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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 June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission File Number 1-5097
JOHNSON CONTROLS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-0380010
(State of Incorporation) (I.R.S. Employer Identification No.)
5757 North Green Bay Avenue, P.O. Box 591, Milwaukee, WI 53201
(Address of principal executive office)
Registrant's telephone number, including area code: (414) 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
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 2001
- ----- ----------------------------
Common Stock $.16 2/3 Par Value 87,280,780
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JOHNSON CONTROLS, INC.
FORM 10-Q
JUNE 30, 2001
REPORT INDEX
Page No.
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PART I - FINANCIAL INFORMATION:
Consolidated Statement of Financial Position at June 30, 2001,
September 30, 2000 and June 30, 2000.................................................. 3
Consolidated Statement of Income for the Three- and Nine-Month
Periods Ended June 30, 2001 and 2000 ................................................ 4
Consolidated Statement of Cash Flows for the Nine-Month
Periods Ended June 30, 2001 and 2000 ................................................ 5
Notes to Consolidated Financial Statements ............................................ 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................................. 10
Quantitative and Qualitative Disclosures About Market Risk.............................. 16
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings................................................................ 16
Item 4. Results of Votes of Security Holders............................................ 16
Item 6. Exhibits and Reports on Form 8-K .............................................. 16
SIGNATURES .............................................................................. 17
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JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions)
June 30, September 30, June 30,
2001 2000 2000
----------------- -------------------- -----------------
(unaudited) (unaudited)
ASSETS
Cash and cash equivalents $298.8 $275.6 $234.1
Accounts receivable - net 2,523.7 2,355.3 2,281.5
Costs and earnings in excess of billings
on uncompleted contracts 213.4 222.4 220.4
Inventories 545.0 569.5 505.4
Other current assets 723.6 854.4 663.3
----------------- -------------------- -----------------
Current assets 4,304.5 4,277.2 3,904.7
Property, plant and equipment - net 2,411.7 2,305.0 2,029.9
Goodwill - net 2,235.7 2,133.3 2,010.0
Investments in partially-owned affiliates 252.3 254.7 247.1
Other noncurrent assets 525.4 457.8 401.0
----------------- -------------------- -----------------
Total assets $9,729.6 $9,428.0 $8,592.7
================= ==================== =================
LIABILITIES AND EQUITY
Short-term debt $249.7 $471.4 $218.5
Current portion of long-term debt 47.4 36.1 40.5
Accounts payable 2,336.0 2,308.8 2,130.3
Accrued compensation and benefits 412.1 452.4 446.6
Accrued income taxes 119.5 140.0 146.1
Billings in excess of costs and earnings
on uncompleted contracts 181.7 167.8 182.8
Other current liabilities 1,031.8 933.5 933.0
----------------- -------------------- -----------------
Current liabilities 4,378.2 4,510.0 4,097.8
Long-term debt 1,443.3 1,315.3 1,232.3
Postretirement health and other benefits 161.7 168.1 165.3
Other noncurrent liabilities 660.5 621.8 410.3
Minority interest in equity of subsidiaries 280.1 236.7 234.4
Shareholders' equity 2,805.8 2,576.1 2,452.6
----------------- -------------------- -----------------
Total liabilities and equity $9,729.6 $9,428.0 $8,592.7
================= ==================== =================
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 June 30, Nine Months Ended June 30,
--------------------------- ----------------------------
2001 2000 2001 2000
-------- -------- --------- ---------
