1
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JANUARY 22, 1997
To the Shareholders of Johnson Controls, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders of Johnson
Controls, Inc., a Wisconsin corporation, will be held in the Superior Room,
Milwaukee Athletic Club, 758 North Broadway Street, Milwaukee, Wisconsin, on
Wednesday, January 22, 1997, at 2:00 o'clock P.M. (Central Standard Time), for
the following purposes:
(1) To elect four directors of the class to serve for a term of three years
expiring at the annual meeting to be held in 2000 or until the
director's earlier retirement;
(2) To consider and act upon a proposal to ratify the appointment of Price
Waterhouse as auditors for 1997; and
(3) To consider and act upon any other matters which may properly come
before the meeting or any adjournments thereof.
Holders of Common Stock and Preferred Stock units of record at the close of
business on December 2, 1996, will be entitled to vote at the meeting and any
adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS,
JOHN KENNEDY
John P. Kennedy, Secretary
Milwaukee, Wisconsin
December 13, 1996
A PROXY FOR THE MEETING AND A PROXY STATEMENT ARE ENCLOSED HEREWITH. YOU ARE
REQUESTED TO FILL IN AND SIGN THE ENCLOSED FORM OF PROXY, WHICH IS SOLICITED BY
THE COMPANY'S BOARD OF DIRECTORS, AND TO MAIL IT PROMPTLY. SHAREHOLDERS WHO
EXECUTE PROXIES RETAIN THE RIGHT TO REVOKE THEM AT ANY TIME BEFORE THEY ARE
VOTED.
2
JOHNSON CONTROLS, INC.
5757 NORTH GREEN BAY AVENUE
P.O. BOX 591
MILWAUKEE, WISCONSIN 53201
DECEMBER 13, 1996
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY 22, 1997
This proxy statement is furnished to the shareholders of Johnson Controls, Inc.
(the Company), in connection with the solicitation by the Board of Directors of
the Company of proxies for use at the annual meeting of shareholders to be held
at the Milwaukee Athletic Club at 758 North Broadway Street, Milwaukee,
Wisconsin, on January 22, 1997, at 2:00 o'clock P.M., Central Standard Time, and
any adjournments of such meeting.
Execution of a proxy given in response to this solicitation will not affect a
shareholder's right to attend the meeting and to vote in person. Presence at the
meeting of a shareholder who has signed a proxy does not alone revoke a proxy.
Any shareholder giving a proxy may revoke it at any time before it is exercised
by giving notice thereof to the Company in writing. Unless so revoked, the
shares represented by proxies will be voted at the meeting and at any
adjournments thereof. Where a shareholder specifies a choice by means of a
ballot provided in the proxy, the shares will be voted in accordance with such
specification.
Only owners of the Company's Common Stock and Preferred Stock units of record on
December 2, 1996, will be entitled to vote at the meeting. As of December 2,
1996, there were 41,520,242 shares of the Company's Common Stock outstanding,
each having one vote per share. As of December 2, 1996, there were also 300.3896
shares of the Company's Preferred Stock outstanding. Each share of Preferred
Stock consists of 10,000 units, each having one vote. On October 31, 1996, the
directors, nominees for directors, and officers of the Company as a group were
beneficial owners of 747,168 shares of the Company's Common Stock (including
418,810 shares subject to options exercisable within 60 days) constituting
approximately 1.82% of the outstanding shares of Common Stock, and 9,171 units
of the Company's Preferred Stock, constituting approximately 3.04% of the
outstanding units.
Effective as of November 30, 1994, rights (Rights) declared as a dividend by the
Board of Directors of the Company were approved and issued to shareholders as of
November 30, 1994. The Rights are not presently exercisable, but ten days after
a
1
3
person or group acquires 20% or more of the Company's Common Stock or ten
business days (subject to extension) after a person or group announces a tender
offer to acquire at least 20% of the Company's Common Stock, the Rights will
become exercisable. Such Rights will entitle each holder of Common Stock of the
Company to purchase one share of authorized but unissued Common Stock of the
Company for each Right. The exercise price of each Right is $175.00. Upon the
occurrence of certain events, including the acquisition by any person or group
of 20% or more of the Common Stock, each Right, other than Rights held by an
acquiring party, will entitle the holder to purchase, at the exercise price,
Common Stock having a market value of two times the exercise price. The Rights
Agreement excludes from the effects thereof the inadvertent acquisition of 20%
or more of the Company's Common Stock, provided there is prompt divestment to
less than 20%. The Rights may be redeemed as provided and subject to the
limitations set forth in the agreement setting forth the terms of the Rights;
otherwise, such rights expire on November 30, 2004. None of the shareholdings or
percentages of outstanding shares reported in this proxy statement reflect the
Rights or shares of Common Stock which may be purchased upon the exercise of the
Rights. The Company has prepared a Summary of Rights to Purchase Common Shares,
a copy of which is available free of charge from the Company.
Set forth below is a tabulation indicating those persons whom the management of
the Company believes to be beneficial owners of more than 5% of any class of the
Company's securities. The following information is based on reports on Schedules
13G filed with the Securities and Exchange Commission or other information
believed to be reliable.
Amount and
Name and Address of Nature of Percent
Title of Class Beneficial Owner Ownership of Class
- - --------------------- ---------------------------------- ---------- --------
Common Stock FMR Corporation 4,996,452 (1) 11.6%
$0.16 2/3 Par Value 82 Devonshire Street
Boston, MA 02109
Series D Convertible Fidelity Management Trust Company 301.310 (2) 100%
Preferred Stock 82 Devonshire Street
$1.00 Par Value Boston, MA 02109
- - -------------------------
(1) FMR Corporation reported as of October 31, 1996, sole voting power with
respect to 144,782 shares, and sole dispositive power with respect to
4,996,452 shares. The report includes shares beneficially owned by Fidelity
Management and Research Company, a wholly-owned subsidiary of FMR Corp.
