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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 1-5097
JOHNSON CONTROLS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-0380010
(State of Incorporation) (I.R.S. Employer
Identification No.)
5757 North Green Bay Avenue, P.O. Box 591, Milwaukee, WI 53201
(Address of principal executive office)
Registrant's telephone number, including area code (414) 228-1200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 31, 1994
----- --------------------------------
Common Stock $.16 2/3 Par Value 40,753,781
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JOHNSON CONTROLS, INC.
FORM 10-Q
DECEMBER 31, 1994
REPORT INDEX
Page No.
--------
PART I. - FINANCIAL INFORMATION:
Consolidated Statement of Financial Position
at December 31, 1994, September 30, 1994 and
December 31, 1993 ......................................... 3
Consolidated Statement of Income for the Three-
Month Periods Ended December 31, 1994 and 1993 ............ 4
Consolidated Statement of Cash Flows for the Three-
Month Periods Ended December 31, 1994 and 1993 ............ 5
Notes to Consolidated Financial Statements .................. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 8
PART II. - OTHER INFORMATION:
Item 1. Legal Proceedings ................................... 12
Item 4. Results of Votes of Security Holders ................. 12
Item 6. Exhibits and Reports on Form 8-K .................... 13
SIGNATURES ..................................................... 14
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JOHNSON CONTROLS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In millions)
December 31, September 30, December 31,
1994 1994 1993
------------ ------------- ------------
(unaudited) (unaudited)
ASSETS
Cash and cash equivalents $ 151.0 $ 132.6 $ 99.0
Accounts receivable - net 1,094.3 1,067.0 917.8
Inventories 336.7 304.7 294.0
Other current assets 246.7 274.2 249.7
-------- -------- --------
Current assets 1,828.7 1,778.5 1,560.5
Property, plant and equipment - net 1,379.6 1,333.4 1,214.3
Goodwill - net 489.8 493.8 318.4
Investments in partially-owned affiliates 96.3 99.7 92.6
Other noncurrent assets 102.1 101.5 75.3
-------- -------- --------
Total assets $3,896.5 $3,806.9 $3,261.1
======== ======== ========
LIABILITIES AND EQUITY
Short-term debt $79.0 $19.2 $83.4
Current portion of long-term debt 26.9 24.8 53.8
Accounts payable 804.4 814.9 630.1
Accrued compensation and benefits 219.8 246.3 170.0
Accrued income taxes 83.0 39.4 50.2
Billings in excess of costs and earnings
on uncompleted contracts 88.3 76.2 87.7
Other current liabilities 295.1 295.6 253.4
-------- -------- --------
Current liabilities 1,596.5 1,516.4 1,328.6
Long-term debt 666.0 670.3 459.1
Postretirement health and other benefits 169.1 167.1 159.4
Other noncurrent liabilities 250.7 250.3 208.6
Shareholders' equity 1,214.2 1,202.8 1,105.4
-------- -------- --------
Total liabilities and equity $3,896.5 $3,806.9 $3,261.1
======== ======== ========
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; unaudited)
For the Three Months
Ended December 31,
-----------------------------
1994 1993
-------- -------
Net sales $1,857.6 $1,585.0
Cost of sales 1,580.3 1,332.4
-------- --------
Gross profit 277.3 252.6
Selling, general and administrative
expenses 184.7 171.0
-------- --------
Operating income 92.6 81.6
Interest income 1.5 0.9
Interest expense (12.6) (10.6)
Miscellaneous - net (0.4) 1.4
-------- --------
Other income (expense) (11.5) (8.3)
-------- --------
Income before income taxes and minority interests 81.1 73.3
Provision for income taxes 34.9 31.5
Minority interests in net earnings of subsidiaries 5.0 3.7
-------- --------
Net income $41.2 $38.1
======== ========
Earnings available for common shareholders $38.8 $35.8
======== ========
Earnings per share
Primary $0.95 $0.87
======== ========
Fully diluted $0.90 $0.83
======== ========
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)
For the Three Months
Ended December 31,
----------------------
1994 1993
-------- ---------
OPERATING ACTIVITIES
Net income $41.2 $38.1
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation 64.7 54.6
Amortization of intangibles 8.7 5.8
Equity in earnings of partially-
owned affiliates (1.2) (3.2)
Noncurrent deferred income taxes (1.4) (4.5)
Other (12.4) 7.5
Changes in working capital, excluding
acquisition of businesses
