERM DEBT AND CREDIT AGREEMENTS
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------
(in millions) 1998 1997
- -------------------------------------------------------------------
<S> <C> <C>
Commercial paper $1,014.0 $ 494.7
Bank borrowings 275.5 43.1
- -------------------------------------------------------------------
Short-term debt $1,289.5 $ 537.8
Weighted average short-term debt
outstanding $1,033.5 $1,164.0
Weighted average interest rate on
short-term debt outstanding 5.92% 6.71%
- -------------------------------------------------------------------
</TABLE>
At September 30, 1998, the Company had unsecured lines of credit available from
banks totaling $2,269 million. The lines of credit are subject to the usual
terms and conditions applied by banks. Domestic lines of credit available for
support of outstanding commercial paper averaged $1,122 million during the year
and were $1,800 million at September 30, 1998. Total interest paid on both
long-term and short-term debt was $146 million, $130 million and $76 million in
1998, 1997 and 1996, respectively. The Company also uses financial instruments
(see Note 8) to manage its interest rate exposure that affect the weighted
average interest rate of its debt and interest expense.
NOTE 7
- --------------------------------------------------------------------------------
LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30,
- -----------------------------------------------------------------------
(in millions) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Unsecured notes
6.92% due in 1998 $ -- $ 30.0
6.06% due in 2002 28.6 34.3
6.3% due in 2008 175.0 --
7.7% due in 2015 124.8 124.8
7.125% due in 2017 149.1 149.1
8.2% due in 2024 125.0 125.0
6.95% due in 2045 125.0 125.0
Industrial revenue bonds due through 2006,
net of unamortized discount of $2.0 million
in 1998 and $2.3 million in 1997 43.6 46.2
Medium-term notes due in 1998 and 2000
at an average interest rate of 7.6% 50.0 103.0
Guaranteed ESOP debt due in increasing annual
installments through 2004 at an average
interest rate of 7.38% (tied in part to LIBOR) 107.8 119.4
Capital lease obligations 58.7 23.5
Other 49.3 44.5
- -----------------------------------------------------------------------
Gross long-term debt 1,036.9 924.8
Less current portion 39.4 118.4
- -----------------------------------------------------------------------
Net long-term debt $997.5 $ 806.4
- -----------------------------------------------------------------------
</TABLE>
In February 1998, the Company issued $175 million of 6.3% notes due in 2008.
The proceeds were used to refinance a portion of commercial paper borrowings.
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 of $22 million at September
30, 1998 and $23 million at September 30, 1997 had a weighted average interest
rate of 6.0% for both years. Variable rate bonds of $24 million at September 30,
1998 and $25 million at September 30, 1997 had a weighted average interest rate
of 4.2% for both years.
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 $8 million in 1998, $9 million in 1997 and $10 million in
1996 has not been reflected as interest expense in the Company's Consolidated
Statement of Income.
<PAGE> 16
33
Johnson Controls, Inc.
The installments of long-term debt maturing in each of the next five years
(including the guaranteed ESOP debt) are: 1999 - $39 million, 2000 - $100
million, 2001 - $31 million, 2002 - $40 million and 2003 - $32 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 8
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents and short-term debt approximate
their carrying values. The fair value of net long-term debt, which was $1,088
million and $840 million at September 30, 1998 and 1997, respectively, was
determined using market interest rates and discounted future cash flows. The
fair values of hedging instruments, discussed below, 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 that do not
exceed 12 months, and are designed to coincide with settlement dates of the
related transactions.
In 1997, the Company entered into two $150 million interest rate swap
agreements, one for five years at 6.87% and the other for ten years at 6.59%. In
1998, the ten-year swap was increased by $55 million. These interest rate swaps
establish fixed interest rates on a total of $355 million of outstanding
commercial paper. The fair value of the interest rate swaps is the amount the
Company would receive or pay to terminate the outstanding contracts at the
reporting date. The Company would have paid approximately $31 million to
terminate the contracts at September 30, 1998.
In March 1997, the Company renewed its three-year 50 million Deutschemark (DM)
cross-currency interest rate swap agreement, which is used to hedge a portion of
its net investments in its German subsidiaries. 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 plus
seven basis points on 50 million DM through March 2000, at which time the
Company will receive $30 million in exchange for paying 50 million DM.
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 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 plus 223 basis points,
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.
In September 1998, the Company entered into a five-year DM cross-currency
interest rate swap to hedge a portion of its net investment in its German
subsidiaries related to Becker Group. Under the swap, the Company receives
interest based on the floating one-month non-financial commercial paper H-15
index and pays interest based on the floating three-month DM LIBOR rate minus
five basis points on the outstanding notional principal amounts in dollars and
DM, respectively. At maturity, the Company will pay the DM equivalent of $100
million, at a rate of exchange determined at the Company's option by December
25, 1998, in exchange for $100 million.
In September 1998, the Company also entered into a five-year Japanese Yen
cross-currency interest rate swap to hedge a portion of its net investment in
its Japanese subsidiaries. Under the swap, the Company receives interest based
on a fixed U.S. dollar rate of 5.35% and pays interest based on a fixed Japanese
Yen rate of 0.74% on the outstanding notional principal amounts in dollars and
Yen, respectively. At maturity, the Company will pay 1.5 billion Yen in exchange
for $11.2 million.
Related foreign exchange gains and losses on the notional principal values of
the cross-currency swaps are deferred in the cumulative translation adjustments
account (CTA) within shareholders' equity. The net pretax exchange gain deferred
in CTA of approximately $5 million at September 30, 1998 was offset by
translation gains and losses on the underlying net investments. Net interest
payments or receipts from the interest rate swaps and the interest component of
the cross-currency swaps are recorded as adjustments to interest expense in the
Consolidated Statement of Income on a current basis. The fair value of the
cross-currency swaps approximates their carrying value at September 30, 1998 and
1997.
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 forward contracts, under which the Company sold or purchased
currencies, were outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Currency Sold Currency Purchased Contract Amount
- ------------------------------------------------------------------------
(in millions) (U.S. dollar equivalent)
- ------------------------------------------------------------------------
<S> <C> <C>
U.S. Dollars German Marks $ 55
Italian Lira German Marks 47
British Pounds German Marks 45
Spanish Pesetas German Marks 45
German Marks U.S. Dollars 44
German Marks Italian Lira 43
German Marks British Pounds 33
Belgian Francs German Marks 29
German Marks Spanish Pesetas 24
Czech Republican Korunas German Marks 18
German Marks Belgian Francs 15
Hong Kong Dollars U.S. Dollars 12
Others 67
- ------------------------------------------------------------------------
$ 477
- ------------------------------------------------------------------------
</TABLE>
<PAGE> 17
34
The fair value of these forward contracts approximates their carrying value at
September 30, 1998 and 1997.
NOTE 9
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
In January 1997, the Company authorized a two-for-one stock split to
shareholders of record on March 7, 1997. Shareholders' equity reflects the stock
split by reclassifying from Capital in Excess of Par Value to Common Stock the
par value of the additional shares arising from the split. All share and per
share information in the financial statements and notes thereto have been
restated.
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------
(in millions of shares) 1998 1997
- -------------------------------------------------------------------------
<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 300.0 300.0
Issued and outstanding 87.2 84.1
- -------------------------------------------------------------------------
</TABLE>
*273.699 and 280.240 shares of Series D Convertible Preferred Stock were
outstanding at September 30, 1998 and 1997, 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, 1998 and 1997 resulting from
the above transactions was $32 million and $24 million, respectively.
Preferred Stock units are allocated to participating employees based on the
annual ESOP debt service payments and are held in trust for the employees until
their retirement, death, or vested termination. Each allocated unit may be
converted into two shares 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, 1998, 5.5 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 2.5 million shares of its common stock in treasury at September
30, 1998. 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 3.2 million at September 30, 1998.
Following is a summary of activity in the stock option plans for 1998, 1997, and
1996:
<TABLE>
<CAPTION>
Weighted Shares
Average Subject to
Option Price Option SARs
- ----------------------------------------------------------------
<S> <C> <C> <C>
Outstanding,
September 30, 1995 $23.66 3,155,284 791,606
Granted 31.85 1,477,630 349,130
Exercised 21.40 (452,656) (82,224)
Cancelled 26.14 (206,184) (7,988)
- ----------------------------------------------------------------
Outstanding,
September 30, 1996 26.83 3,974,074 1,050,524
Granted 36.94 1,558,420 475,350
Exercised 26.20 (779,891) (204,875)
Cancelled 29.69 (451,981) (30,770)
- ----------------------------------------------------------------
Outstanding,
September 30, 1997 30.31 4,300,622 1,290,229
Granted 45.09 1,186,150 484,550
Exercised 26.21 (585,747) (193,740)
Cancelled 32.65 (410,793) (85,450)
- ----------------------------------------------------------------
Outstanding,
September 30, 1998 $34.53 4,490,232 1,495,589
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Options outstanding at September 30, 1998:
Weighted Weighted
Average Average
Outstanding at Remaining Exercise
September 30, Contractual Price
Range of Exercise Prices 1998 Life (years) per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$16.00 - $25.99 805,730 4.76 $22.32
$26.00 - $35.99 1,286,092 6.20 $30.49
$36.00 - $45.99 2,398,410 8.34 $40.80
- --------------------------------------------------------------------------------
</TABLE>
Options exercisable:
<TABLE>
<CAPTION>
Weighted
Exercisable Average Exercise
Range of Exercise Prices Shares Price per Share
- -------------------------------------------------------------------
<S> <C> <C>
At September 30, 1998
$16.00 - $25.99 805,730 $ 22.32
$26.00 - $35.99 748,711 $ 29.59
$36.00 - $45.99 46,000 $ 37.22
- -------------------------------------------------------------------
At September 30, 1997 1,202,338 $ 23.40
- -------------------------------------------------------------------
At September 30, 1996 951,698 $ 22.05
- -------------------------------------------------------------------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," to account for employee stock options. Accordingly,
no compensation expense has been recognized for stock option plans.
Pro forma net income and earnings per share information, as required by SFAS No.
123, "Accounting for Stock-Based Compensation," has been determined as if the
Company had accounted for employee stock options under the fair value method
described by SFAS No. 123.
<PAGE> 18
35
Johnson Controls, Inc.
The weighted average option fair values and the assumptions used to estimate
these values were as follows:
<TABLE>
<CAPTION>
Grants Issued in Year ended September 30,
- ---------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life of option (years) 6 6 6
Risk-free interest rate 5.84% 6.10% 5.83%
Expected volatility of the
Company's stock 19.75% 19.69% 20.70%
Expected dividend yield on the
Company's stock 2.42% 3.15% 3.15%
Fair value of each option $ 11 $ 8 $ 7
- ---------------------------------------------------------------------------
</TABLE>
For the purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the three-year vesting period of the
options. The Company's pro forma information follows:
<TABLE>
<CAPTION>
Year ended September 30,
- -----------------------------------------------------------------------
(in millions, except per share data) 1998(1) 1997(2) 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 333.6 $ 285.8 $233.6
Earnings per share
Basic $ 3.83 $ 3.31 $ 2.71
Diluted $ 3.59 $ 3.08 $ 2.54
- -----------------------------------------------------------------------
</TABLE>
(1) Amounts include a gain on the sale of a business of $35.0 million or $.41
per basic share and $.38 per diluted share, after-tax.
(2) Amounts include the effects of a restructuring charge of $40.3 million or
$.48 per basic share and $.44 per diluted share, after-tax, and income from
discontinued operations of $67.9 million or $.82 per basic share and $.75
per diluted share, after-tax.
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 $87.50. In addition, the
Rights Agreement permits the Company's Board of Directors, in certain
circumstances, to exchange the Rights for shares of common stock. The Rights are
subject to redemption by the Board of Directors for $.005 per Right. The Rights
have no voting power and expire November 30, 2004.
Approximately $64 million of consolidated retained earnings at September 30,
1998 represents undistributed earnings of the Company's partially-owned
affiliates accounted for by the equity method.
NOTE 10
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
Effective October 1, 1997, the Company adopted SFAS No. 128, "Earnings per
Share," which establishes revised standards for computing and presenting
earnings per share. Prior period earnings per share have been restated. The
following reconciles the numerators and denominators used to calculate basic and
diluted earnings per share from continuing operations for the years ended
September 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year ended September 30,
- --------------------------------------------------------------------
(in millions) 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
INCOME AVAILABLE TO
COMMON SHAREHOLDERS
Income from continuing operations $337.7 $ 220.6 $222.7
Preferred stock dividends,
net of tax benefit (9.5) (9.5) (9.5)
- --------------------------------------------------------------------
Basic income available to
common shareholders $328.2 $ 211.1 $213.2
Income from continuing operations $337.7 $ 220.6 $222.7
Effect of dilutive securities:
Compensation expense,
net of tax, arising from assumed
conversion of preferred stock (5.2) (5.5) (5.6)
- --------------------------------------------------------------------
Diluted income available to
common shareholders $332.5 $ 215.1 $217.1
- --------------------------------------------------------------------
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic weighted average
shares outstanding 84.5 83.5 82.6
Effect of dilutive securities:
Stock options 1.6 1.6 1.1
Convertible preferred stock 5.5 5.6 6.0
- --------------------------------------------------------------------
Diluted weighted average
shares outstanding 91.6 90.7 89.7
- --------------------------------------------------------------------
</TABLE>
NOTE 11
- --------------------------------------------------------------------------------
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) 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Service cost $35.0 $32.2 $31.6
Interest cost on projected
benefit obligation 59.4 54.2 51.7
Actual return on plan assets (138.9) (133.5) (105.9)
Net amortization and deferral 64.9 68.0 47.6
- -----------------------------------------------------------
Net pension expense $20.4 $20.9 $25.0
- -----------------------------------------------------------
</TABLE>
The following schedule details the funded status of the Company's defined
benefit pension plans. Plans with assets exceeding the accumulated benefit
obligation (ABO) are segregated by column from plans with the ABO exceeding
assets. The plans with the ABO exceeding assets were primarily foreign plans
which are not subject
<PAGE> 19
36
to ERISA. The projected benefit obligation was determined using an assumed
discount rate of 7.25% at September 30, 1998 and 7.75% at September 30, 1997.
Pension expense was determined using assumed discount rates of 7.25% in 1998 and
7.75% in 1997 and 1996. The assumed long-term rate of return on plan assets was
9.75% in 1998, 1997 and 1996. The average rate of compensation increase assumed
was 6.0% in 1998, 1997 and 1996.
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------
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 $576.2 $ 170.2 $510.8 $ 84.3
Nonvested 31.9 4.9 29.8 2.8
- --------------------------------------------------------------------------------------
Accumulated benefit obligation 608.1 175.1 540.6 87.1
Effect of projected
salary increases 153.5 17.5 119.9 11.8
- --------------------------------------------------------------------------------------
Total projected benefit obligation 761.6 192.6 660.5 98.9
Plan assets at fair value 878.9 65.5 784.1 40.3
- --------------------------------------------------------------------------------------
Excess (deficit) of plan assets over
projected benefit obligation 117.3 (127.1) 123.6 (58.6)
Unrecognized transitional asset (18.7) (0.1) (20.7) (3.0)
Unrecognized net (gain) loss (81.9) 8.2 (81.2) 5.2
- --------------------------------------------------------------------------------------
Prepaid (accrued) pension expense $ 16.7 $(119.0) $ 21.7 $(56.4)
- --------------------------------------------------------------------------------------
</TABLE>
At the measurement dates of June 30, 1998 and 1997, plan assets included
approximately 858,000 and 843,000 shares, respectively, of Johnson Controls,
Inc. common stock with total market values of $49.1 million and $34.6 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, 1998, approximately 1.9
million 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 $12 million in 1998, $11
million in 1997, and $8 million in 1996. Total compensation expense recorded by
the Company was $18 million in 1998 and 1997 and $17 million in 1996.
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) 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 3.7 $ 3.7 $ 3.7
Interest cost on accumulated
benefit obligation 10.9 11.4 10.8
Net amortization and deferral (2.4) (1.9) (2.1)
- ------------------------------------------------------------------------------------
Net postretirement benefit expense $ 12.2 $13.2 $ 12.4
- ------------------------------------------------------------------------------------
</TABLE>
The status of the Company's postretirement benefit plans is as follows:
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------------------
(in millions) 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation
Retirees $ 91.0 $ 96.5
Vested active plan participants 14.9 12.9
Other plan participants 45.0 41.1
- -------------------------------------------------------------------------------------
150.9 150.5
Unrecognized prior service cost 33.1 24.8
Unrecognized net gain -- 6.8
- -------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $ 184.0 $ 182.1
- -------------------------------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using an
assumed discount rate of 7.25% at September 30, 1998 and 7.75% at September 30,
1997. Assumed discount rates of 7.25% in 1998 and 7.75% in 1997 and 1996 were
used to determine postretirement benefit expense. The September 30, 1998
accumulated postretirement benefit obligation was determined using assumed
healthcare cost trend rates of 9% and 6% for pre-65 and post-65 years of age
employees, respectively. The September 30, 1997 accumulated postretirement
benefit obligation was determined using assumed healthcare cost trend rates of
10% and 7% 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 effect 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 $7 million at September 30,
1998, and the sum of the service and interest costs in 1998 by $1 million.
No change in the Company's practice of funding these benefits on a pay-as-you-go
basis is anticipated.
NOTE 12
- --------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT
Expenditures for research activities relating to product development and
improvement are charged against income as incurred. Such expenditures amounted
to $246 million in 1998, $232 million in 1997 and $156 million in 1996.
<PAGE> 20
37
Johnson Controls, Inc.