(2) Fidelity Management Trust Company reported that, as of October 31, 1996, it
held shared voting power and sole dispositive power with respect to the
shares indicated above in its capacity as trustee of the Johnson Controls,
Inc. Employee Stock Ownership Trust.
2
4
ELECTION OF DIRECTORS
The Board of Directors consists of 13 members of whom approximately one-third
are elected each year to serve for terms of three years or until the director's
earlier retirement pursuant to the Board of Directors Retirement Policy(1). It
is intended that the enclosed form of proxy will be voted for the election of
Messrs. Paul A. Brunner, Southwood J. Morcott, and Gilbert R. Whitaker, Jr., and
Ms. Martha R. Seger, all of whom are now members of the Board, for three-year
terms or until the director's earlier retirement.
Directors are elected by a plurality of the votes cast by the holders of the
Company's Common Stock and Preferred Stock units at a meeting at which a quorum
is present. "Plurality" means that the individuals who receive the largest
number of votes cast are elected as directors up to the maximum number of
directors to be chosen at the meeting. Consequently, any shares not voted
(whether by abstention, broker nonvote or otherwise) have no impact in the
election of directors except to the extent the failure to vote for an individual
results in another individual receiving a larger number of votes.
- - -------------------------
(1) The Board of Directors has adopted a Retirement Policy that requires a
director to retire as of the last regular Board of Directors' meeting held
in the year of his or her 70th birthday or, in the event a shareholders'
meeting is held on that date, then such retirement shall be effective the
next day. The Retirement Policy does not apply to Mr. Brengel.
3
5
The Directors Committee of the Board of Directors has no reason to believe that
any of such nominees will be unable or unwilling to serve as a director if
elected, but if any nominee should be unable or for good cause unwilling to
serve, the shares represented by proxies solicited by the Board of Directors
will be voted for the election of such other person for the office of director
as the Board of Directors may recommend in place of such nominee. Set forth
below is information with respect to the nominees and the other directors on the
Board.
CLASS OF 2000 (ALL OF WHOM ARE NOMINEES)
[PICTURE] PAUL A. BRUNNER Director since 1983
Age 61
President and Chief Executive Officer, Spring Capital, Inc.,
Stamford, Connecticut (investment management) since 1985.
President and Chief Executive Officer, ASEA, Inc., 1982-1984.
President and Chief Executive Officer, Crouse Hinds Co.,
1967-1982. Chairman of Audit Committee and member of
Compensation Committee.
[PICTURE] SOUTHWOOD J. MORCOTT Director since 1993
Age 58
Chairman since 1990, President from 1986 to 1996, and Chief
Executive Officer since 1989 of Dana Corporation, Toledo, Ohio
(vehicular and industrial component manufacturer). Mr. Morcott
is a director of CSX Corporation, Dana Corporation, and
Phelps-Dodge Corporation. Member of Compensation Committee and
Directors Committee.
4
6
[PICTURE] MARTHA R. SEGER Director since 1991
Age 64
Visiting Distinguished Professor of Economics at Hillsdale
College from 1996 to present. Visiting Distinguished Professor
of Finance at Central Michigan University from 1993 to 1996.
John M. Olin Distinguished Fellow in the Karl Eller Center for
the Study of the Private Market Economy, School of Business and
Public Administration, University of Arizona, Tucson, Arizona,
from 1991 to 1993. Member of the Federal Reserve Board from
1984 to 1991. Dr. Seger is a director of Amoco Corp., Fluor
Corp., Kroger, Inc., Providian Corp., Tucson Electric Power,
and Xerox Corp. Member of Pension and Benefits Committee.
[PICTURE] GILBERT R. WHITAKER, JR. Director since 1986
Age 65
Professor of Business Economics, University of Michigan,
1979-Present. Provost and Executive Vice-President for Academic
Affairs, University of Michigan, 1990-1995. Mr. Whitaker served
as Dean, School of Business Administration, University of
Michigan, from 1979 to 1990. Mr. Whitaker is a director of
Handleman Company, Lincoln National Corporation, and Structural
Dynamics Research Corp. Member of Pension and Benefits
Committee.
CLASS OF 1999
[PICTURE] FRED L. BRENGEL Director since 1964
Age 73
Chairman of the Board, Johnson Controls, Inc., Milwaukee,
Wisconsin, from 1985 to 1993. Mr. Brengel served as the Chief
Executive Officer of Johnson Controls, Inc., from 1967 to 1988.
Mr. Brengel is a director of Rexworks, Inc. Member of Executive
Committee.
5
7
[Picture] ROBERT A. CORNOG Director since 1992
Age 56
President, Chief Executive Officer and Chairman of the Board of
Directors of Snap-on Incorporated (tool manufacturer) since
1991. Mr. Cornog is a director of Snap-on Incorporated,
Wisconsin Electric Power Company, and Wisconsin Energy
Corporation. Member of Audit Committee and Executive Committee.
[Picture] JAMES H. KEYES Director since 1985
Age 56
Chairman and Chief Executive Officer, Johnson Controls, Inc.,
Milwaukee, Wisconsin. In 1985 Mr. Keyes was named Executive
Vice President and subsequently became Chief Operating Officer
and a member of the Board of Directors. He became President of
Johnson Controls, Inc., in 1986, its Chief Executive Officer in
1988, and Chairman in 1993. Mr. Keyes is a director of Firstar
Corp., LSI Logic Corporation, and Universal Foods Corporation.
Chairman of Executive Committee.