Accounts receivable (30.9) (9.6)
Inventories (32.2) (14.8)
Other current assets 24.7 0.6
Accounts payable and accrued liabilities (41.4) (41.7)
Accrued income taxes 43.7 (8.3)
Billings in excess of costs and earnings
on uncompleted contracts 12.6 16.3
------- -------
Cash provided by operating activities 76.1 40.8
------- -------
INVESTING ACTIVITIES
Capital expenditures (107.5) (67.1)
Sale of property, plant and equipment-net 3.1 6.1
Increase in long-term investments - net (2.4) (1.2)
Acquisition of businesses -- (3.7)
------- -------
Cash used by investing activities (106.8) (65.9)
------- -------
FINANCING ACTIVITIES
Increase in short-term debt 60.1 52.2
Issuance of long-term debt 47.5 9.6
Repayment of long-term debt (42.2) (10.4)
Payment of cash dividends (19.1) (17.9)
Other 2.8 2.9
------- -------
Cash provided by financing activities 49.1 36.4
------- -------
Increase in cash and cash equivalents $18.4 $11.3
======= =======
The accompanying notes are an integral part of the financial statements.
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JOHNSON CONTROLS, INC.
FORM 10-Q, DECEMBER 31, 1994
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, 1994. The results of operations
for the three months are not necessarily indicative of the results which may be
expected for the company's 1995 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 three months ended December 31, 1994
and 1993 (net of income tax refunds) totalled approximately $20 million and $39
million, respectively. The decrease relates to a lower federal tax extension
payment made in December, 1994 resulting from larger quarterly estimated tax
payments made during fiscal 1994 vs. 1993. Total interest paid on both
long-term and short-term debt was $12 million and $7 million for the quarter
ended December 31, 1994 and 1993, respectively.
4. Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for most inventories at
domestic locations. The cost of other inventories is determined on the
first-in, first-out (FIFO) method.
Inventories were comprised of the following:
December 31,
1994 1993
-------- --------
(in millions)
Raw materials and supplies $ 107.3 $ 94.2
Work-in-process 121.8 99.9
Finished goods 149.7 147.0
------- -------
FIFO inventories 378.8 341.1
LIFO reserve 42.1 47.1
------- -------
LIFO inventories $ 336.7 $ 294.0
======= =======
5. Income Taxes
The provision for income taxes is determined by applying an
estimated annual effective income tax rate to income before income taxes. The
estimated annual effective income tax rate is based on the most recent
annualized forecast of pretax income, permanent book/tax differences, and tax
credits. It also includes the effect of any valuation allowance expected to be
necessary at the end of the year.
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JOHNSON CONTROLS, INC.
FORM 10-Q, DECEMBER 31, 1994
6. Earnings Per Share
Primary earnings per share are computed by dividing net income,
after deducting dividend requirements on the company's Series D Convertible
Preferred Stock, by the weighted average number of common shares and common
stock equivalents which would arise from the exercise of stock options. Fully
diluted earnings are computed by deducting from net income the after-tax
compensation expense which would arise from the assumed conversion of the
Series D Convertible Preferred Stock, which was $1.4 million and $1.5 million
for the three months ended December 31, 1994 and 1993, respectively. Fully
diluted weighted average shares assume the conversion of the Series D
Convertible Preferred Stock, if dilutive, plus the dilutive effect of the stock
options.
The weighted average number of shares used in the computations of
primary and fully diluted earnings per share were as follows:
Three Months Ended
December 31,
1994 1993
-------- -------
(in millions)
Primary 41.0 41.0
Fully diluted 44.2 44.3
7. Contingencies
As of September 28, 1983, Hoover Universal, Inc. ("Hoover") sold
the assets of its Wood Preserving Division to Hoover Treated Wood Products,
Inc. ("HTWP"), a subsidiary of Ply-Gem Industries, Inc. ("PLY-GEM"). The
agreement provided that Hoover retain certain liabilities relating to that
business, including the liability for products shipped prior to October 1,
1983. One of the products of the Wood Preserving Division was fire retardant
treated wood. In May 1985, Hoover became a subsidiary of the company.