NOTE 13
- --------------------------------------------------------------------------------
INCOME TAXES
Components of income from continuing operations before income taxes and minority
interests included the following:
<TABLE>
<CAPTION>
Year ended September 30,
- ---------------------------------------------------------------------------------
(in millions) 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $545.3 $386.8 $353.7
Foreign 71.5 38.8 67.8
- ---------------------------------------------------------------------------------
Income before income taxes $616.8 $425.6 $421.5
- ---------------------------------------------------------------------------------
</TABLE>
Components of the provision for income taxes on continuing operations were as
follows:
<TABLE>
<CAPTION>
Year ended September 30,
- ---------------------------------------------------------------------------------
(in millions) 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $215.6 $162.8 $ 92.7
State 31.7 32.2 19.0
Foreign 50.0 31.3 25.8
- ---------------------------------------------------------------------------------
297.3 226.3 137.5
- ---------------------------------------------------------------------------------
Deferred
Federal (34.6) (41.1) 27.3
State (4.5) (5.3) 3.5
Foreign (2.2) 1.0 3.5
- ---------------------------------------------------------------------------------
(41.3) (45.4) 34.3
- ---------------------------------------------------------------------------------
Provision for income taxes $256.0 $180.9 $171.8
- ---------------------------------------------------------------------------------
</TABLE>
An analysis of effective income tax rates for continuing operations is shown
below:
<TABLE>
<CAPTION>
Year Ended September 30,
- ----------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 2.8 3.9 4.1
Federal tax expense at different
rates and foreign losses
without tax benefits 3.7 4.4 1.3
Goodwill 1.9 2.8 0.6
Other (1.9) (3.6) (0.2)
- ----------------------------------------------------------------------------------
41.5% 42.5% 40.8%
- ----------------------------------------------------------------------------------
</TABLE>
The effective income tax rate for discontinued operations was 49% for 1997 and
46% for 1996.
Deferred taxes for continuing operations were classified in the Consolidated
Statement of Financial Position as follows:
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------------------------------
(in millions) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Other current assets $195.2 $108.5
Other noncurrent assets 70.9 22.3
Accrued income taxes (2.1) (2.1)
Other noncurrent liabilities (39.3) (34.5)
- ------------------------------------------------------------------------------
Net deferred tax asset $224.7 $ 94.2
- ------------------------------------------------------------------------------
</TABLE>
Temporary differences and carryforwards which gave rise to deferred tax assets
and liabilities for continuing operations included:
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------------------------------
(in millions) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Accrued expenses and reserves $303.0 $182.2
Postretirement and postemployment benefits 79.6 79.7
Net operating loss carryforwards 86.3 89.3
Foreign tax credit carryforwards 9.9 3.8
Other 14.1 2.2
- ------------------------------------------------------------------------------
492.9 357.2
Valuation allowance (83.6) (81.3)
- ------------------------------------------------------------------------------
409.3 275.9
- ------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Property, plant and equipment 83.7 70.6
Employee benefits 6.5 9.0
Inventories 6.3 7.0
Long-term contracts 22.1 25.1
Joint ventures 10.8 9.7
Intangible assets 52.0 51.2
Other 3.2 9.1
- ------------------------------------------------------------------------------
184.6 181.7
- ------------------------------------------------------------------------------
Net deferred tax asset $224.7 $ 94.2
- ------------------------------------------------------------------------------
</TABLE>
The valuation allowance primarily represents foreign operating loss
carryforwards and foreign tax credit carryforwards for which utilization is
uncertain. The utilization of foreign operating loss carryforwards is uncertain
because it is unlikely that the losses will be utilized within the carryforward
periods prescribed by the applicable foreign taxing jurisdictions. Cumulative
tax losses in recent years (particularly in emerging market countries), and
limited carryforward periods in certain countries are factors considered in
making this determination. The utilization of foreign tax credit carryforwards
is uncertain because it is unlikely that the credits will be utilized within the
five-year carryforward period prescribed by U.S. law.
Income taxes paid during 1998, 1997 and 1996 were $246 million, $291 million and
$116 million, respectively.
Domestic income taxes have not been provided on undistributed earnings of
foreign subsidiaries of $351 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 14
- --------------------------------------------------------------------------------
RESTRUCTURING CHARGE
In the second quarter of fiscal 1997, the Company recorded a restructuring
charge, including related asset writedowns, of $70.0 million ($40.3 million or
$.48 per basic share and $.44 per diluted share, after-tax) involving its
Automotive Systems and Controls Groups. The automotive initiatives primarily
related to European operations where certain manufacturing capacity was
realigned with future customer sourcing requirements, and product development
resources were consolidated. The charge associated with the
<PAGE> 21
38
Controls Group principally addressed the Company's decision to restructure
certain low-margin service activities that were outside its core controls and
facility management businesses. Details of the restructuring charge are as
follows:
<TABLE>
<CAPTION>
Balance at
Original Used in Used in September 30,
(in millions) Reserve 1997 1998 Reallocation 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Writedown of
long-lived assets $ 43.6 $(43.6) $ -- $ -- $ --
Employee severance
and termination
benefits 10.7 (5.6) (5.0) 7.6 7.7
Other 15.7 (6.0) (2.1) (7.6) --
- --------------------------------------------------------------------------------------------------------------
$ 70.0 $(55.2) $ (7.1) $ -- $ 7.7
- --------------------------------------------------------------------------------------------------------------
</TABLE>
In 1998, the Company reallocated a portion of the reserve originally expected to
be needed for costs related to a number of restructuring activities (classified
as "other") to "employee severance and termination benefits" to reflect higher
than expected costs associated with a restructured facility management business
in the United Kingdom. These costs are expected to be incurred during the first
half of fiscal 1999.
NOTE 15
- --------------------------------------------------------------------------------
CONTINGENCIES
The Company is involved in a number of proceedings and potential proceedings
relating to environmental matters. At September 30, 1998, the Company had an
accrued liability of approximately $46 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 16
- --------------------------------------------------------------------------------
SEGMENT INFORMATION
The Company operates in two business segments, automotive and controls. The
automotive segment is primarily engaged in the design and manufacture of seating
and interior systems for cars, light trucks and vans; and the manufacture of
automotive batteries for the replacement and original equipment markets. The
controls segment is primarily engaged in the installation of control systems,
the service of these systems and mechanical equipment in non-residential
buildings, and on-site integrated facility management services. Reference is
made to page 20 for business segment financial data.
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 businesses and 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.
The Company has sales to the automotive industry. Ford Motor Company accounted
for 16%, 17% and 14% of the Company's net sales in 1998, 1997 and 1996,
respectively. General Motors Corporation accounted for 13% of net sales in 1998
and 1997 and 11% in 1996. Chrysler Corporation accounted for 10%, 11% and 10% in
1998, 1997 and 1996, respectively. Approximately 75% of 1998 net sales to these
customers were domestic sales, 15% were European sales and 10% were attributable
to sales in other foreign markets. As of September 30, 1998, the Company had
accounts receivable totalling $491 million from these manufacturers.
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS Year ended September 30,
- -------------------------------------------------------------------------------------
(in millions) 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Domestic $ 8,042.2 $ 7,330.7 $ 5,967.0
European 3,461.0 3,024.7 2,709.0
Other foreign 1,083.6 790.0 534.0
- -------------------------------------------------------------------------------------
Consolidated $ 12,586.8 $11,145.4 $ 9,210.0
- -------------------------------------------------------------------------------------
OPERATING INCOME(1)
Domestic $ 593.7 $ 502.9 $ 409.0
European 94.7 1.8 49.7
Other foreign (24.4) 23.2 20.9
Eliminations -- (0.8) (0.7)
- -------------------------------------------------------------------------------------
Consolidated 664.0 527.1 478.9
Other income (expense)(2) (47.2) (101.5) (57.4)
- -------------------------------------------------------------------------------------
Income before income taxes
and minority interests $ 616.8 $ 425.6 $ 421.5
- -------------------------------------------------------------------------------------
ASSETS (YEAR END)
Domestic $ 4,264.5 $ 3,922.4 $ 2,268.4
European 2,463.3 1,236.7 1,550.2
Other foreign 723.8 440.5 329.0
Unallocated 490.5 449.0 402.9
- -------------------------------------------------------------------------------------
7,942.1 6,048.6 4,550.5
Net assets of discontinued operations -- -- 440.7
- -------------------------------------------------------------------------------------
Consolidated $ 7,942.1 $ 6,048.6 $ 4,991.2
- -------------------------------------------------------------------------------------
</TABLE>
(1)Operating income for 1997 includes a restructuring charge (see Note 14) of
$70.0 million, with $25.0 million of the charge associated with domestic
operations and $45.0 million associated with European operations.
(2)Other income (expense) for 1998 includes a gain on the sale of the Plastics
Machinery division of $59.9 million (see Note 2).
<PAGE> 22
39
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.
PricewaterhouseCoopers LLP, independent accountants, audited the Company's
consolidated financial statements and issued the opinion below.
/s/ James H. Keyes
James H. Keyes
Chairman and Chief Executive Officer
/s/ John M. Barth
John M. Barth
President and Chief Operating Officer
/s/ Stephen A. Roell
Stephen A. Roell
Senior 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 26 through 38 of this report
present fairly, in all material respects, the financial position of Johnson
Controls, Inc. and its subsidiaries at September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1998, 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.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 19, 1998
<PAGE> 23
40
Five Year Summary
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------------------------------------
(dollars in millions, except per share data) 1998(1) 1997(2) 1996(3,4) 1995(3,4) 1994(3,4)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 12,586.8 $ 11,145.4 $ 9,210.0 $ 7,400.7 $ 6,111.7
Operating income $ 664.0 $ 527.1 $ 478.9 $ 395.1 $ 311.4
Income from continuing operations $ 337.7 $ 220.6 $ 222.7 $ 168.0 $ 134.8
Net income $ 337.7 $ 288.5 $ 234.7 $ 195.8 $ 165.2
Earnings per share from continuing operations
Basic $ 3.88 $ 2.52 $ 2.58 $ 1.94 $ 1.55
Diluted $ 3.63 $ 2.37 $ 2.42 $ 1.82 $ 1.46
Earnings per share
Basic $ 3.88 $ 3.34 $ 2.72 $ 2.29 $ 1.92
Diluted $ 3.63 $ 3.12 $ 2.55 $ 2.13 $ 1.80
Return on average shareholders' equity(5) 17% 16% 16% 13% 12%
Capital expenditures $ 468.3 $ 370.9 $ 322.3 $ 330.9 $ 261.7
Depreciation $ 311.2 $ 283.6 $ 226.6 $ 191.7 $ 169.3
Number of employees 89,000 72,300 65,800 59,200 54,800
FINANCIAL POSITION
Working capital(6) $ (884.2) $ (443.4) $ 225.8 $ 81.1 $ 226.9
Total assets $ 7,942.1 $ 6,048.6 $ 4,991.2 $ 4,147.6 $ 3,633.9
Long-term debt $ 997.5 $ 806.4 $ 752.2 $ 619.3 $ 661.6
Total debt $ 2,326.4 $ 1,462.6 $ 1,033.5 $ 814.8 $ 702.3
Shareholders' equity $ 1,941.4 $ 1,687.9 $ 1,507.8 $ 1,340.2 $ 1,202.8
Total debt to total capitalization 55% 46% 41% 38% 37%
Book value per share $ 22.53 $ 19.80 $ 17.88 $ 16.05 $ 14.55
COMMON SHARE INFORMATION
Dividends per share $ 0.92 $ 0.86 $ 0.82 $ 0.78 $ 0.72
Market prices
High $ 61 7/8 $ 49 13/16 $ 38 1/4 $ 33 $ 30 5/8
Low $ 42 3/16 $ 35 3/8 $ 28 7/8 $ 22 7/8 $ 22 7/16
Number of shareholders 62,828 57,824 44,636 37,971 33,227
Weighted average shares (in millions)
Basic 84.5 83.5 82.6 81.7 82.1
Diluted 91.6 90.7 89.7 88.7 88.6
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Results include a gain on the sale of the Plastics Machinery division of
$59.9 million ($35.0 million or $.41 per basic share and $.38 per diluted
share, after-tax).
(2) Results include a restructuring charge of $70.0 million ($40.3 million or
$.48 per basic share and $.44 per diluted share, after-tax).
(3) Share and per share information has been restated to reflect a two-for-one
split of the Company's common stock effective March 7, 1997.
(4) Historical amounts have been restated to reflect the reclassification of the
Plastic Container division as a discontinued operation.
(5) Return on average shareholders' equity (ROE) represents income from
continuing operations divided by average equity. In calculating ROE, income
from continuing operations for 1998 excludes the gain on sale of the
Plastics Machinery division and 1997 excludes the restructuring charge.
(6) Working capital for 1996, 1995 and 1994 excludes net assets of discontinued
operations.
<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>
3-A Johnson Controls Andina, C.A. Venezuela
ABC Plastic Containers Limited Cayman Islands
Academy Mechanical Services Ltd. Canada
ACROPOL-Johnson Controls (S) Pte. Ltd. Singapore
AJC Johnson Controls Ltd. U.K.
American Fibrit, Inc. Michigan
Becker Group Alabama, L.L.C. Delaware
Becker Group Europe GmbH Germany
Becker Group Holdings GmbH Germany
Becker Group, Inc. Michigan
Becker Holdings do Brasil Ltda. Brazil
Becker Properties Mexico S.A. de C.V. Mexico
Becker Properties Michigan
Becker Sweden AB Sweden
Beijing Johnson Controls Automotive Trim Co., Ltd. China
Beijing Johnson Controls Co., Ltd. China
Benoac Fertigteile GmbH Germany
</TABLE>
110
<PAGE> 2
<TABLE>
<S> <C>
Bridgewater Interiors, L.L.C. Michigan
Brut Plastics, Inc. Michigan
CEMIS S.A. France
Compagnie Fibrit Francaise S.A. France
Controles Reynosa SA de CV Mexico
Controles de Presion de Ciudad Juarez SA de CV Mexico
Creative Control Designs, Inc. Ohio
Desarrollo y Pl. SA Mexico
EASI-MegaTech Engineering, L.L.C. Michigan
Engineered Plastic Products, Inc. Michigan
Ensamble de Interiores Automotrices, S. de R.L. de C.V. Mexico
Eurosit SA Spain
Factory for Thread and Synthetic Manufacturing
Johnson Controls - NTU GmbH Slovenia
Fluid Engineering Services Ltd. Canada
G-U Export, Inc. Wisconsin
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
Happich Agency Ltd. U.K.
Happich Autotrim Ltd. U.K.
Happich Fahrzeug & Industrietele GmbH Germany
</TABLE>
111
<PAGE> 3
<TABLE>
<S> <C>
Happich France S.A.S. France
Happich GmbH Germany
Happich GmbH & Co. Gundvermogen KG Germany
Happich Guarnecidos S.A. Spain
Happich Holdsworth GmbH Germany
Happich Mecanique S.A.S. France
Happich Plzen s.r.o. Czech Republic
Happich Profiles Ltd. U.K.
Happich Solymar Kft. Hungary
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
Iberica de Asientos S.A. Spain
Ikeda-Hoover Co. Ltd. U.K.
IKIN L.L.C. Pennsylvania
Industrialesud SpA Italy
Industrias IAMSA SA de CV Mexico
Interior Product Services, Inc. Delaware
Interiores Prince SA de CV Mexico
</TABLE>
112
<PAGE> 4
<TABLE>
<S> <C>
Interstate Battery System International, Inc. Delaware
Intertec Systems, L.L.C. Michigan
J.C. Capital Corporation Minnesota
J.R.I. Technologies Ltd. U.K.
JC Export Inc. Barbados
JC S.A.R.L. Luxembourg Luxembourg
JCI Beteiligungs GmbH Germany
JCI Regelungstechnik GmbH (A) Austria
JCI Regelungstechnik GmbH (G) Germany
JCI/Varta Baterias Automotivas, Ltda. Brazil
JKL Plastic Corp. Delaware
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 & Varta Baterias Ltda Brazil
Johnson Controls & Varta Baterias S.A. Argentina
Johnson Controls & Varta Baterias, Ltda. Columbia
Johnson Controls (Barbados) Inc. Barbados
Johnson Controls (India) Pvt. Ltd. India
</TABLE>
113
<PAGE> 5
<TABLE>
<S> <C>
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
Johnson Controls (Suisse) S.A. Delaware
Johnson Controls (Thailand) Co., Ltd. Thailand
Johnson Controls (UK) Ltd. U.K.
Johnson Controls - Roth SA France
Johnson Controls / ACCS Illinois
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 (Belgium) N.V. Belgium
Johnson Controls Automotive (PTY) Ltd. South Africa
Johnson Controls Automotive (UK) Ltd. U.K.
Johnson Controls Automotive Assemblies Pty. Ltd. South Africa
Johnson Controls Automotive Components Group Ltd. U.K.
Johnson Controls Automotive Components Ltd. U.K.
Johnson Controls Automotive Foam Ltd. U.K.
</TABLE>
114
<PAGE> 6
<TABLE>
<S> <C>
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
Johnson Controls Battery Group, Inc. Wisconsin
Johnson Controls Beteiligungs GmbH Germany
Johnson Controls Business Development, Ltd. New Mexico
Johnson Controls Capital (UK) Ltd. U.K.
