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<SEC-DOCUMENT>0000950134-02-015627.txt : 20021216
<SEC-HEADER>0000950134-02-015627.hdr.sgml : 20021216
<ACCEPTANCE-DATETIME>20021216105945
ACCESSION NUMBER: 0000950134-02-015627
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20020930
FILED AS OF DATE: 20021216
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: JOHNSON CONTROLS INC
CENTRAL INDEX KEY: 0000053669
STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC BUILDING AND RELATED FURNITURE [2531]
IRS NUMBER: 390380010
STATE OF INCORPORATION: WI
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-05097
FILM NUMBER: 02858028
BUSINESS ADDRESS:
STREET 1: 5757 N GREEN BAY AVENUE
STREET 2: P O BOX 591
CITY: MILWAUKEE
STATE: WI
ZIP: 53201
BUSINESS PHONE: 4142281200
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>c73453e10vk.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
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)
<Table>
<S> <C>
WISCONSIN 39-0380010
(State of Incorporation) (I.R.S. Employer Identification No.)
5757 N. GREEN BAY AVENUE
P.O. BOX 591 MILWAUKEE, WISCONSIN 53201
(Address of principal executive offices) (Zip Code)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(414) 524-1200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $.16 2/3 par value New York Stock Exchange
Rights to Purchase Common Stock New York Stock Exchange
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
<Table>
<Caption>
AGGREGATE MARKET VALUE NUMBER OF SHARES
OF NONAFFILIATES' SHARES OUTSTANDING AT
TITLE OF EACH CLASS AS OF NOVEMBER 30, 2002 NOVEMBER 30, 2002
------------------- ------------------------ -----------------
<S> <C> <C>
Common Stock, $.16 2/3 par value $7,373,713,534 88,957,818
Series D Convertible Preferred Stock, $1.00 par value,
$512,000 liquidation value $ 333,315,113 201.059
</Table>
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate by reference portions of the Annual Report
to Shareholders for the year ended September 30, 2002.
Part III incorporates by reference portions of the Proxy Statement dated
December 10, 2002.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
JOHNSON CONTROLS, INC.
Index to Annual Report on Form 10-K
Year Ended September 30, 2002
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING
INFORMATION............................................................. 4
PART I.
ITEM 1. BUSINESS................................................................... 4
ITEM 2. PROPERTIES................................................................. 11
ITEM 3. LEGAL PROCEEDINGS.......................................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS...................................................... 13
EXECUTIVE OFFICERS OF THE REGISTRANT....................................... 13
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.......................................... 15
ITEM 6. SELECTED FINANCIAL DATA.................................................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................................................ 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................ 15
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE............................................................... 15
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................... 16
ITEM 11. EXECUTIVE COMPENSATION..................................................... 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................................... 16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 16
ITEM 14. CONTROLS AND PROCEDURES.................................................... 16
</TABLE>
<PAGE>
JOHNSON CONTROLS, INC.
Index to Annual Report on Form 10-K
Year Ended September 30, 2002
<TABLE>
<CAPTION>
PART IV.
Page
----
<S> <C>
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
AND REPORTS ON FORM 8-K.................................................. 17
INDEX TO EXHIBITS.......................................................... 25-28
</TABLE>
<PAGE>
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
Johnson Controls, Inc. ("the Company") has made forward-looking statements in
this document that are subject to risks and uncertainties. Forward-looking
statements include information concerning possible or assumed future risks
preceded by, following or that include the words "believes," "expects,"
"anticipates," "projects" or similar expressions. For those statements, the
Company cautions that the numerous important factors discussed elsewhere in this
document and in the Company's Form 8-K filing (dated November 12, 2002) 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.
PART I
ITEM 1 BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Johnson Controls, Inc. is a Wisconsin corporation organized in 1885. Its
principal office is located at 5757 North Green Bay Avenue, Milwaukee, Wisconsin
53201-0591. From 1885 through 1978, the Company's operations were predominantly
in the controls business. Since 1978, the Company's operations have been
diversified through acquisitions and internal growth. It currently conducts
business in two operating segments, controls ("Controls Group") and automotive
("Automotive Systems Group").
The Controls Group is a global market leader in providing building control
systems and services, including comfort, energy and security management for the
non-residential buildings market. The segment's control systems integrate the
management, operation and control of building systems such as temperature,
ventilation, humidity, fire safety and security. The segment's services provide
a complete suite of integrated solutions to improve building operations and
maintenance.
In 1978, the Company entered the North American battery market through the
acquisition of Globe Union and grew in this market through internal growth. In
1985, the Company entered the automotive seating market through the acquisition
of Hoover Universal. During the late 1990's, the Company expanded its automotive
business into additional interior systems. Today, the automotive interior
systems and battery businesses make up the Automotive Systems Group which is
among the world's largest automotive suppliers, providing seating, instrument
panel, overhead, floor console and door systems, including electronics, and
batteries for more than 24 million vehicles annually.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Note 15, "Segment information," of the Notes to Consolidated Statements on pages
44 through 45 of the 2002 Annual Report to Shareholders is incorporated herein
by reference.
<PAGE>
PRODUCTS AND SERVICES
AUTOMOTIVE SYSTEMS GROUP
The Automotive Systems Group designs and manufactures products for passenger
cars and light trucks. The segment produces automotive interior systems for
original equipment manufacturers and automotive batteries for the replacement
and original equipment markets.
The segment's automotive interior systems and batteries are manufactured or
assembled in approximately 200 sites worldwide. In addition to its domestic
operations, the Automotive Systems Group has operations in 27 foreign countries.
The Automotive Systems Group designs and manufactures automotive interior
systems for cars and light trucks, including vans and sport utility vehicles.
Automotive interior systems products include complete seating systems and
components; cockpit systems, including instrument clusters, information displays
and body controllers; overhead systems, including headliners and electronic
convenience features; floor consoles; door systems and engine electronics.
The segment operates 76 assembly plants that supply automotive manufacturers
with complete seats on a "just-in-time/in-sequence" basis. Seats are assembled
to specific order and delivered on a predetermined schedule directly to an
automotive assembly line. Certain of the segment's other automotive interior
systems are also supplied on a just-in-time/in-sequence basis. Foam and metal
seating components, seat covers, seat mechanisms and other components are
shipped to these plants from the segment's production facilities or outside
suppliers.
In the last six years, the segment has substantially grown its interior systems
capabilities, principally through internal growth aided by strategic
acquisitions. Most recently, the segment expanded its capabilities in vehicle
electronics with its acquisition of the automotive electronics business of
France-based Sagem SA (Sagem). Automotive interior systems sales comprised
approximately 91 percent of total fiscal 2002 segment sales.
The Automotive Systems Group's production of automotive batteries generates the
remaining portion of segment sales. The Automotive Systems Group is the largest
automobile battery supplier in North and South America. Automotive batteries are
sold primarily under private label to automotive replacement battery retailers
and distributors and to automobile manufacturers as original equipment.
Batteries and plastic battery containers are manufactured at 14 plants in the
United States, 2 plants in Germany and, via partially-owned affiliates, at
plants in Argentina, Brazil, India and Mexico. In fiscal 2002, the segment
expanded its battery operations into the European market through the acquisition
of the German automotive battery manufacturer Hoppecke Automotive GmbH and Co.
KG (Hoppecke). Hoppecke provides new battery technologies that give the Company
a leadership position in the development of the evolving 42-volt battery
systems. In October 2002, the Company continued its expansion into the European
market with its acquisition of the Automotive Battery Division of Varta AG, a
major European automotive battery manufacturer headquartered in Germany. The
acquisition consists of VARTA Automotive GmbH and the 80 percent majority
ownership in VB Autobatterie GmbH and gives the Company a leading market
position in Europe.
<PAGE>
CONTROLS GROUP
The Controls Group is a major worldwide supplier of installed control systems
and services to the non-residential buildings market. The Controls Group
engineers, manufactures, installs and services control systems. The segment
sells installed control systems directly to building owners, as well as
contractors, that manage all key building systems, including heating,
ventilating, air conditioning, refrigeration, lighting, security and fire
systems. The segment's services include the repair, preventive maintenance and
operation of control, mechanical and electrical systems and the management of
providers of custodial, foodservice, landscaping and other activities.
Additional offerings include energy management, performance contracting, remote
monitoring and diagnostics, workplace design and consulting, facility
benchmarking and project management. The Controls Group employs sales engineers,
application engineers and mechanics working out of branch offices located in
approximately 300 principal cities throughout the world. Service personnel also
work out of branch offices or full-time at customer sites. The segment
manufactures certain electric and electronic products for sale to original
equipment manufacturers, wholesalers and distributors of air-conditioning,
refrigeration and commercial and residential heating. Control systems products
are manufactured in four domestic and six foreign facilities.
Worldwide, approximately 35 percent of the Controls Group's sales are derived
from installed control systems and approximately 65 percent originates from its
service offerings. Also, approximately 15 percent of segment revenues are
derived from the new construction market while 85 percent are derived from the
existing buildings market.
MAJOR CUSTOMERS AND COMPETITION
As described previously, the Company is a major supplier to the automotive
industry. Sales to its major customers, as a percentage of consolidated net
sales, were as follows for the most recent three-year period:
<TABLE>
<CAPTION>
Customer 2002 2001 2000
- -------- ---- ---- ----
<S> <C> <C> <C>
DaimlerChrysler AG 14% 14% 16%
Ford Motor Company 10% 11% 13%
General Motors Corporation 15% 14% 14%
</TABLE>
AUTOMOTIVE SYSTEMS GROUP
Approximately 54 percent of Automotive Systems Group sales over the last three
years were to the three automobile manufacturers listed above. In fiscal 2002,
approximately 71 percent of the Company's total sales to these manufacturers
originated in North America, 27 percent were based in Europe and 2 percent were
attributable to other foreign markets. Because of the importance of new vehicle
sales of major automotive manufacturers to its operations, the segment is
affected by general business conditions in this industry. Sales to additional
automakers that accounted for more than 5 percent of Company sales included
Nissan Motor Co., Ltd., Toyota Motor Corporation and Volkswagen AG.
<PAGE>
The Automotive Systems Group faces competition from other automotive parts
suppliers and, with respect to certain products, from the automobile
manufacturers who produce or have the capability to produce certain products or
services the segment supplies. Competition is based on technology, quality,
reliability of delivery and price. Design, engineering and product planning are
increasingly important factors. Independent suppliers that represent the
segment's principal competitors include Lear Corporation, Faurecia, Intier
Automotive, Delphi Corporation and Visteon Corporation.
Approximately 87 percent of the Automotive Systems Group's automotive battery
sales worldwide in fiscal 2002 were to the automotive replacement market, with
the remaining sales to the original equipment market. The segment is the
principal supplier of batteries to many of the largest merchants in the battery
aftermarket, including Advance Auto Parts, AutoZone, Costco, Interstate Battery
System of America, Pep Boys and Sears, Roebuck & Co. It is also a major supplier
of automotive batteries to Wal-Mart Stores. Batteries are supplied with private
brand labels. The segment also manufactures spiral-wound lead-acid batteries
sold globally under the Company's Optima (R) brand name. Original equipment and
replacement batteries are also sold to a number of large automotive
manufacturers. Approximately 90 percent of total automotive battery sales in
fiscal 2002 were based in North America while approximately 10 percent were
attributable to the European market.
Automotive battery sales depend principally on quality, delivery, price and
service including marketing support and technical advice. The segment primarily
competes in the battery market with Exide Technologies, Delphi Corporation and
East Penn Manufacturing Company.