The company and its subsidiary, Hoover, have received claims
related to fire retardant treated wood sold and used in a number of structures
primarily in the eastern half of the United States. These claims allege that
the fire retardant treated wood loses its structural integrity under some
circumstances over time. Plywood manufacturers, architects, wood treaters,
builders, lumber suppliers, chemical suppliers and others are also involved in
these claims.
A mediation process that includes many of these parties and their
insurers is ongoing in New Jersey, where a number of these claims are located.
The efforts have been successful in resolving much of that litigation.
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JOHNSON CONTROLS, INC.
FORM 10-Q, DECEMBER 31, 1994
The company and its subsidiary are vigorously defending these
claims and have been successful on certain of their defenses asserted in these
claims to date. During 1993, the company entered into agreements with two
insurance carriers to provide a total of $65 million of insurance coverage on
potential fire retardant treated wood claims. With respect to the underlying
claims, liability cannot be reasonably estimated at this time. However, it is
management's opinion that this matter will not have a materially adverse effect
on the company's financial position, results of operations or cash flows.
The company is also 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 DECEMBER 31,
1994 AND DECEMBER 31, 1993
Consolidated net sales for the first quarter of fiscal 1995
reached a record $1,858 million, representing a 17% increase over the prior
year quarter of $1,585 million. The sales growth was achieved with strong
performances in three of our four business segments. Automotive seating sales
increased over the prior year on the continued strength of the North American
light vehicle build schedule, which grew about 8% compared to the year ago
period, coupled with our participation with successful vehicle models such as
Chrysler's Neon and Cherokee, General Motors' Blazer and Jimmy and the Toyota
Camry. European seating sales also improved resulting from new business,
primarily with Rover and Volkswagen Skoda, and growth in existing business
generated by improving overall vehicle production rates.
Controls segment sales of facility services and control systems
increased over the prior year. The sales improvement was generated by both
increases within facilities management and retrofit activity in the existing
commercial buildings market and acquisitions. Prior year acquisitions,
accounting for approximately three-quarters of the overall sales increase,
include Procord, a U.K. operations and maintenance business; Haydon, a U.K.
controls service business; and Network Integration Services, a domestic network
installation business. Worldwide orders from the commercial buildings market
in the first quarter of fiscal 1995 were higher than a year ago, led by the
strength of domestic demand in the existing commercial buildings market.
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JOHNSON CONTROLS, INC.
FORM 10-Q, DECEMBER 31, 1994
Sales for the plastics segment increased over the first quarter
of last year, reflecting higher unit shipments of non-soft drink containers,
principally water and hot-fill containers for juices and isotonic sport drinks,
worldwide. Soft-drink container shipments declined slightly. An improvement
in plastics machinery sales also contributed to the overall sales improvement.
Battery sales decreased slightly compared to the prior year as a
result of the absence of shipments to Sears, Roebuck & Company ("Sears"). The
impact was partially offset by unit shipment growth associated with existing
replacement and original equipment customers and higher lead prices, which are
passed along to customers in battery selling prices.
The overall sales growth experienced in the first quarter is
expected to continue throughout fiscal 1995. Management believes the
automotive segment will continue to benefit from the strong North American
build schedule, participation with successful vehicle models and the launch of
new seating programs and as such, is expected to show a 20%-25% sales
improvement for the year. Sales growth of 10%-15% for the year is expected for
the controls segment. The segment has experienced worldwide order increases,
primarily in the retrofit and facilities management markets, and the unearned
backlog has continued to grow. Acquisitions made during fiscal 1994 will also
benefit current year sales. Management believes the plastics segment will
continue to benefit from strong non-soft drink container demand, primarily
water and hot-fill containers. A 10%-15% improvement in sales is expected for
the fiscal year. The battery segment is expected to show a 10%-15% decline in
sales as the anticipated growth in existing customer shipments will mostly
offset the loss due to the Sears business. Raw material prices for steel and
resin, used in the automotive and plastics segments respectively, have
increased; however, these costs generally have been recovered through customer
pricing.