Johnson Controls de Mexico SA de CV Mexico
Johnson Controls DISC, Inc. Delaware
Johnson Controls do Brasil Automotive Ltda. Brazil
Johnson Controls do Nordeste Automotive Ltda. Brazil
Johnson Controls Engineering, Inc. Wisconsin
Johnson Controls Espana SL Spain
Johnson Controls Facilities, Inc. Wisconsin
Johnson Controls France S.A. France
Johnson Controls GmbH Germany
Johnson Controls GmbH & Co. KG Germany
</TABLE>
115
<PAGE> 7
<TABLE>
<S> <C>
Johnson Controls Government Systems LLC Wisconsin
Johnson Controls Holding Company KK Japan
Johnson Controls Holding Company Mexico S de RL de CV Mexico
Johnson Controls Holding Company, Inc. Delaware
Johnson Controls Holding Limited Canada
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 IFM Corporation KK Japan
Johnson Controls II Assentos de Espuma Lda. Portugal
Johnson Controls Integrated Facility Management BV Netherlands
Johnson Controls Integrated Facility Management Catering GmbH Germany
Johnson Controls Integrated Facility Management Nordic AB Sweden
Johnson Controls Integrated Facility Management Reinigung GmbH Germany
Johnson Controls Integrated Facility Management Sicherheit GmbH Germany
Johnson Controls Integrated Facility Management, S.A. Spain
Johnson Controls Integrated Facility Management Verwaltungs GmbH Germany
Johnson Controls Interiors L.L.C. Michigan
Johnson Controls International B.V. Netherlands
Johnson Controls International Kft. Hungary
</TABLE>
116
<PAGE> 8
<TABLE>
<S> <C>
Johnson Controls International Ltd. (ZAO) Russia
Johnson Controls International NV/SA Belgium
Johnson Controls International spol s.r.o. Slovakia
Johnson Controls International spol s.r.o. Czech Republic
Johnson Controls International, Inc. Delaware
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 Limited U.K.
Johnson Controls Ltd. Canada
Johnson Controls Management Company Minnesota
Johnson Controls Management Systems, Inc. Florida
Johnson Controls Martorell, S.A. Spain
Johnson Controls Nederland BV Netherlands
Johnson Controls Nederland Holding BV Netherlands
Johnson Controls Nevada, Inc. Nevada
Johnson Controls NIS Corporation KK Japan
Johnson Controls Norden A/S Norway
Johnson Controls Northern New Mexico LLC New Mexico
Johnson Controls Novel SL Spain
Johnson Controls Objekt Bochum GmbH & Co. KG Germany
</TABLE>
117
<PAGE> 9
<TABLE>
<S> <C>
Johnson Controls Objekt Bochum Verwaltungs GmbH Germany
Johnson Controls Objekt Zwickau GmbH & Co. KG Germany
Johnson Controls Objekt Zwickau Verwaltungs GmbH Germany
Johnson Controls PanAmerica L.L.C. Pennsylvania
Johnson Controls Roth Freres Insitu-Technologie GmbH Germany
Johnson Controls SA/NV Belgium
Johnson Controls Schwalbach GmbH Germany
Johnson Controls Services Company Minnesota
Johnson Controls Services Ltd. Cayman Islands
Johnson Controls Software (Asia) Pvt. Ltd. India
Johnson Controls SpA Italy
Johnson Controls Systems A.G. Switzerland
Johnson Controls Technology Company Michigan
Johnson Controls World Services (Thailand) Co., Ltd. Thailand
Johnson Controls World Services Inc. Florida
Johnson Controls World Services Ltd. Canada
Johnson Controls, SA de CV Mexico
Johnson Controls-RMS, Inc. Florida
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
</TABLE>
118
<PAGE> 10
<TABLE>
<S> <C>
JOROCA, NV Belgium
Joventa AG Switzerland
Joventa USA Inc. Nevada
Kentair (Wholesale) Limited U.K.
Komplettsitzwerk Schwalbach GmbH Germany
Maintenance Automation Corporation Florida
MAJOR SKT A.S. Turkey
MAJOR, SA France
Megatech Academy, Inc. Michigan
Megatech Engineering, Inc. Michigan
Menzolit-Fibron GmbH Germany
Naue de Mexico SA de CV Mexico
Naue-JCA Marketing GmbH & Co. KG Germany
NAV L.L.C. Pennsylvania
Nicco Corporation Limited India
P & ET Container, Inc. Delaware
Patent Defense Group L.L.C. Michigan
Paul Carter (Environmental) Services Limited U.K.
PC Interiores Servicios, S.A. de C.V. Mexico
Pemu-Happich Kft. Hungary
Perfekta Algemeine Industrie - und Handels GmbH Germany
Portable Energy Products, Inc. Delaware
</TABLE>
119
<PAGE> 11
<TABLE>
<S> <C>
Price Johnson Controls (M) Sdn Bhd Malaysia
Price Johnson Controls Pte. Ltd. Singapore
Price Johnson Controls (Hong Kong) Limited Hong Kong
Prince APG GmbH Germany
Prince APG Ltd. U.K.
Prince APG, Inc. Michigan
Prince Corporation Michigan
Prince Transportation, Inc. Michigan
Propel-Johnson Controls (M) Sdn. Bhd. Malaysia
Readiness Management Support L.C. Florida
Recaro Johnson Controls L.L.C. Michigan
Ripa Verwaltungsgesellschaft mbH Germany
Ripa Verwaltungsgesellschaft mbH & Co. KG Germany
Rode & Schwalenberg GmbH Germany
Roth Johnson Technologie France
Royal LePage Facility Management Services Ltd. Canada
Salus Grundstucks - Vermietungsgesellschaft mbH &
Co. Objekt Clausenbrucke 1 KG Germany
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
</TABLE>
120
<PAGE> 12
<TABLE>
<S> <C>
Shanghai Yanfeng Johnson Controls Seating Company Limited China
Sicar B.V. Netherlands
SirpAuto S.A. France
Sistemas Automotrice Summa SA de CV Mexico
St. Thomas Energy Exports, Inc. Virgin Islands
Tata Johnson Controls Automotive Pvt. Ltd. India
Techmex, S. de R.L. de C.V. Mexico
TechnoTrim de Mexico, S. de R.L. de C.V. Mexico
TechnoTrim, Inc. Michigan
Tecnoconfort S.A. Spain
Tegg Corporation Delaware
The Launch Support Company, L.C. Florida
Tolena S.A. Spain
Trim Masters Inc. Kentucky
Trimco spol s.r.o. Czech Republic
TrimQuest L.L.C. Michigan
Trimtec GmbH Germany
Utescheny & Happich Spritzgussvertriebsgesellschaft mbH Germany
Vanpro Assentos Lda. Portugal
Vanpro GmbH Entwicklungsges.f.Autositze Germany
Vintec Co. Michigan
XYZ Container Corporation Delaware
YJC Engineering Chiba Company Japan
Yokogawa Johnson Controls Corporation Japan
</TABLE>
121
<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 19, 1998 appearing on page 39 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 21 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-3 (Registration No. 33-50110)
5. Registration Statement on Form S-8 (Registration No. 33-58092)
6. Registration Statement on Form S-8 (Registration No. 33-58094)
7. Registration Statement on Form S-8 (Registration No. 33-49862)
8. Post-Effective Amendment No. 1 to Form S-8 (Registration No. 33-49862)
9. Registration Statement on Form S-3 (Registration No. 33-57685)
10. Registration Statement on Form S-3 (Registration No. 33-64703)
11. Registration Statement on Form S-8 (Registration No. 333-10707)
12. Registration Statement on Form S-3 (Registration No. 333-13525)
13. Registration Statement on Form S-8 (Registration No. 333-36311)
14. Registration Statement on Form S-8 (Registration No. 333-66073)
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
December 15, 1998
122
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000053669
<NAME> JOHNSON CONTROLS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 134,000
<SECURITIES> 0
<RECEIVABLES> 2,034,000
<ALLOWANCES> 21,200
<INVENTORY> 428,200
<CURRENT-ASSETS> 3,404,200
<PP&E> 3,652,000
<DEPRECIATION> 1,769,100
<TOTAL-ASSETS> 7,942,100
<CURRENT-LIABILITIES> 4,288,400
<BONDS> 997,500
0
140,100
<COMMON> 14,500
<OTHER-SE> 1,786,800
<TOTAL-LIABILITY-AND-EQUITY> 7,942,100
<SALES> 12,586,800
<TOTAL-REVENUES> 12,586,800
<CGS> 10,776,200
<TOTAL-COSTS> 10,776,200
<OTHER-EXPENSES> 1,053,200
<LOSS-PROVISION> 7,100
<INTEREST-EXPENSE> 133,500
<INCOME-PRETAX> 616,800
<INCOME-TAX> 256,000
<INCOME-CONTINUING> 337,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 337,700
<EPS-PRIMARY> 3.88
<EPS-DILUTED> 3.63
</TABLE>
<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Johnson Controls, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
-----------------------------------------------------------------------
(3) Filing party:
-----------------------------------------------------------------------
(4) Date filed:
-----------------------------------------------------------------------
<PAGE> 2
[Johnson Controls, Inc. LOGO]
JOHNSON CONTROLS, INC.
5757 N. Green Bay Ave.
Milwaukee, Wisconsin 53209
ANNUAL SHAREHOLDERS MEETING
NOTICE AND PROXY STATEMENT
ANNUAL
MEETING: January 27, 1999 Italian Community Center
2:00 p.m. CST 631 East Chicago
Milwaukee, WI 53202
RECORD DATE: November 18, 1998. If you were a shareholder at the
close of business on that date, then you may vote at
the meeting. If you hold the Company's Common Stock,
then you are entitled to one vote per share. If you
hold the Company's Preferred Stock (each share consists
of 10,000 units) you are entitled to two votes per
unit. There is no cumulative voting. On the record
date, 84,807,704 shares of our Common Stock were
outstanding, and 272.838 shares of our Preferred Stock
were outstanding.
AGENDA: 1. Elect 3 directors.
2. Ratify the selection of PricewaterhouseCoopers LLP
as our independent auditors for 1999.
3. Ratify the Long Term Performance Plan
4. Ratify the Executive Incentive Compensation Plan.
5. Any other proper business.
Unless you tell us on the proxy card to vote
differently, we will vote signed returned proxies "FOR"
the Board's nominees in Item 1 and "FOR" agenda items 2
through 4. The Board or proxy holders will use their
discretion on other matters that may arise at the
meeting under Item 5. If a nominee cannot or will not
serve as a director, then the Board or proxy holders
will vote for a person whom they believe will carry on
our present policies.
PROXIES
SOLICITED BY: The Board of Directors.
FIRST MAILING
DATE: The Company anticipates first mailing this proxy
statement on December 4, 1998.
<PAGE> 3
REVOKING
YOUR PROXY You may revoke your proxy before it is voted at the
meeting. To revoke:
- Deliver a signed, written revocation letter, dated
later than the proxy, to John P. Kennedy, Secretary,
at our Milwaukee address listed on the first page;
- Submit a proxy with a later date; or
- Attend the meeting and vote in person or by proxy.
Attending the meeting alone will not revoke your
proxy.
PROXY
SOLICITATION: The Company will primarily solicit proxies by mail and
will cover the expense of such solicitation. D.F. King
& Co., Inc., will help us solicit proxies for all
brokers and nominees at a cost of $11,000 plus their
expenses. Our officers and employees may also solicit
proxies for no additional compensation. We may
reimburse brokers or other nominees for reasonable
expenses they incur in sending these proxy materials to
you if you are a beneficial holder of our shares.
ANNUAL REPORT: The Company's 1998 Annual Report is being mailed to you
with this proxy statement.
YOUR COMMENTS: Your comments about any aspects of our business are
welcome. You may use the space provided on the proxy
card for this purpose, if desired.
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
PROMPT RETURN OF YOUR PROXY WILL HELP REDUCE THE COST OF THIS SOLICITATION.
<PAGE> 4
CONTENTS
<TABLE>
<S> <C>
*ELECTION OF DIRECTORS...................................... 3
BOARD INFORMATION........................................... 7
BOARD COMPENSATION.......................................... 9
COMPENSATION COMMITTEE REPORT............................... 10
PERFORMANCE GRAPH........................................... 14
EXECUTIVE COMPENSATION...................................... 15
EMPLOYMENT AGREEMENTS....................................... 20
*SELECTION OF INDEPENDENT AUDITORS FOR FISCAL YEAR 1999..... 21
COMPENSATION PLANS SUBJECT TO SHAREHOLDER APPROVAL.......... 21
*RATIFICATION OF LONG TERM PERFORMANCE PLAN................. 22
*RATIFICATION OF THE EXECUTIVE INCENTIVE COMPENSATION
PLAN...................................................... 24
JOHNSON CONTROLS SHARE OWNERSHIP............................ 25
VOTING PROCEDURES........................................... 27
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 28
SUBMISSION OF SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS............................................... 28
MAP TO ANNUAL MEETING....................................... 29
EXHIBIT A...................................................
EXHIBIT B...................................................
</TABLE>
- -------------------------
* Agenda items for the Annual Meeting
<PAGE> 5
2
<PAGE> 6
ELECTION OF DIRECTORS
BOARD STRUCTURE: The Board of Directors consists of 12 members. The
directors are divided into three classes. At each
annual meeting, the term of one class expires.
Directors in each class serve for three-year terms, or
until the director's earlier retirement pursuant to the
Board of Directors Retirement Policy.(1)
BOARD NOMINEES
NOMINEES FOR TERMS TO EXPIRE AT THE 2002 ANNUAL MEETING:
<TABLE>
<S> <C>
NATALIE A. BLACK NATALIE A. BLACK Director since 1998
PHOTO Age 48
Group President, Kohler Co., Kohler, Wisconsin
(manufacturer and marketer of plumbing products and
furniture) since 1998. Group Vice President -- Interiors
from 1986 through 1998 and Vice President from 1983
through 1986. Ms. Black has also served as General
Counsel for Kohler Co. since 1991.
ROBERT A. CORNOG ROBERT A. CORNOG Director since 1992
PHOTO Age 58
President, Chief Executive Officer and Chairman of the
Board of Directors of Snap-on, Incorporated, Kenosha,
Wisconsin (tool manufacturer) since 1991. Mr. Cornog is a
director of Snap-on Incorporated, Wisconsin Electric
Power Company, and Wisconsin Energy Corporation. Mr.
Cornog is a member of the Audit and the Executive
Committees.
</TABLE>
- ---------------
1 The Board of Directors has adopted a Retirement Policy that requires a
director to retire as of the last regular Board of Director's meeting held in
the year of his or her 70th birthday. However, if a shareholder's meeting is
held on that date, then such retirement is to be effective the next day.
3
<PAGE> 7
<TABLE>
<S> <C>
KEYS PHOTO JAMES H. KEYES Director since 1985
Age 58
Chairman and Chief Executive Officer, Johnson Controls,
Inc. 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 LSI Logic Corporation and Pitney Bowes, Inc.
Mr. Keyes is Chairman of the Executive Committee.
LACY PHOTO WILLIAM H. LACY Director since 1997
Age 53
President (1987 to 1996) and Chairman (1996 to present)
and Chief Executive Officer of Mortgage Guaranty
Insurance Corporation (MGIC), and President and CEO of
its parent company, MGIC Holding Company, Milwaukee,
Wisconsin (secondary mortgage market activities) since
1987. Mr. Lacy is a director of Firstar Bank Milwaukee,
N.A., Columbia Health System, Inc., and MGIC Investment
Corporation. Mr. Lacy is a member of the Compensation and
the Pension and Benefits Committees.
</TABLE>
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" ITS NOMINEES.
CONTINUING DIRECTORS
TERMS EXPIRE AT THE 2000 ANNUAL MEETING
<TABLE>
<S> <C>
BARTH PHOTO JOHN M. BARTH Director since 1997
Age 52
President and Chief Operating Officer, Johnson Controls,
Inc., since September 1998 and Executive Vice President
since 1991. In 1987, Mr. Barth was named Vice President
and General Manager of the Plastics Technology Group. In
1990, he became Vice President and General Manager of the
Plastics Technology Group and the Automotive Systems
Group. Mr. Barth is a director of Handleman Company and
Edwards Brothers.
BRUNNER PHOTO PAUL A. BRUNNER Director since 1983
Age 63
President and Chief Executive Officer, Spring Capital
Inc., Stamford, Connecticut (international investment
management), since 1985. President and Chief Executive
Officer, ASEA, Inc., 1982-1984. President and Chief
Executive Officer, Crouse Hinds Co., 1967-1982. Mr.
Brunner is the Chairman of the Audit Committee and member
of Compensation Committee.
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
MORCOTT PHOTO SOUTHWOOD J. MORCOTT Director since 1993
Age 60
Chairman since 1990, President 1986-1996, and Chief
Executive Officer since 1989 of Dana Corporation, Toledo,
Ohio (vehicular and industrial systems manufacturer). Mr.
Morcott is a director of CSX Corporation, Dana
Corporation and Phelps-Dodge Corporation. Mr. Morcott is
Chairman of the Compensation Committee and member of the
Directors Committee.
KEYS PHOTO GILBERT R. WHITAKER JR. Director since 1986
Age 67
Dean and H.J. Nelson Professor of Business Economics,
Jesse Jones Graduate School of Management, Rice
University since July of 1997. Professor of Business
Economics, University of Michigan, 1979 through June 30,
1997. Provost and Executive Vice President for Academic
Affairs, University of Michigan, 1990-1996. Mr. Whitaker
served as Dean, School of Business Administration,
University of Michigan 1979-1990. Mr. Whitaker is a
director of Handleman Company, Lincoln National
Corporation, and Structural Dynamics Research Corp. Mr.
Whitaker is Chairman of the Pension and Benefits
Committee.