[Picture] R. DOUGLAS ZIEGLER Director since 1979
Age 69
Chairman, Principal Preservation Portfolios, Inc., West Bend,
Wisconsin (mutual funds) and The Ziegler Companies, Inc., West
Bend, Wisconsin (holding company-financial services and
environmental services). Mr. Ziegler served as the Chief
Executive Officer of The Ziegler Companies, Inc., through 1990.
Mr. Ziegler is a director of Principal Preservation Portfolios,
Inc., and The Ziegler Companies, Inc. Chairman of Pension and
Benefits Committee and member of Executive and Directors
Committees.
6
8
CLASS OF 1998
[Picture] WILLIAM F. ANDREWS Director since 1991
Age 65
Chairman of Schrader-Bridgeport International, Inc. and
Chairman of Scovill Fasteners Inc., since 1995. Chairman,
President and Chief Executive Officer, Amdura Corporation from
1993-1995. President and Chief Executive Officer, UNR
Industries, Inc., Chicago, Illinois (diversified manufacturer)
from 1991 to 1993, President of Massey Investment Company,
Nashville, Tennessee (private investment company) from 1989 to
1990, and Chairman, CEO and President of Singer Sewing Machine
Company (SSMC) Inc., Shelton, Connecticut (diversified
manufacturer) from 1986 to 1989. Mr. Andrews is a director of
Black Box Corp., Corrections Corporation of America, Katy
Industries, Navistar International Corporation, Northwestern
Steel & Wire Co., and Southern New England Telecommunications
Corporation. Member of Compensation and Directors Committees.
[Picture] ROBERT L. BARNETT Director since 1986
Age 56
Corporate Vice President, iDen Group, Motorola, Schaumburg,
Illinois, since 1995. Consultant in the field of international
communications from 1992 to 1995. Vice-Chairman, Ameritech and
President, Ameritech Bell Group, American Information
Technologies Corporation, Chicago, Illinois
(telecommunications) from 1989 to 1993 and President, Ameritech
Enterprise Group, from 1987 to 1989. Mr. Barnett is a director
of USG Corp. Member of Executive and Pension and Benefits
Committees and Chairman of Directors Committee.
[Picture] WILLIE D. DAVIS Director since 1991
Age 62
President of All Pro Broadcasting Incorporated, Los Angeles,
California (radio broadcasting) since 1977. Mr. Davis is a
director of Alliance Bank Co., Dow Chemical Company, Kmart
Corporation, MGM Grand, Inc., Sara Lee Corporation, and WICOR,
Inc. Mr. Davis is also a director of 42 funds for which Strong
Capital Management, Inc. is the investment adviser. Member of
Audit Committee.
7
9
[Picture] DONALD TAYLOR Director since 1975
Age 69
Principal in Sullivan Associates, Milwaukee, Wisconsin
(specialists in board of directors searches) since 1992. Mr.
Taylor served as Managing Director U.S.A., Anatar Investments,
Ltd., (venture capital specialist) from 1989 to 1992, and
previously as Chairman of Rexnord, Inc., Milwaukee, Wisconsin.
Mr. Taylor is a director of Banta Corporation, Harnischfeger
Industries, Inc., and Superior Services, Inc. (waste handling).
Chairman of Compensation Committee and member of Executive and
Audit Committees.
[Picture] RICHARD F. TEERLINK Director since 1994
Age 60
President and Chief Executive Officer of Harley-Davidson, Inc.,
Milwaukee, Wisconsin, since 1989, and Chairman since May, 1996.
Mr. Teerlink has served as President and Chief Operating
Officer of Harley-Davidson since 1988. Mr. Teerlink is a
director of Firstar Bank Milwaukee and Outboard Marine
Corporation. Member of Audit Committee.
Each of the directors or nominees for director has had the principal occupation
indicated or in certain instances has served in another executive position with
the employer indicated or an affiliate thereof during the last five years.
The Audit Committee of the Board of Directors met three times during fiscal
1996. Its functions include, but are not necessarily limited to, the following:
(1) to review the adequacy of internal controls established by management; (2)
to assess the adequacy of the financial reporting process and selection of
accounting policies; (3) to review management's evaluation and proposed
selection of independent accountants, including the appropriateness of fees, and
to recommend to the Board of Directors the appointment of independent
accountants subject to the ratification by the shareholders; (4) to review the
adequacy of audit plans prepared by internal audit and independent accountants;
(5) to review periodically the status of significant issues and internal control
recommendations; (6) to meet and to consult with the Company's internal auditors
and accounting and financial personnel and with independent public accountants
concerning the foregoing matters; (7) to report on the results of these
activities periodically to the Board of Directors; (8) to review significant
issues concerning litigation, contingent liabilities, and tax and insurance; (9)
to review management information systems of the Company; and (10) to monitor
compliance procedures of the Company and their implementation.
8
10
The Compensation Committee of the Board of Directors met four times during
fiscal 1996. Its functions include, but are not necessarily limited to, the
following: (1) to consider and make recommendations to the Board of Directors
regarding the selection and retention of elected officers and certain other
principal officers and key employees of the Company and its subsidiaries; (2) to
consider and make recommendations regarding salary structure, officer gradings,
and salaries for elected officers; (3) to administer, make grants and awards,
make rules, and recommend amendments to the Company's executive compensation
plans; (4) to consider and make recommendations to the Board concerning bonus
awards, perquisites, and other remuneration to executive officers; (5) to
consider and make recommendations concerning the total compensation package for
all elected officers and to approve the disclosure of such information in the
Company's proxy statement; (6) to oversee the selection of, and to meet with,
outside consultants to review the Company's executive compensation programs as
appropriate; (7) to review and make recommendations concerning management
succession; and (8) to recommend to the Board of Directors the selection of the
Chief Executive Officer of the Company.