Consolidated operating income for the first fiscal quarter of
1995 of $93 million represents a 13% improvement over the prior year's $82
million. The increase in North American automotive seating sales accounted for
the majority of this increase. The automotive segment's operating income was
favorably impacted by the increased sales, North American margin improvement
associated with established vehicle programs and a relatively flat level of
engineering expense. European results remained level with the prior year.
Operating income for the controls business improved, however, at
a rate slightly less than sales. Start-up costs associated with new contracts
and the assimilation of international acquisitions impacted facilities
management margins, however, installation and service margins remained level.
First quarter plastics operating income grew as a result of the
non-soft drink container and plastics machinery volume improvements noted
above, and higher European profitability.
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JOHNSON CONTROLS, INC.
FORM 10-Q, DECEMBER 31, 1994
Battery operating income declined reflecting the lower unit
volumes attributable to Sears. Cost reduction programs initiated in fiscal
1994 to reduce capacity and lower the segment's cost structure are currently on
target and the first of the two plants scheduled to close during fiscal 1995
ceased operations in December, 1994.
Other expense increased $3 million over the comparable prior year
quarter. Interest expense increased $2 million resulting from the financing
associated with fiscal 1994 acquisitions. Equity income, included in
Miscellaneous-net, reflects $1.5 million in Mexican Peso devaluation losses
associated with certain dollar denominated liabilities held by the company's
Mexican unconsolidated affiliates. Excluding this loss, equity income was
approximately level with the prior year.
The effective income tax rate was 43% for the three-month period
ended December 31, 1994, consistent with that used for the comparable quarter
last year.
Minority interests in net earnings of subsidiaries increased to
$5 million from $4 million in first quarter of last year. The increase
primarily relates to improvements in earnings from certain of the company's
North American automotive seating subsidiaries.
The company's first quarter net income and earnings available for
common shareholders of $41 million and $39 million, respectively, were
approximately 8% higher than the prior year amounts of $38 million and $36
million. This increase was due to the improvements in operating income noted
above. Primary and fully diluted earnings per share for the quarter ended
December 31, 1994, were $.95 and $.90, respectively, up from $.87 and $.83 in
the prior year.
COMPARISON OF FINANCIAL CONDITION
Working Capital and Cash Flow
The company's working capital totalled $232 million at December
31, 1994, compared with $262 million and $232 million at September 30, 1994 and
December 31, 1993, respectively. The decrease in working capital from
September 30 primarily relates to increases in short-term debt and accrued
income taxes, partially offset by increased accounts receivable and inventory
balances reflective of the expanding business. Commercial paper outstanding
increased approximately $60 million from September 30 to finance increased
capital expenditures. Working capital was consistent with the prior year;
however, there were increases in accounts receivable and inventories offset by
increased accounts payable and accrued compensation and benefits which are
reflective of the higher level of business activity. Fluctuations in accrued
income taxes occurred as a result of differences between the timing of
quarterly provisions for income tax expense and the payment of estimated tax
liabilities.
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JOHNSON CONTROLS, INC.
FORM 10-Q, DECEMBER 31, 1994
Cash provided by operating activities of $76 million was $35
million higher than the prior year level of $41 million. The increase is
principally due to working capital changes, primarily accrued income taxes and
to higher net income adjusted for depreciation and amortization.
Capital Expenditures and Other Investments
Capital expenditures for property, plant and equipment were
approximately $108 million for the first quarter of fiscal 1995, an increase of
$41 million from the $67 million incurred during the first quarter of fiscal
1994. Management projects capital spending for the full year will approximate
$400 million compared to the $348 million spent during fiscal 1994. The
majority of the spending relates to new automotive seating product lines and
European automotive facilities. In addition, expansion of non-soft drink and
single serve soft drink container capacity, as well as cost reduction projects
in all segments, are planned for 1995.
Investments in partially-owned affiliates decreased approximately
$3 million from the September 30, 1994 balance. The change is comprised of the
recording of approximately $1 million in equity income (which includes $1.5
million in Mexican Peso devaluation losses associated with certain dollar
denominated liabilities held by the company's Mexican unconsolidated
affiliates) and cumulative translation adjustments, primarily related to the
Mexican affiliates.
