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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 March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-5097
JOHNSON CONTROLS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-0380010
(State of Incorporation) (I.R.S. Employer Identification No.)
5757 North Green Bay Avenue, P.O. Box 591, Milwaukee, WI 53201
(Address of principal executive office)
Registrant's telephone number, including area code: (414) 524-1200
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 2001
- ----- -----------------------------
Common Stock $.16 2/3 Par Value 86,867,122
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JOHNSON CONTROLS, INC.
FORM 10-Q
MARCH 31, 2001
REPORT INDEX
Page No.
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PART I - FINANCIAL INFORMATION:
Consolidated Statement of Financial Position at March 31, 2001,
September 30, 2000 and March 31, 2000............................................ 3
Consolidated Statement of Income for the Three- and Six-Month
Periods Ended March 31, 2001 and 2000............................................ 4
Consolidated Statement of Cash Flows for the Six-Month
Periods Ended March 31, 2001 and 2000............................................ 5
Notes to Consolidated Financial Statements......................................... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................. 9
Quantitative and Qualitative Disclosures About Market Risk......................... 15
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings......................................................... 15
Item 4. Results of Votes of Security Holders...................................... 15
Item 6. Exhibits and Reports on Form 8-K.......................................... 15
SIGNATURES ........................................................................ 16
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JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
March 31, September 30, March 31,
2001 2000 2000
-------------- ---------------- --------------
(unaudited) (unaudited)
ASSETS
Cash and cash equivalents $272.7 $275.6 $244.2
Accounts receivable - net 2,456.7 2,355.3 2,383.0
Costs and earnings in excess of billings
on uncompleted contracts 265.1 222.4 235.4
Inventories 569.8 569.5 502.9
Other current assets 748.6 854.4 682.5
-------------- ---------------- --------------
Current assets 4,312.9 4,277.2 4,048.0
Property, plant and equipment - net 2,366.2 2,305.0 2,042.9
Goodwill - net 2,134.0 2,133.3 2,058.4
Investments in partially-owned affiliates 256.8 254.7 226.3
Other noncurrent assets 520.1 457.8 406.2
-------------- ---------------- --------------
Total assets $9,590.0 $9,428.0 $8,781.8
============== ================ ==============
LIABILITIES AND EQUITY
Short-term debt $321.6 $471.4 $475.0
Current portion of long-term debt 40.5 36.1 44.1
Accounts payable 2,265.2 2,308.8 2,131.5
Accrued compensation and benefits 405.5 452.4 431.3
Accrued income taxes 132.4 140.0 125.4
Billings in excess of costs and earnings
on uncompleted contracts 182.7 167.8 183.0
Other current liabilities 1,005.8 933.5 944.4
-------------- ---------------- --------------
Current liabilities 4,353.7 4,510.0 4,334.7
Long-term debt 1,464.9 1,315.3 1,229.0
Postretirement health and other benefits 162.3 168.1 167.7
Other noncurrent liabilities 624.8 621.8 423.8
Minority interest in equity of subsidiaries 263.3 236.7 224.5
Shareholders' equity 2,721.0 2,576.1 2,402.1
-------------- ---------------- --------------
Total liabilities and equity $9,590.0 $9,428.0 $8,781.8
============== ================ ==============
The accompanying notes are an integral part of the financial statements.
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JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data; unaudited)
Three Months Ended March 31, Six Months Ended March 31,
------------------------------- ------------------------------
2001 2000 2001 2000
-------------- -------------- ------------- --------------
Net sales $4,601.6 $4,358.3 $9,056.0 $8,676.6
Cost of sales 3,980.4 3,746.3 7,794.8 7,439.5
------------- ------------- ------------ -------------
Gross profit 621.2 612.0 1,261.2 1,237.1
Selling, general and administrative expenses 430.6 419.6 861.4 829.7
------------- ------------- ------------ -------------
Operating income 190.6 192.4 399.8 407.4
Interest income 4.5 4.3 10.4 7.8
Interest expense (34.6) (33.4) (67.9) (66.6)
Miscellaneous - net (1.6) 2.6 3.0 0.6
------------- ------------- ------------ -------------
Other income (expense) (31.7) (26.5) (54.5) (58.2)
------------- ------------- ------------ -------------
Income before income taxes and minority interest 158.9 165.9 345.3 349.2
Provision for income taxes 61.6 65.7 133.7 138.3
Minority interest in net earnings of subsidiaries 14.3 11.4 26.1 23.1
------------- ------------- ------------ -------------
Net income $83.0 $88.8 $185.5 $187.8
============= ============= ============ =============
Earnings available for common shareholders $80.9 $86.4 $180.9 $183.0
============= ============= ============ =============
Earnings per share
Basic $0.94 $1.01 $2.10 $2.14
============= ============= ============ =============
Diluted $0.89 $0.95 $1.99 $2.01
============= ============= ============ =============
The accompanying notes are an integral part of the financial statements.