The Directors Committee of the Board of Directors met three times during fiscal
1996. Its function includes, but is not necessarily limited to, the following:
(1) to review the qualifications of, and to make recommendations to the Board of
Directors concerning, nominees for directors; (2) to review and consider
candidates for election as directors submitted by the shareholders; (3) to
consider and make recommendations concerning the size and composition of the
Board of Directors; (4) to develop and recommend guidelines and criteria to
determine the qualifications of directors; (5) to recommend an overall
compensation program for directors; (6) to review and recommend committees and
committee structure for the Board; (7) to recommend performance criteria for the
Board of Directors and to review its performance; and (8) to review conflicts of
interest that may affect directors. Shareholders wishing to propose director
candidates for consideration by the Directors Committee may do so by writing to
the Secretary of the Company, giving the candidate's name, biographical data and
qualifications. Further, the Company's By-Laws set forth certain requirements
for shareholders wishing to nominate director candidates for consideration by
shareholders. With respect to elections of directors to be held at an annual
meeting, among other things, a shareholder must give written notice of an intent
to make such a nomination complying with the By-Laws to the Secretary of the
Company not less than 60 days nor more than 90 days prior to the fourth Tuesday
in the month of January.
The Executive Committee of the Board of Directors met twice during fiscal 1996.
Its functions include the exercise of certain powers of the Board of Directors
in the
9
11
general supervision and control of the business and affairs of the Company
during intervals between meetings of the Board of Directors.
The Pension and Benefits Committee of the Board of Directors met five times
during fiscal 1996. Its functions include, but are not necessarily limited to,
the following: (1) to review annually actuarial assumptions and actuarial
valuation of the pension plans of the Company; (2) to review investment policy
of the funds of the employee benefit plans of the Company; (3) to select and to
terminate investment managers as appropriate; (4) to review with investment
advisors past performance and current investment strategy; (5) to review and
approve the adoption of any new trust agreements or master trusts implementing
the plans; (6) to monitor and oversee Company policies affecting employee
benefit plans; and (7) to oversee administration of plans, to review annually
plan provisions, and to recommend amendments to the plans as appropriate.
During fiscal 1996, the Board of Directors met seven times. Each director
attended 80% or more of the total number of meetings held during fiscal 1996
while he or she was a member of the Board, including meetings of committees of
which the director is a member.
Directors who are not employees receive a $34,500 annual retainer, plus $1,200
for each Board meeting they attend, $1,200 for each meeting they attend of Board
committees of which they are members, $1,500 for each meeting they attend of
Board committees of which they are chairmen, plus expenses.
Directors, who are not covered by other insurance and who are under 65 years of
age, may purchase medical coverage on the same basis as Company employees. A
director who retires after attaining the age of 65 and 6 years of service as a
director will be paid the annual retainer in effect upon his or her retirement
for life. The value of this retirement plan per annum depends on life expectancy
at retirement, the retainer at retirement and the number of years of Board
Service. The annual value for current directors ranges from $8,021 to $23,278.
Under the Stock Plan for Outside Directors adopted on January 27, 1993, up to
50% of the retainer fee will be paid in Common Stock each year. The remainder
will be paid in cash at the same time. The stock will be priced as of the date
of the Annual Meeting. In addition, new directors receive an initial grant of
200 shares of Common Stock upon election or appointment. New directors also
receive a pro rata share of the annual retainer for the remainder of that year,
and the stock provided as part of the annual retainer will be priced as of the
date of the first meeting of the Board at which the new director participates.
10
12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below shows the compensation for the past three
fiscal years of each of the Company's five most highly compensated executive
officers, including the Chief Executive Officer (the named executive officers).
STOCK OPTION/STOCK APPRECIATION RIGHT GRANTS
The Company has in effect employee stock option plans pursuant to which options
to purchase Common Stock of the company and stock appreciation rights (SARs),
which are rights, granted in tandem with an option, to receive cash payments
equal to any appreciation in value of the shares subject to option from the date
of the option grant to the date of exercise in lieu of exercise of the option,
are granted to officers and other key employees of the Company and its
subsidiaries. The table on page 12 shows Options/SAR grants in fiscal 1996 to
the named executive officers. Of the stock options shown in the Summary
Compensation Table below and the Option/SAR Grant Table on page 12, 50% of the
options were options with tandem SARs.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR AND OPTION/SAR VALUE TABLE
The table on page 12 shows information concerning the exercise of stock options
or tandem SARs during fiscal 1996 by each of the named executive officers and
the fiscal year-end value of unexercised options and SARs.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation --------------------
----------------------------------- Long-Term
Other Annual Incentive All Other
Fiscal Compensation Options/ Payout Compensation
Name and Principal Position Year Salary($) Bonus($) ($) (1) SARs (#) ($) ($) (2)
- - ------------------------------ ------ --------- -------- ------------ -------- --------- ------------
James H. Keyes 1996 787,503 575,000 -- 40,000 450,000 62,925
Chairman and Chief Executive 1995 731,250 599,400 -- 30,000 363,000 54,858
Officer 1994 662,500 628,560 -- 51,000 330,000 30,515
John M. Barth 1996 441,249 260,000 -- 24,000 204,000 31,693
Executive Vice-President 1995 407,496 264,649 -- 20,000 165,000 27,230
1994 367,500 268,114 -- 24,000 145,000 15,598
Joseph W. Lewis 1996 365,247 171,000 -- 17,000 188,000 24,550
Executive Vice-President 1995 346,000 175,463 -- 15,000 156,200 22,791
1994 326,750 210,367 -- 19,000 137,000 13,455
Stephen A. Roell 1996 324,999 188,000 -- 17,000 101,000 23,789
Vice-President and Chief 1995 302,496 200,136 -- 15,000 79,200 19,123
Financial Officer 1994 250,000 189,168 -- 20,000 72,000 9,407
John P. Kennedy 1996 280,503 172,000 -- 12,000 91,000 18,492
Vice-President, Secretary, and 1995 248,500 144,547 -- 7,000 78,100 15,241
General Counsel 1994 221,250 131,162 -- 8,500 71,000 7,633
- - -------------------------
(1) The aggregate amount of "Other Annual Compensation," which includes
perquisites and personal benefits was less than the required reporting
threshold (the lesser of $50,000 or 10% of the officer's annual salary and
bonus for the year).