</TABLE>
TERMS EXPIRE AT THE 2001 ANNUAL MEETING:
<TABLE>
<S> <C>
ANDREWS PHOTO WILLIAM F. ANDREWS Director since 1991
Age 67
Chairman of Scovill Fasteners Inc., Clarksville, Georgia
(manufacturer of apparel fasteners) since 1995. Chairman,
President and Chief Executive Officer, Amdura Corporation
from 1993-1996. President and Chief Executive Officer,
UNR Industries Inc., Chicago, Illinois (diversified
manufacturer) from 1991-1993, President of Massey
Investment Co., Nashville, Tennessee (private investment
company) from 1989-1990, and Chairman, CEO and President
of Singer Sewing Machine Company (SSMC) Inc., Shelton,
Connecticut (diversified manufacturer) from 1986-1989.
Mr. Andrews is a director of Black Box Corp., Dayton
Superior Corporation, Katy Industries, Navistar
International Corporation, Northwestern Steel & Wire Co.,
and Southern New England Telecommunications Corporation.
Mr. Andrews is a member of the Compensation and the
Directors Committees.
</TABLE>
5
<PAGE> 9
<TABLE>
<S> <C>
BARNETT PHOTO ROBERT L. BARNETT Director since 1986
Age 58
Executive Vice President and President, Commercial,
Government and Industrial Solutions Sector, Motorola,
Inc. (manufacturer of electronics products), Schaumburg,
Illinois, June 1998-present. Executive Vice President and
President, Motorola Inc., Land Mobile Products Sector,
Motorola Inc., March 1997 - March 1998. Corporate Vice
President, iDen Group, Motorola Inc., May 1995 - March
1997. Consultant in the field of international
communications 1992-1993. Vice-Chairman, Ameritech and
President, Ameritech Bell Group, American Information
Technologies Corporation, Chicago, Illinois
(telecommunications) 1989-1993 and President, Ameritech
Enterprise Group, 1987-1989. Mr. Barnett is a director of
USG Corp., Central Vermont Public Service, and Objectives
Communication. Mr. Barnett is a member of the Executive
and the Pension and Benefits Committees and the Chairman
of Directors Committee.
DAVIS PHOTO WILLIE D. DAVIS Director since 1991
Age 64
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, Strong/Corneliuson Capital Management and
WICOR, Inc. Mr. Davis is a member of the Audit and the
Directors Committees.
TEERLINK PHOTO RICHARD F. TEERLINK Director since 1994
Age 62
Chairman of the Board of Harley-Davidson, Inc.
(motorcycle manufacturer), Milwaukee, Wisconsin, since
May 1996. President and Chief Executive Officer from
March 1989 - June 1997. Mr. Teerlink is a director of
Harley-Davidson and Snap-on Incorporated. Mr. Teerlink is
a member of Audit and the Executive Committees.
</TABLE>
6
<PAGE> 10
BOARD INFORMATION
BOARD MEETINGS: In 1998 the Board held a total of seven regular
quarterly and special meetings. All of the directors
attended at least 93% of his or her Board and committee
meetings with the exception of Mr. Teerlink who
attended 70% of the Board and committee meetings.
BOARD COMMITTEES: EXECUTIVE COMMITTEE: The primary functions of the
committee are to exercise all the powers of the Board
when the Board is not in session, as permitted by law.
The Executive Committee held no meetings last year.
Members: Mr. Keyes, Chairman, and Messrs. Brengel,*
Barnett, Cornog and Teerlink.
AUDIT COMMITTEE: The primary functions of the committee
are to:
- Review the internal controls established by
management;
- Assess the financial reporting process and selection
of accounting policies;
- Review management's evaluation and proposed selection
of independent accountants;
- Review the audit plans prepared by internal audit and
independent accountants;
- Review significant issues concerning litigation,
contingent liabilities, tax and insurance;
- Review management information systems;
- Monitor compliance procedures; and
- Report the results of these activities to the Board
on a periodic basis.
The Audit Committee held three meetings last year. All
members are non-employee directors. Members: Mr.
Brunner, Chairman, and Messrs. Cornog, Davis, and
Teerlink.
COMPENSATION COMMITTEE: The primary functions of the
committee are to:
- Recommend to the Board the selection and retention of
officers and key employees;
- ---------------
*Retired from the Board effective November 18, 1998.
7
<PAGE> 11
- Recommend salary structures, officer gradings, and
salaries for elected officers;
- Administer and recommend amendments to the executive
compensation plans;
- Recommend to the Board bonus awards, income and other
compensation to executive officers;
- Recommend officer compensation packages and the
approval of disclosure statements;
- Review the Company's executive compensation programs
with outside consultants; and
- Recommend management succession.
The Compensation Committee held four meetings last
year. Members: Mr. Morcott, Chairman, and Messrs.
Andrews, Brunner and Lacy.
DIRECTORS COMMITTEE: The primary functions of the
committee are to:
- Recommend to the Board nominees for directors;
- Consider shareholder nominated candidates for
election as directors;
- Recommend the size and composition of the Board;
- Develop guidelines and criteria for the
qualifications of directors;
- Recommend director compensation programs;
- Recommend committees and committee structure for the
Board;
- Recommend performance criteria for the Board and to
review its performance; and
- Review conflicts of interest that may affect
directors.
The Directors Committee held three meetings last year.
Members: Mr. Barnett, Chairman, and Messrs. Davis and
Morcott.
PENSION AND BENEFITS COMMITTEE: The primary functions
of the committee are to:
- Review actuarial assumptions and actuarial valuation
of the pension plans on an annual basis;
- Review investment policies of the funds of employee
benefit plans;
8
<PAGE> 12
- Select and terminate investment managers as
appropriate;
- Review with investment advisors past performance and
current investment strategy;
- Review and approve the adoption of any new trust
agreements or master trusts implementing the plans;
- Monitor Company policies affecting employee benefit
plans; and
- Review plan provisions annually, and propose
amendments when necessary.
The Pension and Benefits Committee held five meetings
last year. Members: Mr. Whitaker, Chairman, and Messrs.
Andrews, Barnett and Lacy.
BOARD COMPENSATION
RETAINER AND FEES: Non-employee directors receive a $37,500 annual
retainer. To encourage such directors to own our
shares, they receive 50% of their retainer in our
Common Stock each year. The stock is priced as of the
date of the Annual Meeting. New Directors also receive
a grant of 400 shares of Common Stock upon election or
appointment and a pro rata share of the annual retainer
for the remainder of that year. This stock is priced as
of the date of the first meeting of the Board at which
the new director participates. Directors also receive
$1,500 for each Board or committee meeting they attend,
or $2,000 for each meeting they attend of which they
are the Chairperson. We also reimburse directors for
any related expenses.
RETIREMENT PLAN: The Director's Retirement Plan provides that a director
who retires after attaining the age of 65 and has six
years of service will be paid the annual retainer in
effect upon his or her retirement for life. The annual
value for current directors under this plan ranges from
$9,508 to $26,462.
The Directors' Retirement Plan has been discontinued
for Fiscal 1999 and is being replaced by a Director
Share Unit Plan. Non-employee directors are eligible to
participate in the Director Share Unit Plan. The
Company will credit $25,000 worth of stock units
annually into each non-employee director's account at
the then current market price. Such units are
accumulated and credited with dividends until
retirement at which time the units will be paid out
based upon the market price of the Common Stock at that
time.
9
<PAGE> 13
For each current director, the Directors Committee is
placing a value on the director's entitlements under
the Directors' Retirement Plan as of September 30,
1998. The director will receive a credit to his account
under the Director Share Unit Plan of a number of stock
units having a value equal to the value of the
director's entitlements.
MEDICAL PLAN: Current 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.
COMPENSATION COMMITTEE REPORT
THE COMMITTEE: The Compensation Committee is composed only of
independent directors. The committee exercises the
Board's powers in compensating executive officers of
our Company and its subsidiaries. We make every effort
to see that our compensation program is consistent with
the values of our Company and furthers its business
strategy.
OVERALL OBJECTIVES: The Company aligns executive compensation with its
values and business objectives. The objectives target
customer satisfaction, technology, growth, market
leadership, and shareholder value. The Compensation
Committee has established a program to:
- Attract and retain key executives critical to the
long-term success of the Company.
- Reward executives for long-term strategic management
and the enhancement of shareholder value.
- Integrate compensation programs, which can focus on
after-tax return on shareholders equity, return on
investment and growth.
- 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.
- Preserve the federal income tax deductibility of
compensation paid. Accordingly, the Company has taken
appropriate actions to preserve the deductibility of
annual incentives, long-term performance plan
payments, and stock option awards. However, the
Committee may authorize payments that may not be
deductible if it believes that this is in the best
interests of the Company and its shareholders.
10
<PAGE> 14
EXECUTIVE The Compensation Committee reviews executive pay each
COMPENSATION year. Compensation depends on many factors, including
GENERALLY: individual performance and responsibilities, future
challenges and objectives, and how he or she might
contribute to our future success. We also look at the
Company's financial performance and the compensation
levels at comparable companies.
To meet the objectives, we studied competitive
compensation data based on surveys provided to the
Committee by an independent compensation consultant.
The survey for officers and senior managers involved 22
companies. We made adjustments to account for
differences in annual sales of our Company and those
companies in the survey.
TOTAL COMPENSATION: Annual executive compensation consists of a base salary
and incentive compensation.
Approximately 64% of the total compensation paid to the
executive officer group is performance related. This is
comparable to the average of the companies in the
executive compensation survey. Doing so helps encourage
performance that increases the value of your shares.
The Committee sets target minimum and maximum
performance levels for our annual and long-term
incentive plans substantially above the prior year's
target goals, and prior year's actual performance.
Doing so motivates the officers to encourage future
growth and keeps the goals challenging. The Company
continues to exceed its increased performance
objectives.
BASE SALARY: The Committee determines the levels of salary for key
executive officers and a salary range for other
executive officers. Factors considered are:
- Salary comparison survey results;
- Prior year salary;
- Changes in individual job responsibilities;
- Past performance of individuals; and most
importantly,
- Achievement or trends toward achievement of specified
Company goals.
ANNUAL INCENTIVES: The Committee sets an annual incentive award formula
under the Executive Incentive Compensation Plan (EICP).
The award is based on specific benchmarks that are
consistent with our annual and long-term strategic
planning objectives. These benchmarks are also based on
achievement of business plans that the Board has
11
<PAGE> 15
approved 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 the executive's award for the year.
LONG-TERM All executive officers participate in the Long Term
INCENTIVES: Performance Plan (LTPP), which serves to motivate
executives to achieve longer-term objectives by
providing incentive compensation based on our
performance over a three- year period. Under the LTPP,
the Committee assigns an executive a contingent
performance award. The executive may earn this award
based upon the Company's return on shareholder equity
during the specified three-year period relative to the
Standard & Poor's Manufacturers (Diversified
Industrial) Index median return on shareholders' equity
over the same period. At the end of the period, the
Committee determines the Company's relative performance
results to determine the actual LTPP award amount.
STOCK OWNERSHIP The Executive Stock Ownership Policy requires all
GUIDELINES: officers and senior managers in each business group,
within five years of becoming subject to the Policy, to
hold our Common Stock in an amount of one to three
times their annual salary.
The 1995 Common Stock Purchase Plan for Executives
(CSPPE) facilitates the acquisition of common stock by
executives subject to the Executive Stock Ownership
Policy. Participants in the CSPPE may deduct from their
pay up to $2,500 per month to purchase shares of Common
Stock. The price of each share is 100% of the average
price of shares purchased by Firstar Bank Milwaukee,
N.A. as agent for the participants. No brokerage fees
or commission are charged and the Company bears the
expense of administering the CSPPE.
STOCK OPTION The Committee grants stock options and stock
PROGRAM: appreciation rights (SARs) under the 1992 Stock Option
Plan. The Committee determines which individuals are
awarded stock options and SARs, the terms at which
option grants shall be made, the terms of the options,
and the number of shares subject to each option. In
1998, compensation to executives through stock options
and SARs and the LTPP, taken together, was targeted at
the 50th percentile of such compensation granted by
similar companies as identified in the survey.
12
<PAGE> 16
SAVINGS AND Executive officers may participate in the Company's
INVESTMENT Savings and Investment Plan, which includes Company
PLAN (401K): contributions to the plan, and an Equalization Benefit
Plan under which certain executives are entitled to
additional benefits that cannot be paid under qualified
plans due to Internal Revenue Code limitations.
Employee and Company contributions in excess of
qualified plan limits are accounted for as if invested
in various accounts.
CEO COMPENSATION: Mr. Keyes' total compensation is based on our Company's
outstanding performance, his individual performance,
executive compensation levels at other companies, the
desire to retain his services and terms of his
employment agreement. His salary and incentives reflect
the leadership, vision and focus he has provided to our
Company.
Mr. Keyes' base salary increased to $975,000 in 1998,
from $900,000 in 1997. This salary approximated the
average base salary for other chief executive officers
for the 22 companies reviewed.
Approximately 75% of Mr. Keyes' compensation is tied to
performance goals. Mr. Keyes fiscal 1998 EICP award of
$826,000 is based upon the return on shareholder's
equity and operating income growth for the Company for
fiscal 1998 and represents 83% of the maximum amount
available under the criteria set forth by the
Committee. In fiscal 1998, Mr. Keyes received payment
under the LTPP of $810,000, which is based upon the
Company's return on shareholder equity over the past
three fiscal years and represents 100% of the maximum
amount available under the criteria established by the
Committee. Mr. Keyes received an option award of
120,000 shares on November 19, 1997.
Southwood J. Morcott, Chairman
William F. Andrews
Paul A. Brunner
William H. Lacy
Members, Compensation Committee
13
<PAGE> 17
PERFORMANCE GRAPH
EXPLANATION OF THE
GRAPH: The line graph below compares the cumulative total
shareholder return on our Common Stock with the
cumulative total return of companies on the Standard &
Poor's 500 Stock Index and the S&P Manufacturers
(Diversified Industrial) Index. This graph is based on
the market price of the Common Stock and assumes the
reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG S&P 500 INDEX,
S&P MANUFACTURERS (DIVERSIFIED INDUSTRIAL)
INDEX AND JOHNSON CONTROLS, INC.
<TABLE>
<CAPTION>
MANUFACTURERS
JOHNSON (DIVERSIFIED S&P 500
CONTROLS INC INDUSTRIAL) COMP-LTD
<S> <C> <C> <C>
SEP93 100 100 100
SEP94 94.03 111.12 103.69
SEP95 123.03 148.15 134.5
SEP96 149.27 190.91 161.84
SEP97 201.29 265.75 227.26
SEP98 192.19 239.61 247.85
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
COMPANY/INDEX 9/93 9/94 9/95 9/96 9/97 9/98
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Johnson Controls Inc. 100 94.03 123.03 149.27 201.29 192.19
- ----------------------------------------------------------------------------------------------
Manufacturers (Diversified
Industrials) 100 111.12 148.15 190.91 265.75 239.61
- ----------------------------------------------------------------------------------------------
S&P 500 Comp-Ltd 100 103.69 134.50 161.84 227.26 247.85
- ----------------------------------------------------------------------------------------------
</TABLE>
Assumes $100 invested on September 30, 1993 in S&P 500 Index, S&P Manufacturers
(Diversified Industrial) Index and Johnson Controls, Inc., and dividends are
reinvested at the end of month in which they are paid.
14
<PAGE> 18
EXECUTIVE COMPENSATION
SUMMARY OF
COMPENSATION: The following table summarizes the compensation we paid
for the past three fiscal years to each of the five
most highly compensated executive officers, including
the Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL OPTIONS/ LONG-TERM ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION SARS INCENTIVE COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#)(2) PAYOUTS($) ($)(3)
------------------ ------ ------ ----- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James H. Keyes 1998 956,250 826,000 -- 120,000 810,000 78,064
Chairman and Chief 1997 875,001 689,000 -- 120,000 730,000 67,714
Executive Officer 1996 787,503 575,000 -- 80,000 450,000 62,925
John Barth 1998 537,498 458,000 -- 60,000 299,000 42,791
President and Chief 1997 487,503 371,000 -- 48,000 277,000 34,966
Operating Officer 1996 441,249 260,000 -- 48,000 204,000 31,693
Stephen A. Roell 1998 373,752 270,000 -- 40,000 223,000 26,526
Senior Vice 1997 348,747 246,000 -- 34,000 202,000 26,643
President and 1996 324,999 188,000 -- 34,000 101,000 24,550
Chief Financial
Officer
Giovanni Fiori 1998 324,458 310,000 -- 24,000 138,000 --
Vice President 1997 301,359 197,000 -- 24,000 155,000 --
Automotive Systems 1996 290,505 207,000 -- 22,000 82,000 --
Group
Michael F. Johnston 1998 318,330 310,000 -- 24,000 118,000 23,913
Vice President 1997 266,253 203,000 -- 20,000 86,000 21,176
Automotive Systems 1996 234,249 190,000 -- 9,000 67,000 15,656
Group
</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 $50,000 or 10% of the officer's annual salary and
bonus for the year).
(2) The Options/SAR's reflect the effects of the 2 for 1 stock split which took
place on March 31, 1997.
(3) "All Other Compensation" consists of contributions by the Company on behalf
of the named individuals to the Company's Savings and Investment plan.
15
<PAGE> 19
STOCK OPTIONS AND The following table lists our grants during 1998 of
STOCK APPRECIATION stock options and tandem SARs to the officers named in
RIGHT GRANTS: the Summary Compensation Table.
