UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5097
JOHNSON CONTROLS, INC.
(Exact name of registrant as specified in its
charter)
| Wisconsin
(State of Incorporation)
|
|
39-0380010
(I.R.S. Employer Identification No.)
|
|
5757 North Green Bay Avenue, P.O. Box 591, Milwaukee, WI
53201
(Address of principal executive office)
Registrant’s telephone number, including area code: (414)
228-1200
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate
the number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
Class
|
|
Outstanding at December
31, 1999
|
Common Stock
$.16 2
/3 Par Value
|
|
85,438,727 |
JOHNSON CONTROLS, INC.
FORM 10-Q
December 31, 1999
REPORT INDEX
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In millions)
|
|
|
December
31,
1999
|
|
September
30,
1999
|
|
December
31,
1998
|
|
|
|
(unaudited) |
|
|
|
(unaudited) |
| Assets |
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$
315.9 |
|
$
276.2 |
|
$
329.2 |
| Accounts receivable—net |
|
2,289.3 |
|
2,147.5 |
|
2,136.3 |
| Costs
and earnings in excess of billings on uncompleted
contracts |
|
215.6 |
|
208.7 |
|
196.1 |
| Inventories |
|
532.0 |
|
524.6 |
|
470.5 |
| Net
assets held for sale |
|
—
|
|
—
|
|
211.3 |
| Other
current assets |
|
635.0 |
|
691.5 |
|
557.0 |
| |
|
|
|
|
|
|
|
Current
assets |
|
3,987.8 |
|
3,848.5 |
|
3,900.4 |
| Property, plant and equipment—net |
|
2,035.9 |
|
1,996.0 |
|
1,953.6 |
| Goodwill—net |
|
2,081.8 |
|
2,096.9 |
|
2,166.4 |
| Investments in partially-owned affiliates |
|
217.6 |
|
215.1 |
|
251.0 |
| Other
noncurrent assets |
|
470.2 |
|
457.7 |
|
446.2 |
| |
|
|
|
|
|
|
|
Total
assets |
|
$8,793.3 |
|
$8,614.2 |
|
$8,717.6 |
| |
|
|
|
|
|
|
| Liabilities and Equity |
|
|
|
|
|
|
| Short-term debt |
|
$
583.7 |
|
$
477.0 |
|
$1,486.8 |
| Current portion of long-term debt |
|
43.0 |
|
94.8 |
|
88.9 |
| Accounts payable |
|
2,005.9 |
|
1,998.5 |
|
1,863.0 |
| Accrued compensation and benefits |
|
380.9 |
|
446.9 |
|
379.9 |
| Accrued income taxes |
|
207.5 |
|
231.2 |
|
157.8 |
| Billings in excess of costs and earnings on uncompleted
contracts |
|
181.0 |
|
159.2 |
|
150.5 |
| Other
current liabilities |
|
954.6 |
|
859.0 |
|
792.9 |
| |
|
|
|
|
|
|
|
Current
liabilities |
|
4,356.6 |
|
4,266.6 |
|
4,919.8 |
| Long-term debt |
|
1,249.1 |
|
1,283.3 |
|
937.8 |
| Postretirement health and other benefits |
|
167.2 |
|
166.4 |
|
167.0 |
| Other
noncurrent liabilities |
|
661.1 |
|
627.9 |
|
613.7 |
| Shareholders’ equity |
|
2,359.3 |
|
2,270.0 |
|
2,079.3 |
| |
|
|
|
|
|
|
|
Total
liabilities and equity |
|
$8,793.3 |
|
$8,614.2 |
|
$8,717.6 |
| |
|
|
|
|
|
|
The accompanying notes are an integral part
of the financial statements.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share data;
unaudited)
|
|
|
For the Three Months
Ended December 31,
|
|
|
|
1999
|
|
1998
|
| Net
sales |
|
$4,318.3 |
|
|
$3,873.1 |
|
| Cost
of sales |
|
3,693.2 |
|
|
3,344.6 |
|
| |
|
|
|
|
|
|
|
Gross
profit |
|
625.1 |
|
|
528.5 |
|
| Selling, general and administrative expenses |
|
410.1 |
|
|
345.3 |
|
| |
|
|
|
|
|
|
|
Operating income |
|
215.0 |
|
|
183.2 |
|
| Interest income |
|
3.4 |
|
|
3.1 |
|
| Interest expense |
|
(33.2 |
) |
|
(41.1 |
) |
| Miscellaneous—net |
|
(1.9 |
) |
|
(1.2 |
) |
| |
|
|
|
|
|
|
|
Other
income (expense) |
|
(31.7 |
) |
|
(39.2 |
) |
| |
|
|
|
|
|
|
| Income before income taxes and minority