Net sales $4,722.1 $4,389.3 $13,778.1 $13,065.9
Cost of sales 4,046.0 3,713.1 11,840.8 11,152.6
-------- -------- --------- ---------
Gross profit 676.1 676.2 1,937.3 1,913.3
Selling, general and administrative expenses 405.8 409.2 1,267.2 1,238.9
-------- -------- --------- ---------
Operating income 270.3 267.0 670.1 674.4
Interest income 3.7 3.8 14.1 11.6
Interest expense (31.1) (29.3) (99.0) (95.9)
Miscellaneous - net 5.4 (0.5) 8.4 0.1
-------- -------- --------- ---------
Other income (expense) (22.0) (26.0) (76.5) (84.2)
-------- -------- --------- ---------
Income before income taxes and minority interest 248.3 241.0 593.6 590.2
Provision for income taxes 96.0 95.4 229.7 233.7
Minority interest in net earnings of subsidiaries 15.8 12.2 41.9 35.3
-------- -------- --------- ---------
Net income $ 136.5 $ 133.4 $ 322.0 $ 321.2
======== ======== ========= =========
Earnings available for common shareholders $ 134.4 $ 130.9 $ 315.3 $ 313.9
======== ======== ========= =========
Earnings per share
Basic $ 1.54 $ 1.53 $ 3.64 $ 3.67
======== ======== ========= =========
Diluted $ 1.45 $ 1.45 $ 3.44 $ 3.46
======== ======== ========= =========
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)
Nine Months
Ended June 30,
------------------------
2001 2000
-------- -------
OPERATING ACTIVITIES
Net income $ 322.0 $ 321.2
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 319.2 289.3
Amortization of intangibles 61.6 57.9
Equity in earnings of partially-owned affiliates, net of dividends received (10.3) (7.1)
Deferred income taxes 27.8 (14.3)
Other (9.2) (1.8)
Changes in working capital, excluding acquisition and divestiture of businesses
Receivables (117.4) (194.5)
Inventories 28.4 5.5
Other current assets 95.6 (45.5)
Accounts payable and accrued liabilities 70.9 257.3
Accrued income taxes 6.6 (29.3)
Billings in excess of costs and earnings on uncompleted contracts 15.2 20.7
-------- ------
Cash provided by operating activities 810.4 659.4
-------- ------
INVESTING ACTIVITIES
Capital expenditures (460.6) (382.5)
Sale of property, plant and equipment - net 26.9 11.8
Acquisition of businesses, net of cash acquired (207.3) (11.0)
Divestiture of business - 75.0
Additions of long-term investments (30.1) (12.8)
-------- ------
Cash used by investing activities (671.1) (319.5)
-------- ------
FINANCING ACTIVITIES
Decrease in short-term debt - net (224.7) (262.3)
Addition of long-term debt 241.9 22.3
Repayment of long-term debt (75.1) (78.8)
Payment of cash dividends (88.1) (79.7)
Other 29.9 16.5
-------- ------
Cash used by financing activities (116.1) (382.0)
-------- ------
Increase (decrease) in cash and cash equivalents $ 23.2 ($42.1)
======== ======
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 nine-month periods ended June 30, 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 nine months ended June 30, 2001 and 2000 (net
of income tax refunds) totaled approximately $113 million and $219
million, respectively. The change between periods includes a $30 million
income tax refund received in the first quarter. Total interest paid was
approximately $108 million and $100 million for the nine months ended June
30, 2001 and 2000, respectively.
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:
June 30, September 30, June 30,
(in millions) 2001 2000 2000
---------------- ----------------- ---------------
Raw materials and supplies $293.3 $323.9 $260.6
Work-in-process 80.4 98.8 76.5
Finished goods 201.7 177.4 202.2
---------------- ----------------- ---------------
FIFO inventories 575.4 600.1 539.3
LIFO reserve (30.4) (30.6) (33.9)
---------------- ----------------- ---------------
$545.0 $569.5 $505.4
================ ================= ===============
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 June 30, 2001 and 2000 was $105 million and $74
million, respectively. Comprehensive income for the nine months ended June
30, 2001 and 2000 was $261 million and $232 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 $8 million and $14 million were recorded for the three-
and nine-month periods ending June 30, 2001.