(2) "All Other Compensation" consists of contributions by the Company on behalf
of the named individuals to the Company's savings and investment plans.
11
13
OPTIONS/SAR GRANTS IN FISCAL 1996(1)
Individual Grants Potential Realizable
- - ----------------------------------------------------------------------- Value at Assumed Annual
% of Total Rates of Stock Price
Options/SARs Exercise Appreciation for Full
Granted to or Base Option Term
Options/SARs Employees in Price Expiration -----------------------
Name Granted Fiscal 1996 ($/Share) Date 5% 10%
- - ----------------- ------------ ------------ --------- ---------- ---------- ----------
OPTIONS/SARs GRANTED November 16, 1995
James H. Keyes 40,000 5.41% $63.6875 11/15/05 $1,602,109 $4,060,059
John M. Barth 24,000 3.25% $63.6875 11/15/05 $ 961,265 $2,436,035
Joseph W. Lewis 17,000 2.30% $63.6875 11/15/05 $ 680,896 $1,725,525
Stephen A. Roell 17,000 2.30% $63.6875 11/15/05 $ 680,896 $1,725,525
John P. Kennedy 12,000 1.62% $63.6875 11/15/05 $ 480,633 $1,218,018
- - -------------------------
(1) The Stock Option/SAR plans are administered by the Compensation Committee of
the Board of Directors, which has authority to determine the individuals to
whom and the terms at which option and SAR grants shall be made, certain
terms of the options, and the number of shares to be subject to each option.
The per share option/SAR prices are the fair market value of the Company's
Common Stock on the date of the grant, and the term of the options is 10
years. Fifty percent of each award is exercisable two years after the grant,
and the remainder is exercisable three years after the grant.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Value of Unexercised
Number of Number of Unexercised In-the-Money
Shares/SARs Options/SARs at FY-End Options/SARs at FY-End
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- - ----------------------- ----------- -------- ------------------------- -------------------------
James H. Keyes 0 $ 0 96,500 / 95,500 $3,157,593 / $1,751,468
John M. Barth 20,000 $630,000 12,000 / 56,000 $252,750 / $1,032,500
Joseph W. Lewis 0 $ 0 38,100 / 41,500 $1,263,518 / $773,718
Stephen A. Roell 10,000 $312,499 10,000 / 42,000 $210,625 / $784,250
John P. Kennedy 0 $ 0 19,450 / 23,250 $669,115 / $402,703
12
14
LONG-TERM INCENTIVE PLAN AWARDS
The following table shows each Contingent Performance Award made to any named
executive officer for the 1997 fiscal year under the Company's Long-Term
Performance Plan (LTPP). Payouts of awards are tied to the Company's weighted
average return on shareholder's equity for fiscal years 1997, 1998 and 1999
compared to the median return on shareholder's equity of the Standard & Poor's
Manufacturers (Diversified Industrial) Index (S&P index) during the same
three-year period. Performance in the third year of the award is multiplied by
3/6, performance in the second year is multiplied by 2/6, and performance in the
first year is multiplied by 1/6 to establish a weighted average. If the
Company's average level of return is: (1) less than the 45th percentile of the
return for companies in the S&P index, no award is earned; (2) equal to or
greater than the 45th percentile, the threshold amount is earned; (3) equal to
or greater than the 50th percentile, the target amount is earned; (4) equal to
or greater than the 55th percentile, 110% of the target amount is earned; and
(5) equal to or greater than the 60th percentile, the maximum amount is earned.
In fiscal 1996, based upon the data available at the time of this proxy, LTPP
participants were paid 100% of the maximum amount available under the criteria
established by the Compensation Committee. When the remaining comparison
companies have reported, these awards could decrease.
Amount of Performance
Contingent Period Until
Performance Maturation or Threshold Target Maximum
Name Award ($) Payout ($) ($) ($)
- - --------------------- ----------- ------------- --------- ------- -------
James H. Keyes....... 720,000 1997-1999 576,000 720,000 864,000
John M. Barth........ 315,000 Fiscal Years 252,000 315,000 378,000
Joseph W. Lewis...... 222,000 178,000 222,000 266,000
Stephen A. Roell..... 198,000 158,000 198,000 238,000
John P. Kennedy...... 160,000 128,000 160,000 192,000
EMPLOYMENT CONTRACTS
The Company has employment agreements with each of the executive officers of the
Company including the named executive officers. These agreements provide that
employment shall continue for continuous terms, unless terminated by either the
Company or the employee as provided therein; the term of the agreements,
however, does not extend automatically after the employee reaches age 65. These
agreements provide for termination by the Company for cause, for death or
disability and under certain circumstances without cause. In the event of
termination without cause the
13
15
employees under any of the contracts will be entitled to receive benefits in an
amount equal to the greater of two times the Company's termination allowance
policy for administrative employees or an amount equal to 52 weeks' earnings of
the employee. In the event of termination by the Company for cause, the
employee's compensation is terminated immediately. Change of control agreements
have also been entered into by the Company with these executives. In the event
of a change of control, these agreements provide for a severance payment equal
to three times the executive's annual compensation at the time plus a lump sum
payment for the actuarial equivalent of lost benefits under the applicable
retirement plan if the executive is terminated other than for cause or has good
reason to terminate his or her employment. If the amount to be paid upon
termination exceeds certain amounts established under the Internal Revenue Code,
so as to require the payment of additional federal taxes, the executive receives
an additional payment such that, after payment by the executive of all taxes
payable in connection with the agreement, the executive will retain the full
amount of the payments to which he is entitled under the agreement. The
executive has a 30-day period at the end of the first year after a change of
control to terminate his or her employment for any reason and receive this
benefit.