CONTROLS GROUP
The Controls Group conducts its operations through thousands of individual
contracts that are either negotiated or awarded on a competitive basis. Key
factors in the award of contracts include product and service quality, price,
reputation, technology, application engineering capability and construction
management expertise. Competition for contracts includes many regional, national
and international controls providers; larger competitors in the control systems
market include Honeywell International and Siemens Building Technologies (of
Siemens AG). The services market is highly fragmented, with no one company being
dominant. Sales of these services are largely dependent upon numerous individual
contracts with commercial businesses worldwide and various departments and
agencies of the U.S. Federal Government. The loss of any individual contract
would not have a materially adverse effect on the Company.
BACKLOG
At September 30, 2002, the Company's Automotive Systems Group had an incremental
backlog of new orders for its interior systems to be executed within the next
fiscal year of approximately $1.0 billion compared with $0.8 billion one year
ago. The automotive backlog is generally subject to a number of risks and
uncertainties, such as related vehicle production volumes and the timing of
related production launches.
The Company's backlog relating to the Controls Group is applicable to its sales
of control systems, which principally are sold under long-term contracts that
are accounted for on the
<PAGE>
percentage-of-completion method. In accordance with customary industry practice,
customers are progress billed on an estimated basis as work proceeds. At
September 30, 2002, the unearned backlog of installed control systems contracts
to be executed within the next fiscal year was $1.65 billion, compared with the
prior year's $1.49 billion. The preceding data does not include amounts
associated with facility management service contracts because such contracts are
typically multi-year service awards. The backlog amount outstanding at any given
time is not necessarily indicative of the amount of revenue to be earned in the
coming fiscal period.
RAW MATERIALS
Raw materials used by the Automotive Systems Group in connection with its
automotive interiors and battery operations, including steel, urethane
chemicals, lead, sulfuric acid and polypropylene, were readily available during
the year and such availability is expected to continue. The Controls Group is
not dependent upon any single source of supply for essential materials, parts or
components.
INTELLECTUAL PROPERTY
Generally, the Company seeks statutory protection for most intellectual property
embodied in patents, trademarks and copyrights. Some intellectual property,
where appropriate or possible, is protected by a contract, license, agreement or
hold-in-confidence undertaking.
The Company owns numerous U.S. and foreign patents (and their respective
counterparts), the more important of which cover those technologies and
inventions embodied in current products, or which are used in the manufacture of
those products. While the Company believes patents are important to its business
operations and in the aggregate constitute a valuable asset, no single patent,
or group of patents, is critical to the success of the business. The Company,
from time to time, grants licenses under its patents and technology and receives
licenses under patents and technology of others.
The Company has numerous registered trademarks in the United States and in many
foreign countries. The most important of these marks are "JOHNSON CONTROLS"
(including a stylized version thereof), "JCI" and "JOHNSON. " These marks are
universally used in connection with certain of its product lines and services.
The trademarks and service marks "PENN, " "METASYS, " "CARDKEY," "HOMELINK,"
"AUTOVISION," "TRAVELNOTE," "BLUECONNECT," "OPTIMA" and "INSPIRA" are used in
connection with certain Company product lines and services. The Company also
markets automotive batteries under the licensed trademarks "EVEREADY" and
"ENERGIZER. "
Most works of authorship produced for the Company, such as computer programs,
catalogs and sales literature, carry appropriate notices indicating the
Company's claim to copyright protection under U.S. law and appropriate
international treaties.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
Laws addressing the protection of the environment (Environmental Laws) and
workers' safety and health (Worker Safety Laws) govern the Company's ongoing
global operations. They
<PAGE>
generally provide for civil and criminal penalties, as well as injunctive and
remedial relief, for noncompliance or require remediation of sites where
Company-related materials have been released into the environment.
The Company has expended substantial resources globally, both financial and
managerial, to comply with Environmental Laws and Worker Safety Laws and
maintains procedures designed to foster and ensure compliance. Certain of the
Company's businesses are or have been engaged in the handling or use of
substances that may impact work health and safety or the environment. The
Company is committed to protecting its workers and the environment against the
risks associated with these substances.
The Company's operations and facilities have been, and in the future may become,
the subject of formal or informal enforcement actions or proceedings for
noncompliance with such laws or for the remediation of Company-related
substances released into the environment. Such matters typically are resolved by
negotiation with regulatory authorities that result in commitments to
compliance, abatement, or remediation programs and, in some cases, payment of
penalties. Historically, neither such commitments nor such penalties have been
material. (See Item 3 "Legal Proceedings" of this report for a discussion of the
Company's potential environmental liabilities.)
ENVIRONMENTAL CAPITAL EXPENDITURES
The Company's ongoing environmental compliance program often results in capital
expenditures. Environmental considerations are a part of all significant capital
expenditures; however, expenditures in 2002 related solely to environmental
compliance were not material. It is management's opinion that the amount of any
future capital expenditures related solely to environmental compliance will not
have a material adverse effect on the Company's financial results or competitive
position in any one year.
EMPLOYEES
As of September 30, 2002, the Company employed approximately 111,000 employees,
of whom approximately 70,000 were hourly and 41,000 were salaried.
SEASONAL FACTORS
Sales of automotive interior systems and batteries to automobile manufacturers
for use as original equipment are dependent upon the demand for new automobiles.
Management believes that demand for new automobiles generally reflects
sensitivity to overall economic conditions with no material seasonal effect. The
automotive replacement battery market is affected by weather patterns because
batteries are more likely to fail when extremely low temperatures place
substantial additional power requirements upon a vehicle's electrical system.
Also, battery life is shortened by extremely high temperatures, which accelerate
corrosion rates. Therefore, either mild winter or moderate summer temperatures
may adversely affect automotive replacement battery sales.
<PAGE>
The Controls Group's activities are executed on a relatively continuous basis,
with no significant fluctuation in revenues during the year.
INTERNATIONAL OPERATIONS
The Automotive Systems Group has manufacturing facilities worldwide. The segment
has wholly- and majority-owned automotive interior systems manufacturing
facilities located outside the United States, including plants in Argentina,
Australia, Austria, Belgium, Brazil, Canada, the Czech Republic, France,
Germany, Hungary, India, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands,
Poland, Portugal, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden,
Thailand and the United Kingdom. These facilities produce, depending on the
location, complete seats, interior systems and related components. The segment
has partially-owned affiliates in Asia, Europe and South America that
manufacture complete seats, interior systems and/or seating components. The
segment also has partially-owned battery manufacturing operations in India,
Mexico and South America. Licensing and joint venture arrangements are also in
effect with certain foreign manufacturers of batteries and automotive parts.
Through a number of foreign subsidiaries and branches, the Controls Group
operates fully staffed sales offices offering engineering, installation
capabilities (the counterpart to the domestic controls operations) and services.
Offices are located in Australia, Austria, Belgium, Brazil, Canada, China, the
Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary,
India, Israel, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, Norway,
the Philippines, Poland, Portugal, Russia, Saudi Arabia, Singapore, Slovakia,
South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United Arab Emirates
and the United Kingdom. In addition, Controls Group products are marketed
through distributors represented in approximately 40 countries. Products are
manufactured in plants located in China, Germany, Italy, Mexico and the
Netherlands, with the remainder of the product line supplied from the United
States and via partially-owned affiliates. The Controls Group also has joint
venture operations in Argentina, Brazil, Canada, China, France, Hong Kong,
Hungary, Italy, Japan, Kuwait, Malaysia, Philippines, Poland, Portugal, Spain,
South Africa, Thailand and the United Arab Emirates.
The financial results of all foreign operations are subject to currency exchange
rate fluctuations. The Company selectively uses financial instruments to
minimize its risk of loss from fluctuations in exchange rates. The Company
primarily enters into foreign currency exchange contracts to reduce the earnings
and cash flow impact of non-functional currency denominated receivables and
payables. Gains and losses from hedging instruments offset the foreign exchange
gains or losses on the underlying assets and liabilities being hedged. All
hedging transactions are authorized and executed pursuant to clearly defined
policies and procedures, which strictly prohibit the use of financial
instruments for trading purposes.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Note 15, "Segment information," of the Notes to Consolidated Statements on pages
44 through 45 of the 2002 Annual Report to Shareholders is incorporated herein
by reference.
<PAGE>
RESEARCH AND DEVELOPMENT EXPENDITURES
Note 12, "Research and development," of the Notes to Consolidated Statements on
page 43 of the 2002 Annual Report to Shareholders is incorporated herein by
reference.
AVAILABLE INFORMATION
The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q,
definitive proxy statements on Form 14a, current reports on Form 8-K, and any
amendments to those reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act are made available free of charge on the Company's Internet site
at http://www.johnsonontrols.com.
ITEM 2 PROPERTIES
The Company has numerous wholly- and majority-owned manufacturing facilities
located throughout the world. The Company considers its facilities to be
suitable and adequate. The majority of the facilities are operating at normal
levels based on capacity.
The following table lists the principal manufacturing, administrative, warehouse
and research and development facilities by geographic region and segment:
Geographic Region and Segment
<TABLE>
<CAPTION>
(in millions of square feet)
Owned Facilities Leased Facilities Total
---------------- ----------------- -----
<S> <C> <C> <C>
North America
Automotive Systems Group 13.4 5.4 18.8
Controls Group 1.9 0.2 2.1
Europe
Automotive Systems Group 12.8 8.8 21.6
Controls Group 0.3 0.7 1.0
Other foreign
Automotive Systems Group 4.5 1.0 5.5
Controls Group - 0.2 0.2
------------ ------------ -----------
Total 32.9 16.3 49.2
==== ==== ====
</TABLE>
In addition, hundreds of Controls Group branch offices in major cities
throughout the world are either owned or leased. These offices vary in size in
proportion to the volume of business in the particular locality.
ITEM 3 LEGAL PROCEEDINGS
ENVIRONMENTAL LITIGATION AND PROCEEDINGS AND OTHER MATTERS
As noted previously, liabilities potentially arise globally under various
Environmental Laws and Worker Safety Laws for activities that are not in
compliance with such laws and for the cleanup of sites where Company-related
substances have been released into the environment.
Currently, the Company is responding to allegations that it is responsible for
performing environmental remediation, or for the repayment of costs spent by
governmental entities or others performing remediation, at approximately 50
sites. Many of these sites are landfills used by the Company in the past for the
disposal of waste materials; others are secondary lead smelters and lead
recycling sites where the Company returned lead-containing materials for
recycling; a few involve the cleanup of Company manufacturing facilities; and
the remaining fall into
<PAGE>
miscellaneous categories. The Company may face similar claims of liability at
additional sites in the future. Where potential liabilities are alleged, the
Company pursues a course of action intended to mitigate them.
The Company accrues for potential environmental losses consistent with generally
accepted accounting principles; that is, when it is probable a loss has been
incurred and the amount of the loss is reasonably estimable. Its reserves for
environmental costs totaled $32 million and $28 million at September 30, 2002
and 2001, respectively. The Company reviews the status of the sites on a
quarterly basis and adjusts its reserves accordingly. Such potential liabilities
accrued by the Company do not take into consideration possible recoveries of
future insurance proceeds. They do, however, take into account the likely share
other parties will bear at remediation sites. It is difficult to estimate the
Company's ultimate level of liability at many remediation sites due to the large
number of other parties that may be involved, the complexity of determining the
relative liability among those parties, the uncertainty as to the nature and
scope of the investigations and remediation to be conducted, the uncertainty in
the application of law and risk assessment, the various choices and costs
associated with diverse technologies that may be used in corrective actions at
the sites, and the often quite lengthy periods over which eventual remediation
may occur. Nevertheless, the Company has no reason to believe at the present
time that any claims, penalties or costs in connection with known environmental
matters will have a material adverse effect on the Company's financial position,
results of operations or cash flows.