interests |
|
183.3 |
|
|
144.0 |
|
| Provision for income taxes |
|
72.6 |
|
|
58.3 |
|
| Minority interests in net earnings of
subsidiaries |
|
11.7 |
|
|
6.0 |
|
| |
|
|
|
|
|
|
| Net
income |
|
$
99.0 |
|
|
$
79.7 |
|
| |
|
|
|
|
|
|
| Earnings available for common shareholders |
|
$
96.6 |
|
|
$
77.3 |
|
| |
|
|
|
|
|
|
| Earnings per share |
|
|
|
|
|
|
|
Basic |
|
$
1.13 |
|
|
$
0.91 |
|
| |
|
|
|
|
|
|
|
Diluted |
|
$
1.06 |
|
|
$
0.86 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part
of the financial statements.
JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions; unaudited)
|
|
|
For
the Three Months
Ended December 31,
|
|
|
|
1999
|
|
1998
|
| Operating Activities |
|
|
|
|
|
|
| Net
income |
|
$
99.0 |
|
|
$
79.7 |
|
|
|
| Adjustments to reconcile net income to cash provided by
operating activities |
|
|
|
|
|
|
|
Depreciation |
|
98.1 |
|
|
94.4 |
|
|
Amortization of intangibles |
|
19.4 |
|
|
20.8 |
|
|
Equity
in earnings of partially-owned affiliates, net of dividends
received |
|
(3.5 |
) |
|
7.3 |
|
|
Deferred
income taxes |
|
(1.9 |
) |
|
0.6 |
|
|
Other |
|
(4.1 |
) |
|
18.1 |
|
|
Changes
in working capital, excluding acquisition and divestiture of
businesses |
|
|
|
|
|
|
|
Receivables |
|
(161.7 |
) |
|
(182.8 |
) |
|
Inventories |
|
(12.3 |
) |
|
(36.9 |
) |
|
Other
current assets |
|
2.0 |
|
|
40.4 |
|
|
Accounts
payable and accrued liabilities |
|
30.9 |
|
|
220.3 |
|
|
Accrued
income taxes |
|
39.8 |
|
|
28.5 |
|
|
Billings
in excess of costs and earnings on uncompleted
contracts |
|
21.8 |
|
|
22.5 |
|
| |
|
|
|
|
|
|
|
Cash
provided by operating activities |
|
127.5 |
|
|
312.9 |
|
| |
|
|
|
|
|
|
|
|
| Investing Activities |
|
|
|
|
|
|
| Capital expenditures |
|
(127.7 |
) |
|
(122.5 |
) |
| Sale
of property, plant and equipment—net |
|
4.0 |
|
|
20.0 |
|
| Acquisition of businesses, net of cash
acquired |
|
—
|
|
|
(82.7 |
) |
| Divestiture of business |
|
—
|
|
|
15.0 |
|
| Additions of long-term investments |
|
(2.5 |
) |
|
(99.9 |
) |
| |
|
|
|
|
|
|
|
Cash
used by investing activities |
|
(126.2 |
) |
|
(270.1 |
) |
| |
|
|
|
|
|
|
|
|
| Financing Activities |
|
|
|
|
|
|
| Increase in short-term debt—net |
|
111.2 |
|
|
183.2 |
|
| Repayment of long-term debt |
|
(60.1 |
) |
|
(10.9 |
) |
| Payment of cash dividends |
|
(26.5 |
) |
|
(23.9 |
) |
| Other |
|
13.8 |
|
|
4.0 |
|
| |
|
|
|
|
|
|
|
Cash
provided by financing activities |
|
38.4 |
|
|
152.4 |
|
| |
|
|
|
|
|
|
|
|
| Increase in cash and cash equivalents |
|
$
39.7 |
|
|
$
195.2 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part
of the financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statements
In the opinion of the Company, the accompanying
unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position, results of
operations, and cash flows for the periods presented. These
financial statements should be read in conjunction with the
audited financial statements and notes thereto contained in the
Company’s Annual Report to Shareholders for the year ended
September 30, 1999. The results of operations for the three
months ended December 31, 1999 are not necessarily indicative of
the results which may be expected for the Company’s 2000
fiscal year because of seasonal and other factors. Certain
amounts in the Consolidated Statement of Cash Flows have been
reclassified to conform to the current year’s
presentation.