The Company has in effect an Executive Survivor Benefits Plan for certain
executives. Coverage under this plan is in lieu of the Company's regular group
life insurance coverage. In the event of the death of a participating executive
while he is employed by the Company, his beneficiary is entitled to payments of
between 90% and 100% (depending on the executive's age) of the executive's final
base annual salary for a period of 10 years.
The Executive Incentive Compensation Plan (EICP) provides that, in the event of
a change of control of the Company, certain participants, including the named
executive officers, may re-elect to receive early payment of deferred amounts,
and a participant may direct the Company to cause a letter of credit be issued
in an amount sufficient to provide for all payments due to such participant
under the Plan. The Long-Term Performance Plan also provides that, in the event
of a change of control of the Company, certain participants, including the named
executive officers, shall be entitled to receive early payment of deferred
amounts.
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is the tabulation indicating as of October 31, 1996, the shares
of the Company's Common Stock beneficially owned by each director and nominee,
each of the named executive officers, and directors and executive officers of
the Company as a group. No executive officer or director owns more than 1% of
the outstanding shares of Common Stock.
14
16
SECURITY OWNERSHIP OF MANAGEMENT
Amount and
Nature(1) of Units Representing
Name of Stock Deferred(3)
Beneficial Owner Ownership Compensation
- - ----------------------------------------- ----------------- ------------------
James H. Keyes 199,919(2) 47,193 units
John M. Barth 51,209(2) 7,827 units
Joseph W. Lewis 116,221(2) 25,484 units
Stephen A. Roell 36,476(2) 833 units
John P. Kennedy 30,172(2) 4,488 units
William F. Andrews 2,459 0 units
Robert Barnett 1,448 7,515 units
Fred L. Brengel 109,327 11,767 units
Paul A. Brunner 6,100 0 units
Robert A. Cornog 2,109 1,473 units
Willie D. Davis 1,300 0 units
Southwood J. Morcott 1,094 1,132 units
Martha R. Seger 1,167 611 units
Donald Taylor 3,241 836 units
Richard F. Teerlink 1,328 0 units
Gilbert R. Whitaker, Jr. 2,420 2,674 units
R. Douglas Ziegler 12,900 0 units
All directors and executive officers as a group (not including deferred shares
referred to in footnote 3) TOTAL 747,168(2)
TOTAL PERCENT OF CLASS OF COMMON STOCK 1.82%
- - -------------------------
(1) Includes all shares with respect to which each officer or director directly,
through any contract, arrangement, understanding, relationship or otherwise,
has or shares the power to vote or to direct voting of such shares or to
dispose or to direct the disposition of such shares.
(2) Includes shares of Common Stock which, as of October 31, 1996, were subject
to outstanding stock options exercisable within 60 days as follows: Mr.
Keyes, 137,000; Mr. Barth, 34,000; Mr. Lewis, 55,100; Mr. Roell, 27,500; and
Mr. Kennedy, 27,200.
(3) Includes deferred shares under the EICP, LTPP, Deferred Compensation Plan
for Certain Directors, or other deferred compensation plans. Units will not
be distributed in the form of Common Stock.
15
17
COMPENSATION COMMITTEE REPORT
EXECUTIVE COMPENSATION PRINCIPLES
The Company's Executive Compensation Program is based on guiding principles
designed to align executive compensation with Company values and objectives,
business strategy, management initiatives, and business financial performance.
The Johnson Controls Vision, approved by the Board of Directors, identifies
customer satisfaction, technology, growth, market leadership, and shareholder
value as the Company's primary objectives. In applying these principles the
Compensation Committee (the Committee) has established a program to:
- - - Attract and retain key executives critical to the long-term success of the
Company and each of its business groups.
- - - Reward executives for long-term strategic management and the enhancement of
shareholder value.
- - - Integrate compensation programs with both the Company's annual and long-term
strategic planning and measuring processes, which focus on after-tax return on
shareholder equity, return on investment, growth, market share, and cost
reduction.
- - - Support a performance-oriented environment that rewards performance not only
with respect to Company goals but also Company performance as compared to that
of industry performance levels.
- - - Take steps to assure that future executive compensation payments remain tax-
deductible.
EXECUTIVE COMPENSATION PROGRAM
The total compensation program involves a market comparison of total
compensation, based on surveys provided to the Company by an independent
compensation consultant. A survey of 22 companies with annual sales between $1
billion and $13 billion, comparing all elements of executive officer
compensation, was provided by an independent compensation consultant with
respect to compensation for officers and senior managers. Average sales of these
22 companies was $5 billion; adjustments were made to account for differences in
annual sales between the Company and those companies in the survey. The level of
comparison is the 50th percentile for total compensation.
The program consists of both cash and equity-based compensation. The annual
compensation consists of a base salary and an annual bonus under the EICP. The
Committee determines the level of salary for key executive officers and a salary
range
16
18
for other executive officers. Factors considered in determining salary amounts
or ranges include prior year salary, changes in individual job responsibilities,
past performance of individuals, and, most importantly, achievement or trends
toward achievement of specified Company goals and the salary comparison survey
results. Generally, all executive officers participate in the EICP. For each
fiscal year, the Committee determines in advance and communicates to the
executive the formula for the award, which is based on specified benchmarks for
return on shareholders' equity, or return on group or division assets, increase
in market share, or cost reduction. These benchmarks are consistent with the
Company's annual and long-term strategic planning objectives based on
achievement of business plans approved by the Board of Directors that include
goals of improved performance over the previous year and take into account
industry growth and cycles. At the end of the fiscal year, the Committee applies
the formula to objective performance results to determine an executive's award
for the year. Except under the EICP Qualified Plan, where discretionary
increases to the bonus amount may no longer be made, adjustments may then be
made by the Committee, within specified ranges, for the executive's achievement
of specified objectives and individual job performance.