Typically, site remediation matters are addressed at the administrative agency
level of the government. Occasionally, however, litigation is involved. The most
significant of such matters where litigation has been commenced by the
government or by private parties and remains pending against the Company is as
follows:
United States v. NL Industries, Inc., Case No. 91-CV-00578-WDS (United
States District Court for the Southern District of Illinois), filed July
31, 1991. The EPA sought to enforce an administrative order issued on
November 27, 1990 against Johnson Controls and other defendants
requiring performance of a cleanup at a secondary smelter facility in
Granite City, Illinois. The Company, the other defendants and the other
parties to the 1990 order chose to not perform on the basis that the
administrative record of decision underlying that order did not support
the remedy the agency was requiring. The complaint alleged that the
defendants should pay penalties (up to $25,000 per day and three times
the cost of work the government performs) for failing to comply with the
order. It also alleged that the Company should be responsible for past
government expenditures. According to the agency, the total cost, both
past and future, will probably exceed $64 million. The Company executed
a consent decree settling this matter, but the court has not yet entered
the decree. Nevertheless, the Company and the other parties to the
Consent Decree have performed almost all of the work required by the
decree. The reserves relating to environmental matters include an amount
attributable to the cost of the remaining work that the Company will
perform in conjunction with other parties at the site, as well as
payment to the federal government for the Company's share of past
response costs and penalties.
In March 2002, an unfavorable verdict was rendered in a lawsuit involving a
Mexican lead supplier. After a jury trial, a Texas trial court entered judgment
against the Company
<PAGE>
in this matter and awarded damages to the plaintiff in the amount of $22
million, plus interest and attorney fees. The Company and its legal counsel
believe that the verdict against the Company in the trial court was incorrect
and that it will be reversed on appeal. While it is not possible to ascertain
the ultimate legal and financial liability with respect to this lawsuit, the
Company believes that the amount of such liability, if any, in excess of amounts
provided, will not have a material impact on the Company's financial position,
results of operations or cash flows.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction of G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this report in lieu of being
included in the Company's Proxy Statement for its 2003 Annual Meeting of
Shareholders.
James H. Keyes, 62, was elected Chairman of the Board in 1993 and Chief
Executive Officer in 1988. He served as President from 1986 to 1998 and
retired as Chief Executive Officer on October 1, 2002. Mr. Keyes joined
the Company in 1966.
John M. Barth, 56, was elected President in 1998 and Chief Executive
Officer on October 1, 2002. He was elected a member of the Board of
Directors in 1997. Previously, Mr. Barth served as Chief Operating
Officer and an Executive Vice President with responsibility for the
Automotive Systems Group. Mr. Barth joined the Company in 1969.
Giovanni "John" Fiori, 59, was elected an Executive Vice President in
August 2002 and serves as President of Johnson Controls International.
Previously, he served as President of automotive operations in Europe,
Africa, South America and Asia and Vice President of automotive seating
operations in Europe. Mr. Fiori joined the Company in 1987.
John P. Kennedy, 59, was elected a Senior Vice President in August 2002
and has been Secretary since 1987 and General Counsel since 1984. He
previously served as a Vice President. Mr. Kennedy joined the Company in
1984.
Stephen A. Roell, 52, was elected Senior Vice President in 1998 and has
served as Chief Financial Officer since 1991. He was a Vice President
from 1991 to 1998, and earlier served as Corporate Controller and
Treasurer. Mr. Roell joined the Company in 1982.
Ben C.M. Bastianen, 58, was elected a Corporate Vice President in 1999
and has served as Corporate Treasurer since 1991, when he joined the
Company.
Susan F. Davis, 49, was elected Vice President, Human Resources in 1994.
Previously, she served as Vice President of Organizational Development
for the Automotive Systems Group and the former Plastics Technology
Group. Ms. Davis joined the Company in 1983.
<PAGE>
R. Bruce McDonald, 42, was elected a Corporate Vice President in January
2002 and has served as Corporate Controller since November 2001 when he
joined the Company. Prior to that time, Mr. McDonald was Vice President
of Finance for the automotive business of TRW Inc. and previously held
various financial positions with LucasVarity plc.
Robert Netolicka, 55, was elected a Corporate Vice President in 1997 and
manages special projects for the Controls Group. Mr. Netolicka has held
a number of senior management positions within the Controls Group since
joining the Company in 1974.
Jerome D. Okarma, 50, was elected Assistant Secretary in 1990. He has
served as Deputy General Counsel since 2000. Prior to that he served as
Assistant General Counsel from 1989 to 2000, and previously as Group
Vice President and General Counsel of the Controls Group and the Battery
Group.
Darlene Rose, 57, was elected Vice President, Corporate Development and
Strategy in 1999. She previously served as Director of Corporate
Benefits and Payroll, and earlier held management positions in audit,
financial planning and information technology. Ms. Rose joined the
Company in 1969.
Rande S. Somma, 50, was elected a Corporate Vice President in 1998 and
serves as President of the Automotive Systems Group. He previously
served as President of automotive operations in North America and has
held various senior management positions within the Automotive Systems
Group since joining the Company in 1988, including President of
Worldwide Marketing and Development.
Brian J. Stark, 53, was elected a Corporate Vice President in 1995 and
serves as President of the Controls Group. Mr. Stark has held a number
of senior management positions within the Controls Group since joining
the Company in 1972.
Subhash "Sam" Valanju, 59, was elected a Corporate Vice President in
1999 and has served as Chief Information Officer since joining the
Company in 1996.
Bogoljub "Bob" Velanovich, 65, was elected a Corporate Vice President in
2000. He also serves as Group Vice President - Manufacturing and
Engineering Quality and Product Launch Assurance for the Automotive
Systems Group. Mr. Velanovich served in several senior management
positions within the Automotive Systems Group since joining the Company
in 1991.
Keith E. Wandell, 53, was elected a Corporate Vice President in 1997 and
serves as President of battery operations for the Automotive Systems
Group. Previously, he served in a number of management positions, most
recently as Vice President and General Manager of the Automotive Systems
Group's Starting, Lighting and Ignition Division. Mr. Wandell joined the
Company in 1988.
Denise M. Zutz, 51, was elected Vice President, Corporate Communication
in 1991. She previously served as Director of Corporate Communication
and served in other communication positions since joining the Company in
1973.
<PAGE>
There are no family relationships, as defined by the instructions to this item,
between the above executive officers.
All officers are elected for terms that expire on the date of the meeting of the
Board of Directors following the Annual Meeting of Shareholders or until their
successors are elected and qualified.
PART II
The information required by Part II, Items 5, 6, 7, 7A and 8, are incorporated
herein by reference to the Company's 2002 Annual Report to Shareholders as
follows:
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS - See price range and dividend information on page 20 of the
2002 Annual Report to Shareholders.
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of November 30, 2002
-------------- -----------------------
<S> <C>
Common Stock, $.16-2/3 par value 57,138
</TABLE>
ITEM 6 SELECTED FINANCIAL DATA - See "Five Year Summary" on page 47 of the
2002 Annual Report to Shareholders.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - See pages 20 through 28 of the 2002 Annual Report to
Shareholders.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - See "Risk
Management" on pages 26 through 27 of Management's Discussion and
Analysis section of the 2002 Annual Report to Shareholders.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - See pages 29 through 45
of the 2002 Annual Report to Shareholders.
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
PART III
The information required by Part III, Items 10, 11, 12, and 13, are incorporated
herein by reference to the Company's Proxy Statement for its 2002 Annual Meeting
of Shareholders (2002 Proxy), dated December 10, 2002, as follows:
<PAGE>
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Incorporated by
reference to sections entitled "Election of Directors," "Board
Information," "Board Compensation" and "Section 16(a) Beneficial
Ownership Reporting Compliance" of the 2002 Proxy. Required information
on executive officers of the Company appears on pages 13-15 of Part I
of this report.
ITEM 11 EXECUTIVE COMPENSATION - Incorporated by reference to sections entitled
"Executive Compensation," "Compensation Committee Report," "Performance
Graph" and "Employment Agreements" of the 2002 Proxy.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
Incorporated by reference to the section entitled "Johnson Controls
Share Ownership" of the 2002 Proxy.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about the Company's equity compensation
plans as of September 30, 2002.
<TABLE>
<CAPTION>
- ------------------------------- --------------------------- -------------------------- -------------------------------
(a) (b) (c)
- ------------------------------- --------------------------- -------------------------- -------------------------------
Plan category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding outstanding options, future issuance under equity
options, warrants and warrants and rights compensation plans (excluding
rights securities reflected in
column (a))
- ------------------------------- --------------------------- -------------------------- -------------------------------
<S> <C> <C> <C>
Equity compensation plans
approved by security holders 5,376,834 $59.36 8,843,329
- ------------------------------- --------------------------- -------------------------- -------------------------------
Equity compensation plans not
approved by security holders - n/a 92,000
- ------------------------------- --------------------------- -------------------------- -------------------------------
Total 5,376,834 $59.36 8,935,329
- ------------------------------- --------------------------- -------------------------- -------------------------------
</TABLE>
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - None.
ITEM 14 CONTROLS AND PROCEDURES
Within the 90 days prior to the filing of this report, the Company's management,
including the Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of disclosure controls and procedures. Based
upon that evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that such disclosure controls and procedures were effective in
alerting them on a timely basis to material information relating to the Company
required to be included in the Company's periodic filings under the Exchange
Act.
There have been no significant changes in the Company's internal controls, or in
factors that could significantly affect internal controls, subsequent to the
date of the evaluation.
<PAGE>
PART IV
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page in
Annual Report*
--------------
<S> <C>
(a) The following documents are filed as part of this report:
(1) Financial Statements
Consolidated Statement of Income for the years ended
September 30, 2002, 2001 and 2000 .............................................. 29
Consolidated Statement of Financial Position at
September 30, 2002 and 2001...................................................... 30
Consolidated Statement of Cash Flows for the years
ended September 30, 2002, 2001 and 2000.......................................... 31
Consolidated Statement of Shareholders' Equity for the years
ended September 30, 2002, 2001 and 2000.......................................... 32
Notes to Consolidated Statements................................................... 33-45
Report of Independent Accountants.................................................. 46
</TABLE>
*Incorporated by reference from the indicated pages of the 2002 Annual Report to
Shareholders.
<TABLE>
<CAPTION>
Page in
Form 10-K
----------
<S> <C>
(2) Financial Statement Schedule
Report of Independent Accountants on Financial Statement Schedule.................. 20
For the years ended September 30, 2002, 2001 and 2000:
II. Valuation and Qualifying Accounts........................................... 24
</TABLE>
All other schedules are omitted because they are not applicable, or the required
information is shown in the financial statements or notes thereto.
Financial statements of 50 percent or less-owned companies have been omitted
because the proportionate share of their profit before income taxes and total
assets are less than 20 percent of the respective consolidated amounts, and
investments in such companies are less than 20 percent of consolidated total
assets.
<PAGE>
(3) Exhibits
Reference is made to the separate exhibit index contained on pages
25 through 28 filed herewith.
(b) The following Form 8-K's were filed during the fourth quarter of fiscal 2002
or thereafter through the date of this report:
(i) A Form 8-K was filed December 4, 2002 to provide financial data
supplemental to the fourth quarter and fiscal year-end financial
results release on October 23, 2002.
(ii) A Form 8-K was filed November 21, 2002 reporting that the Company's
Board of Directors increased the quarterly cash dividend to $.36
per common share.
(iii) A Form 8-K was filed November 12, 2002 to take advantage of the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 and to provide updated disclosure of the factors
that could affect any forward-looking statements made by, or on
behalf of, the Company.
(iv) A Form 8-K was filed November 4, 2002 reporting that the Company
completed the acquisition of Varta AG's Automotive Battery
Division.
(v) A Form 8-K was filed October 24, 2002 to disclose the Company's
financial results for the fourth quarter of fiscal 2002.