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JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions; unaudited)
Six Months
Ended March 31,
--------------------------
2001 2000
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OPERATING ACTIVITIES
Net Income $185.5 $187.8
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 211.8 194.8
Amortization of intangibles 41.1 39.2
Equity in earnings of partially-owned affiliates, net of dividends received (4.7) (7.0)
Deferred income taxes 20.2 (1.5)
Other (13.4) (14.7)
Changes in working capital, excluding acquisition of businesses
Receivables (136.8) (288.2)
Inventories 1.4 13.3
Other current assets 107.0 13.4
Accounts payable and accrued liabilities (34.7) 219.3
Accrued income taxes (13.4) (41.6)
Billings in excess of costs and earnings on uncompleted contracts 15.4 23.9
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Cash provided by operating activities 379.4 338.7
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INVESTING ACTIVITIES
Capital expenditures (281.1) (266.0)
Sale of property, plant and equipment - net 13.4 9.4
Acquisition of businesses, net of cash acquired (63.3) (11.0)
Additions of long-term investments (32.0) (3.1)
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Cash used by investing activities (363.0) (270.7)
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FINANCING ACTIVITIES
Decrease in short-term debt - net (155.5) (1.4)
Addition of long-term debt 236.5 10.9
Repayment of long-term debt (68.6) (72.6)
Payment of cash dividends (58.2) (53.1)
Other 26.5 16.2
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Cash used by financing activities (19.3) (100.0)
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Decrease in cash and cash equivalents ($2.9) ($32.0)
========== ==========
The accompanying notes are an integral part of the financial statements.
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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, 2000. The results
of operations for the three- and six-month periods ended March 31, 2001 are
not necessarily indicative of the results which may be expected for the
Company's 2001 fiscal year because of seasonal and other factors.
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 six months ended March 31, 2001 and 2000 (net
of income tax refunds) totaled approximately $73 million and $142 million,
respectively. The change between periods includes a $30 million income tax
refund received in the first quarter. Total interest paid was approximately
$72 million and $74 million for the six months ended March 31, 2001 and
2000.
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. Finished goods and work-in-process inventories
include material, labor and manufacturing overhead costs. Inventories were
comprised of the following:
March 31, September 30, March 31,
(in millions) 2001 2000 2000
------------ ------------- ------------
Raw materials and supplies $316.9 $323.9 $266.1
Work-in-process 91.4 98.8 72.3
Finished goods 192.1 177.4 198.2
------------ ------------- ------------
FIFO inventories 600.4 600.1 536.6
LIFO reserve (30.6) (30.6) (33.7)
------------ ------------- ------------
$569.8 $569.5 $502.9
============ ============= ============
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
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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,
unrealized gains and losses on equity securities and realized and
unrealized gains and losses on derivatives. Comprehensive income for the
three months ended March 31, 2001 and 2000 was $70 million and $57 million,
respectively. Comprehensive income for the six months ended March 31, 2001
and 2000 was $156 million and $158 million, respectively. The difference
between comprehensive income and net income for the periods presented
principally represent foreign currency translation adjustments.
The Company has certain financial instruments in place, primarily
foreign-denominated long-term debt, which are designated as hedges of net
investments in foreign subsidiaries. Gains and losses, net of tax,
attributable to these hedges are deferred in the accumulated other
comprehensive income (loss) account within shareholders' equity. Net gains
of approximately $10 million and $6 million were recorded for the three-
and six-month periods ending March 31, 2001.