6. EARNINGS PER SHARE
The following table reconciles the numerators and denominators used to
calculate basic and diluted earnings per share:
Three Months Nine Months
Ended June 30, Ended June 30,
----------------- ------------------
(in millions) 2001 2000 2001 2000
------ ------- ------ ------
Income Available to Common Shareholders
Net Income $136.5 $133.4 $322.0 $321.2
Preferred stock dividends, net of tax benefit (2.1) (2.5) (6.7) (7.3)
------ ------ ------ ------
Basic income available to common shareholders $134.4 $130.9 $315.3 $313.9
====== ====== ====== ======
Net Income $136.5 $133.4 $322.0 $321.2
Effect of Dilutive Securities:
Compensation expense, net of tax benefit, arising
from assumed conversion of preferred stock (0.8) (1.0) (2.6) (3.2)
----- ------ ------ ------
Diluted income available to common shareholders $135.7 $132.4 $319.4 $318.0
====== ====== ====== ======
Weighted Average Shares Outstanding
Basic weighted average shares outstanding 87.1 85.8 86.6 85.6
Effect of Dilutive Securities:
Stock options 1.5 1.3 1.3 1.3
Convertible preferred stock 4.9 5.1 4.9 5.1
------ ------ ------ ------
Diluted weighted average shares outstanding 93.5 92.2 92.8 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 Nine Months
Ended June 30, Ended June 30,
-------------------------- ------------------------
(in millions) 2001 2000 2001 2000
------------- ------------ ---------- ------------
Sales
Automotive Systems Group $3,529.4 $3,285.6 $10,289.9 $9,840.4
Controls Group 1,192.7 1,103.7 3,488.2 3,225.5
------------- ------------ ---------- ------------
Total $4,722.1 $4,389.3 $13,778.1 $13,065.9
============= ============ ========== ============
Operating Income
Automotive Systems Group $211.0 $220.0 $516.5 $544.9
Controls Group 59.3 47.0 153.6 129.5
------------- ------------ ---------- ------------
Total $270.3 $267.0 $670.1 $674.4
============= ============ ========== ============
Total assets of the Controls Group increased by approximately $280 million
from the $1.621 billion balance at fiscal year-end. The majority of the
increase was attributable to the acquisition of MC International (see
footnote 8).
8. ACQUISITION OF BUSINESSES
In the third quarter of fiscal 2001, the Company completed the acquisition
of MC International, a leader in refrigeration and air conditioning
systems and services for European retail, industrial and commercial
customers, for approximately $144 million. The acquisition was accounted
for as a purchase. MC International, headquartered in France, has annual
sales of over $200 million.
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
by the end of the calendar year. 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 the end
of the fiscal year. The operating results of Ikeda have been included in
the Consolidated Statement of Income since October 1, 2000.
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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 June 30,
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 June
30, 2001 totaled approximately $13 million. The remaining activities will
be completed pending the resolution of certain contractual and other
non-operational issues.
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 July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations,"
and No. 142 "Goodwill and Other Intangible Assets." The statements
eliminate the pooling-of-interests method of accounting for business
combinations and require goodwill to no longer be amortized but instead be
tested for impairment at least annually. SFAS No. 141 is effective for
business combinations initiated after June 30, 2001. The Company plans to
adopt SFAS No. 142 beginning in fiscal year 2002. Adoption of the
statement will have no impact on the Company's cash flows but will
significantly increase reported net earnings. The Company currently
estimates that adoption of SFAS No. 142 would increase fiscal 2001
reported earnings per share, on a pro forma basis, by approximately $.65
per diluted share.
11. SUBSEQUENT EVENT
On July 25, 2001, the Company announced that it will acquire the
automotive electronics business of Sagem SA, a French high-technology
group, for a purchase price of $435 million, which is subject to various
adjustments. The Sagem business to be acquired is expected to have annual
sales in 2001 of approximately $522 million. The acquisition, subject to
customary regulatory approvals, is expected to be completed in October
2001.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2001
AND JUNE 30, 2000
Third quarter consolidated net sales of $4.7 billion rose 8% from the prior
year's $4.4 billion. The effect of currency translation rates, primarily
associated with the euro, reduced consolidated net sales by 3%, or approximately
$140 million.