2. Cash Flow
For purposes of the Consolidated Statement of Cash
Flows, the Company considers all investments with a maturity of
three months or less at the time of purchase to be cash
equivalents.
Income taxes paid during the three months ended
December 31, 1999 and 1998 (net of income tax refunds) totaled
approximately $23 million and $19 million, respectively. Total
interest paid was $32 million and $44 million for the three
months ended December 31, 1999 and 1998, respectively. The
decrease reflects the Company’s use of its cash flows and
proceeds from divestitures of non-core businesses to reduce debt
originally incurred to finance the July 1998 acquisition of
Becker Group.
3. Inventories
Inventories are valued at the lower of cost or
market. Cost is determined using the last-in, first-out (LIFO)
method for most inventories at domestic locations. The cost of
other inventories is determined on the first-in, first-out
(FIFO) method. Inventories at December 31, 1999 and 1998 were
comprised of the following:
|
|
|
December 31,
|
|
|
|
1999
|
|
1998
|
|
|
|
(in millions) |
| Raw
materials and supplies |
|
$305.9 |
|
|
$249.5 |
|
| Work-in-process |
|
72.6 |
|
|
83.8 |
|
| Finished goods |
|
187.3 |
|
|
174.4 |
|
| |
|
|
|
|
|
|
|
FIFO
inventories |
|
565.8 |
|
|
507.7 |
|
| LIFO
reserve |
|
(33.8 |
) |
|
(37.2 |
) |
| |
|
|
|
|
|
|
|
LIFO
inventories |
|
$532.0 |
|
|
$470.5 |
|
| |
|
|
|
|
|
|
4. Income Taxes
The provision for income taxes is determined by
applying an estimated annual effective income tax rate to income
before income taxes. The rate is based on the most recent
annualized forecast of pretax income, permanent book/tax
differences and tax credits. It also includes the effect of any
valuation allowance expected to be necessary at the end of the
year.
5. Comprehensive Income
Comprehensive income is defined as the sum of net
income and all other non-owner changes in equity, such as
foreign currency translation and minimum pension liability
adjustments. Comprehensive income for the three months ended
December 31, 1999 and 1998 was $101 million and $139 million,
respectively. The difference between comprehensive income and
net income for the periods presented represent foreign currency
translation adjustments.