OPTIONS/SAR GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS/SARS VALUE AT ASSUMED
GRANTED TO EXERCISE OR ANNUAL RATES OF STOCK
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRICE APPRECIATION FOR
NAME GRANTED FISCAL 1998 ($/SHARE) DATE FULL OPTION TERM
---- ------------ ------------ ----------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
James H. Keyes 120,000 10.09% $45.0938 11/19/07 $3,403,110/$8,624,148
John M. Barth 60,000 5.04% $45.0938 11/19/07 $1,701,555/$4,312,074
Stephen A. Roell 40,000 3.36% $45.0938 11/19/07 $1,134,370/$2,874,716
Giovanni Fiori 24,000 2.01% $45.0938 11/19/07 $680,622/$1,724,830
Michael F. Johnston 24,000 2.01% $45.0938 11/19/07 $680,622/$1,724,830
</TABLE>
The Company has an employee Stock Option Plan under
which options to purchase Common Stock and SARs are
granted to officers and other key employees of the
Company and its subsidiaries. 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 option is 10 years. Fifty percent of each award is
exercisable two years after the grant date and the
remainder is exercisable three years after the grant
date.
The amounts shown above as potential realizable values
rely on arbitrarily assumed rates of share price
appreciation prescribed by the SEC. In assessing those
values, please note that the ultimate value of the
options, as well as your shares, depends on actual
future share values. Market conditions and the efforts
of the directors, the officers and others to foster the
future success of our Company can influence those
future share values.
1998 OPTIONS, The table below lists the number of shares acquired and
SAR HOLDINGS AND the value realized as a result of option exercises
EXERCISES: during fiscal 1998 for the listed officers. It also
includes the number and value of their exercisable and
non-exercisable options and SARs as of September 30,
1998.
16
<PAGE> 20
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/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 0 344,000 / 280,000 $7,824,302 / $1,919,992
John M. Barth 26,021/ $ 816,032/ 0 / 132,000 0 / $ 903,370
17,979 $ 563,840
Stephen A. Roell 0 0 47,000 / 91,000 $ 907,403 / $ 636,215
Giovanni Fiori 0 0 57,000 / 59,000 $1,166,653 / $ 428,154
Michael F. Johnston 8000/ $ 206,905/ 0 / 53,000 $ 0 / $ 360,217
8000 $ 206,905
</TABLE>
LONG-TERM INCENTIVE As noted above in the Compensation Committee's report,
COMPENSATION: the Long-Term Performance Plan (LTPP) awards executives
for helping us achieve sustained performance goals and
encourages their continued efforts on our behalf.
Payouts of awards granted in fiscal 1998 are tied to
our Company's weighted average return on shareholders
equity for fiscal years 1999, 2000, and 2001 compared
with 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. To establish a weighted average,
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. If the Company's average level of
return is:
- Less than the 45th percentile of the return for
companies in the S&P Index, no award is earned;
- Equal or greater than the 45th percentile, the
threshold amount is earned;
- Equal to or greater than the 50th percentile, the
target amount is earned;
- Equal to or greater than the 55th percentile, 110% of
the target amount is earned; and
- Equal to or greater than the 60th percentile, the
maximum amount is earned.
In fiscal 1998, based upon the data available at this
time, LTPP participants were paid 100% available under
the criteria established by the Compensation Committee.
When the remaining comparison companies have reported,
these awards could increase, decrease or vary.
17
<PAGE> 21
LONG-TERM INCENTIVE PLANS -- AWARDS
IN FISCAL 1998
<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 810,000 1998-2000 648,000 810,000 972,000
John M. Barth 350,000 280,000 350,000 420,000
Stephen A. Roell 213,000 Fiscal Years 170,000 213,000 256,000
Michael F. Johnston 171,000 137,000 171,000 205,000
Giovanni Fiori 120,000 96,000 120,000 144,000
</TABLE>
RETIREMENT PLANS: The following table shows the maximum annual retirement
benefits payable under the Company's plans, including
amounts attributed to the Company's Equalization
Benefit Plan. Under the Johnson Controls Pension Plan
(the Plan), participants become entitled to benefits
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 are entitled to pension
benefits that cannot be paid under the qualified plan
due to these limitations.
18
<PAGE> 22
PENSION PLAN TABLE*
<TABLE>
<CAPTION>
AVERAGE ANNUAL MAXIMUM ANNUAL PENSION AT NORMAL RETIREMENT AGE
COMPENSATION IN AFTER YEARS OF PARTICIPATING SERVICE
HIGHEST 5 CONSECUTIVE YEARS (PRIOR TO ADJUSTMENT FOR SOCIAL SECURITY 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
500,000 212,000 255,000 283,750 312,500
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
1,000,000 425,000 510,000 567,500 625,000
1,100,000 467,500 561,000 624,250 687,500
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
1,500,000 637,500 765,000 851,250 937,500
1,600,000 680,000 816,000 908,000 1,000,000
1,700,000 722,555 867,000 964,750 1,062,500
1,800,000 765,000 918,000 1,021,500 1,125,000
1,900,000 807,500 969,000 1,078,250 1,187,500
2,000,000 850,000 1,020,000 1,135,000 1,250,000
2,100,000 892,500 1,071,000 1,191,750 1,312,500
2,200,000 935,000 1,122,000 1,248,500 1,375,000
2,300,000 977,500 1,173,000 1,305,250 1,437,500
</TABLE>
- -------------------------
* assuming normal retirement age and years of service under provisions in effect
on September 30, 1998 and assuming retirement on that date
YEARS OF SERVICE: As of September 30, 1998, the persons named in the
Summary Compensation table were credited with the
following years of service under the Plan: Mr. Keyes,
29 years, Mr. Barth, 28 years, Mr. Roell 15 years, and
Mr. Johnston, 8 years. Mr. Fiori is not a participant
in the Plan.
BENEFITS ACCRUAL: Pension plans of the Company apply to all regular
employees, including officers of the Company. The Plan,
effective January 1, 1989, covers all salaried and non-
union hourly employees of the Company. 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 Average Monthly
Compensation in excess of the Participant's Covered
Compensation multiplied by the Participant's years of
Benefit Service. The amounts
19
<PAGE> 23
payable may be adjusted to reflect the Participant's
decision on survivor benefits, early retirement or
termination, and in some instances, age.
DEFINITIONS: "Average Monthly Compensation" is defined as the
average monthly compensation for the highest five
consecutive years in the last 10 years.
"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.
EMPLOYMENT AGREEMENTS
EMPLOYMENT We have employment agreements with each of the named
AGREEMENTS executive officers of the Company. These agreements
GENERALLY: provide that employment shall continue unless
terminated by either the Company or the employee. Such
agreements do not automatically extend after the
employee reaches age 65.
TERMINATION: The agreements provide for termination by the Company
for cause, for death or disability and under certain
circumstances without cause. If terminated without
cause, the employee is entitled to receive pay in an
amount equal to or greater than two times the Company's
termination allowance policy or an amount equal to 52
weeks' earnings of the employee. If terminated with
cause, the employee's compensation is terminated
immediately.
CHANGE OF CONTROL: We also have change of control agreements with each of
these officers. In the event of a change of control,
the agreements provide for a severance payment equal to
three times the executive's annual compensation plus a
lump sum payment equal to lost benefits under the
retirement plan if the executive is terminated other
than for cause or has a good reason to terminate
employment. If the amount paid upon termination exceeds
amounts established under the Internal Revenue Code,
which results in payment of additional federal taxes,
the executive will receive an additional payment so
that the executive will retain the full amount to which
he is entitled under the agreement. The executive also
has 30 days at the end of the first year after a change
of control to terminate his employment for any reason
and still receive this benefit.
The EICP provides that, in the event of a change of
control of our Company, certain participants, including
the named
20
<PAGE> 24
executive officers, may re-elect to receive early
payment of deferred amounts, and the participant may
direct the Company to cause a letter of credit to be
issued in an amount sufficient to provide for all
payments due to such participant under the Plan.
The LTPP also provides that, in the event of a change
of control of our Company, certain participants,
including the named executives, shall be entitled to
receive early payment of deferred amounts.
EXECUTIVE SURVIVOR The Company has in effect an Executive Survivor
BENEFITS PROGRAM: Benefits Plan for certain executives. Coverage under
this plan is in lieu of the Company's regular group
life insurance coverage. If a participating executive
dies 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.
SELECTION OF INDEPENDENT AUDITORS FOR FISCAL YEAR 1999
We ask that you approve the appointment of
PricewaterhouseCoopers LLP as our independent auditors:
PricewaterhouseCoopers LLP, formerly known as Price
Waterhouse, has audited our accounts for many years.
The Board appointed them as independent auditors for
1999, upon recommendation of the Audit Committee. We
expect a representative of PricewaterhouseCoopers to
attend the meeting, respond to appropriate questions
and be given an opportunity to speak.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS AS JOHNSON CONTROLS' INDEPENDENT
AUDITORS FOR 1999.
COMPENSATION PLANS SUBJECT TO SHAREHOLDER APPROVAL
BACKGROUND: As discussed above in the "Compensation Committee
Report," the Executive Incentive Compensation Plan
(EICP) and the Long Term Performance Plan (LTPP) are
important means by which the Company ties the major
part of executive officers' compensation to the
performance of the Company. Since the approval of the
EICP and LTPP by the Company's shareholders in 1995,
the EICP and LTPP have provided strong motivation to
executives to achieve performance objectives that the
Compensation Committee has set and have placed strong
emphasis on the building of value for all shareholders.
21
<PAGE> 25
The Board of Directors has concluded that, to ensure
that the EICP and LTPP will fulfill their purposes in
the future, the shareholders should approve certain
amendments to the EICP and LTPP that the Board adopted,
and the shareholders should reapprove the EICP and LTPP
as a whole. Shareholder approval of the amendments to
the EICP and LTPP and reapproval of the EICP and LTPP
is required for these plans to comply with IRS rules
regarding deductibility of compensation. Once approved,
these plans must be reapproved by the shareholders
every five years. Separate proposals with respect to
the ratification of the LTPP and the EICP are set forth
below.
Certain awards have been made under the proposed LTPP
for Fiscal 1999 contingent on shareholder approval at
the 1999 Annual Meeting. Shareholder approval is
required to qualify the payments for deductibility
under IRS rules. Since the awards depend on base pay on
September 30, 2001, the amounts to be paid are not
determinable.
Certain formula awards have been made under the
proposed EICP for Fiscal 1999 contingent on shareholder
approval at the 1999 Annual Meeting. Shareholder
approval is required to qualify for deductibility under
IRS rules. The awards will depend on base pay on
September 30, 1999. Because the formula awards can be
reduced dependent on an individual's performance and
attainment of objectives over the past year, the
amounts to be paid are not determinable.
RATIFICATION OF LONG TERM PERFORMANCE PLAN
MATERIAL The Board has adopted the following material amendments
AMENDMENTS: to the LTPP:
- The term of the LTPP has been extended until
September 30, 2003. The LTPP was scheduled to expire
on September 30, 1999.
- The maximum amount that can be paid under the LTPP in
one year to any executive with respect to any three-
year performance period will be $3 million. The
maximum amount was previously 100 percent of the
executive's base salary.
- Performance awards under the LTPP will be based on
the executive's annual rate of base pay in effect on
the last day of a performance period (rather than
base pay in effect at the beginning of the
performance period).
22
<PAGE> 26
The Board has also adopted other amendments to the
LTPP. You should read the copy of the LTPP included as
Exhibit A to this proxy statement.
KEY TERMS OF THE All executive officers participate in the LTPP, subject
LTPP to approval of the Compensation Committee.
For each three-year performance period, the
Compensation Committee determines within the first 90
days of the period and communicates to the executive
the formula for the award, which is based on specified
benchmarks for return on shareholders' equity over a
three-year period. The benchmarks are determined by the
Compensation Committee each year and are adjusted based
on the previous year's performance. At the end of the
three-year performance period, the Compensation
Committee applies the formula to objective performance
results to determine an executive's award. No amounts
in excess of $3 million may be paid to any one
executive for any performance period.
An executive may elect to have all or part of the award
deferred and credited to one of the following accounts:
- Share Unit Account: The amount of the award is
converted to a number of share units. Each share unit
has a value equal to the value of a share of the
Common Stock. The award is converted at the market
value as of the day on which cash payment of the
award would have been made. Dividends on shares of
Common Stock are credited to the Share Unit Account
and adjustments are made for stock splits. Payouts
from the Share Unit Account are made in cash based
upon the value of the Common Stock at that time.
- Interest Account: The amount of the award is
increased annually based on the prime rate in effect
at Firstar Bank.
- Equity Fund Account: The amount of the award is
treated as if it had been invested as part of the
Equity Fund under the Johnson Controls Savings and
Investment Plan and will be periodically credited or
debited with an amount equal to the gain or loss in
value which would have been realized on an amount
equal to the unpaid balance of the Equity Fund
Account as if it had been invested in the Equity
Fund.
Upon termination of employment, the amounts in the
accounts will be paid in approximately ten equal annual
installments. Lump-sum payments may also be made upon a
change in control of the Company as defined.
23
<PAGE> 27
The LTPP terminates on September 30, 2003. The
Compensation Committee may amend the LTPP, subject to
IRS regulations that require shareholder approval of
amendments.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE LONG TERM PERFORMANCE PLAN.
RATIFICATION OF THE EXECUTIVE INCENTIVE COMPENSATION PLAN
MATERIAL The Board has adopted the following material amendments
AMENDMENTS: to the EICP:
- The maximum amount that can be paid under the EICP to
any executive with respect to any year has been
increased from $1 million to $2.5 million.
- Awards under the EICP will be based on the
executive's compensation as in effect on the last day
of the plan year (rather than that in effect at the
beginning of the plan year).
The Board has also adopted other amendments to the
EICP. You should read the copy of the EICP included as
Exhibit B to this proxy statement.
KEY TERMS OF THE All executive officers participate in the EICP, subject
EICP to approval of the Compensation Committee.
For each plan year, the Compensation Committee
determines within the first 90 days of the year and
communicates to the executive the formula for the
award, which is based on specified benchmarks for
return on shareholders' equity, return on group assets
or growth in operating profits. The benchmarks are
determined by the Compensation Committee each year and
are adjusted based on the previous year's performance.
At the end of the plan year, the Compensation Committee
applies the formula to objective performance results to
determine an executive's award. No amounts in excess of
$2.5 million may be paid to any one executive for any
plan year.
An executive who does not elect to defer payment will
receive payment between the 60th and the 75th day after
the end of the plan year. An Executive may elect to
have all or part of the award deferred and credited to
one of the following accounts:
- Share Unit Account: The amount of the award is
converted to a number of share units. Each share unit
has a value equal to the value of a share of the
Common Stock. The award is converted at the market
value as of the day on which cash payment of the
award
24
<PAGE> 28
would have been made. Dividends on shares of Common
Stock are credited to the Share Unit Account and
adjustments are made for stock splits. Payouts from the
Share Unit Account are made in cash based upon the
value of the Common Stock at that time.
- Interest Account: The amount of the award is
increased annually based on the prime rate in effect
at Firstar Bank.
- Equity Fund Account: The amount of the award is
treated as if it had been invested as part of the
Equity Fund under the Johnson Controls Savings and
Investment Plan and will be credited or debited with
an amount equal to the gain or loss in value that
would have been realized on an amount equal to the
unpaid balance of the Equity Fund Account as if it
had been invested in the Equity Fund.
Upon termination of employment, the amounts in the
accounts will be paid in approximately ten equal annual
installments. Lump-sum payments may also be made upon a
change in control of the Company as defined.
The Compensation Committee may amend the EICP, subject
to IRS regulations that require shareholder approval of
amendments.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE EXECUTIVE INCENTIVE COMPENSATION
PLAN.
JOHNSON CONTROLS SHARE OWNERSHIP
DIRECTORS AND
OFFICERS: The following table lists our Common Stock ownership as
of October 31, 1998, for the persons or groups
specified. Ownership includes direct and indirect
(beneficial) ownership, as defined by SEC rules. To our
knowledge, each person, along with his or her spouse,
has sole voting and investment power over the shares
unless otherwise noted. None of these persons
beneficially owns more than 1% of the outstanding
Common Stock.
25
<PAGE> 29
<TABLE>
<CAPTION>
AMOUNT AND UNITS REPRESENTING
NATURE(1) OF STOCK DEFERRED
NAME OF BENEFICIAL OWNER OWNERSHIP COMPENSATION(3)
- ------------------------ ------------------ ------------------
<S> <C> <C>
James H. Keyes 507,453(2) 57,841 units
John M. Barth 100,870(2) 17,834 units
Stephen A. Roell 112,887(2) 2,702 units
Michael F. Johnston 31,545(2) 4,817 units
Giovanni Fiori 82,050(2) 5,983 units
William F. Andrews 5,878 0 units
Robert Barnett 3,008 17,658 units
Paul A. Brunner 12,965 0 units
Robert A. Cornog 5,054 4,415 units
Willie D. Davis 3,365 0 units
William H. Lacy 1,500 1,038 units
Southwood J. Morcott 2,188 4,084 units
Richard F. Teerlink 3,421 0 units
Gilbert R. Whitaker, Jr. 5,415 6,117 units
All Directors and Executive Officers as a
group (not including deferred shares
referred to in footnote (3) Total: 1,537,753(2)
TOTAL PERCENT OF CLASS OF COMMON STOCK
EQUIVALENTS 1.7%
</TABLE>
- -------------------------
(1) Includes all shares for each officer or director which directly has or
shares the power to vote or to direct the vote of such shares, or to dispose
of or direct disposition of such shares.
(2) Includes shares of Common Stock, which, as of October 31, 1998, were subject
to outstanding stock options exercisable within 60 days as follows: Mr.
Keyes, 444,000, Mr. Barth, 48,000, Mr. Roell, 81,000, Mr. Fiori, 80,000 and
Mr. Johnston 19,000. This also reflects common stock equivalents of
Preferred Units that are owned by these officers.