Automotive Systems Group sales for the third quarter reached $3.5 billion, up 7%
compared with the prior year's $3.3 billion. Sales of automotive seating and
interior systems in North America rose by 2% over the prior year period, despite
a 9% decline in the light vehicle production level. New seating and interiors
programs and customer diversification helped mitigate the Company's exposure to
the lower automotive build. Sales of automotive batteries rose by approximately
15%, with higher unit shipments resulting from contracts with new aftermarket
customers and increased demand from existing customers. Automotive seating and
interior systems sales in Europe were level with the prior year before the
effect of currency translation rates, which reduced reported sales by 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 $250 million, and from higher seating sales in other Asian markets
and in South America.
Third quarter sales for the Controls Group were $1.2 billion, rising 8% from the
prior year quarter. Segment sales in local currency, before the negative effect
of translation rates, increased 12% compared with the prior year period.
Approximately three-quarters of the sales increase represented additional
integrated facility management activity, reflecting new and expanded contracts
in North America and Europe. The balance of the segment's increase was
attributable to higher sales of installed control systems, particularly in the
new construction market, and the addition of MC International (see "Capital
Expenditures and Other Investments"). Orders for installed control systems
increased modestly when compared to last year's strong level.
Consolidated operating income of $270 million for the third quarter was 1% above
the prior year's $267 million. The Controls Group's increased operating profits
in the quarter offset a decline in Automotive Systems Group operating income.
Automotive Systems Group operating income for the third quarter was $211
million, 4% below the prior year's $220 million. Operating income in North
America associated with seating and interior systems declined modestly due to
reduced gross margins resulting from the quarter's lower vehicle production,
which affected many of the Company's more mature programs. The effect of the
region's lower production was partly alleviated by headcount reductions and
other cost-cutting efforts, which reduced selling, general and administrative
(SG&A) expenses. Operating income attributable to the European market for
seating and interior systems was lower, with reduced gross margins resulting
from costs associated with the launch of new programs. Partially offsetting
these factors were increases in operating income associated with automotive
battery sales in North America and automotive operations in Asia and South
America.
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Third quarter operating income for the Controls Group climbed to $59 million, a
26% increase from the prior year's $47 million. The rise in operating income was
attributable to the segment's higher volume and gross margins, due to improved
contract execution and efficiency, as well as reduced SG&A expenses as a
percentage of sales.
Interest expense was approximately $2 million higher, reflecting the quarter's
moderately higher debt levels compared with the prior year. Miscellaneous - net
was approximately $6 million above the prior year amount. The change was due to
increased equity income from certain Automotive Systems Group domestic and Asian
partially-owned affiliates, and from other miscellaneous items, including a net
gain on asset disposals.
The effective income tax rate was 38.7% for the three-month period ended June
30, 2001 compared with 39.6% for the same quarter last year. The effective rate
was reduced due principally to global tax reduction initiatives.
Minority interest in net earnings of subsidiaries of $16 million for the current
quarter was $4 million higher than the comparable amount 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 $136 million for the third quarter exceeded the prior year's $133
million. The increase resulted from higher operating income, equity earnings and
other miscellaneous income, as well as a reduced effective income tax rate.
These items were partially offset by a higher deduction for the Company's
minority interest in net earnings of its subsidiaries. Due to a larger number of
shares outstanding in the current quarter, diluted earnings per share of $1.45
were unchanged from the prior year. Current quarter results include the effect
of currency translation rates, which reduced earnings by $.03 per diluted share.