6. EARNINGS PER SHARE
The following table reconciles the numerators and denominators used to
calculate basic and diluted earnings per share:
Three Months Six Months
Ended March 31, Ended March 31,
------------------ -----------------
(in millions) 2001 2000 2001 2000
-------- -------- -------- ---------
Income Available to Common Shareholders
Net Income $83.0 $88.8 $185.5 $187.8
Preferred stock dividends, net of tax
benefit (2.1) (2.4) (4.6) (4.8)
-------- -------- -------- ---------
Basic income available to common
shareholders $80.9 $86.4 $180.9 $183.0
======== ======== ======== =========
Net Income $83.0 $88.8 $185.5 $187.8
Effect of Dilutive Securities:
Compensation expense, net of tax
benefit, arising from assumed
conversion of preferred stock (0.9) (1.1) (1.8) (2.2)
-------- -------- -------- ---------
Diluted income available to common
shareholders $82.1 $87.7 $183.7 $185.6
======== ======== ======== =========
Weighted Average Shares Outstanding
Basic weighted average shares outstanding 86.5 85.6 86.3 85.5
Effect of Dilutive Securities:
Stock options 1.4 1.1 1.2 1.3
Convertible preferred stock 4.9 5.2 4.9 5.2
-------- -------- -------- ---------
Diluted weighted average shares outstanding 92.8 91.9 92.4 92.0
======== ======== ======== =========
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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:
Three Months Six Months
Ended March 31, Ended March 31,
------------------ -----------------
(in millions) 2001 2000 2001 2000
-------- -------- -------- --------
Sales
Automotive Systems Group $3,372.5 $3,216.3 $6,760.5 $6,554.8
Controls Group 1,229.1 1,142.0 2,295.5 2,121.8
-------- -------- -------- --------
Total $4,601.6 $4,358.3 $9,056.0 $8,676.6
======== ======== ======== ========
Operating Income
Automotive Systems Group $137.4 $146.9 $305.5 $324.9
Controls Group 53.2 45.5 94.3 82.5
-------- -------- -------- --------
Total $190.6 $192.4 $399.8 $407.4
======== ======== ======== ========
8. ACQUISITION OF BUSINESSES
Effective September 1, 2000, the Company completed the acquisition of a
controlling interest in Ikeda Bussan Co. Ltd. (Ikeda), a Japanese supplier
of automotive seating. Ikeda is the primary supplier of seating to Nissan
and had consolidated net sales in 1999 of approximately $1.2 billion. The
closing followed the expiration of a tender offer for Ikeda's shares, with
the Company paying approximately $70 million (net of cash acquired), plus
the assumption of $115 million of debt, for approximately 90% of the
outstanding shares. The Company has initiated a share exchange to effect
the acquisition of the remainder of the stock, which should be completed in
the fall of 2001. The acquisition was accounted for as a purchase in the
Statement of Financial Position at September 30, 2000. The excess of the
purchase price over the estimated fair value of the acquired net assets,
which approximated $160 million at the date of acquisition, was recorded as
goodwill. Management is continuing the process of assessing and formulating
its integration plans, including restructuring a portion of the business,
and anticipates finalizing these plans by June 30, 2001. The operating
results of Ikeda have been included in the Consolidated Statement of Income
since October 1, 2000.
In July 1998, the Company acquired Becker Group, a major supplier of
automotive interior systems. As part of the 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
other termination costs and plant closure costs. Through March 31, 2001,
approximately $26 million of employee severance and other termination costs
associated with the consolidation of European and domestic operations were
paid or incurred. In addition, $9 million of reserves were reversed during
fiscal 1999, with corresponding reductions of goodwill and prepaid taxes.
Accordingly, the reserve
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balance at March 31, 2001 totaled approximately $13 million. The majority
of the restructuring activities are expected to be completed by the end of
fiscal 2001.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001
AND MARCH 31, 2000
Consolidated net sales for the second quarter of fiscal 2001 increased 6% to
$4.6 billion compared with $4.4 billion recorded in the prior year quarter. The
effect of currency translation, primarily associated with the euro, reduced
consolidated net sales by 3%, or approximately $130 million.