(3) Includes deferred shares under the EICP, LTPP, and Deferred Compensation
Plan for certain Directors. Units will not be distributed in the form of
Common Stock.
SCHEDULE 13G FILINGS: The Company believes that following table is an
accurate representation of beneficial owners of more
than 5% of any class of the Company's securities. The
table is based upon reports on Schedules 13G filed with
the Securities and Exchange Commission or other
information believed to be reliable.
26
<PAGE> 30
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OF OWNERSHIP CLASS
-------------- --------------------------- ----------------- ----------------
<S> <C> <C> <C>
Series D Convertible Fidelity Management 273.273(1) 100%
Preferred Stock Trust Company
$1.00 Par Value 82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- -------------------------
(1) As of October 31, 1998, Fidelity Management Trust Company reported that it
held shared voting power and sole dispositive power with respect to the
shares indicated above in its capability as trustee of the Johnson Controls,
Inc. Employee Stock Ownership Trust.
VOTING PROCEDURES
ELECTION OF DIRECTORS: To be elected, directors must receive a plurality of
the shares present and voting in person or by proxy,
provided a quorum exists. A quorum is present if at
least a majority of the outstanding shares on the
record date are present in person or by proxy.
Plurality means that the number of directors 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.
OTHER PROPOSALS: To be approved, each of the proposals (1) to ratify the
election of PricewaterhouseCoopers LLP as our
independent auditors for 1999, (2) to ratify the LTPP
and (3) to ratify the EICP must receive more votes
"FOR" the proposal than "AGAINST". For purposes of
determining the vote with respect to these proposals,
any shares not voted (whether by abstention, broker
nonvote or otherwise) will have no impact.
The enclosed proxies will be voted in accordance with
the instructions you place on the proxy card. Unless
otherwise stated, all shares represented by your
returned, signed proxy will be voted for management
proposals as noted on the first page of this proxy
statement. Proxies may be revoked as noted on that
page.
27
<PAGE> 31
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of reports filed by our directors,
executive officers and of beneficial holders of 5% or
more of our shares, and upon representations from those
persons, all reports required to be filed during 1998
with the Securities and Exchange Commission under
Section 16(a) of the Securities Exchange Act of 1934
were timely made.
SUBMISSION OF SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
SHAREHOLDER Proposals of shareholders which are intended to be
PROPOSALS: presented at the 2000 annual meeting pursuant to SEC
Rule 14a-8, must be received by the Company no later
than August 6, 1999 to be included in the Company's
proxy materials for that meeting.
A shareholder that intends to present business at the
2000 Annual Meeting other than pursuant to Rule 14a-8
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
45 days and not more than 75 days prior to the month
and day in the current year corresponding to the date
on which the Corporation first mailed its proxy
materials for the prior year's annual meeting of
shareholders. Therefore, since the Company anticipates
mailing its proxy statement on December 4, 1998, the
Company must receive notice of a shareholder proposal
submitted other than pursuant to Rule 14a-8 no sooner
than September 20, 1999, and no later than October 20,
1999.
If the notice is received after October 20, 1999, then
the notice will be considered untimely and the Company
is not required to present such proposal at the 2000
Annual Meeting. If the Board of Directors chooses to
present a proposal submitted after October 20, 1999 at
the 2000 Annual Meeting, then the persons named in
proxies solicited by the Board of Directors for the
2000 Annual Meeting may exercise discretionary voting
power with respect to such proposal.
DIRECTOR NOMINATIONS: Shareholders wishing to propose direct 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.
The Company's by-Laws set forth additional requirements
for shareholders wishing to nominate director
candidates for
28
<PAGE> 32
consideration by shareholders. For elections of
directors at an annual meeting, the requirement include
written notice by the shareholder of an intent to make
such a nomination that complies with the By-Laws to the
Secretary of the Company not less than 45 days and not
more than 75 days prior to the month and day in the
current year corresponding to the date on which the
Company first mailed its proxy materials for the prior
year's meeting of shareholders.
By order of the Board of Directors.
JOHN P. KENNEDY
John P. Kennedy, Secretary
December 4, 1998
[MAP]
NOTE: NEW LOCATION FOR ANNUAL MEETING
29
<PAGE> 33
EXHIBIT A
JOHNSON CONTROLS, INC.
LONG TERM PERFORMANCE PLAN
(AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1998)
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PURPOSE............................................................................ 1
ARTICLE II. EFFECTIVE DATE AND TERMINATE DATE.......................... 1
Section 2.01. Effective Date........................................... 1
Section 2.02. Termination Date......................................... 1
ARTICLE III. DEFINITIONS................................................ 1
ARTICLE IV. ELIGIBILITY................................................ 2
ARTICLE V. ADMINISTRATION............................................. 2
Section 5.01. Amendment or Termination................................. 2
Section 5.02. The Committee............................................ 2
Section 5.03. Committee Authority...................................... 2
ARTICLE VI. ASSIGNMENT OF CONTINGENT PERFORMANCE AWARDS................ 3
Section 6.01. Assignments.............................................. 3
Section 6.02. Shareholder Approval Requirements........................ 3
Section 6.03. New Hired and Transferred Employees...................... 3
ARTICLE VII. PERFORMANCE GOALS.......................................... 3
Section 7.01. Criterion for Measuring Performance...................... 3
Section 7.02. Establishment of ROE Performance Goals................... 3
ARTICLE VIII. PAYMENT.................................................... 3
Section 8.01. Evaluating Performance and Computing Awards.............. 3
Section 8.02. Computing Awards......................................... 4
Section 8.03. Timing and Form of Payment............................... 4
Section 8.04. Distribution Upon Termination of Employment.............. 6
Section 8.05. Change of Control........................................ 7
Section 8.06. Distribution in Event of Financial Emergency and
Acceleration of Payments................................. 9
ARTICLE IX. TERMINATION................................................ 9
Section 9.01. Termination for Death or Disability...................... 9
Section 9.02. Termination for Normal Retirement........................ 9
Section 9.03. Termination for Other Reasons............................ 10
ARTICLE X. ADJUSTMENTS................................................ 10
ARTICLE XI. OTHER CONSIDERATIONS....................................... 10
Section 11.01. Beneficiary Designation.................................. 10
Section 11.02. Dissolution or Merger.................................... 10
Section 11.03. Claim to Performance Awards and Employment Rights........ 11
Section 11.04. Nontransferability....................................... 11
Section 11.05. Tax Withholding.......................................... 11
Section 11.06. Administrative Expenses.................................. 11
Section 11.07. Governing Law............................................ 11
Section 11.08. Gender and Number........................................ 11
</TABLE>
i
<PAGE> 35
ARTICLE I. PURPOSE
The purpose of this Plan is to motivate top executives to achieve longer
term objectives which will result in long term increased value to the
shareholders of the Company.
ARTICLE II. EFFECTIVE DATE AND TERMINATE DATE
Section 2.01. Effective Date. The Plan shall be effective as of October 1,
1987.
Section 2.02. Termination Date. The Plan shall terminate with respect to
the assignment of contingent Performance Awards on September 30, 2003; provided,
however, that the Committee may terminate the Plan or the assignment of
contingent Performance Awards at any time prior to that date. Termination of the
Plan shall not cancel, reduce or otherwise impair the rights of Participants to
receive any contingent Performance Awards assigned prior to termination of the
Plan.
ARTICLE III. DEFINITIONS
Section 3.01. The "Company" is Johnson Controls, Inc., a Wisconsin
corporation, and any successor thereto that adopts the Plan.
Section 3.02. The "Plan" is the Johnson Controls, Inc. Long Term
Performance Plan adopted on September 23, 1987 as from time amended and in
effect.
Section 3.03. The "Board" is the Board of Directors of the Company.
Section 3.04. The "Committee" means the Compensation Committee of the
Board, which shall consist of not less than two (2) members of the Board each of
whom is a "non-employee director" as defined in Securities and Exchange
Commission Rule 16b-3(b)(3), or as such term may be defined in any successor
regulation under Section 16 of the Securities Exchange Act of 1934, as amended.
In addition, each member of the Committee shall be an outside director within
the meaning of Section 162(m) of the Internal Revenue Code.
Section 3.05. A "Participant" is an executive of the Company or a
subsidiary who has been approved for participation in the Plan.
Section 3.06. The "Base Salary" of a Participant is the annual rate of base
pay in effect for such Participant as of the last day of the Performance Period
(or such other date as the Committee may specify by action taken within 90 days
after the beginning of the Performance Period).
Section 3.07. The "Beneficiary" is the person or persons entitled to
receive any amounts due to a Participant in the event of the Participant's
death.
Section 3.08. "Income" is consolidated income before income taxes, as
stated in the Consolidated Statement of Income in the Company's Annual Report.
<PAGE> 36
Section 3.09. "Shareholders' Equity" for a fiscal year is calculated for
purposes hereunder by taking the arithmetic average of consolidated
shareholders' equity of the Company, as set forth in the Consolidated Statement
of Financial Position in the Company's Quarterly and Annual Reports to
shareholders, over five points in time, which shall include the end of the
preceding year and the end of each quarter of the current fiscal year.
Section 3.10. "Return on Shareholders' Equity (ROE)" is the percentage
relationship of Income to Shareholders' Equity for each fiscal year.
Section 3.11. "Earnings Per Share (EPS)" is Company net income per share of
Common Stock, on a fully diluted basis, as reported in the Company's Annual
Report to Shareholders.
Section 3.12. "Performance Award" is an amount whose final value will be
earned and paid to a Participant if certain predetermined requirements are met.
Section 3.13. "Performance Period" is a period of three successive fiscal
years, as determined by the Committee, with respect to which an assignment of
Performance Awards is made pursuant to this Plan.
ARTICLE IV. ELIGIBILITY
Only officers and other key executives of the Company who have a
significant influence upon the long-term performance of the Company will be
eligible to participate in the Plan. Participation in one award, however, will
not automatically guarantee participation in subsequent years. Participation for
each award under the Plan will be approved by the Committee after consultation
with the Chief Executive Officer.
ARTICLE V. ADMINISTRATION
Section 5.01. Amendment or Termination. The Committee may modify or amend,
in whole or in part, any or all of the provisions of the Plan, except as to
those terms or provisions that are required by Section 162(m) of the Internal
Revenue Code to be approved by the shareholders, or suspend or terminate the
Plan entirely; provided, however, that no such modification, amendment,
suspension or termination may, without the consent of the Participant or his or
her Beneficiary in the case of his or her death, reduce the right of a
Participant, or his or her beneficiary, as the case may be, to any payment due
under the Plan.
Section 5.02. The Committee. The Plan shall be administered by the
Committee.
Section 5.03. Committee Authority. Except as otherwise specifically
provided by the Plan, the Committee shall have full and exclusive authority to
execute the responsibilities given to it by the Plan. Any determinations,
rulings, or interpretations made by the Committee shall be final and binding on
all persons, including the Company, shareholders of the Company, Participants,
and other employees. The Committee may make such reasonable rules and
regulations concerning the
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administration of the Plan as it deems necessary or appropriate. In its
administration of the Plan, the Committee shall apply such rules and regulations
and shall otherwise interpret the provisions of the Plan in a reasonable and
consistent manner.
ARTICLE VI. ASSIGNMENT OF CONTINGENT PERFORMANCE AWARDS
Section 6.01. Assignments. The Committee shall assign to each Participant a
contingent Performance Award (expressed as a percentage of the Participant's
Base Salary) that it deems appropriate prior to the commencement of the
Performance Period to which the Performance Award applies, or within 90 days
following the beginning of such Performance Period.
Section 6.02. Shareholder Approval Requirements. The Committee, in its
discretion, may make all or any portion of the assignment of awards contingent
upon receiving subsequent shareholder approval sufficient to qualify payment
thereunder as deductible for the Corporation. The Committee may take such action
without the consent of participants.
Section 6.03. New Hired and Transferred Employees. Notwithstanding anything
to the contrary herein, in the case of a person who is newly hired into an
eligible position or transferred into an eligible position after the beginning
of a Performance Period, the Committee may at any time grant a contingent
Performance Award, and fix the terms of any such award, whether or not such
action qualifies for the performance-based exception under Section 162(m) of the
Code.
ARTICLE VII. PERFORMANCE GOALS
Section 7.01. Criterion for Measuring Performance. The criteria to be used
to measure the financial performance of the Company shall be its Return on
Equity (ROE). The Company's Return on Equity shall be compared to performance
goals as established in Section 7.02.
Section 7.02. Establishment of ROE Performance Goals. The Committee shall
establish performance goals prior to, or within 90 days after the beginning of,
each Performance Period and set those goals forth in its meeting minutes.
ARTICLE VIII. PAYMENT
Section 8.01. Evaluating Performance and Computing Awards. As soon as
practicable following the close of the Performance Period, the Company shall
determine the award amount applicable to that Performance Period, provided that
the maximum award amount for any Participant with respect to any Performance
Period shall be three million dollars ($3,000,000). All awards are subject to
certification in writing by the Committee prior to payment that the performance
goals and other material terms of the Plan were in fact satisfied.
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<PAGE> 38
Section 8.02. Computing Awards. Award amounts will be calculated from a
table which will be issued to each participant at the time of grant.
Section 8.03. Timing and Form of Payment.
(a) When the payment due to the Participant has been determined as
aforesaid, unless otherwise deferred in accordance with Sections 8.03(b) or (c)
or to be paid on a current basis in accordance with Section 8.03(d), the payment
due the participant shall be credited to a bookkeeping reserve account which
shall be established for the Participant and set up the books of the Company and
known as his "Interest Account". The unpaid balance in the Interest Account
shall be credited with a simple annual interest equivalent as follows: As of
January 1 next following the close of the Performance Period for which the
deferred award was made, such award shall become part of the unpaid balance of
such Interest Account. Such Interest Account shall be credited on December 31 of
each year with an amount equal to interest on the unpaid balance of such account
from time to time outstanding during the year ending on such December 31 at the
rate determined by adding together the prime rate in effect at the Firstar Bank
Milwaukee, N.A. (or any successor thereto) on the last banking day prior to the
beginning of such year and the prime rate in effect at said bank on the last
banking day of each of the calendar months of January through November of such
year and dividing such total by 12. In the event the Interest Account shall be
terminated for any reason prior to December 31 of any year, such account shall
upon such termination date be credited with an amount equal to interest at the
average prime rate determined as aforesaid on the unpaid balance from time to
time outstanding during that portion of such year prior to the date of
termination.
(b) A Participant may elect that part or all of the payment due be
converted to "Share Units", as provided below, and credited to a bookkeeping
reserve account which shall be established for the Participant and set upon on
the books of the Company and known as his "Share Unit Account". The term "Share
Unit" means a measure of participation under the Plan having a value based on
the market value or a share of the common stock of the Company and other
characteristics specified herein. When a participant has elected to have a part
or all of his award under the Plan converted to Share Units, it shall be
converted between the 60th and 75th day immediately after the close of the
Performance Period. Any other provision of this Plan to the contrary
notwithstanding, the aggregate number of Share Units to be awarded under this
Plan shall not exceed two (2) percent of the number of issued and outstanding
shares of the Common Stock of the Company. Each award shall be converted into
Share Units in the following manner:
(i) Determine the market value of a share of the common stock of the
Company. The market value shall be the closing price on the New York Stock
Exchange on the day in question, or the day of the last previous sale, if
there shall not be any sale on the day in question.
(ii) Divide the award by such market value.
(iii) The quotient resulting from such division indicates the Share
Units to be credited. Whenever the Company declares a dividend on its
common stock,
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in cash or in property, at a time when Participants have Share Units
credited to their accounts in the Plan, a dividend award shall be made to
all Participants as of the date of payment of the dividend. The dividend
award for a Participant shall be determined by multiplying the Share Units
credited to a Participant's account on the date of payment by the amount of
the dividend paid on each share of common stock. The dividend award shall
be converted into Share Units in the same manner that an award is converted
into Share Units. In making this conversion, the market value of a share of
the common stock of the Company shall be determined as of the date the
dividend on the common stock is paid.
(c) A Participant may also elect to have part or all of the payment due
credited to a bookkeeping reserve account which shall be established for the
Participant and set up on the books of the Company and known as his "Equity Fund
Account". When a Participant has elected to have a part or all of his award
credited to an Equity Fund Account, the unpaid balance in such account shall be
credited or debited with an annual investment return equivalent as follows: As
of the date on which an award would be payable in cash immediately following the
close of each Performance Period for which an award was made, such award shall
become part of the unpaid balance of such Equity Fund Account. Such Equity Fund
Account shall be treated as if it had been invested as an integral part of the
Equity Fund (or such other fund designated by the Committee) under the Johnson
Controls Savings and Investment Plan and shall be credited or debited as of the
last day of each fiscal year with an amount equal to the net gain or loss in
value, as the case may be, which would have been realized on an amount equal to
the unpaid balance of such Equity Fund Account if it had been invested in such
Equity Fund throughout such fiscal year. In the event that the Equity Fund
Account shall be terminated for any reason prior to September 30, of any year,
such account shall upon such termination date be credited or debited with an
amount equal to the net gain or loss in value which would have been realized on
an amount equal to the unpaid balance of such Equity Fund Account if it had been
invested in such Equity Fund during the part of such fiscal year commencing on
the first day thereof and ending on the date of termination of such account.
(d) A Participant may also elect, subject to the approval of the Committee,
that part or all of the payment due to such Participant with respect to any
Performance Period shall be paid to him on a current (rather than a deferred
basis). For any Performance Period for which a Participant elects payment on a
current basis, the payment due shall be paid to the Participant, in the sole
discretion of the Committee, in a lump sum, or in installments (which need not
be equal) commencing in the first quarter following the close of the Performance
Period, over a period not to exceed five years.