COMPARISON OF OPERATING RESULTS FOR THE NINE-MONTH PERIODS ENDED JUNE 30, 2001
AND JUNE 30, 2000
Current year-to-date consolidated net sales rose 5% to $13.8 billion, compared
with the prior year's $13.1 billion. The effect of currency translation rates,
primarily associated with the euro, reduced consolidated net sales by 4%, or
approximately $540 million.
Automotive Systems Group sales for the first nine months of fiscal 2001 were
$10.3 billion, up 5% from the prior year's sales of $9.8 billion. Automotive
seating and interior systems sales in North America declined by 3% from the
prior year period, the result of the current year's significantly lower vehicle
production schedules, particularly in the second fiscal quarter. New seating and
interiors programs and customer diversification lessened the Company's exposure
to the 11% decline in the North American light vehicle production level. Sales
of automotive batteries rose 7%, with growth generated by contracts with new
aftermarket customers and increased demand from existing customers in the
battery replacement market. Automotive seating and interior systems sales in
Europe were 10% lower than the prior year due to the negative effect of currency
translation rates. In local currency, European sales increased approximately 4%.
The segment benefited from the addition of its Japanese subsidiary, which
contributed sales of
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approximately $835 million, and from higher seating sales in other Asian markets
and in South America.
Controls Group sales of $3.5 billion for the current period were 8% higher than
the prior year's $3.2 billion. Before the negative effect of currency
translation rates, segment sales increased 12% from the comparable prior year
period. Approximately three-quarters of the sales 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 growth, the result of increased volumes
worldwide. Installed control systems orders for the period ended June 30, 2001
exceeded the prior year, attributable to growth in the North American and Asian
markets.
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,
most likely in the low end of that range. 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.
Consolidated operating income of $670 million for the current year-to-date
declined 1% compared with the prior year's $674 million. Weakness in the North
American automotive environment, particularly in the second fiscal quarter, and
the negative effect of currency translation rates were largely offset by the
Automotive Systems Group's positive results in most other geographic markets and
operations, and continued growth from the Controls Group.
Operating income for the Automotive Systems Group was $517 million, down 5%
compared with the prior year's $545 million. The segment decline was
attributable to reduced gross margins in the North American market for seating
and interior systems due to the current year'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 SG&A expenses. European operating income was
lower, primarily the result of lower gross margins due to costs associated with
new programs and the negative effect of currency translation. Partially
offsetting these factors were increases in operating income associated with
automotive battery sales in North America and automotive operations in Asia and
South America.
Controls Group operating income for the first nine months reached $154 million,
rising 19% compared with the prior year. The increase in operating income was
attributable to the segment's installed control systems operations, which
achieved higher volume and gross margins resulting from improved contract
execution and efficiency.
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Net interest expense approximated the prior year level, with higher interest
income offsetting the additional interest expense associated with the current
period's moderately higher debt levels. Miscellaneous income (net) was
approximately $8 million higher than the prior year's amount. The increase was
attributable to higher equity income, as well as a number of miscellaneous
items, including a net gain on asset disposals.
The effective income tax rate was 38.7% for the nine-month period ended June 30,
2001 compared with 39.6% for the same period last year. The effective rate was
reduced due principally to global tax reduction initiatives.
Minority interest in net earnings of subsidiaries was $42 million, increasing
from the prior year period's $35 million. The increase was primarily
attributable to improved results from Automotive Systems Group subsidiaries,
including those in Asia and Europe.
The Company's net income of $322 million for the first nine months of fiscal
2001 exceeded the prior year's $321 million. The period's slightly lower
operating income and the higher deduction for the Company's minority interest in
net earnings of its subsidiaries were offset by increased equity earnings and
other miscellaneous income, as well as a reduced effective income tax rate. Due
to a larger number of shares outstanding during the period, diluted earnings per
share decreased to $3.44 compared with the prior year's $3.46. Current period
results include the effect of currency translation rates, which reduced earnings
by $.11 per diluted share.