(vi) A Form 8-K was filed October 10, 2002 reporting that the Company
expects record sales and earnings for 2003; will expense stock
options in 2003; anticipates record results for 2002.
(vii) A Form 8-K was filed August 9, 2002 reporting that sworn statements
pursuant to Securities and Exchange Commission Order No. 4-460 were
signed by each Chief Executive Officer, James H. Keyes, and Chief
Financial Officer, Stephen A. Roell.
(viii) A Form 8-K was filed on August 7, 2002 to announce that the Company
expects to acquire Varta AG's Automotive Battery Division, a major
European automotive battery manufacturer headquartered in Germany.
(ix) A Form 8-K was filed July 26, 2002 to announce that the Company's
Board of Directors elected John M. Barth as Chief Executive Officer
effective October 1, 2002.
(x) A Form 8-K was filed July 19, 2002 to disclose the Company's
financial results for the third quarter of fiscal 2002.
Other Matters
For the purposes of complying with the amendments to the rules governing Form
S-8 under the Securities Act of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be incorporated by reference into
registrant's Registration Statements on Form S-8 Nos. 33-30309, 33-31271,
33-58092, 33-58094, 33-49862, 333-10707, 333-36311, 333-66073, and 333-41564.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
<PAGE>
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
[PRICEWATERHOUSECOOPERS LOGO]
PRICEWATERHOUSECOOPERS LLP
100 East Wisonsin Avenue
Suite 1500
Milwaukee WI 53202
Telephone (414) 212 1600
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Johnson Controls, Inc.
Our audits of the consolidated financial statements referred to in our report
dated October 21, 2002 appearing in the 2002 Annual Report to Shareholders of
Johnson Controls, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 15(a)(2) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
- --------------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 21, 2002
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
JOHNSON CONTROLS, INC.
By /s/ Stephen A. Roell
--------------------------
Stephen A. Roell
Senior Vice President and
Chief Financial Officer
Date: December 16, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below as of December 16, 2002, by the following persons on
behalf of the registrant and in the capacities indicated:
<TABLE>
<S><C>
/s/ John M. Barth /s/ Stephen A. Roell
- --------------------------- -----------------------------------
John M. Barth Stephen A. Roell
President, Chief Executive Officer Senior Vice President and
and Director Chief Financial Officer
/s/ R. Bruce McDonald /s/ William H. Lacy
- --------------------- -----------------------------------
R. Bruce McDonald William H. Lacy
Vice President and Director
Corporate Controller
/s/ James H. Keyes /s/ Paul A. Brunner
- --------------------------- -----------------------------------
James H. Keyes Paul A. Brunner
Director (Chairman) Director
/s/ Jeffrey A. Joerres /s/ Robert A. Cornog
- --------------------------- -----------------------------------
Jeffrey A. Joerres Robert A. Cornog
Director Director
/s/ Natalie A. Black /s/ Richard F. Teerlink
- --------------------------- -----------------------
Natalie A. Black Richard F. Teerlink
Director Director
</TABLE>
<PAGE>
CERTIFICATIONS
I, John M. Barth, President and Chief Executive Officer of Johnson Controls,
Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Johnson Controls, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 16, 2002
/s/ John M. Barth
-----------------
John M. Barth
President and Chief Executive Officer
<PAGE>
CERTIFICATIONS
I, Stephen A. Roell, Senior Vice President and Chief Financial Officer of
Johnson Controls, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Johnson Controls, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 16, 2002
/s/ Stephen A. Roell
--------------------
Stephen A. Roell
Senior Vice President and
Chief Financial Officer
<PAGE>
JOHNSON CONTROLS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in millions)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 2002 2001 2000
------------------------------------------------------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of period $28.1 $31.9 $26.9
Provision charged to costs and expenses 20.4 9.9 15.4
Reserve adjustments (7.8) (7.9) (4.1)
Accounts charged off (4.2) (6.2) (5.4)
Acquisition of businesses 10.6 2.6 0.1
Currency translation 0.9 (0.7) (1.5)
Other (3.2) (1.5) 0.5
------------------------------------------------------
Balance at end of period $44.8 $28.1 $31.9
======================================================
DEFERRED TAX ASSETS - VALUATION ALLOWANCE
Balance at beginning of period $88.7 $61.4 $65.2
Allowance established for new loss carryforwards and tax credits 58.4 34.3 18.1
Allowance reversed for loss carryforwards utilized (13.8) (7.0) (21.9)
------------------------------------------------------
Balance at end of period $133.3 $88.7 $61.4
======================================================
</TABLE>
<PAGE>
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS TITLE PAGE
<S> <C> <C>
3.(i) Restated Articles of Incorporation of Johnson Controls, Inc.,
as amended January 22, 1997, (incorporated by reference to
Exhibit 3.(i) to Johnson Controls, Inc. Annual Report on Form
10-K for the year ended September 30, 1997).
3.(ii) By-laws of Johnson Controls, Inc., as amended March 27, 29-40
2002, filed herewith.
4.A Miscellaneous long-term debt agreements and financing leases
with banks and other creditors and debenture indentures.*
4.B Miscellaneous industrial development bond long-term debt
issues and related loan agreements and leases.*
4.C Rights Agreement between Johnson Controls, Inc. and Firstar
Trust Company (Rights Agent), as amended November 16, 1994,
(incorporated by reference to Exhibit 4.C to Johnson Controls,
Inc. Annual Report on Form 10-K for the year ended September
30, 1994). Wells Fargo Bank Minnesota, N.A. was appointed
successor Rights Agent effective May 11, 2001.
4.D Certificate of the Relative Rights and Preferences of the
Series D Convertible Preferred Stock of Johnson Controls, Inc.
(incorporated by reference to an exhibit to the Form 8-K dated
May 26, 1989).
4.E Note and Guaranty Agreement dated June 19, 1989 between
Johnson Controls, Inc., as Guarantor, and Johnson Controls,
Inc. Employee Stock Ownership Trust, acting by and through
Lasalle National Bank, as trustee, as issuer, (Incorporated by
reference to Exhibit 4.E to Johnson Controls, Inc. Annual
Report on Form 10-K for the year ended September 30, 1990).
4.F Letter of agreement dated December 6, 1990 between Johnson
Controls, Inc., LaSalle National Trust, N.A. and Fidelity
Management Trust Company which replaces LaSalle National
Trust, N.A. as Trustee of the Johnson Controls, Inc. Employee
Stock Ownership Plan Trust with Fidelity Management Trust
Company as Successor Trustee, effective January 1, 1991
(incorporated by reference to Exhibit 4.F to Johnson Controls,
Inc. Annual Report on Form 10-K for the year ended September
30, 1991).
</TABLE>
<PAGE>
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS TITLE PAGE
<S> <C> <C>
4.G Indenture for debt securities dated February 22, 1995 between
Johnson Controls, Inc. and Chemical Bank Delaware (now known
as Chase Bank), trustee (incorporated by reference to the Form
S-3 filed February 13, 1995, which became effective February
17, 1995).
10.A Johnson Controls, Inc., 1992 Stock Option Plan as amended
through January 24, 1996 (incorporated by reference to Exhibit
10.A to Johnson Controls, Inc. Annual Report on Form 10-K for
the year ended September 30, 1996).
10.B Johnson Controls, Inc., 1984 Stock Option Plan as amended
through September 22, 1993 (incorporated by reference to
Exhibit 10.B to Johnson Controls, Inc. Annual Report on Form
10-K for the year ended September 30, 1993).
10.C Johnson Controls, Inc., 1992 Stock Plan for Outside Directors,
(incorporated by reference to Exhibit 10.D to Johnson
Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 1992).
10.D Johnson Controls, Inc., Common Stock Purchase Plan for
Executives as amended March 28, 2001 (incorporated by
reference to Exhibit 10.D to Johnson Controls, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001).
10.E Johnson Controls, Inc., Deferred Compensation Plan for Certain
Directors as amended through October 1, 2001(incorporated by
reference to Exhibit 10.E to Johnson Controls, Inc. Annual
Report on Form 10-K for the year ended September 30, 2001).
10.F Johnson Controls, Inc., Executive Incentive Compensation Plan
as amended through October 1, 2001 (incorporated by reference
to Exhibit 10.F to Johnson Controls, Inc. Annual Report on
Form 10-K for the year ended September 30, 2001).
10.G Johnson Controls, Inc., Executive Incentive Compensation Plan,
Deferred Option, Qualified Plan as amended through October 1,
2001 (incorporated by reference to Exhibit 10.G to Johnson
Controls, Inc. Annual Report on Form 10-K for the year ended
September 30, 2001).
</TABLE>
<PAGE>
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS TITLE PAGE
<S> <C> <C>
10.H Johnson Controls, Inc., Long-Term Performance Plan as amended
through October 1, 2001 (incorporated by reference to Exhibit
10.H to Johnson Controls, Inc. Annual Report on Form 10-K for
the year ended September 30, 2001).
10.I Johnson Controls, Inc., Executive Survivor Benefits Plan
amended through October 1, 2001 (incorporated by reference to
Exhibit 10.I to Johnson Controls, Inc. Annual Report on Form
10-K for the year ended September 30, 2001).
10.J Johnson Controls, Inc., Equalization Benefit Plan amended
through October 1, 2001 (incorporated by reference to Exhibit
10.J to Johnson Controls, Inc. Annual Report on Form 10-K for
the year ended September 30, 2001).
10.K Form of employment agreement, as amended through September 26,
2001, between Johnson Controls, Inc. and all elected officers
and key executives (incorporated by reference to Exhibit 10.K
to Johnson Controls, Inc. Annual Report on Form 10-K for the
year ended September 30, 2001).
10.L Form of indemnity agreement, as amended, between Johnson
Controls, Inc. and all elected officers, (incorporated by
reference to Exhibit 10.K to Johnson Controls, Inc. Annual
Report on Form 10-K for the year ended September 30, 1991).
10.M Johnson Controls, Inc., Director Share Unit Plan, as amended
through October 1, 2001 (incorporated by reference to Exhibit
10.M to Johnson Controls, Inc. Annual Report on Form 10-K for
the year ended September 30, 2001).
10.N Johnson Controls, Inc., 2000 Stock Option Plan, as amended
through October 1, 2001 (incorporated by reference to Exhibit
10.N to Johnson Controls, Inc. Annual Report on Form 10-K for
the year ended September 30, 2001).
</TABLE>
<PAGE>
JOHNSON CONTROLS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS TITLE PAGE
<S> <C> <C>
10.O Johnson Controls, Inc., Restricted Stock Plan, effective
October 1, 2001 (incorporated by reference to Exhibit 10.O to
Johnson Controls, Inc. Annual Report on Form 10-K for the year
ended September 30, 2001).
10.P Johnson Controls, Inc., Executive Deferred Compensation Plan,
effective October 1, 2001 (incorporated by reference to
Exhibit 10.P to Johnson Controls, Inc. Annual Report on Form
10-K for the year ended September 30, 2001).
12 Statement regarding computation of ratio of earnings to fixed
charges for the year ended September 30, 2002, filed herewith. 41
13 2002 Annual Report to Shareholders (incorporated sections only
in electronic filing), filed herewith. 42-69
21 Subsidiaries of the Registrant, filed herewith. 70-73
23 Consent of Independent Accountants dated December 16, 2002,
filed herewith. 74
99.1 Certification of Periodic Report by the Chief Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. 75
99.2 Certification of Periodic Report by the Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. 76
</TABLE>
*These instruments are not being filed as exhibits herewith because none of the
long-term debt instruments authorizes the issuance of debt in excess of ten
percent of the total assets of Johnson Controls, Inc., and its subsidiaries on a
consolidated basis. Johnson Controls, Inc. agrees to furnish a copy of each such
agreement to the Securities and Exchange Commission upon request.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.(II)
<SEQUENCE>3
<FILENAME>c73453exv3wxiiy.txt
<DESCRIPTION>BY-LAWS AS AMENDED MARCH 27, 2002
<TEXT>
<PAGE>
EXHIBIT 3(ii)
JOHNSON CONTROLS, INC.