6. Earnings Per Share
The following table reconciles the numerators and
denominators used to calculate basic and diluted earnings per
share:
|
|
|
For the Three
Months Ended
December 31,
|
|
|
|
1999
|
|
1998
|
|
|
|
(in millions) |
| Income Available to Common
Shareholders |
|
|
|
|
|
|
| Net
Income |
|
$99.0 |
|
|
$79.7 |
|
|
Preferred stock dividends, net of tax benefit |
|
(2.4 |
) |
|
(2.4 |
) |
| |
|
|
|
|
|
|
| Basic
income available to common shareholders |
|
$96.6 |
|
|
$77.3 |
|
| Net
Income |
|
$99.0 |
|
|
$79.7 |
|
| Effect of Dilutive Securities: |
Compensation expense, net of tax, arising from assumed
conversion of preferred
stock |
|
(1.1 |
) |
|
(1.1 |
) |
| |
|
|
|
|
|
|
| Diluted income available to common
shareholders |
|
$97.9 |
|
|
$78.6 |
|
| |
|
|
|
|
|
|
| Weighted Average Shares Outstanding |
|
|
|
|
|
|
| Basic
weighted average shares outstanding |
|
85.4 |
|
|
84.8 |
|
| Effect of Dilutive Securities: |
|
Stock
options |
|
1.4 |
|
|
1.6 |
|
|
Convertible preferred stock |
|
5.2 |
|
|
5.4 |
|
| |
|
|
|
|
|
|
| Diluted weighted average shares outstanding |
|
92.0 |
|
|
91.8 |
|
| |
|
|
|
|
|
|
7. Segment Information
The Company has two operating segments, the
Automotive Systems Group and the Controls Group, which also
constitute its reportable segments. Financial information
relating to the Company’s reportable segments was as
follows:
|
|
|
For the Three Months
Ended December 31,
|
|
|
|
1999
|
|
1998
|
|
|
|
(in millions) |
| Sales |
|
|
| Automotive Systems Group |
|
$3,338.5 |
|
$3,000.4 |
| Controls Group |
|
979.8 |
|
872.7 |
| |
|
|
|
|
|
Total |
|
$4,318.3 |
|
$3,873.1 |
| |
|
|
|
|
| Operating Income |
|
|
|
|
| Automotive Systems Group |
|
$
178.0 |
|
$
153.2 |
| Controls Group |
|
37.0 |
|
30.0 |
| |
|
|
|
|
|
Total |
|
$
215.0 |
|
$
183.2 |
| |
|
|
|
|
8. Acquisition of Business
In July 1998, the Company acquired Becker Group, a
major supplier of automotive interior systems. At the date of
acquisition, the Company identified three businesses of Becker
Group that were outside of its core operations and, as such,
would be sold. These businesses were classified as net assets
held for sale in the Consolidated Statement of Financial
Position at December 31, 1998. The net assets of the businesses
were recorded at fair value less estimated costs to sell,
including cash flows during the holding period. The Company
completed the sale of these businesses during fiscal 1999. No
gain or loss was recorded upon their sale.
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. Through
December 31, 1999, approximately $17 million of employee
severance and termination costs associated with the
consolidation of European and domestic operations were incurred.
In addition, $9 million of reserves were reversed during fiscal
1999, with corresponding reductions of goodwill and prepaid
taxes. Accordingly, the reserve balance at December 31, 1999
totaled approximately $22 million. The majority of the
restructuring activities are expected to be completed by the end
of fiscal 2000.
9. Contingencies
The Company is involved in a number of proceedings
and potential proceedings relating to environmental matters.
Although it is difficult to estimate the liability of the
Company related to these environmental matters, the Company
believes that these matters will not have a materially adverse
effect upon its capital expenditures, earnings or competitive
position.
Additionally, the Company is involved in a number of
product liability and various other suits incident to the
operation of its businesses. Insurance coverages are maintained
and estimated costs are recorded for claims and suits of this
nature. It is management’s opinion that none of these will
have a materially adverse effect on the Company’s financial
position, results of operations or cash flows.
10. 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.” It requires all derivative instruments to be
recorded in the statement of financial position at fair value.
The change in fair value of a derivative is 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 so, the type of hedge
transaction. In June 1999, the statement’s effective date
was delayed by one year, and it will be effective October 1,
2000 for the Company. The effect of adoption of this statement
on the Company’s earnings or statement of financial
position has not been finalized.