Second quarter Automotive Systems Group sales were $3.4 billion, 5% higher than
the prior year's $3.2 billion. Sales of automotive seating and interior systems
in North America were approximately 10% below the prior year period, reflecting
the quarter's sharply lower vehicle production. New seating and interiors
programs and customer diversification helped mitigate the Company's exposure to
the overall 16% drop in the North American light vehicle production level. Sales
of automotive batteries were slightly below the prior year level, with lower
unit shipments to both the aftermarket and original equipment markets as a
result of warmer weather in the quarter and the automotive slowdown. Automotive
seating and interior systems sales in Europe increased by approximately 15%
compared with the prior year before the effect of currency translation, which
reduced reported sales by approximately 10%. Segment sales benefited from the
addition of Ikeda Bussan Co. Ltd., a seating subsidiary in Japan acquired in
September 2000, which contributed sales of approximately $300 million, and from
higher seating sales in other Asian markets and in South America.
Controls Group sales climbed to $1.2 billion for the current quarter, rising 8%
from the prior year quarter. Segment sales in local currency, before the
negative effect of translation, were up 11% compared with the prior year period.
Approximately three-quarters of the increase represented additional integrated
facility management activity, reflecting new and expanded contracts in North
America and Europe. The balance of the
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segment's increase came from higher sales of installed control systems,
primarily the result of additional volume in North America in both the new
construction and existing buildings markets. Orders for installed control
systems increased modestly compared with the prior year's level, with growth
achieved predominately in the North American market.
Consolidated operating income for the second quarter was $191 million, 1% lower
than the prior year's $192 million. Weakness in the North American automotive
environment was the principal factor in the decline in operating profits, though
the impact was largely offset by increases in other businesses and geographic
regions in which the Company operates.
Second quarter operating income for the Automotive Systems Group was $137
million, 6% lower than the prior year's $147 million. The segment decline was
attributable to reduced gross margins in the North American market for seating
and interior systems due to the quarter's lower vehicle production, which
affected many of the Company's more mature programs. The effect of the
production cutback was partly alleviated by headcount reductions and other
cost-cutting efforts, which reduced selling, general and administrative (SG&A)
expenses. The segment benefited from increases associated with automotive
batteries in North America and each of the automotive segment's other primary
geographic regions.
Controls Group operating income for the second quarter increased to $53 million,
climbing 17% from the prior year's $46 million. The rise in operating income was
attributable to the segment's installed control systems operations, which
achieved higher volume and gross margins, reflecting improved contract execution
and efficiency, as well as reduced SG&A expenses as a percentage of sales.
Net interest expense was slightly higher as a result of additional interest
expense associated with moderately higher debt levels in the quarter compared
with the prior year. Miscellaneous - net was approximately $4 million below the
comparable prior year amount. The change was largely the result of reduced
equity income attributable to certain of the Automotive Systems Group's domestic
and European partially-owned affiliates.
The effective income tax rate was 38.7% for the three-month period ended March
31, 2001 compared with 39.6% for the comparable quarter last year. The effective
rate was reduced due principally to global tax reduction initiatives.
Minority interest in net earnings of subsidiaries was $14 million for the
current quarter compared with $11 million for the prior year period. The
increase was primarily attributable to improved results from Automotive Systems
Group subsidiaries, including those in Asia and Europe.
Net income of $83 million for the second quarter of fiscal 2001 was 7% below the
prior year's $89 million. The decrease reflects lower operating income, as well
as increased miscellaneous expense and the higher deduction for the Company's
minority interest in net earnings of its subsidiaries, partially offset by a
reduced effective income tax rate. Diluted earnings per share were $.89,
compared with the prior year's $.95 per share.
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Current quarter earnings include the effect of currency translation, which
reduced earnings by $.02 per diluted share.
COMPARISON OF OPERATING RESULTS FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 2001
AND MARCH 31, 2000
Consolidated net sales for the first six months of fiscal 2001 were $9.1
billion, a 4% increase from the prior year's $8.7 billion. The effect of
currency translation, primarily associated with the euro, reduced consolidated
net sales by 5%, or approximately $400 million.