BY-LAWS
(As in effect March 27, 2002)
ARTICLE I
OFFICES
The principal office of the corporation in the State of Wisconsin shall
be located in the City of Glendale, County of Milwaukee. The corporation may
have such other offices, either within or without the State of Wisconsin, as the
Board of Directors may designate or as the business of the corporation may
require from time to time.
The registered office of the corporation required by the Wisconsin
Business Corporation Law to be maintained in the State of Wisconsin may be, but
need not be, identical with the principal office in the State of Wisconsin, and
the address of the registered office may be changed from time to time by the
Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. The Annual Meeting of the shareholders of
the Corporation (an "Annual Meeting") shall be held on the fourth Wednesday in
the month of January in each year, at the hour of 2:00 o'clock P.M., or at such
other hour or day as may be designated by the Board of Directors. At each Annual
Meeting, the shareholders shall elect a number of directors equal to the number
of the class whose term expires at the time of such meeting and shall conduct
any other business properly brought before the Annual Meeting in accordance with
Article II, Section 13 of the By-Laws. In the event of failure, through
oversight or otherwise, to hold the Annual Meeting of shareholders in any year
on the date herein provided therefor, the Annual Meeting, upon waiver of notice
or upon due notice, may be held at a later date and any election had or business
done at such Annual Meeting shall be as valid and effectual as if had or done at
the Annual Meeting on the date herein provided. In fixing a meeting date for any
Annual Meeting, the Board of Directors may consider such factors as it deems
relevant within the good faith exercise of its business judgment.
Section 2. SPECIAL MEETINGS.
(a) A special meeting of the shareholders of the Corporation
(a "Special Meeting") may be called only by (i) the Chairman of the Board, (ii)
the President or (iii) the Board of Directors and shall be called by the
Chairman of the Board or the President upon the demand, in accordance with this
Section 2, of the holders of record of shares representing at least 10% of all
the votes entitled to be cast on any issue proposed to be considered at the
Special Meeting.
(b) In order that the Corporation may determine the
shareholders entitled to demand a Special Meeting, the Board of Directors may
fix a record date to determine the shareholders entitled to make such a demand
(the "Demand Record Date"). The Demand Record Date shall not precede the date
upon which the resolution fixing the Demand Record Date is adopted by the Board
of Directors and shall not be more than 10 days after the date upon which the
resolution fixing the Demand Record Date is adopted by the Board of Directors.
Any shareholder of record seeking to have shareholders demand a Special Meeting
shall, by sending written notice to the Secretary of the Corporation by hand or
by certified or registered mail, return receipt requested, request the Board of
Directors to fix a Demand Record Date. The Board of Directors shall promptly,
but in all events within 10 days after the date on which a valid request to fix
a Demand Record Date is received, adopt a resolution fixing the Demand Record
Date and shall make a public announcement of such Demand Record Date. If no
Demand Record Date has been fixed by the Board of Directors within 10 days after
the date on which such request is received by the Secretary, the Demand Record
Date shall be the 10th day after the first date on which a valid written request
to set a Demand Record Date is received by the Secretary. To be valid, such
written request shall set forth the purpose or purposes for which the Special
Meeting is to be held, shall be signed by one or more shareholders of record (or
their
<PAGE>
duly authorized proxies or other representatives), shall bear the date of
signature of each such shareholder (or proxy or other representative) and shall
set forth all information about each such shareholder and about the beneficial
owner or owners, if any, on whose behalf the request is made that would be
required to be set forth in a shareholder's notice described in paragraph
(a)(ii) of Article II, Section 13 of these By-Laws.
(c) In order for a shareholder or shareholders to demand a
Special Meeting, a written demand or demands for a Special Meeting by the
holders of record as of the Demand Record Date of shares representing at least
10% of all the votes entitled to be cast on each issue proposed to be considered
at the Special Meeting must be delivered to the Corporation. To be valid, each
written demand by a shareholder for a Special Meeting shall set forth the
specific purpose or purposes for which the Special Meeting is to be held (which
purpose or purposes shall be limited to the purpose or purposes set forth in the
written request to set a Demand Record Date received by the Corporation pursuant
to paragraph (b) of this Section 2), shall be signed by one or more persons who
as of the Demand Record Date are shareholders of record (or their duly
authorized proxies or other representatives), shall bear the date of signature
of each such shareholder (or proxy or other representative), and shall set forth
the name and address, as they appear in the Corporation's books, of each
shareholder signing such demand and the class and number of shares of the
Corporation which are owned of record and beneficially by each such shareholder,
shall be sent to the Secretary by hand or by certified or registered mail,
return receipt requested, and shall be received by the Secretary within 70 days
after the Demand Record Date.
(d) The Corporation shall not be required to call a Special
Meeting upon shareholder demand unless, in addition to the documents required by
paragraph (c) of this Section 2, the Secretary receives a written agreement
signed by each Soliciting Shareholder, pursuant to which each Soliciting
Shareholder, jointly and severally, agrees to pay the Corporation's costs of
holding the special meeting, including the costs of preparing and mailing proxy
materials for the Corporation's own solicitation, provided that if each of the
resolutions introduced by any Soliciting Shareholder at such meeting is adopted,
and each of the individuals nominated by or on behalf of any Soliciting
Shareholder for election as director at such meeting is elected, then the
Soliciting Shareholders shall not be required to pay such costs. For purposes of
this paragraph (d), the following terms shall have the meanings set forth below:
(i) "Affiliate" of any Person shall mean any Person
controlling, controlled by or under common control with such first
Person.
(ii) "Participant" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.
(iii) "Person" shall mean any individual, firm, corporation,
partnership, joint venture association, trust, unincorporated
organization or other entity.
(iv) "Proxy" shall have the meaning assigned to such term in
Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Shareholder" shall mean, with respect to any
Special Meeting demanded by a shareholder or shareholders, any of the
following Persons:
(A) if the number of shareholders signing the demand or
demands of meeting delivered to the Corporation pursuant to
paragraph (c) of this Section 2 is ten or fewer, each
shareholder signing any such demand;
(B) if the number of shareholders signing the demand or
demands of meeting delivered to the Corporation pursuant to
paragraph (c) of this Section 2 is more than ten, each Person
who either (I) was a Participant in any Solicitation of such
demand or demands or (II) at the time of the delivery to the
Corporation of the documents described in paragraph (c) of
this Section 2, had engaged or intended to engage in any
Solicitation of Proxies for use at such Special Meeting (other
than a Solicitation of Proxies on behalf of the Corporation);
or
(C) any Affiliate of a Soliciting Shareholder, if a
majority of the directors then in office determine, reasonably
and in good faith, that such Affiliate should be required to
sign the written notice described in paragraph (c)
<PAGE>
of this Section 2 and/or the written agreement described in
this paragraph (d) in order to prevent the purposes of this
Section 2 from being evaded.
(e) Except as provided in the following sentence, any Special
Meeting shall be held at such hour and day as may be designated by whichever of
the Chairman of the Board, the President or the Board of Directors shall have
called such meeting. In the case of any Special Meeting called by the Chairman
of the Board or the President upon the demand of shareholders (a "Demand Special
Meeting"), such meeting shall be held at such hour and day as may be designated
by the Board of Directors; provided, however, that the date of any Demand
Special Meeting shall be not more than 70 days after the Meeting Record Date (as
defined in Article II, Section 5); and provided further that in the event that
the directors then in office fail to designate an hour and date for a Demand
Special Meeting within 10 days after the date that valid written demands for
such meeting by the holders of record as of the Demand Record Date of shares
representing at least 10% of all the votes entitled to be cast on each issue
proposed to be considered at the special meeting are delivered to the
Corporation (the "Delivery Date"), then such meeting shall be held at 2:00 P.M.
local time on the 100th day after the Delivery Date or, if such 100th day is not
a Business Day (as defined below), on the first preceding Business Day. In
fixing a meeting date for any Special Meeting, the Chairman of the Board, the
President or the Board of Directors may consider such factors as he or it deems
relevant within the good faith exercise of his or its business judgment,
including, without limitation, the nature of the action proposed to be taken,
the facts and circumstances surrounding any demand for such meeting, and any
plan of the Board of Directors to call an Annual Meeting or a Special Meeting
for the conduct of related business.
(f) The Corporation may engage nationally recognized
independent inspectors of elections to act as an agent of the Corporation for
the purpose of promptly performing a ministerial review of the validity of any
purported written demand or demands for a Special Meeting received by the
Secretary. For the purpose of permitting the inspectors to perform such review,
no purported demand shall be deemed to have been delivered to the Corporation
until the earlier of (i) five Business Days following receipt by the Secretary
of such purported demand and (ii) such date as the independent inspectors
certify to the Corporation that the valid demands received by the Secretary
represent at least 10% of all the votes entitled to be cast on each issue
proposed to be considered at the Special Meeting. Nothing contained in this
paragraph shall in any way be construed to suggest or imply that the Board of
Directors or any shareholder shall not be entitled to contest the validity of
any demand, whether during or after such five Business Day period, or to take
any other action (including, without limitation, the commencement, prosecution
or defense of any litigation with respect thereto).
(g) For purposes of these By-Laws, "Business Day" shall mean
any day other than a Saturday, a Sunday or a day on which banking institutions
in the State of Wisconsin are authorized or obligated by law or executive order
to close.
Section 3. PLACE OF MEETING. The Board of Directors, the Chairman or
the President may designate any place, either within or without the State of
Wisconsin, as the place of meeting for any Annual Meeting or Special Meeting, or
for any postponement thereof, and in case the Board of Directors, the Chairman
or the President shall fail or neglect to make such designation, the Secretary
shall designate the time and place of such meeting. Any adjourned meeting may be
reconvened at any place designated by vote of the Board of Directors or by the
Chairman or the President.
Section 4. NOTICE OF MEETING. The Corporation shall send written or
printed notice stating the place, day and hour of any Annual Meeting or Special
Meeting not less than 10 days nor more than 70 days before the date of such
meeting either personally or by mail to each shareholder of record entitled to
vote at such meeting and to other shareholders as may be required by law or by
the Restated Articles of Incorporation. In the event of any Demand Special
Meeting, such notice of meeting shall be sent not more than 30 days after the
Delivery Date. If mailed, such notice of meeting shall be addressed to the
shareholder at his address as it appears on the Corporation's record of
shareholders. Unless otherwise required by law or the Restated Articles of
Incorporation, a notice of an Annual Meeting need not include a description of
the purpose for which the meeting is called. In the case of any Special Meeting,
(a) the notice of meeting shall describe any business that the Board of
Directors shall have theretofore determined to bring before the meeting and (b)
in the case of a Demand Special Meeting, the notice of meeting (i) shall
describe any business set forth in the statement of purpose of the demands
received by the Corporation in accordance with Article II, Section 2 of these
By-Laws and (ii) shall contain all of the information required in the notice
received by the Corporation in accordance with Article II, Section 13(b)(ii) of
these By-Laws.