The Emerging Issues Task Force (EITF) recently
reached a final consensus with respect to EITF Issue 99-5,
“Accounting for Pre-Production Costs Related to Long-Term
Supply Arrangements.” This consensus provides guidance on
whether design and development costs related to long-term supply
arrangements should be expensed or capitalized, and is effective
for design and development costs incurred after December 31,
1999. The Company is currently reviewing the application of this
consensus to its automotive operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the
Three-Month Periods Ended December 31, 1999 and December 31,
1998
Consolidated net sales in the first quarter of
fiscal 2000 increased to $4.3 billion, 11% higher than the $3.9
billion recorded in the prior year quarter.
First quarter sales for the Automotive Systems Group
reached $3.3 billion, an 11% increase from the prior year’s
$3.0 billion. Strong demand in North America for the segment
’s automotive seating systems, interior systems and
batteries was the primary source of the increase. Seating and
interior systems sales growth surpassed the more modest increase
in the North American vehicle production level, reflecting the
Company’s additional content on many popular light trucks
and passenger cars. Sales of automotive batteries to the North
American aftermarket rose in the period, with a double-digit
increase in unit shipments. Automotive seating and interior
systems sales in Europe increased over the prior year period,
despite the negative effect of currency translation and
relatively unchanged year-over-year vehicle production
levels.
Controls Group sales of $980 million for the current
quarter were 12% higher than the prior period’s $873
million. Segment sales in North America rose due to new and
expanded integrated facility management contracts and increased
installed control systems contracts in both the new construction
and existing buildings markets. Sales in Asia were strengthened
by the segment’s acquisition of a controlling management
interest in Tokyo Biso Kogyo (TBK), a leading Japanese
facilities management provider, in the second quarter of fiscal
1999. Sales of facility management services and control systems
in Europe declined slightly, in part due to unfavorable exchange
rates. Orders for installed control systems in the quarter
exceeded the prior year period, due to growth in North
America.
Overall sales growth is expected to continue during
the remainder of the fiscal year. Despite an expectation for
slightly lower vehicle production levels in North America and
Europe, the launch of new seating and interiors programs,
particularly in North America, and projected growth in sales of
automotive batteries should increase Automotive Systems Group
sales by 1% to 5% for the full year. Management expects Controls
Group sales to increase by 5% to 10% in the current year. Growth
of integrated facility management services in the commercial
market worldwide and higher sales of installed control systems,
predominantly in North America, are expected to propel the
increase.
First quarter consolidated operating income rose to
$215 million, 17% higher than the prior year’s $183
million. Both of the Company’s business segments
contributed to the quarter’s growth.
Automotive Systems Group operating income increased
to $178 million, a 16% increase over the prior year’s $153
million. The segment achieved operating income growth in all
geographic markets, led by increased volume of seating systems,
interior systems and batteries in North America. Operating
income in Europe increased, reflecting higher seating and
interior systems volume, as well as margin improvements
associated with reduced start-up costs and maturing programs.
Operating losses in South America from the segment’s
seating operations declined despite the region’s continued
economic difficulties.
Controls Group operating income for the first
quarter grew to $37 million, 23% higher than the prior year
’s $30 million. Operating income and margins associated
with both facility management and installed control systems
contracts increased over the prior year period. The increases
were due to higher volume and enhanced productivity resulting
from cost control efforts and improved contract
execution.
Other expense for the first quarter was $7 million
lower than the prior year quarter. Net interest expense declined
by $8 million, reflecting the Company’s use of its strong
operating cash flows and the proceeds from fiscal 1999
divestitures of non-core businesses (see discussion in
“Capitalization”) to reduce debt originally incurred
to finance the July 1998 acquisition of Becker
Group.
The effective income tax rate was 39.6% for the
three-month period ended December 31, 1999 compared with 40.5%
for the comparable quarter last year. The effective rate
declined due principally to a reduction of taxes imposed on
foreign earnings.
Minority interests in net earnings of subsidiaries
were approximately $12 million in the current quarter, compared
with $6 million in the prior year period. The increase is
primarily attributable to higher earnings from the Company
’s Automotive Systems Group joint ventures in North
America.