(e) An election under Sections 8.03(b), (c), or (d) with respect to any
Performance Period must be filed in writing with the Committee not later than
the last day of the second fiscal year in such Performance Period. Any such
election shall be irrevocable. Any Participant may file with the Committee a
written waiver of his right to elect payment on a current basis pursuant to
Section 8.03(d). Such
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<PAGE> 40
waiver may be filed at any time so long as the Participant has not previously
filed an election under Section 8.03(d). Any such waiver shall be irrevocable.
(f) A Participant may also irrevocably elect, one each year and effective
on the next date on which conversions are made under paragraph 8.03(b), to
convert all or part of an Interest Account or an Equity Fund Account to the
Participant's Share Unit Account. Such conversions shall be made in the same
manner as set forth in paragraph 8.03(b), as if the amount for which an election
was made was an award being made effective on that date.
Section 8.04. Distribution Upon Termination of Employment. Upon termination
of a Participant's employment with the Company or subsidiary for any reason, the
Participant, or his/her Beneficiary in the event of his/her death, shall be
entitled to receive the amounts accumulated in such Participant's Interest
Account, Share Unit Account and/or Equity Fund Account, as the case may be, in
ten approximately equal annual installment payments as hereinafter provided.
(a) The amounts in the Interest Account and/or the Equity Fund Account
shall be paid in cash as follows:
(i) The first annual payment shall be made no earlier than the
fifteenth day of the first quarter of the calendar year following the date
of termination of employment, and shall be in an amount equal to the value
of 1/10th of the total amount credited to the Participant's Interest
Account and/or Equity Fund Account as of January 1 next following the date
of termination.
(ii) A second annual payment shall be made no earlier than the
fifteenth day of the first quarter of the calendar year following the year
during which the first anniversary of the date of termination of employment
occurs, and shall be in an amount equal to the value of 1/9th of the amount
credited to the Participant's Interest Account and/or Equity Fund Account
as of January 1 next following the first anniversary of the termination of
employment.
(iii) Each succeeding installment payment shall be determined in a
similar manner, i.e., the fraction of the Participant's Interest Account
and/or Equity Fund Account balance to be paid out shall increase each year
to 1/8th, 1/7th, etc., until the tenth installment which shall equal the
then remaining balance of the account.
(b) The amounts in the Share Unit Account shall be paid in cash as follows:
(i) The first annual payment shall be made no earlier than the
fifteenth day of the first quarter of the calendar year following the date
of termination of employment, and shall be in an amount equal to the value
of 1/10th of the number of Share Units credited to the Participant's
account as of the date of termination of employment. The value of each
Share shall be determined by multiplying the market value of a share of
common stock of the Company on the date of termination of employment by the
number of such Share Units. Payment shall be made by the Company in cash.
After the amount of the first installment has been determined, 1/10th of
the Share Units credited to the
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<PAGE> 41
Participant's account on the date of termination of employment shall be
cancelled as of the date of termination of employment.
(ii) A second annual payment shall be made no earlier than the
fifteenth day of the first quarter of the calendar year following the year
during which the first anniversary of the date of termination of employment
occurs, and shall be in an amount equal to the value of 1/9th of the number
of Share Units credited to the Participant's account as of the first
anniversary of the date of termination of employment. The value of such
Share Units shall be determined by multiplying the market value of a share
of the common stock of the Company on the first anniversary of the date of
termination of employment by the number of such Share Units. Payment shall
be made by the Company in cash. After the amount of the second installment
has been determined, 1/9th of the Share Units credited to the account of
the Participant on the first anniversary of the date of termination of
employment shall be cancelled as of the first anniversary of the date of
termination of employment.
(iii) Each succeeding installment payment shall be determined in a
similar manner and Share Units shall be cancelled in a similar manner, the
tenth annual installment being an amount equal to the value of the total
number of Share Units credited to the account of the Participant on the
ninth anniversary of the date of termination of employment.
Section 8.05. Change of Control. Notwithstanding any other provision of
this Plan, within 30 days of a Change of Control (as defined below), each
participant shall be entitled to receive a lump sum payment in cash equal to the
product of (x) such participant's formula award for the year in which the Change
of Control occurs, based on maximum achievable award for such Participant under
the Plan and (y) a fraction, the numerator of which is the number of days after
January 1 in the year in which the Change of Control occurs and the denominator
of which is 365. In addition, the Company shall pay to each Participant a lump
sum amount in cash within 30 days of the Change of Control all amounts
accumulated in such Participant's Interest, Share Unit and Equity Fund Account
under the Plan. In determining the amount accumulated in a Participant's Share
Unit Account, each Share Unit shall have a value equal to the higher of (x) the
highest reported sales price, regular way, of a share of the Company's common
stock on the Composite Tape for New York Stock Exchange Listed Stocks (the
"Composite Tape") during the sixty-day period prior to the date of Change of
Control of the Company and (y) if the Change of Control of the Company is the
result of a transaction or series of transactions described in paragraphs (a) or
(c) of the definition of Change of Control of the Company set forth below, the
highest price per share of common stock of the Company paid in such transaction
or series of transactions. A Change of Control means any of the following
events:
(a) 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 Act")) of beneficial
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ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either:
(i) The then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or
(ii) 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 in Control of the Company; or
(b) 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
(c) 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 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
(d) 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
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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 entitles 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.
Section 8.06. Distribution in Event of Financial Emergency and Acceleration
of Payments. The Committee may in its sole discretion elect to make or
accelerate payments of the amounts remaining in the Participant's Interest,
Share Unit or Equity Fund Accounts either prior to termination of employment or
thereafter if the unpaid balance at any time is less than $50,000, or in the
event the Committee determines that financial emergency has occurred in the
personal affairs of the Participant or his Beneficiary in case of his death. If
requested by a Participant while in the employ of the Company or a subsidiary
and the Committee determines that a financial emergency has occurred in the
financial affairs of the Participant, the Interest, Share Unit and/or Equity
Fund Accounts of the Participant on the date the Participant makes the request
may be paid out at the sole discretion of the Committee in the same manner they
would have paid out had the Participant terminated his employment with the
Company or subsidiary on the date of such request. In the event of a payout due
to financial emergency, a second Interest, Share Unit and Equity Fund Account
shall be established for the participant and any wards made to the Participant
thereafter shall be credited to such second Interest, Share Unit or Equity Fund
Account. The Participant's rights to the second Interest, Share Unit of Equity
Fund Account shall be the same as his rights to the initial Interest, Share Unit
or Equity Fund Account.
ARTICLE IX. TERMINATION
Section 9.01. Termination for Death or Disability. If a Participant's
employment is terminated during a Performance Period by reason of death or
disability, payments shall be determined and paid under Section 8, as if the
fiscal year during which termination takes place is the last fiscal year of the
particular Performance Period.
Section 9.02. Termination for Normal Retirement. If a Participant's
employment is terminated during a Performance Period by reason of normal
retirement, payments shall be determined and paid under Section 8 as if the
fiscal year during which such termination takes place is the last fiscal year of
the particular Performance Period. However, before such determination is made,
the Performance Award for such Performance Period shall, as of the date of
normal retirement, be reduced to a number calculated by multiplying the
Performance Award by a fraction. The numerator of the fraction shall be the
number of full months during which the Participant was an employee of the
Company during the
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Performance Period and the denominator of which is the number of full months the
Performance Period would have lasted had the normal retirement not occurred.
Section 9.03. Termination for Other Reasons. The Committee shall have the
discretion to cancel an award if the Participant's employment is terminated
during a Performance Period for any reason other than death, total and permanent
disability, or normal retirement.
ARTICLE X. ADJUSTMENTS
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, reclassification,
merger, consolidation or exchange of shares or other similar corporate change,
then if the Committee shall determine, in its sole discretion, that such change
necessarily or equitably requires an adjustment in the Performance Awards or
Share Units then held by Participants, such adjustments shall be made by the
Committee and shall be conclusive and binding for all purposes of this Plan. No
adjustment shall be made in connection with the issuance by the Company of any
warrants, rights, or options to acquire additional shares of Common Stock or of
securities convertible into Common Stock.
ARTICLE XI. OTHER CONSIDERATIONS
Section 11.01. Beneficiary Designation. A Participant may designate a
Beneficiary or Beneficiaries who, upon the Participant's death, are to receive
the distributions that otherwise would have been paid to the Participant. All
designations shall be in writing and shall be effective only if and when
delivered to the Committee during the lifetime of the Participants. If a
Participant designates a Beneficiary without providing in the designation that
the Beneficiary must be living at the time of each distribution, the designation
shall vest in the Beneficiary all of the distributions whether payable before or
after the Beneficiary's death, and any distribution remaining upon the
Beneficiary's death shall be made to the Beneficiary's estate. A participant may
from time to time during his lifetime change his Beneficiary by a written
instrument delivered to the Secretary of the Company. In the event a Participant
shall not designate a Beneficiary as aforesaid, or if for any reason such
designation shall be ineffective, in whole or in part, the distribution that
otherwise would have been paid to such Participant shall be paid to the
Participant's estate and in such event the term "Beneficiary" shall include his
estate.
Section 11.02. Dissolution or Merger. If the Company should be liquidated
and/or dissolved, or if the Company should become a party to a merger or
consolidation in which it is not the surviving corporation, every outstanding
Performance Award under this Plan shall become vested and payable to a
Participant as though each applicable Performance Award's Performance Period had
run its term as of the date of such event, and any payment, shall be made as per
termination in accordance with Section 8.03.
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Section 11.03. Claim to Performance Awards and Employment Rights. No
employee or other person shall have any claim or right to be assigned
Performance Awards under this Plan. Neither this Plan nor any action taken
hereunder shall be construed as giving any employee any right to be retained in
the employ of the Company.
Section 11.04. Nontransferability. A Participant's rights and interests
under this Plan, including amounts payable, may not be assigned, pledged, or
transferred except in the event of the Participant's death, to his designated
Beneficiary as provided in this Plan, or in the absence of such designation, by
Will or the laws of descent and distribution.
Section 11.05. Tax Withholding. The Company shall have the right to deduct
from all cash payments any federal, state, or local taxes required by law to be
withheld with respect to such cash payments and, in case of awards paid in
Common Stock, the Participant or other person receiving such Common Stock may be
required to pay to the Company the amount of any such taxes which the Company is
required to withhold with respect to such Common Stock.
Section 11.06. Administrative Expenses. The Company shall bear the expenses
of administering the Plan.
Section 11.07. Governing Law. This Plan shall be construed, administered
and governed in all respects in accordance with the laws of the State of
Wisconsin.
Section 11.08. Gender and Number. 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 B
JOHNSON CONTROLS, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
DEFERRED OPTION QUALIFIED PLAN
(AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1998)
1. NAME
Johnson Controls Executive Incentive Compensation Plan
2. PURPOSE
The purpose of the Plan is to:
Provide incentive to the key executives of the Company and its subsidiaries
who have the prime responsibility for the operations of the Company and its
subsidiaries by making them participants in their success.
3. DEFINITIONS
A. The term "Company" means Johnson Controls, Inc., a Wisconsin Corporation,
and any successor thereto that adopts the Plan.
B. The term "Plan" means the arrangement described herein.
C. The term "Plan Year" a fiscal year of the Company.
D. The term "Participant" means an executive of the Company or a subsidiary
who has been approved for participation in the Plan.
E. The term "Board" means the Board of Directors of the Company.
F. The term "Committee" means the Compensation Committee of the Board, which
shall consist of not less than two (2) members of the Board each of whom
is a "non-employee director" as defined in Securities and Exchange
Commission Rule 16b-3(b)(3), or as such term may be defined in any
successor regulation under Section 16 of the Securities Exchange Act of
1934, as amended. In addition, each member of the Committee shall be an
outside director within the meaning of Section 162(m) of the Internal
Revenue Code.
G. The term "Compensation" means the annualized base salary in effect for a
Participant at the close of the fiscal year (or such other date as the
Committee may specify by action taken within 90 days after the beginning
of the Plan Year), including salary being paid on a deferred basis as
well as salary being paid on a current basis.
H. The term "Beneficiary" means the person or persons entitled to receive
the interest of a Participant in the event of the Participant's death.
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I. The term "Operating Profits" means the consolidated income before:
(1) The incentive compensation awards under this Plan.
(2) Any taxes on income.
(3) Extraordinary credits and charges to income less the related tax
effect.
(4) The cumulative effect, less the related tax effect, on prior years
of any accounting change made during the year.
(5) Company expense related to the Savings & Investment Plan.
The calculation of such Operating Profits shall be examined by the
Company's independent public accountants who shall furnish their
opinion that such calculation has been made in accordance with
generally accepted accounting principles consistently applied and in
compliance with the provisions of this Plan.
J. The term "Shareholders' Equity" for a Plan Year means the consolidated
shareholders' equity (sometimes referred to as net worth) of the Company
at the end of the preceding fiscal year of the Company, as set forth in
the Company's annual report for the preceding fiscal year, plus or minus
a proportionate allowance for any change during such Plan year, based on
the period of such change, in the amount of shareholders' equity from
newly-issued or finally-retired capital stock.
K. For the purposes of this Agreement, business combinations treated as an
accounting pooling of interests shall be adjusted to a purchase basis
and Operating Profits and Shareholders' Equity shall be restated
accordingly.
L. The term "Return on Shareholders' Equity" for a Plan Year means the
percentage that Operating Profits for the year is of Shareholders'
Equity for the year.
M. The term division "Return on Assets" for a Plan Year means division
operating income for the year as a percentage of average division assets
employed. (See Corporate Procedure Number 3A 3580 01).
4. ELIGIBILITY AND PARTICIPATION
A. APPROVAL
Awards under the Plan are subject to shareholder approval of the Plan.
Each specific executive of the Company or a subsidiary who is approved
for participation in the Plan by the Committee shall be a Participant as
of the date designated by the Committee. Such executives shall include
corporate and other key senior managers who may be subject to Section
162(m) of the Internal Revenue Code and who are approved for
participation in the Plan by the Committee. Written notice of such
approval shall be given to each executive so approved as soon as
practicable following date of approval.
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<PAGE> 48
B. TERMINATION OF APPROVAL
The Committee may withdraw its approval for participation for a
Participant at any time. In the event of such withdrawal, the executive
concerned shall cease to be an active Participant as of the date selected
by the Committee and the executive shall be notified of such withdrawal
as soon as practicable following such action.
C. NOTIFICATION
D. TRANSFERS IN, OUT OF AND BETWEEN ELIGIBLE POSITIONS
(1) It is contemplated that an executive may be approved for
participation during a portion of a Plan Year and shall be eligible
to receive an award for the year based on the number of full months
as a Participant.
a. A person newly hired or transferred into an eligible position
shall have his/her participation prorated during the first Plan
Year provided the person's employment or transfer occurs at least
two months prior to the end of the Plan Year. Alternatively, and
notwithstanding anything to the contrary herein, the Committee may
at any time grant a formula award to a Participant who is newly
hired or transferred into an eligible job position during the Plan
Year, and fix the terms of any such award, whether or not such
action qualifies for the performance-based exception under Section
162(m) of the Code.
b. A person transferred out of an eligible position may receive a
prorated award at the discretion of the Committee provided he/she
served in the eligible position for at least two full months
during the Plan Year.
(2) Participants transferred between eligible positions having
different award formulae will receive awards prorated to months
served in each eligible position.
E. TERMINATION OF EMPLOYMENT
The Committee shall have the discretion not to make or to reduce an
incentive award for a Plan Year for a Participant whose employment with
the Company or subsidiary is terminated during the year for reasons other
than retirement due to age under the Company's or subsidiary's retirement
program, total and permanent disability, or death.
5. ANNUAL AWARDS TO PARTICIPANTS
A. AWARDS BASED ON FORMULA
Prior to, or within 90 days after, the beginning of each Plan Year, a
formula award shall be determined for each Participant who is eligible to
receive an award for the year. The award (which is communicated
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<PAGE> 49
individually) shall be expressed as a percentage of Compensation
resulting from a formula based on Return on Shareholders Equity (or
division Return on Assets) and growth in Operating Profits. Irrespective
of the formula, no amounts in excess of two million five hundred thousand
dollars ($2,500,000) may be paid to any one Participant for any Plan
Year. Payments are subject to certification in writing by the Committee
prior to payment that the performance goals and other material terms of
the Plan were in fact satisfied.
B. DISCRETIONARY REDUCTIONS TO FORMULA AWARDS
Upon recommendation by the President, the Committee may approve
reductions to a Participant's formula award based upon the individual's
performance and attainment of objectives during the Plan Year. Awards may
be reduced to no less than .8 times the formula percentage yield.
6. PAYMENT OF INCENTIVE AWARDS
A. CURRENT PAYMENT
A Participant's award for a Plan Year, which is not deferred in
accordance with the provisions of Item 6.B. hereof, and a Participant's
award, whether or not he elected deferred payment thereof, for the Plan
Year in which his employment terminates, shall be paid in cash to the
Participant, or his Beneficiary in the event of his death, between the
60th day and the 75th day following the end of the Plan Year. Should the
Committee elect to postpone the payments for any reason, the Committee
may, in its discretion, also elect to pay interest at a reasonable rate
for the period between the 75th day following the end of the Plan Year
and the day on which the payments are in fact made.