Section 5. FIXING OF RECORD DATE. The Board of Directors may fix a
future date not less than 10 days and not more than 70 days prior to the date of
any Annual Meeting or Special Meeting as the record date for the determination
of shareholders entitled to notice of, or to vote at, such meeting (the "Meeting
Record Date"). In the case of any Demand Special Meeting, (i) the Meeting Record
Date shall be not later than the 30th day after the Deliver Date and (ii) if the
Board of Directors fails to fix the Meeting Record Date within 30 days after the
Delivery Date, then the close of business on such 30th day shall be the Meeting
Record Date. The shareholders of record on
<PAGE>
the Meeting Record Date shall be the shareholders entitled to notice of and to
vote at the meeting. Except as may be otherwise provided by law, a determination
of shareholders entitled to notice of or to vote at a meeting of shareholders is
effective for any adjournment of such meeting unless the Board of Directors
fixes a new Meeting Record Date, which it shall do if the meeting is postponed
or adjourned to a date more than 120 days after the date fixed for the original
meeting.
Section 6. SHAREHOLDER LISTS. After a record date has been fixed for a
meeting of shareholders, the Secretary or agent having charge of the shareholder
record shall prepare a list of the names of all of the shareholders who are
entitled to notice of the meeting. The list shall be arranged by class or series
of shares and shall show the address of and number of shares held by each
shareholder. The corporation shall make the shareholders' list available for
inspection by any shareholder, beginning 2 business days after notice of the
meeting is given for which the list was prepared and continuing to the date of
the meeting, at the corporation's principal office or at a place identified in
the meeting notice in the city where the meeting will be held. The corporation
shall make the shareholders' list available at the meeting, and any shareholder
or his or her agent or attorney may inspect the list at any time during the
meeting or any adjournment. Refusal or failure to prepare or make available the
shareholders' list does not affect the validity of action taken at the meeting.
Section 7. QUORUM; POSTPONEMENTS; ADJOURNMENTS.
(a) Except as otherwise provided by law or by the Restated
Articles of Incorporation, when specified business is to be voted upon by one or
more classes or series of shares entitled to vote as a separate voting group,
the holders of shares representing a majority of the votes entitled to be cast
on the matter by the voting group shall constitute a quorum of that voting group
for the transaction of such business. Once a share is represented for any
purpose at a meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered present, for
purposes of determining whether a quorum exists, for the remainder of the
meeting and for any adjournment of that meeting unless a new Meeting Record Date
is or must be set for that adjourned meeting.
(b) The Board of Directors acting by resolution may postpone
and reschedule any previously scheduled Annual Meeting or Special Meeting;
provided, however, that a Demand Special Meeting shall not be postponed beyond
the 100th day following the Delivery Date. Any Annual Meeting or Special Meeting
may be adjourned from time to time, whether or not there is a quorum, (i) at any
time, upon a resolution of shareholders if the votes cast in favor of such
resolution by the holders of shares of each voting group entitled to vote on any
matter theretofore properly brought before the meeting exceed the number of
votes cast against such resolution by the holders of shares of each such voting
group or (ii) at any time prior to the transaction of any business at such
meeting, by the Chairman of the Board or pursuant to resolution of the Board of
Directors. No notice of the time and place of adjourned meetings need be given
except as required by law. At any adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 8. PROXIES. At all the meetings of shareholders, a shareholder
entitled to vote may vote his or her shares in person or by proxy. A shareholder
may appoint a proxy to vote or otherwise act for the shareholder by signing an
appointment form, either personally or by his or her attorney-in-fact. An
appointment of a proxy is effective when received by the secretary or other
officer or agent of the corporation authorized to tabulate votes. An appointment
is valid for 11 months from the date of its signing unless a different period is
expressly provided in the appointment form.
Section 9. VOTING OF SHARES. Except as otherwise provided by law or by
the Articles of Incorporation, holders of Common Stock and holders of Preferred
Stock shall be entitled to one vote for each share of each such class held on
all questions on which shareholders are entitled to vote, and the holders of
Common Stock and the holders of Preferred Stock shall vote together as one
class.
Section 10. ACCEPTANCE OF INSTRUMENTS SHOWING SHAREHOLDER ACTION. If
the name signed on a vote, waiver or proxy appointment does not correspond to
the name of its shareholder, the corporation may accept the vote, waiver or
proxy appointment and give it effect as the act of the shareholder if any of the
following apply:
(a) The shareholder is an entity and the name signed purports
to be that of an officer or agent of the entity.
(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the shareholder
and, if the corporation requests, evidence of fiduciary status acceptable to the
corporation is presented with respect to the vote, waiver or proxy appointment.
<PAGE>
(c) The name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation is presented with respect
to the vote, waiver or proxy appointment.
(d) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the corporation
requests, evidence acceptable to the corporation of the signatory's authority to
sign for the shareholder is presented with respect to the vote, waiver or proxy
appointment.
(e) Two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
Section 11. WAIVER OF NOTICE BY SHAREHOLDERS. A shareholder may waive
any notice whatever required to be given to any shareholder of the corporation
under the Articles of Incorporation or By-Laws or any provision of law, by a
waiver thereof in writing, signed at any time, whether before or after the date
and time stated in the notice, by the shareholder entitled to such notice;
provided that such waiver shall contain the same information as would have been
required to be included in such notice under any applicable provisions of
Chapter 180, Wisconsin Statutes, except the time and place of meeting, and shall
be delivered to the corporation for inclusion in the corporate records. A
shareholder's attendance at a meeting, in person or by proxy, waives objection
to the following: (a) lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting or promptly upon arrival objects
to holding the meeting or transacting business at the meeting; and (b)
consideration of a particular matter at the meeting that is not within the
purpose described in the meeting notice, unless the shareholder objects to
considering the matter when it is presented.
Section 12. VALIDITY OF PROXIES, ETC. The Corporation or its authorized
officers, agents or other representatives may reject a vote, waiver, proxy
appointment, request to fix a Demand Record Date or demand for a Special Meeting
if the Secretary or other duly authorized officer or agent of the Corporation,
acting in good faith, has reasonable basis for doubt about the validity of the
signature or signatures on it, about the signatory's authority to sign for the
shareholder or about any other matter affecting the validity of such vote,
waiver, proxy appointment, request or demand.
Section 13. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATION OF DIRECTORS.
(a) Annual Meetings of Shareholders.
(i) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to
be considered by the shareholders may be made at an Annual
Meeting (A) pursuant to the Corporation's notice of meeting,
(B) by or at the direction of the Board of Directors or (C) by
any shareholder of the Corporation who is a shareholder of
record at the time of giving of notice provided for in this
By-Law, is entitled to vote at the meeting and complies with
the notice procedures set forth in this Section 13.
(ii) To be timely, a shareholder's notice shall be
received by the Secretary of the Corporation at the principal
executive offices of the Corporation not less than 45 days nor
more than 75 days prior to the month and day in the current
year corresponding to the date on which the Corporation first
mailed its proxy materials for the prior year's annual meeting
of shareholders; provided, however, that in the event that the
date of the Annual Meeting is advanced by more than 30 days or
delayed by more than 60 days from the fourth Wednesday in the
month of January, notice by the shareholder to be timely must
be so received not earlier than the 90th day prior to the date
of such Annual Meeting and not later than the close of
business on the later of (x) the 60th day prior to such Annual
Meeting and (y) the 10th day following the day on which the
public announcement of the date of such meeting is first made.
(iii) Notwithstanding anything in the second sentence of
paragraph (a)(ii) of this Section 13 to the contrary, in the
event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no
public announcement naming all of the nominees for Director or
specifying the size of the increased Board of Directors made
by the Corporation at least 70 days prior to the fourth
Tuesday in the month of January, a shareholder's notice
required by this Section 13 shall also be considered timely,
but only with respect to nominees for any new positions
<PAGE>
created by such increase, if it shall be received by the
Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th
day following the day on which such public announcement is
first made by the Corporation.
(b) Special Meetings of Shareholders. Only such business shall
be conducted at a Special Meeting as shall have been described in the notice of
meeting sent to shareholders pursuant to Article II, Section 4 of the By-Laws.
Nominations of persons for election to the Board of Directors may be made at a
Special Meeting at which directors are to be elected pursuant to such notice of
meeting (i) by or at the direction of the Board of Directors or (ii) by any
shareholder of the Corporation who (A) is a shareholder of record at the time of
giving of such notice of meeting, (B) is entitled to vote at the meeting and (C)
complies with the notice procedures set forth in this Section 13. Any
shareholder desiring to nominate persons for election to the Board of Directors
at such a Special Meeting shall cause a written notice to be received by the
Secretary of the Corporation at the principal executive offices of the
Corporation not earlier than 90 days prior to such Special Meeting and not later
than the close of business on the later of (x) the 60th day prior to such
Special Meeting and (y) the 10th day following the day on which public
announcement is first made of the date of such Special Meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. Such
written notice shall be signed by the shareholder of record who intends to make
the nomination (or his duly authorized proxy or other representative), shall
bear the date of signature of such shareholder (or proxy or other
representative) and shall set forth: (A) the name and address, as they appear on
the Corporation's books, of such shareholder and the beneficial owner or owners,
if any, on whose behalf the nomination is made; (B) the class and number of
shares of the Corporation which are beneficially owned by such shareholder or
beneficial owner or owners; (C) a representation that such shareholder is a
holder of record of shares of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to make the
nomination specified in the notice; (D) the name and residence address of the
person or persons to be nominated, (E) a description of all arrangements or
understandings between such shareholder or beneficial owner or owners and each
nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination is to be made by such shareholder, (F) such other
information regarding each nominee proposed by such shareholder as would be
required to be disclosed in solicitations of proxies for elections of directors,
or would be otherwise required to be disclosed, in each case pursuant to
Regulation 14A under the Exchange Act, including any information that would be
required to be included in a proxy statement filed pursuant to Regulation 14A
had the nominee been nominated by the Board of Directors and (G) the written
consent of each nominee to be named in a proxy statement and to serve as a
director of the Corporation if so elected.
(c) General.
(i) Only persons who are nominated in accordance with the
procedures set forth in this Section 13 shall be eligible to
serve as directors. Only such business shall be conducted at a
meeting of shareholders as shall have been brought before the
meeting in accordance with the procedures set forth in this
Section 13. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in
accordance with the procedures set forth in this Section 13
and, if any proposed nomination or business is not in
compliance with this Section 13, to declare that such
defective proposal shall be disregarded.
(ii) For purposes of this Section 13, "public
announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.
(iii) Notwithstanding the foregoing provisions of this
Section 13, a shareholder shall also comply with all
applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth
in this Section 13. Nothing in this Section 13 shall be deemed
to limit the Corporation's obligation to include shareholder
proposals in its proxy statement if such inclusion is required
by Rule 14a-8 under the Exchange Act.
Section 14. CONDUCT OF MEETING. The Chairman of the Board of Directors,
and in his absence (or if no person then holds such office), the President, and
in his absence, any officer or director designated by the President, and in his
absence, a Vice President in the order provided under Section 6 of Article IV of
the By-Laws, and in their absence, any person chosen by the shareholders present
shall call any Annual Meeting or Special Meeting to order and shall act as
chairman of the meeting, and the Secretary of the Corporation shall act as
<PAGE>
secretary of all meetings of the shareholders, but, in the absence of the
Secretary, the presiding officer may appoint any other person to act as
secretary of the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. NUMBER AND TENURE QUALIFICATIONS. All corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
corporation managed under the direction of a Board of twelve directors divided
into three classes, to consist of three classes with four members each, and the
term of office of one class shall expire at each annual meeting. At each annual
meeting, the number of directors equal to the number of the class whose term
expires at the time of such meeting shall be elected to hold office until the
third succeeding annual meeting. Each director shall hold office for the term
for which he is elected and until his death or until he shall resign or shall
have been removed from office. Any director may be removed from office by
shareholders prior to the expiration of his or her term, but only (i) at a
special meeting called for the purpose of removing the director, (ii) by the
affirmative vote of the number of outstanding shares set forth in the Restated
Articles of Incorporation and (iii) for cause as hereinafter defined; provided,
however, that, if the Board of Directors, by resolution adopted by the Requisite
Vote (as hereinafter defined), shall have recommended removal of a director,
then the shareholders may remove such director without cause by the vote
referred to above. As used herein, "cause" shall exist only if the director
whose removal is proposed has been convicted of a felony by a court of competent
jurisdiction, where such conviction is no longer subject to direct appeal, or
has been adjudged liable for actions or omissions in the performance of his or
her duty to the Corporation in a matter which has a materially adverse effect on
the business of the Corporation, where such adjudication is no longer subject to
appeal. As used herein, the term "Requisite Vote" shall mean the affirmative
vote of at least two-thirds of the directors then in office plus one director. A
director may resign at any time by delivering written notice to the chairperson
of the Board of Directors or to the corporation. A resignation is effective when
the notice is delivered unless the notice specifies a later effective date. Any
action by the Board of Directors, other than pursuant to a Requisite Vote, or
shareholders eliminating the requirement to establish cause for the removal of a
director shall not operate to eliminate such requirement with respect to any
director incumbent at the time of such action. The Board of Directors, at the
regular meeting thereof held immediately after the annual meeting of
shareholders, may elect one of its members to act as its Chairman until his
successor is elected or his prior death, resignation or removal; and such
Chairman shall, when present, preside at all meetings of the Board of Directors
and perform all such other duties as may be prescribed by the Board from time to
time.