The Company’s first quarter net income rose 24%
to $99 million, compared with the prior year’s $80 million.
The growth was due to increased operating income, reduced
interest expense and a lower effective income tax rate,
partially offset by the higher deduction for the Company’s
minority interest in net earnings of its subsidiaries. On
a diluted basis, earnings per share for the current
quarter reached $1.06, up from $0.86 in the prior
year.
Comparison of Financial
Condition
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Working Capital and Cash
Flow
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The Company’s working capital was a negative
$369 million at December 31, 1999, compared with a negative $418
million at September 30, 1999 and a negative $1.0 billion at
December 31, 1998. The increase in working capital compared with
the prior year period primarily reflects the ongoing reduction
of short-term debt (see discussion in “Capitalization
”). Working capital, excluding cash, assets held for sale
and debt, remained at a relatively consistent level
year-over-year.
The Company’s operating activities provided
cash of $128 million during the first three months of fiscal
2000, compared with $313 million generated in the prior year
quarter. Working capital changes, primarily accounts payable and
accrued liabilities, accounted for the decrease in cash
generated from operations.
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Capital Expenditures and Other
Investments
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Capital expenditures for property, plant and
equipment of $128 million for the first quarter rose slightly
from the prior year’s $123 million. Management expects
capital spending for the full year to approximate $525 to $550
million. The majority of the spending has been, and will
continue to be, associated with automotive seating and interior
systems expansion. Controls Group spending will be focused on
information and building systems technology and the construction
of a controls technology center.
Investments in partially-owned affiliates of $218
million declined by $33 million compared with the prior year
’s balance. The decrease is primarily due to the sale of
two Automotive Systems Group affiliates during the second
quarter of fiscal 1999.
The Company completed several acquisitions and
long-term investments in the first quarter of the prior year
that, net of cash acquired, affected cash flow. Notable among
the prior year acquisitions was the purchase of Cardkey Systems,
a worldwide security management systems provider, in December
1998. The Company also formed two joint ventures in the first
quarter of fiscal 1999 to manufacture automotive batteries in
Mexico and South America.
The Company’s total capitalization of $4.2
billion at December 31, 1999 included short-term debt of $584
million, long-term debt (including the current portion) of $1.3
billion and shareholders’ equity of $2.3 billion.
Capitalization at September 30, 1999 and December 31, 1998 was
$4.1 billion and $4.6 billion, respectively. Total debt as a
percentage of total capitalization at December 31, 1999 declined
to 44%, a reduction from both fiscal year-end’s 45% and the
55% level one year ago. The continued improvement in the
debt-to-capitalization ratio over the last year reflects the use
of proceeds from fiscal 1999 divestitures (see discussion that
follows) and strong cash flows from operations to reduce
debt.
In July 1998, the Company acquired Becker Group, a
major supplier of automotive interior systems. At the date of
acquisition, the Company identified three businesses of Becker
Group that were outside of its core operations and, as such,
would be sold. These businesses were classified as net assets
held for sale in the Consolidated Statement of Financial
Position at December 31, 1998. The net assets of the businesses
were recorded at fair value less estimated costs to sell,
including cash flows during the holding period. The Company
completed the sale of these businesses for approximately $212
million during fiscal 1999 and used the after-tax proceeds to
reduce debt.
The Company also completed the sale of the
Automotive Systems Group’s Industrial Battery Division for
approximately $135 million in March 1999, and used the after-tax
proceeds to reduce debt.
The Company believes its capital resources and
liquidity position at December 31, 1999 are adequate to meet
projected needs. Requirements for working capital, capital
expenditures, dividends and debt maturities in fiscal 2000 will
continue to be funded from operations, supplemented by
short-term borrowings, if required.
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. Through December 31,
1999, approximately $17 million of employee severance and
termination costs associated with the consolidation of European
and domestic operations were incurred. In addition, $9 million
of reserves were reversed during fiscal 1999, with corresponding
reductions of goodwill and prepaid taxes. Accordingly, the
reserve balance at December 31, 1999 totaled approximately $22
million. The majority of the restructuring activities are
expected to be completed by the end of fiscal 2000.