B. DEFERRED PAYMENT
(1) ELECTION
Before the first day of each Plan Year, a Participant may irrevocably
elect in writing to have a part or all of his award for the year
under the Plan (but not less than $1,000) deferred and, at his
election, part or all such deferred payment may be converted to Share
Units, as provided below, and credited to a bookkeeping reserve
account which shall be established for the Participant and set up on
the books of the Company and known as his "Share Unit Account",
and/or the dollar amount of part or all of such deferred payment may
be credited to a bookkeeping reserve account which shall be
established for the Participant and set up on the books of the
Company and known as his "Interest Account" and/or the dollar amount
of part or all of such deferred payment may be credited to a
bookkeeping reserve account which shall be established for the
Participant and set up on the books of the Company and known as his
"Equity Fund Account." The term "Share Unit" means a measure of
participation under the Plan having a value based on the market value
of a share of the common stock of
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the Company and other characteristics specified herein. Any other
provision of this Plan to the contrary notwithstanding, the
aggregate number of Share Units to be awarded under this Plan
shall not exceed two (2) percent of the number of issued and
outstanding shares of the Company's Common Stock. Subject to this
limitation, a Participant may also irrevocably elect, once each
year and effective on the next date on which conversions are made
under Item 6.B.2., to convert all or part of an Interest Account
or an Equity Fund Account to the Participant's Share Unit
Account. Such conversions shall be made in the same manner as set
forth in Item 6.B.2., as if the amount for which an election was
made was an award being made effective on that date.
(2) CONVERTING AWARDS TO SHARE UNITS
When a Participant has elected to have a part or all of his
award under the Plan converted to Share Units, it shall be
converted as of the same date on which cash payments are made
or would have been made. Each award shall be converted into
Share Units in the following manner:
a. Determine the market value of a share of common stock of
the Company.
b. Divide the award by such market value.
c. The quotient resulting from such division indicates the
Share Units to be credited.
(3) CONVERTING DIVIDEND AWARDS TO SHARE UNITS
Whenever the Company declares a dividend on its Common Stock,
in cash or in property, at a time when Participants have
Share Units credited to their accounts in the Plan, a
dividend award shall be made to all Participants as of the
date of payment of the dividend. The dividend award for a
Participant shall be determined by multiplying the Share
Units credited to a Participant's account on the date of
payment by the amount of the dividend paid on each share of
common stock. The dividend award shall be converted into
Share Units in the same manner that an award is converted
into Share Units under Item 6.B.(2). In making this
conversion, the market value of a share of the common stock
of the Company shall be determined as of the date the
dividend on the common stock is paid. Any other provision of
this Plan to the contrary notwithstanding, if a dividend is
declared on the common stock of the Company in the form of a
right or rights to purchase shares of capital stock of the
Company or of any entity acquiring the Company, such dividend
award shall not be converted to Share Units, but each Share
Unit credited to a Participant's Share Unit Account at the
time such dividend is paid and each Share Unit thereafter
credited to the Participant's Share
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<PAGE> 51
Unit Account at a time when such rights are attached to
shares of the Company's common stock shall thereafter be
valued as of any point in time on the basis of the aggregate
of the then market value of one share of the common stock of
the Company plus the then market value of such right or
rights then or previously attached to one share of the common
stock of the Company.
(4) ADJUSTMENTS
In the event of a stock dividend on the common stock of the
Company, or any split up or combination of shares of the
common stock of the Company, or other change therein, an
appropriate adjustment shall be made in the aggregate number
of Share Units then standing to the credit of a Participant
so as to give effect to the extend practicable to such change
in the capital structure of the Company and to the purpose
and intent of the Plan.
(5) CREDITS TO INTEREST ACCOUNT
When a Participant has elected to have a part or all of his
award credited to an "Interest Account", the unpaid balance
in such account shall be credited with a simple annual
interest equivalent, as follows: As of the January 1 next
following the Plan Year for which the deferred award was made
such award shall become part of the unpaid balance of such
Interest Account. Such Interest Account shall be credited on
December 31 of each year with an amount equal to interest on
the unpaid balance of such account from time to time
outstanding during the year ending on such December 31 at the
rate determined by adding together the prime rate in effect
at the First Wisconsin National Bank of Milwaukee on the last
banking day prior to the beginning of such year and the prime
rate in effect at said bank on the last banking days of each
of the calendar months of January through November of such
year and dividing such total by 12. In the event that the
Interest Account shall be terminated for any reason prior to
December 31 of any year, such account shall upon such
termination date be credited with an amount equal to interest
at the average prime rate determined as aforesaid on the
unpaid balance from time to time outstanding during that
portion of such year prior to the date of termination.
(6) CREDITS TO EQUITY FUND ACCOUNT
When a Participant has elected to have a part or all of his
award credited to an "Equity Fund Account" the unpaid balance
in such account shall be credited or debited, with an annual
investment return equivalent as follows: As of the day next
following the close of each Plan Year for which an award was
made, such award shall become part of the unpaid balance of
such Equity Fund Account. Such Equity Fund Account shall be
treated as if it
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<PAGE> 52
had been invested as an integral part of the Equity Fund (or
such other fund designated by the Committee) under the
Johnson Controls Savings and Investment Plan and shall be
credited or debited as of the last day of each Plan year with
an amount equal to the net gain or loss in value, as the case
may be, which would have been realized on an amount equal to
the unpaid balance of such Equity Fund Account if it had been
invested in such Equity Fund throughout such Plan Year. In
the event that the Equity Fund Account shall be terminated
for any reason prior to September 30 of any year, such
account shall upon such termination date be credited or
debited with an amount equal to the net gain or loss in value
which would have been realized on an amount equal to the
unpaid balance of such Equity Fund Account if it had been
invested in such Equity Fund during the part of such Plan
Year commencing on the first day thereof and ending on the
date of termination of such account.
(7) DISTRIBUTION UPON TERMINATION OF EMPLOYMENT
Upon termination of a Participant's employment with the
Company or subsidiary for any reason, the Participant, or
his/her Beneficiary in the event of his/her death, shall be
entitled to ten approximately equal annual installment
payments. The amount accumulated in such Participant's
Interest Account, Share Unit Account and/or Equity Fund
Account, as the case may be, shall be distributed as
hereinafter provided.
a. If the Participant elects the Interest Account and/or
Equity Fund Account, the amount, if any, shall be paid in
cash as follows:
i. The first annual payment shall be made no earlier
than the fifteenth day of the first quarter of the
calendar year following the date of termination of
employment, and shall be in an amount equal to the
value of 1/10th of the total amount credited to the
Participant's Interest Account and/or Equity Fund
Account as of January 1 next following date of
termination.
ii. A second annual payment shall be made no earlier
than the fifteenth day of the first quarter of the
calendar year following the year during which the
first anniversary of the date of termination of
employment occurs, and shall be in an amount equal to
the value of 1/9th of the amount credited to the
Participant's Interest Account and/or Equity Fund
Account as of January 1 next following the first
anniversary of the termination of employment.
iii. Each succeeding installment payment shall be
determined in a similar manner, i.e., the fraction of
Participant's
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<PAGE> 53
Interest Account and/or Equity Fund Account
balance to be paid out shall increase each year to
1/8th, 1/7th, etc., until the tenth installment
which shall equal the then remaining balance of
the account.
b. If the Participant elects the Share Unit Account, the
amount, if any, shall be paid in cash as follows:
i. The first annual payment shall be made no earlier
than the fifteenth day of the first quarter of the
calendar year following the date of termination of
employment, and shall be in an amount equal to the
value of 1/10th of the number of Share Units credited
to the Participant's account as of the date of
termination of employment. The value of each Share
shall be determined by multiplying the market value
of a share of common stock of the Company on the date
of termination of employment by the number of such
Share Units. Payment shall be made by the Company in
cash. After the amount of the first installment has
been determined, 1/10 of the Share Units credited to
the Participant's account on the date of termination
of employment shall be cancelled as of the date of
termination of employment.
ii. A second annual payment shall be made no earlier
than the fifteenth day of the first quarter of the
calendar year following the year during which the
first anniversary of the date of termination of
employment occurs, and shall be in an amount equal to
the value of 1/9th of the number of Share Units
credited to the Participant's account as of the first
anniversary of the date of termination of employment.
The value of such Share Units shall be determined by
multiplying the market value of a share of the common
stock of the Company on the first anniversary of the
date of termination of employment by the number of
such Share Units. Payment shall be made by the
Company in cash.
Each succeeding installment payment shall be
determined in a similar manner, the tenth annual
installment being an amount equal to the value of the
total number of Share Units credited to the account
of the Participant on the ninth anniversary of the
date of termination of employment.
(8) DISTRIBUTION IN EVENT OF FINANCIAL EMERGENCY
If requested by a Participant while in the employ of the
Company or a subsidiary and the Committee determines that a
financial emergency has occurred in the financial affairs of
the Participant, the Interest, Share Unit and/or Equity Fund
Accounts of the
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<PAGE> 54
Participant on the date the Participant makes the request may
be paid out at the sole discretion of the Committee in the
same manner they would have been paid out had the Participant
terminated his employment with the Company or Subsidiary on
the date of such request. In the event of a payout due to the
financial emergency, a second Interest, Share Unit or Equity
Fund Account shall be established for the Participant and any
awards made to the Participant thereafter shall be credited
to this second Interest, Share Unit or Equity Fund Account.
The Participant's rights to the second Interest, Share Unit
or Equity Fund Account shall be the same as his rights to the
initial Interest, Share Unit or Equity Fund Account.
(9) ACCELERATION OF PAYMENTS
Notwithstanding the provisions in Item 6.B.(7) and (8), if
the amount remaining in a Participant's Interest Account,
Share Unit or Equity Fund Account at any time is less than
$50,000, or in the event of a financial emergency occurring
in the personal affairs of the Participant, or his
Beneficiary in case of his death, during the payout period,
the Committee may elect to accelerate the payout thereafter
of the Participant's Interest, Share Unit or Equity Fund
Account.
(10) MARKET VALUE
The market value of a share of the common stock of the
Company on a particular day shall be determined by the
Committee. The market value shall be the closing price on the
New York Stock Exchange on the day in question, or the day of
the last previous sale, if there shall not be any sale on the
day in question.
(11) BENEFICIARY DESIGNATION
A Participant may designate a Beneficiary who is to receive,
upon his death, the distributions that otherwise would have
been paid to him. All designations shall be in writing and
shall be effective only if and when delivered to the
Secretary of the Company during the lifetime of the
Participant. If a Participant designates a Beneficiary
without providing in the designation that the Beneficiary
must be living at the time of each distribution, the
designation shall vest in the Beneficiary all of the
distribution whether payable before or after the
Beneficiary's death, and any distributions remaining upon the
Beneficiary's death shall be made to the Beneficiary's
estate.
A Participant may from time to time during his lifetime
change his Beneficiary by a written instrument delivered to
the Secretary of the Company. In the event a Participant
shall not designate a Beneficiary as aforesaid, or if for any
reasons such designation
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<PAGE> 55
shall be ineffective, in whole or in part, the distribution
that otherwise would have been paid to such Participant shall
be paid to his estate and in such event the term "Beneficiary"
shall include his estate.
(12) CORPORATE CHANGES
a. DISSOLUTION OR LIQUIDATION OF COMPANY
Notwithstanding any provision herein to the contrary, upon
the dissolution or liquidation of the Company, the Share
Units credited to Participant's Share Unit Accounts shall
be converted to dollars as of the day preceding the date
of dissolution or liquidation, using the method applied in
Item 6.B.(6) hereof to determine installment payments. The
Company shall cause such dollar balance to be paid out in
cash in a lump sum to the participants, or their
Beneficiaries, as the case may be, within 60 days
following the date of dissolution or liquidation.
b. MERGER, CONSOLIDATION OR SALE OF ASSETS
Notwithstanding anything herein to the contrary, in the
event that the Company desires to consolidate with, merge
into, or transfer all or substantially all of its assets
to another corporation (hereinafter referred to as
"Successor Corporation"), such Successor Corporation may
assume the obligation under this Plan, provided that
appropriate amendments are made to the Plan. In the event
the Plan is not continued within a reasonable period of
time by the Successor Corporation, then as of the date
preceding the date of such consolidation, merger, or
transfer, the account of each Participant shall be
converted into dollars and distributed.
7. RIGHTS OF PARTICIPANTS
No Participant or Beneficiary shall have any interest in any fund or in any
specific asset or assets of the Company (or any subsidiary) by reason of any
account under the Plan. It is intended that the Company has merely a
contractual obligation to make payments when due hereunder and it is not
intended that the Company (or any subsidiary) hold any funds in reserve or
trust to secure payments hereunder. No Participant may assign, pledge, or
encumber his/her interest under the Plan, or any part thereof, except that a
Participant may designate a Beneficiary as provided herein.
Nothing contained in this Plan shall be construed to:
A. Give any employee or Participant any right to receive any award other
than in the sole discretion of the Committee;
B. Give a Participant any rights whatsoever with respect to share(s) of
common stock of the Company;
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C. Limit in any way the right of the Company or subsidiary to terminate a
Participant's or other employee's employment at any time; or
D. Be evidenced of any agreement or understanding, express or implied, that
a Participant or other employee will be retained in any particular
position or at any particular rate of remuneration.
8. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee may, from
time to time, establish rules for the administration of the Plan that are
not inconsistent with the provisions of the Plan.
9. AMENDMENT OR TERMINATION
The Committee may modify or amend, in whole or in part, any or all of the
provisions of the Plan, except as to those terms or provisions that are
required Section 162(m) of the Internal Revenue Code to be approved by the
shareholders, or suspend or terminate it entirely; provided, however, that
no such modifications, amendment, or suspension or termination may, without
the consent of the Participant, or his Beneficiary in the case of his/her
death, reduce the right of a Participant, or his/her Beneficiary, as the
case may be, to any payment due under the Plan.
10. CHANGE OF CONTROL
Notwithstanding any other provision of this Plan, within 30 days of a Change
of Control (as defined below), each participant shall be entitled to receive
a lump sum payment in cash equal to the product of (x) such participant's
formula ward for the year in which the Change of Control occurs, based on
maximum achievable award for such Participant under the Plan and (y) a
fraction, the numerator of which is the number of days after January 1 in
the year in which the Change of Control occurs and the denominator of which
is 365. In addition, the Company shall pay to each Participant a lump sum
amount in cash within 30 days of the Change of Control all amounts
accumulated in such Participant's Interest, Share Unit and Equity Fund
Account under the Plan. In determining the amount accumulated in a
Participant's Share Unit Account, each Share Unit shall have a value equal
to the higher of (x) the highest reported sales price, regular way, of a
share of the Company's common stock 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 of Control of the Company and (y) if the
Change of Control of the Company is the result of a transaction or series of
transactions described in paragraphs A. or C. of the definition of Change of
Control of the Company set forth below, the highest price per share of
common stock of the Company paid in such transaction or series of
transactions. A Change of Control means any of the following events:
A. 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
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Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either:
(1) The then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or
(2) 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 in Control of the Company; or
B. 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
C. 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 such Business Combination in substantially the same proportion as
their ownership immediately prior to such Business Combination of the
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Outstanding Company Common Stock and Company Voting Securities, as the
case may be; or
D. 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 entitles 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.
11. TAX WITHHOLDING
The Company shall have the right to deduct from all cash payments any
federal, state, or local taxes required by law to be withheld with respect
to such cash payments and, in case of awards paid in Common Stock, the
Participant or other person receiving such Common Stock may be required to
pay to the Company the amount of any such taxes which the Company is
required to withhold with respect to such Common Stock.
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JOHNSON CONTROLS, INC.
P.O. BOX 591
MILWAUKEE, WI 53201
SHAREHOLDER'S PROXY ANNUAL MEETING-JANUARY 27, 1999
The undersigned, having received the Notice of Meeting and Proxy Statement dated
December 4, 1998, and Annual Report for 1998, hereby appoints J.P. Kennedy and
J.H. Keyes, and each of them, proxies with power of substitution to vote for the
undersigned at the annual shareholders' meeting of Johnson Controls, Inc., on
January 27, 1999, and at any adjournments thereof.
This proxy when properly executed will be voted in the manner directed therein
by the undersigned. If no direction is made, this proxy will be voted for all
nominees listed in Proposal 1 and for Proposals 2, 3 and 4.
<TABLE>
<S><C>
- DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED -
- ------------------------------------------------------------------------------------------------------------------------------------
___ ___
| |
| JOHNSON CONTROLS, INC. 1999 ANNUAL MEETING |
The Board of Directors recommends a vote FOR Proposals 1, 2, 3 and 4. If no direction is made, this proxy will be voted FOR all
nominees listed in Proposal 1 and FOR Proposals 2, 3 and 4.
1. ELECTION OF DIRECTORS: 1 - NATALIE A. BLACK 2 - ROBERT A. CORNOG / / FOR all nominees / / WITHHOLD AUTHORITY
3 - JAMES H. KEYES 4 - WILLIAM H. LACY listed to the left to vote for all
(except as nominees listed to
specified below). the left.
__________________________
(Instructions: To withhold authority to vote for any indicated nominee, write number(s) of ---------> | |
nominee(s) in the box provided to the right.) |__________________________|
2. Ratify the selection of PricewaterhouseCoopers as our independent auditors / / FOR / / AGAINST / / ABSTAIN
for 1999.
3. Ratify the Long Term Performance Plan. / / FOR / / AGAINST / / ABSTAIN
4. Ratify the Executive Incentive Compensation Plan. / / FOR / / AGAINST / / ABSTAIN
5. In their discretion, upon any other matters which may properly come before the meeting or any adjournments thereof, hereby
revoking any proxy heretofore given by the undersigned for such meeting.
Check appropriate box
Indicate changes below: Date ________________
Address Change? / / Name Change? / / ___________________________________
| |
|___________________________________|
SIGNATURE(S) IN BOX
Please sign name exactly as it appears
hereon. When signed as attorney,
executor, trustee or guardian, please
add title. For joint accounts, each
owner should sign.
| |
|___ ___|
</TABLE>