Section 2. REGULAR MEETINGS. A regular meeting of the Board of
Directors of the Corporation shall be held without notice other than this By-Law
immediately after, and at the same place as the annual meeting of the
shareholders and each adjourned session thereof. The Board of Directors may
provide, by resolution, the time and place either within or without the State of
Wisconsin for the holding of additional regular meetings without notice other
than such resolution.
Section 3. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, Chief Executive
Officer, Secretary, or any two directors. The person or persons authorized to
call special meetings of the Board of Directors may fix the time and place,
either within or without the State of Wisconsin, for the holding of any special
meeting of the Board of Directors called by them.
Section 4. NOTICE. Notice of any special meeting shall be given at
least six hours previously thereto orally or in writing to each director at his
business address; provided that if notice is given by mail or private carrier
only, it shall be given at least forty-eight hours prior to such meeting.
Whenever any notice whatever is required to be given to any director of the
corporation under the Articles of Incorporation or By-Laws or any provision of
law, a waiver thereof in writing, signed at any time, whether before or after
the time of the meeting, by the director entitled to such notice and retained by
the corporation, shall be deemed equivalent to the giving of such notice. The
attendance of a director at or participation in a meeting shall constitute a
waiver of notice of such meeting, unless the director at the beginning of the
meeting or promptly upon his or her arrival objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 5. QUORUM. Except as otherwise provided by law or by the
Articles of Incorporation or these By-Laws a majority of the number of directors
fixed by Section 1 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors.
Notwithstanding the foregoing, if less than such majority is present at a
meeting, a majority of the directors present may adjourn the meeting from time
to time
<PAGE>
without further notice other than by announcement at the meeting if the
adjournment shall be to the following day, but if the meeting shall be adjourned
to a date later than the following day, notice of such adjourned meeting shall
be duly given to each director not less than six hours before the time set for
such adjourned meeting; provided that if notice is given by mail or private
carrier only, it shall be given not less than forty-eight hours before the time
set for such adjourned meeting.
Section 6. MANNER OF ACTING. If a quorum is present when a vote is
taken, the affirmative vote of a majority of directors present shall be the act
of the Board of Directors, unless the act of a greater number is required by law
or by the Articles of Incorporation or these By-Laws.
Section 7. VACANCIES. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled by any of the following: (i) the shareholders, (ii) the Board of
Directors or (iii) if the directors remaining in office constitute fewer than a
quorum of the Board, the directors, by the affirmative vote of a majority of all
directors remaining in office; provided, however, that if the vacant office was
held by a director elected by a voting group of shareholders, only the holders
of shares of that voting group may vote to fill the vacancy if it is filled by
the shareholders, and only the remaining directors elected by that voting group
may vote to fill the vacancy if it is filled by the directors. Any director
elected pursuant to this Section 7 shall serve until the next election of the
class of which such director shall have been chosen and until his or her
successor shall be duly elected and qualified.
Section 8. COMPENSATION. The Board of Directors, irrespective of any
personal interest of any of its members, may establish compensation of all
directors for services to the corporation as directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for pensions, disability or death benefits,
and other benefits or payments, to directors, officers and employees and to
their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the corporation.
Section 9. PRESUMPTION OF ASSENT. A director of the corporation who is
present and is announced as present at a meeting of the Board of Directors or a
committee thereof at which action on any corporate matter is taken assents to
the action taken unless any of the following occurs: (i) the director objects at
the beginning of the meeting or promptly upon his or her arrival to the holding
of the meeting or transacting business at the meeting; (ii) minutes of the
meeting are prepared and the director's dissent from the action taken is entered
in those minutes; or (iii) the director delivers written notice of his or her
dissent or abstention to the presiding officer of the meeting before its
adjournment or to the corporation immediately after adjournment of the meeting.
Such right to dissent or abstain shall not apply to a director who voted in
favor of such action.
Section 10. COMMITTEES. The Board of Directors by resolution approved
by a majority of all the directors in office when the action is taken (if a
quorum of the directors is present and acting) may designate one or more
committees, including an executive committee, each committee to consist of two
or more directors elected by the Board of Directors, which to the extent
provided in said resolution as initially adopted, and as thereafter supplemented
or amended by further resolution adopted by a like vote, shall have and may
exercise, when the Board of Directors is not in session, the authority of the
Board of Directors in the management of the business and affairs of the
corporation, except that a committee may not do any of the following: (i)
authorize distributions; (ii) approve or propose to shareholders action that
Chapter 180, Wisconsin Statutes, requires be approved by shareholders; (iii)
fill vacancies on the Board of Directors or, unless the Board of Directors
provides by resolution that any vacancies on a committee shall be filled by the
affirmative vote of a majority of the remaining committee members, on any of its
committees; (iv) amend the corporation's Articles of Incorporation; (v) adopt,
amend or repeal by-laws; (vi) approve a plan of merger not requiring shareholder
approval; (vii) authorize or approve reacquisition of shares, except according
to a formula or method prescribed by the Board of Directors or (viii) authorize
or approve the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares, except that the Board of Directors may authorize a committee
or a senior executive officer of the corporation to do so within limits
prescribed by the Board of Directors. Unless otherwise provided by the Board of
Directors, members of a committee shall serve at the pleasure of the Board of
Directors. The Board of Directors may elect one or more of its members as
alternate members of any such committee who may take the place of any absent
member or members at any meeting of such committee, upon request by the Chief
Executive Officer or upon request by the chairman of such meeting. Subject to
any provision of law and these By-Laws, each such committee shall fix its own
rules governing the conduct of its activities and shall make such reports to the
Board of Directors of its activities as the Board of Directors may request.
Section 11. INFORMAL ACTION WITHOUT MEETING. Any action required or
permitted by the Articles of Incorporation or By-Laws or any provision of law to
be taken by the Board of Directors at a meeting may
<PAGE>
be taken without a meeting if the action is taken by all members of the Board,
and the action is evidenced by one or more written consents describing the
action taken, signed by each director and retained by the corporation.
Section 12. TELEPHONIC MEETINGS. Except as herein provided and
notwithstanding any place set forth in the notice of the meeting or these
By-Laws, the Board of Directors (and any committees thereof) may participate in
a regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all participating directors may simultaneously
hear each other during the meeting, including a conference telephone call. If a
meeting is conducted through the use of such means, all participating directors
shall be informed that a meeting is taking place at which official business may
be transacted. Any participant in a meeting by such means shall be deemed
present in person at such meeting. If action is to be taken at any meeting held
by such means on (i) a plan of merger or share exchange; (ii) a sale, lease,
exchange or other disposition of substantial property or assets of the
corporation; (iii) a voluntary dissolution or the revocation of voluntary
dissolution proceedings; or (iv) a filing for bankruptcy, then the identity of
each director participating in such meeting must be verified by the disclosure
of each such director's social security number to the chairman of the meeting or
in such other manner as such chairman deems reasonable under the circumstances
before a vote may be taken on any of the foregoing matters. For purposes of the
preceding clause (ii), the phrase "substantial property or assets" shall mean
property or assets of the corporation having a net book value on the date of
such meeting equal to 10% or more of the net book value of all of the
consolidated property and assets of the corporation on and as of the close of
the fiscal year last ended prior to the date of such meeting. Notwithstanding
the foregoing, no action may be taken at any meeting held by such means on any
particular matter which the Chairman of the Board (or chairman of the committee)
determines, in his or her discretion, to be inappropriate under the
circumstances for action at a meeting held by such means, such determination to
be made and announced in the notice of such meeting.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The principal officers of the corporation shall be a
Chairman of the Board of Directors (said office to exist at such times as the
Board of Directors shall deem advisable), a President, one or more Vice
Presidents, a Secretary, and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors or, to the
extent authorized by the Board of Directors or by these By-Laws, by a duly
appointed officer of the Corporation. Any two or more offices may be held by the
same person. The Chairman of the Board, if any, and the President shall be
chosen from among the Board of Directors; the other officers need not be
directors.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
to be elected by the Board of Directors shall be elected annually at the first
meeting of the Board of Directors following the annual meeting of shareholders.
If the election of officers shall not be held at such meeting, such election
shall be held as soon thereafter as conveniently may be. Each officer shall hold
office until his successor shall have been duly elected or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
Section 3. RESIGNATION. An officer may resign at any time by delivering
written notice to the corporation. The resignation is effective when the notice
is delivered, unless the notice specifies a later effective date and the
corporation accepts the later effective date.
Section 4. REMOVAL. The Board of Directors may remove any officer and,
unless restricted by the By-Laws or by the Board of Directors, an officer may
remove any officer or assistant officer appointed by that officer, at any time,
with or without cause and notwithstanding the contract rights, if any, of the
officer removed. The appointment of an officer does not itself create contract
rights.
Section 5. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control the business and affairs of
the corporation. He shall have authority, subject to such rules as may be
prescribed by the Board of Directors, to appoint such agents and employees of
the corporation as he shall deem necessary, to prescribe their powers, duties,
and compensation and to delegate authority to them. He shall also have authority
to appoint one or more Assistant Secretaries of the Corporation from time to
time for limited purposes, which he shall do by giving the Secretary notice of
any such appointment. Such agents, employees and officers shall hold office at
the discretion of the President. He shall have authority to sign, execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock
certificates, contracts, leases, reports and all other documents or instruments
necessary or proper to be executed in the course of the corporation's regular
business, or which shall be authorized by resolution of the Board of Directors,
and, except as otherwise provided by law or the Board of Directors, he may
authorize any
<PAGE>
Vice President or other officer or agent of the corporation to sign, execute and
acknowledge such documents or instruments in his place and stead. In general, he
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors or by the Executive
Committee from time to time. In the absence of the Chairman of the Board, or the
event of his death, inability or refusal to act, the President shall preside at
meetings of the shareholders and of the Board of Directors.
Section 6. THE VICE PRESIDENTS. Any Vice President may sign deeds,
mortgages, stock certificates, contracts and other instruments in the absence of
the President and the execution of any instrument by any Vice President shall be
conclusive evidence of the absence of the President at the time of execution of
such instrument. The Vice Presidents shall perform such duties as usually
devolve upon such office and as may from time to time be assigned to them by the
Board of Directors or by the Executive Committee or by the Chief Executive
Officer.
At the request of the President, or in his absence or disability, the
Vice President designated by the President (or in the absence of such
designation, the Vice President designated by the Board of Directors or
Executive Committee or Chairman of the Board) shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President.