Long-term incentives are provided through both the LTPP and stock options. The
Committee reviews and approves the participation of executive officers of the
Company and its subsidiaries under the LTPP. Generally, all named executive
officers participate in the LTPP, which is intended to motivate executives to
achieve longer-term objectives by providing incentive compensation based on
Company performance over a three-year period. For each award under the LTPP, the
Committee assigns an executive a contingent performance award, which the
executive has the opportunity to earn based upon the Company's return on equity
during the specified three-year period. Currently, LTPP awards are based upon a
specified level of return on shareholders' equity relative to the Standard &
Poor's Manufacturers (Diversified Industrial) Index median return on
shareholders' equity. The specified level of return is consistent with the
Company's strategic planning objectives. At the end of the period, the Committee
applies the specified goal to objective performance results to determine the
executive's LTPP award.
The Committee grants stock options and stock appreciation rights (SARs) under
the 1992 Stock Option Plans. The Committee has the authority to determine the
individuals to whom stock options and SARs are awarded, the terms at which
option grants shall be made, the terms of the options, and the number of shares
subject to each option. Compensation to executives through stock options and
SARs and the LTPP, taken together, is targeted at the 50th percentile of such
compensation granted by similar companies as identified in the survey. Current
stock ownership by executives, the
17
19
number of unexercised options that may be outstanding for an executive or
executives as a whole, and other factors may be considered only for new or
promoted officers. Through the award of stock option grants, the objective of
aligning executive officers' long-range interests with those of the shareholders
is met by providing the executive officers with the opportunity to build a
meaningful stake in the Company.
Executive officers may also participate in the Company's Savings and Investment
Plan (401k Plan), which includes Company contributions to the Plan, an
Equalization Benefit Plan under which certain executives, including the named
executive officers, are entitled to additional benefits that cannot be paid
under qualified plans due to Internal Revenue Code limitations and in addition
other benefit plans generally available to all levels of salaried employees.
Also, certain executive officers may elect to defer certain awards or
compensation under plans. Deferred awards are accounted for as if invested in
various accounts.
The Board of Directors has adopted an Executive Stock Ownership Policy, which
requires that all officers and senior managers in each business group, within
five years of becoming subject to the Policy, hold Common Stock of the Company
in an amount, depending upon the officer or manager, of one to three times their
annual salary. Total compensation to be received by these individuals is not
affected by the policy. The 1995 Common Stock Purchase Plan for Executives
(CSPPE) facilitates the acquisition of common stock by executives subject to the
Executive Stock Ownership Policy. All officers and key executives may
participate in the CSPPE. Participants in the CSPPE may deduct from their pay up
to a maximum of $2,500 per month to purchase shares of the Company's Common
Stock. The price of each share of such stock will be 100% of the average price
of shares purchased by Firstar Trust Company as agent for the participants. No
brokerage fees or commissions will be charged, and the Company will bear the
expenses of administering the CSPPE.
Approximately 50% of the total compensation paid in the executive officer group
is performance related, which is comparable to the average of the companies
identified in the executive compensation survey.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee relied on the same approach in determining the Chief Executive
Officer's compensation as it used for compensation of other executive officers.
The Chief Executive Officer of the Company received a base salary in fiscal 1996
of $800,000, which represented an increase of 6.7% over the previous year. The
Chief Executive Officer's base salary remained below the average base salary for
chief executive officers for the 22 companies reviewed. His fiscal 1996 EICP
award of
18
20
$575,000 was based upon the return on shareholder's equity for the Company for
fiscal 1996 and represented 45% of the maximum amount available under the
criteria established by the Committee. In fiscal 1996, the Chief Executive
Officer received payments under the LTPP of $450,000, based upon the Company's
return on shareholder's equity over the past three fiscal years, and it
represented 100% of the maximum amount available under the criteria established
by the Committee. When the remaining comparison companies have reported, this
award could subsequently decrease. Stock options were awarded in November 1995,
when the Chief Executive Officer received an option award of 40,000 shares.
Approximately 66% of the total compensation paid to the Chief Executive Officer
is performance related, which is comparable to the average for the companies
identified in the survey.
COMPENSATION COMMITTEE
Donald Taylor, Chairman
William F. Andrews
Paul A. Brunner
Southwood J. Morcott
19
21
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on the market price of the Common
Stock and assuming reinvestment of dividends, with the cumulative total return
of companies on the Standard & Poor's 500 Stock Index and the S&P Manufacturers
(Diversified Industrial) Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG S&P 500 INDEX, S&P MANUFACTURERS (DIVERSIFIED
INDUSTRIAL) INDEX AND JOHNSON CONTROLS, INC.
MANUFACTUR-
ERS (DIVER-
MEASUREMENT PERIOD SIFIED
(FISCAL YEAR COVERED) S&P 500 INDUSTRIAL) JCI
1991 100.00 100.00 100.00
1992 111.05 105.07 123.97
1993 125.49 124.56 173.81
1994 130.11 138.41 163.43
1995 168.82 184.35 213.84
1996 203.14 237.50 259.46
ASSUMES $100 INVESTED ON SEPTEMBER 30, 1991, IN S&P 500 INDEX S&P MANUFACTURERS
(DIVERSIFIED INDUSTRIAL) INDEX AND JOHNSON CONTROLS, INC., AND THAT DIVIDENDS
ARE REINVESTED AT THE END OF MONTH IN WHICH THEY ARE PAID.