Backlog
The Company’s backlog relates to the Controls
Group’s installed control systems operations, which derive
a significant portion of revenue from long-term contracts that
are accounted for using the percentage-of-completion method. At
December 31, 1999, the unearned backlog of installed control
systems contracts (excluding integrated facility management) to
be executed within the next year was $1.1 billion, compared with
$1.0 billion at December 31, 1998. The $133 million increase
from the prior year period is primarily attributable to new
order growth in North America, both in the new and existing
buildings markets.
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,” and in the first quarter of fiscal 2000, the
EITF reached a final consensus on EITF Issue 99-5,
“Accounting for Pre-Production Costs Related to Long-Term
Supply Arrangements.” See Note 10 to the consolidated
financial statements for related discussion.
Other Matters
The Company established a process to identify and
resolve the business issues associated with the Year 2000 and
expended considerable resources to ensure its critical processes
were Year 2000 ready. The Company established global monitoring
and response teams during the December 31, 1999 to January 1,
2000 transition period to ensure systems “rolled over”
appropriately.
As of the date of this filing, all of the Company
’s critical processes have been tested and are fully
operational. The Company did not experience, and does not expect
to experience, any material business disruptions associated with
the Year 2000.
On January 1, 1999, member countries of the European
Monetary Union (EMU) began 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 were established and
monetary, capital, foreign exchange, and interbank markets were
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 its action plans are being implemented
to address the euro’s impact on information systems,
currency exchange rate risk and commercial contracts. Costs of
the euro conversion to date have not been material and
management believes that future conversion costs 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 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 October 11, 1999), 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
For the period ended December 31, 1999, the Company
did not experience any adverse changes in market risk exposures
that materially affect the quantitative and qualitative
disclosures presented in the Company’s Annual Report to
Shareholders for the year ended September 30, 1999.
PART II.—OTHER
INFORMATION
Item 1. Legal Proceedings
There have been no significant changes in status
since the last Report.
Item 4. Results of Votes of Security Holders
The registrant held its Annual Meeting of
Shareholders on January 26, 2000. Proxies for the meeting were
solicited pursuant to Regulation 14; there was no solicitation
in opposition to management’s nominees for directors as
listed in the Proxy Statement, and all such nominees (John M.
Barth, Paul A. Brunner, Southwood J. Morcott and Gilbert R.
Whitaker, Jr.) were elected. Of the 73,883,352 shares voted, at
least 73,003,687 shares granted authority to vote for these
directors and no more than 879,665 shares withheld such
authority.
The retention of PricewaterhouseCoopers LLP as
auditors was approved by the shareholders with 73,137,629 shares
voted for such appointment, 316,417 shares voted against and
429,306 shares abstained.
The Johnson Controls, Inc. 2000 Stock Option Plan
was approved by the shareholders with 59,027,700 shares voted
for such approval, 6,106,241 shares voted against such approval,
900,771 shares abstained and a broker non vote of 7,848,640
shares.
The shareholder proposal to adopt global standards
was rejected by the shareholders with 56,675,212 shares voted
against approval, 6,031,568 shares voted for approval, 3,329,125
shares abstained and a broker non vote of 7,847,447
shares.
Item 5. Other Information
(a) Bob Velanovich was elected Corporate Vice
President in January 2000. He also serves as Group Vice President
—Manufacturing Technology and Quality for the Automotive
Systems Group. Mr. Velanovich served in several senior
management positions within the Automotive Systems Group since
joining the Company in 1991.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
| 12 |
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Statement
regarding the computation of the ratio of earnings to fixed
charges. |
|
|
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| 27 |
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Financial Data
Schedule (electronic filing only). |
|
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(b) The Company filed a form 8-K, dated October 11,
1999, 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.
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this Report
to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: February 14, 2000
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Senior Vice
President and
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