First half sales for the Automotive Systems Group of $6.8 billion were 3% higher
than the prior year's sales of $6.6 billion. North American sales of automotive
seating and interior systems were approximately 6% below the prior year period,
the result of the period's significantly lower vehicle production schedules. New
seating and interiors programs and customer diversification lessened the
Company's exposure to the 12% decline in the North American light vehicle
production level. Sales of automotive batteries rose slightly, with a favorable
mix of products offsetting the effect of lower unit shipments to both the
aftermarket and original equipment markets resulting from warmer weather in the
period and the automotive slowdown. Automotive seating and interior systems
sales in Europe were 9% lower than the prior year due to the negative effect of
currency translation. In local currency, European sales increased by
approximately 6%. The segment benefited from the addition of its Japanese
subsidiary, which contributed sales of approximately $585 million, and from
higher seating sales in other Asian markets and in South America.
Controls Group sales reached $2.3 billion for the current period, an increase of
8% from the prior period's $2.1 billion. Before the negative effect of currency
translation, segment sales rose 12% from the comparable period last year.
Approximately three-quarters of the increase represented additional integrated
facility management activity, led by new and expanded contracts in North America
and Europe. Higher sales of installed control systems provided the balance of
the segment's increase, primarily the result of higher volumes in North America
in both the new construction and existing buildings markets. Current period
orders for installed control systems exceeded the prior year's level, due
principally to growth in North America and Asia.
Management expects Automotive Systems Group sales to increase 5% to 10% in the
current year, most likely in the low end of that range. Segment sales are
projected to benefit from the launch of new seating and interior systems
programs worldwide, customer diversification, the addition of its Japanese
subsidiary and higher unit shipments of automotive batteries. These factors are
expected to offset the forecasted downturn in North American light vehicle
production, currently estimated to be 8% to 12% lower than the fiscal 2000
level.
Management expects Controls Group sales to rise 10% to 15% for the full year.
Higher installed control systems activity worldwide and expansion of integrated
facility management services in both the commercial and governmental markets are
anticipated to be the primary sources of the segment increase.
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The projected sales increases assume an average euro/U.S. dollar exchange rate
of $.90 for fiscal 2001; sales may differ from the projected range if the actual
exchange rate varies significantly from this rate.
Consolidated operating income was $400 million for the six months ended March
31, 2001, declining 2% from the prior year's $407 million. Weakness in the North
American automotive environment and the negative effect of currency translation
were largely offset by the Automotive Systems Group's positive results in other
geographic markets and continued growth from the Controls Group.
Automotive Systems Group operating income was $306 million, decreasing 6%
compared with the prior year's $325 million. The segment decline was
attributable to reduced gross margins in the North American market for seating
and interior systems due to the period's lower vehicle production, which
affected many of the Company's more mature programs. The effect of the
production cutback was partly alleviated by headcount reductions and other
cost-cutting efforts, which reduced selling, general and administrative (SG&A)
expenses. The segment benefited from increases associated with automotive
batteries in North America and each of the automotive segment's other primary
geographic regions, before the impact of currency translation.
Operating income for the Controls Group for the first half of fiscal 2001 was
$94 million, rising 14% from the prior year's $83 million. The increase in
operating income was due to the segment's installed control systems operations,
which achieved higher volume and gross margins, reflecting improved contract
execution and efficiency, as well as reduced SG&A expenses as a percentage of
sales.
Net interest expense for the first six months of fiscal 2001 was slightly lower
than the prior year, the result of higher interest income earned during the
period. Miscellaneous income (net) was approximately $2 million higher than the
prior year's amount. The increase was associated with a number of miscellaneous
items, including a net gain on asset disposals.
The effective income tax rate was 38.7% for the six-month period ended March 31,
2001 compared with 39.6% for the comparable period last year. The effective rate
was reduced due principally to global tax reduction initiatives.
Minority interest in net earnings of subsidiaries of $26 million was $3 million
higher than the prior year period. The increase was primarily attributable to
improved results from Automotive Systems Group subsidiaries, including those in
Asia and Europe.
The Company's current period net income of $186 million was 1% less than the
prior year's $188 million. The decline represents the period's lower operating
income and the higher deduction for the Company's minority interest in net
earnings of its subsidiaries, partially offset by a reduced effective income tax
rate. Earnings per share were $1.99 on a diluted basis, compared with $2.01 for
the prior year. Current period earnings include the effect of currency
translation, which reduced earnings by $.08 per diluted share.