20
22
PENSION PLANS
PENSION PLAN TABLE
The following table shows the maximum annual retirement benefits payable in
dollars under the Company's plans (including amounts attributable to the
Company's Equalization Benefit Plan) at the normal retirement age for specified
remunerations and years of service under provisions in effect on September 30,
1996, and assuming retirement on that date. Compensation for purposes of the
plans for the named executive officers generally corresponds with the aggregate
of the earned salary, plus bonus or Executive Incentive Compensation Plan awards
for each such person.
Maximum Annual Pension at Normal Retirement Age
Average Annual After Years of Participating Service
Compensation in (Prior to Adjustment for Social Security
Highest 5 Consecutive Years Covered Compensation)
of Last 10 Years -----------------------------------------------
Before Retirement 25 Years 30 Years 35 Years 40 Years
- - --------------------------- -------- -------- -------- --------
100,000 42,500 51,000 56,750 62,500
200,000 85,000 102,000 113,500 125,000
250,000 106,250 127,500 141,875 156,250
300,000 127,500 153,000 170,250 187,500
400,000 170,000 204,000 227,000 250,000
500,000 212,500 255,000 283,750 312,500
600,000 255,000 306,000 340,500 375,000
700,000 297,500 357,000 397,250 437,500
800,000 340,000 408,000 454,000 500,000
900,000 382,500 459,000 510,750 562,500
1,000,000 424,992 509,988 567,492 624,996
1,100,000 467,496 561,000 624,252 687,492
1,200,000 510,000 612,000 681,000 750,000
1,300,000 552,500 663,000 737,750 812,500
1,400,000 595,000 714,000 794,500 875,000
As of September 30, 1996, the persons named in the Summary Compensation Table
were credited with the following years of service under the Company's pension
plan: Mr. Keyes, 27 years; Mr. Barth, 26 years; Mr. Lewis, 35 years; Mr. Roell,
13 years; and Mr. Kennedy, 11 years.
Pension plans of the Company generally apply to all regular employees, including
officers of the Company. The Johnson Controls Pension Plan (the Plan), effective
January 1, 1989, generally covers all salaried and non-union hourly employees of
the Company. The Plan has been amended from time to time. Under the Plan,
benefits are accrued according to the following formula: 1.15% of Participant's
Average Monthly Compensation multiplied by the Participant's years of Benefit
Service plus 0.55% of
21
23
Average Monthly Compensation in excess of the Participant's Covered Compensation
multiplied by the Participant's years of Benefit Service. The amounts actually
payable may be actuarially adjusted to reflect the Participant's marital status,
early retirement or termination, and, in some circumstances, age. "Average
Monthly Compensation" is defined as the average monthly compensation for the
highest five consecutive years in the last 10 years. "Benefit Service" generally
means the number of years worked for the Company. "Covered Compensation" means
the average of compensation subject to Social Security taxes for the 35-year
period ending in the year the Participant attains Social Security Retirement
Age; i.e. the age at which the Participant will be entitled to full Social
Security payments.
Participants become entitled to benefits under the Plan after five years of
service with the Company or any of its subsidiaries, and the normal retirement
date is a Participant's 65th birthday.
The Internal Revenue Code places maximum limitations on the amount of benefits
that may be paid under the Plan. The Company has adopted an Equalization Benefit
Plan under which certain executives, including the named executive officers, are
entitled to the additional pension benefits that cannot be paid under the
qualified plan due to these limitations and because they have elected to defer a
portion of their award under an incentive compensation plan.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten-percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by the Company,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, since October 1, 1995,
all filing requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with.
SELECTION OF AUDITORS
Management will propose the adoption of a resolution ratifying the Board of
Directors' decision to appoint Price Waterhouse as auditors. If the shareholders
fail to ratify such selection, the Board will reconsider it. Representatives of
Price Waterhouse are expected to be present at the shareholders' meeting with
the opportunity to make a
22
24
statement if they desire to do so and to be available to respond to appropriate
questions.
SHAREHOLDERS' PROPOSALS
Proposals of shareholders which are intended to be presented at the 1998 annual
meeting must be received by the Company no later than August 15, 1997, to be
included in the Company's proxy materials for that meeting. Further, a
shareholder who otherwise intends to present business at the 1998 annual meeting
must comply with the requirements set forth in the Company's By-Laws. Among
other things, to bring business before an annual meeting, a shareholder must
give written notice thereof, complying with the By-Laws, to the Secretary of the
Company not less than 60 days and not more than 90 days prior to the fourth
Tuesday of the month of January. The 1998 annual meeting will be held on January
28, 1998, or on such other date designated by the Board of Directors.
OTHER MATTERS
The matters referred to in the notice of meeting and in the proxy statement are,
as far as management now knows, the only matters which will be presented for
consideration at the meeting. If any other matters properly come before the
meeting, the persons named in the accompanying form of proxy will vote on them
in accordance with their best judgment.
The cost of soliciting proxies will be borne by the Company. The Company expects
to solicit proxies primarily by mail. Proxies also may be solicited personally
and by telephone by certain officers and regular employees of the Company. D.F.
King & Co., Inc., has been retained for solicitation of all brokers and nominees
at a cost of approximately $11,000 plus customary out-of-pocket expenses. The
Company may reimburse brokers and other nominees for their expenses in
communicating with the persons for whom they hold stock of the Company.
The Company's 1996 Annual Report has already been mailed to the shareholders.
JOHNSON CONTROLS, INC.
John P. Kennedy
John P. Kennedy, Secretary
December 13, 1996
23
25
[JOHNSON CONTROLS LOGO]
Johnson Controls, Inc.
Post Office Box 591
Milwaukee, Wisconsin 53201 NOTICE OF 1997
Tel: 414/228 1200 ANNUAL MEETING OF
SHAREHOLDERS AND
PROXY STATEMENT