COMPARISON OF FINANCIAL CONDITION
Working Capital and Cash Flow
Working capital was a negative $74 million at June 30, 2001, compared with a
negative $233 million at September 30, 2000. The change in working capital was
largely due to a decrease in short-term debt, which includes the refinancing on
a long-term basis of $200 million of short-term commercial paper borrowings.
Working capital, excluding cash and debt, of a negative $75 million decreased by
$74 million compared to fiscal year-end, due in part to a decrease in other
current assets, principally prepaid expenses.
Cash provided by operating activities of $810 million during the first nine
months of fiscal 2001 rose from the $659 million generated in the prior year
period. The increase was primarily the result of a favorable net change in
working capital compared to the prior year period.
Capital Expenditures and Other Investments
Capital spending for property, plant and equipment during the current year was
$461 million, compared with the prior year's $383 million. The majority of the
spending was associated with the Automotive System Group's continuing expansion.
Management expects capital expenditures for the full year to approximate $625 to
$650 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.
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In the third quarter of fiscal 2001, the Company completed the acquisition of MC
International for approximately $144 million. MC International is a leader in
refrigeration and air conditioning systems and services for European retail,
industrial and commercial customers, and is headquartered in France. The
acquisition was originally financed with commercial paper and was subsequently
refinanced with long-term euro-denominated debt.
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.
Goodwill of $2.2 billion at June 30, 2001 was $102 million higher than the
balance at September 30, 2000 and $226 million higher than the balance one year
ago. The current year increase is primarily associated with the acquisitions of
MC International and Optima. The year-over-year increase also includes goodwill
attributable to the Company's seating subsidiary in Japan, acquired in September
2000.
Capitalization
Total capitalization of $4.5 billion at June 30, 2001 included short-term debt
of $.2 billion, long-term debt (including the current portion) of $1.5 billion
and shareholders' equity of $2.8 billion. The Company's total capitalization was
$4.4 billion and $3.9 billion at September 30, 2000 and June 30, 2000,
respectively. Total debt as a percentage of total capitalization at the end of
the most recent quarter was 38%, compared with 41% at fiscal year-end and the
38% level one year ago. The current year 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 to provide initial financing
for the MC International acquisition.
The Company believes its capital resources and liquidity position at June 30,
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
Since the Company's acquisition of Ikeda in September 2000, management has
continued the process of assessing and formulating its integration plans,
including restructuring a portion of the business, and anticipates finalizing
these plans by the end of the fiscal year.
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,
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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 June 30, 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 June 30, 2001 totaled approximately $13 million. The
remaining activities will be completed pending the resolution of certain
contractual and other non-operational issues.
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
June 30, 2001, the unearned backlog of installed control systems contracts
(excluding integrated facility management) to be executed within the next year
was $1.44 billion, compared with $1.26 billion at June 30, 2000. New order
growth in North America and Asia, both in the new and existing buildings
markets, were the primary sources of the 14% increase from the prior year
period.
PENDING ACQUISITION
On July 25, 2001, the Company announced that it will acquire the automotive
electronics business of Sagem SA, a French high-technology group, for a purchase
price of $435 million, which is subject to various adjustments. The Sagem
business to be acquired is expected to have annual sales in 2001 of
approximately $522 million. The acquisition, subject to customary regulatory
approvals, is expected to be completed in October 2001.
FUTURE ACCOUNTING CHANGES
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 is effective for all
business combinations initiated after June 30, 2001. The Company plans to adopt
SFAS No. 142 beginning in fiscal year 2002. See footnote 10 to the consolidated
financial statements for additional information about these statements.
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
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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 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, U.S. dollar exchange rates 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 June 30, 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
12 Statement regarding the computation of the ratio of earnings to
fixed charges.
(b) The Company filed a Form 8-K on April 18, 2001 to disclose its
financial results for the second quarter of fiscal 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: August 14, 2001 By:/s/ Stephen A. Roell
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Stephen A. Roell
Senior Vice President and
Chief Financial Officer
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