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COMPARISON OF FINANCIAL CONDITION
Working Capital and Cash Flow
The Company's working capital was a negative $41 million at March 31, 2001,
compared with a negative $233 million at fiscal year-end and a negative $287
million one year ago. The change in working capital was primarily due to a
decrease in short-term debt, which includes the Company's recent refinancing on
a long-term basis of $200 million of short-term commercial paper borrowings.
Working capital, excluding cash and debt, remained at relatively consistent
levels for the periods presented.
Cash provided by operating activities of $379 million during the first six
months of fiscal 2001 increased from the $339 million generated in the prior
year period.
Capital Expenditures and Other Investments
Capital spending for property, plant and equipment during the first half of
fiscal 2001 was $281 million, compared with the prior year's $266 million. The
majority of the spending was associated with the Automotive System Group's
expansion. Management expects capital expenditures for the full year to
approximate $575 to $600 million, primarily related to new and expanded
automotive seating and interior systems facilities and product lines worldwide,
cost reduction projects, and battery manufacturing automation projects. Controls
Group expenditures are expected to be focused on information and building
systems technology.
Investments in partially-owned affiliates of $257 million were $31 million
higher than the prior year's balance. The increase primarily represents equity
income earned by the Company's affiliates, principally joint ventures of the
Automotive Systems Group, partially offset by dividend distributions.
The Company completed the acquisition of Gylling Optima Batteries AB (Optima)
for approximately $60 million in the first quarter of fiscal 2001 to augment its
existing lead-acid battery technologies. Optima is a manufacturer of
spiral-wound lead-acid batteries sold globally under the Optima (R) brand name.
Capitalization
Total capitalization of $4.5 billion at March 31, 2001 included short-term debt
of $.3 billion, long-term debt (including the current portion) of $1.5 billion
and shareholders' equity of $2.7 billion. The Company's total capitalization was
$4.4 billion and $4.2 billion at September 30, 2000 and March 31, 2000,
respectively. Total debt as a percentage of total capitalization at the end of
the most recent quarter declined to 40%, compared with 41% at fiscal year-end
and the 42% level one year ago. The continued improvement in the ratio of debt
to total capitalization reflects the Company's use of its strong operating cash
flows to reduce its relative proportion of debt.
In March 2001, the Company raised the combined amount of its two revolving
credit facilities from $.7 billion to $1.0 billion.
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The Company believes its capital resources and liquidity position at March 31,
2001 are adequate to meet projected needs. Requirements for working capital,
capital expenditures, dividends and debt maturities in fiscal 2001 will continue
to be funded from operations, supplemented by short-term borrowings, if
required.
Restructuring Activities
In July 1998, the Company acquired Becker Group, a major supplier of automotive
interior systems. As part of the 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 other termination costs and
plant closure costs. Through March 31, 2001, approximately $26 million of
employee severance and other termination costs associated with the consolidation
of European and domestic operations were paid or 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
March 31, 2001 totaled approximately $13 million. The majority of the
restructuring activities are expected to be completed by the end of fiscal 2001.
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
March 31, 2001, the unearned backlog of installed control systems contracts
(excluding integrated facility management) to be executed within the next year
was $1.4 billion, compared with $1.2 billion at March 31, 2000. The 16% increase
from the prior year period is primarily due to new order growth in North America
and Asia, both in the new and existing buildings markets.
EURO CONVERSION
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.
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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 and may include words
such as "believes," "expects," "anticipates," "projects" or similar expressions.
For those statements, the Company cautions that the numerous important factors,
including industry vehicle production levels and the assumption of an average
euro/U.S. dollar exchange rate of $.90 for fiscal 2001, and those discussed
elsewhere in this document and in the Company's Form 8-K filing (dated October
26, 2000), 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 March 31, 2001, 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, 2000.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no significant changes in status since the last Report.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
Reference is made to Item 4 of the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 2000 for a description of the results of votes of
security holders at the Annual Meeting of Shareholders held January 24, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.D Common Stock Purchase Plan for Executives, as amended March 28,
2001.
12 Statement regarding the computation of the ratio of earnings to
fixed charges.
(b) There were no reports on Form 8-K filed during the three months
ended March 31, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSON CONTROLS, INC.
Date: May 15, 2001 By: /s/ Stephen A. Roell
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Stephen A. Roell
Senior Vice President and
Chief Financial Officer
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