Capitalization
The company's total capitalization at December 31, 1994 of $1,986
million included short-term debt of $106 million, long-term debt of $666
million and shareholders' equity of $1,214 million. Total capitalization at
September 30, 1994 and December 31, 1993 was $1,917 million and $1,702 million,
respectively. Total debt as a percentage of total capitalization increased to
39% from 37% at the 1994 fiscal year-end, reflecting an increase in commercial
paper borrowings. The increase from 35% one year ago reflects debt issued in
the third and fourth quarters of fiscal 1994 in conjunction with acquisitions.
The cumulative translation adjustments account within consolidated
shareholders' equity reflects a total of approximately $13 million related to
the devaluation of the Mexican Peso.
The company believes its capital resources and liquidity position
at December 31, 1994 are adequate to meet projected needs. Requirements for
working capital, capital expenditures, dividends and debt maturities in fiscal
1995 will continue to be funded from operations, supplemented by short-term
borrowings, if required, to meet peak seasonal needs.
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JOHNSON CONTROLS, INC.
FORM 10-Q, DECEMBER 31, 1994
Backlog
The unearned backlog of commercial building systems, services and
facilities management contracts to be executed within the next year at December
31, 1994 was $932 million, compared with $750 million at September 30, 1994 and
$692 million at December 31, 1993. The increase primarily represents strong
retrofit and facilities management activity worldwide and the impact of fiscal
1994 acquisitions. The unearned backlog of government facilities management
contracts, which reflects only the noncancellable portion of uncompleted
contracts was $456 million compared to $590 million at September 30, 1994 and
$670 million last year. The decrease from September 30 primarily reflects the
timing of contract renewals. The reduction from last year reflects the loss of
certain contracts and scope reductions.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no significant changes in status since the last
Report, except with respect to the following matter.
ENVIRONMENTAL LITIGATION AND PROCEEDINGS. With respect to the Environmental
Litigation and Proceedings reported in the company's Annual Report on Form 10-K
for the fiscal year ending September 30, 1994, there has been the following
change in status:
Greenfield, Ohio On December 8, 1994, the company received a
formal notice of violation from the Ohio Environmental Protection Agency
("EPA") alleging that the company did not have appropriate air permits for
certain manufacturing equipment at its Greenfield, Ohio facility. The company
learned of this possible deficiency while preparing an air permit application
for new equipment at the facility, and it voluntarily disclosed this
information to the Ohio EPA. The notice of violation proposed terms and
conditions for new air permits at the facility, but the Ohio EPA has not yet
proposed penalties for operating the existing equipment without the proper air
permits. The company is negotiating this matter with the Ohio EPA.
Item 4. Results of Votes of Security Holders
The registrant held its Annual Meeting of Shareholders on January
25, 1995. 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 (William F. Andrews,
Robert L. Barnett, Willie D. Davis, Donald Taylor and Richard F. Teerlink) were
elected. Of the 37,206,364 shares voted, at least 32,866,919 granted authority
to vote for these directors and no more than 4,339,445 shares withheld such
authority.
The retention of Price Waterhouse as auditors was approved by the
shareholders with 36,842,942 shares voted for such appointment, 178,268 shares
voted against, and 185,154 shares abstained.
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JOHNSON CONTROLS, INC.
FORM 10-Q, DECEMBER 31, 1994
The Johnson Controls, Inc. 1994 Executive Incentive Compensation
Plan (Qualified Plan) was approved by the shareholders with 33,130,760 shares
voted for such approval, 3,508,553 shares voted against, and 567,051 shares
abstained.
The Johnson Controls, Inc. 1994 Long-Term Performance Plan was
approved by the shareholders with 33,518,077 shares voted for such approval,
3,177,229 shares voted against, and 511,058 shares abstained.
The shareholder proposal to declassify the Board of Directors was
defeated with 15,400,871 shares voted for approval, 18,968,948 shares voted
against, 580,838 shares abstained, and the broker non vote was 2,255,707
shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement regarding computation of primary and fully
diluted earnings per share.
12 Statement regarding the computation of the ratio of
earnings to fixed charges.
27 Financial Data Schedule (electronic filing only)
(b) There were no reports on Form 8-K filed during the
three months ended December 31, 1994.
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JOHNSON CONTROLS, INC.
FORM 10-Q, DECEMBER 31, 1994
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: February 13, 1995 By: Stephen A. Roell
Vice President and
Chief Financial Officer
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