Section 7. THE SECRETARY. The Secretary shall: (a) keep as permanent
records any of the following that has been prepared: minutes of the
shareholders' and of the Board of Directors' meetings; records of actions taken
by the shareholders or the Board of Directors without a meeting; and records of
actions taken by a committee of the Board of Directors in place of the Board of
Directors and on behalf of the Corporation; (b) see that all notices are duly
given in accordance with the provisions of these by-laws or as required by law;
(c) be custodian of the corporate records and of the seal of the corporation and
see that the seal of the corporation is affixed to all documents the execution
of which on behalf of the corporation under its seal is duly authorized; (d)
maintain or cause an authorized agent to maintain a record of the corporation's
shareholders, in a form that permits preparation of a list of the names and
addresses of all shareholders, by class or series of shares and showing the
number and class or series of shares held by each shareholder; (e) sign with the
Chairman or the President, or a Vice President, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the corporation; and (g) in general perform all duties incident to the office of
Secretary and have such other duties and exercise such authority as from time to
time may be delegated or assigned to him by the Chief Executive Officer or by
the Board of Directors.
Section 8. THE TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine.
Subject to the review of and approval by the Chief Financial Officer of all acts
affecting his duties and responsibilities as Treasurer, he shall: (a) have
charge and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such banks, trust companies or other depositaries as shall
be selected in accordance with the provisions of Article V of these By-Laws; (b)
maintain appropriate accounting records for the Corporation; and (c) in general
perform all of the duties incident to the office of Treasurer and have such
other duties and exercise such other authority as from time to time may be
delegated or assigned to him by the Chief Executive Officer or by the Board of
Directors.
Section 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. There shall
be such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize and as these By-Laws or the Board of
Directors may from time to time authorize a duly appointed officer to appoint.
The Assistant Secretaries may sign with the President or a Vice President
certificates for shares of the corporation the issuance of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Treasurers
shall respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties and have such authority as
shall from time to time be delegated or assigned to them by the Secretary or the
Treasurer, respectively, or by the Chief Executive Officer or the Board of
Directors.
Section 10. OTHER ASSISTANTS AND ACTING OFFICERS. The Board of
Directors shall have the power to appoint any person to act as assistant to any
officer, or to perform the duties of such officer whenever for any reason it is
impracticable for such officer to act personally, and such assistant or acting
officer so appointed by the Board of Directors shall have the power to perform
all the duties of the office to which he is so appointed to be assistant, or as
to which he is so appointed to act, except as such power may be otherwise
defined or restricted by the Board of Directors.
<PAGE>
Section 11. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
CONTRACTS LOANS, CHECKS
AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances.
Section 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by or under the authority of a resolution of the Board of Directors.
Such authorization may be general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation, and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositaries as may be selected by or
under the authority of the Board of Directors.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman, the President or a
Vice President and by the Secretary or an Assistant Secretary and shall be
sealed with the seal of the corporation or a facsimile thereof. Such signatures
upon a certificate may be facsimiles if the certificate is countersigned by the
transfer agent, or registered by a registrar, other than the corporation itself
or an employee of the corporation. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of its
issue. All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a lost,
destroyed, or mutilated certificate a new one may be issued therefore upon such
terms and indemnity to the corporation as the Board of Directors may prescribe.
Section 2. UNCERTIFIED SHARES. The Board of Directors hereby authorizes
the issuance of any shares of its classes or series without certificates to the
full extent that the Secretary of the corporation determines that such issuance
is allowed by applicable law and rules of the New York Stock Exchange, any such
determination to be conclusively evidenced by the delivery to the corporation's
transfer agent and registrar by the Secretary of a certificate referring to this
bylaw and providing instructions of the Secretary to the transfer agent and
registrar to issue any such shares without certificates in accordance with
applicable law. In any event, the foregoing authorization does not affect shares
already represented by certificates until the certificates are surrendered to
the corporation.
Section 3. TRANSFER OF SHARES. Transfer of shares of the corporation
shall be made on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation and on
surrender for cancellation of the certificate for such
<PAGE>
shares if such shares are represented by certificates. The person in whose name
shares stand on the books of the corporation shall be deemed by the corporation
to be the owner thereof for all purposes.
The Board of Directors may appoint a registrar and/or transfer agent
for any stock of the corporation and may provide that all certificates of stock
issued be countersigned by such registrar and/or transfer agent.
Section 4. STOCK REGULATIONS. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with the statutes of the State of Wisconsin as they may deem
expedient concerning the issue, transfer and registration of certificates
representing shares of the corporation.
ARTICLE VII
SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the words "JOHNSON CONTROLS,
INC., MILWAUKEE, WIS." around the circumference, and the words, "CORPORATE SEAL"
in the center.
ARTICLE VIII
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. The affirmative vote of
shareholders possessing at least four-fifths of the voting power of the then
outstanding shares of all classes of stock of the Corporation generally
possessing voting rights in elections for directors, considered for this purpose
as one class (subject to the rights of holders of any class or series of stock
having a preference over the Common Stock of the Corporation as to dividends or
upon liquidation), shall be required to amend, alter, change or repeal Sections
4 and 13 of Article II of these By-Laws; Sections 1 and 7 of Article III of
these By-Laws; Section 2 of Article VIII of these By-Laws; and this Section, or
any provision of any of the foregoing. Subject to the foregoing and to any other
restriction contained in any specific By-Law, these By-Laws or any provision
hereof may be altered, amended or repealed by vote of the holders of a majority
interest of the stock of the corporation present or represented at a meeting of
the shareholders, annual or special (at which a quorum shall be present), where
the proposed action is properly brought before the meeting.
Section 2. AMENDMENT BY DIRECTORS. A Requisite Vote, as defined in
Section 1 of Article III of these By-Laws, shall be required to amend, alter,
change or repeal Sections 4 and 13 of Article II of these By-Laws; Sections 1
and 7 of Article III of these By-Laws; Section 1 of Article VIII of these
By-Laws; and this Section, or any provision of any of the foregoing. Subject to
the foregoing, to action by the shareholders prohibiting the exercise of such
power generally or in particular instances and to any restriction contained in
any Specific By-Law, the Board of Directors may alter, amend, or repeal these
By-Laws or any provision hereof or may enact additional By-Laws by a vote of the
majority of the whole Board at any meeting of the Board.
By-Laws altered, amended, repealed or enacted by the directors under
the power hereby conferred may be altered or repealed by the shareholders at any
annual meeting or at any special meeting thereof.
ARTICLE IX
NOTICES
Except as otherwise required by law or these By-Laws, any notice
required to be given by these By-Laws may be given orally or in writing, and
notice may be communicated in person, by telephone, telegraph, teletype,
facsimile or other form of wire or wireless communication, or by mail or private
carrier. Except where these By-Laws require a notice to be delivered to or
received by the recipient of the notice, written notice required to be given by
these By-Laws is effective, if communicated (i) by mail, when deposited in the
United States, if mailed postpaid and correctly addressed, (ii) by private
carrier, when delivered to the carrier, and (iii) by telegram, when the telegram
is delivered to the telegraph company.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>4
<FILENAME>c73453exv12.txt
<DESCRIPTION>COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TEXT>
<PAGE>
EXHIBIT 12
JOHNSON CONTROLS, INC.
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
For the Year Ended
September 30, 2002
---------------------------------
<S> <C>
Net income $600.5
Provision for income taxes 347.6
Minority interests in net earnings of subsidiaries 57.9
Income from equity affiliates (37.9)
Distributed income of equity affiliates 13.3
Amortization of previously capitalized interest 6.7
Other (1.1)
------------
987.0
------------
Fixed charges:
Interest incurred and amortization of debt expense 135.4
Estimated portion of rent expense 65.7
------------
Fixed charges 201.1
Less: Interest capitalized during the period (10.0)
------------
191.1
------------
Earnings $1,178.1
============
Ratio of earnings to fixed charges 5.9
============
</TABLE>
For the purpose of computing this ratio, "earnings" consist of income from
continuing operations before income taxes, minority interest in consolidated
subsidiaries and income or loss from equity affiliates, plus (a) distributed
income of equtiy affiliates, (b) amortization of previously capitalized interest
and (c) fixed charges, minus interest capitalized during the period. "Fixed
charges" consist of (a) interest incurred and amortization of debt expense plus
(b) the portion of rent expense representative of the interest factor.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>5
<FILENAME>c73453exv13.txt
<DESCRIPTION>2002 ANNUAL REPORT TO SHAREHOLDERS
<TEXT>
<PAGE>
EXHIBIT 13
JOHNSON CONTROLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
This discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity of the Company for the
three-year period ended September 30, 2002. This discussion should be read in
conjunction with the Letter to Shareholders, Consolidated Financial Statements
and Notes to Consolidated Financial Statements included elsewhere in this annual
report.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets," effective October 1, 2001. Accordingly,
all comparisons of the three-year period assume SFAS No. 142 had been adopted
October 1, 1999. See Note 4 to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Common Stock Price Range Dividends
- --------------------------------------------------------------------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $64.05-82.70 $46.44-60.00 $ .33 $ .31
Second Quarter 75.00-92.94 51.94-70.37 .33 .31
Third Quarter 75.75-93.20 61.51-75.80 .33 .31
Fourth Quarter 71.66-87.98 54.90-81.70 .33 .31
- --------------------------------------------------------------------------------
Year $64.05-93.20 $46.44-81.70 $ 1.32 $ 1.24
- --------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
Fiscal 2002 Compared to Fiscal 2001
SALES Consolidated net sales reached a record $20.1 billion in fiscal 2002, nine
percent higher than the prior year sales of $18.4 billion. Both of the Company's
business segments achieved sales growth over the prior year.
Automotive Systems Group sales were $15.0 billion for the year ended September
30, 2002, an increase of 10 percent compared to the prior year's sales of $13.6
billion. In North America, automotive interior systems sales grew four percent,
in line with the increase in industry vehicle production. Growth from new
business involving seating, instrument panel, overhead, door and electronic
systems was partially offset by lower pricing. Automotive battery sales in North
America exceeded the prior year by nine percent, due primarily to new business
and higher unit shipments to the Company's aftermarket customers who continue to
gain share in the battery replacement market. The segment's European sales rose
24 percent, benefiting from the October 1, 2001 acquisitions of an automotive
electronics business and a battery business (see Note 1 to the Consolidated
Financial Statements). Excluding the electronics business acquisition and the
favorable impact of currency translation, automotive interior systems sales in
Europe were four percent above the prior year, due primarily to the launch of
new business. This compares favorably to the slight year-over-year decline in
European industry vehicle production. Segment sales in other geographic markets,
which represent less than 10 percent of Automotive Systems Group sales,
increased modestly compared to the prior year.
Controls Group sales of $5.1 billion for the current fiscal year increased six
percent from the prior year's $4.8 billion. North American sales were eight
percent above the prior year, driven by new facility management and systems
installation contract activity. Controls Group sales in Europe rose 24 percent
over the prior year, reflecting the acquisition of a systems and services
business in Europe in the third quarter of fiscal 2001 (see Note 1 to the
Consolidated Financial Statements), new facility management contract activity
and the favorable effects of currency translation. Segment sales in other
geographic markets were down 31 percent compared to the prior year, due
primarily to the deconsolidation of a Japanese facility management services
joint venture in the fourth quarter of 2001 and the negative effects of currency
translation. Orders of installed control systems for the year ended September
30, 2002 exceeded the prior year and were strongest from the North American
education, healthcare and U.S. Federal Government sectors.
Management anticipates Automotive Systems Group sales in fiscal 2003 to exceed
fiscal 2002 by 5 to 10 percent, assuming automotive industry production in North
America declines slightly from the 2002 level of 16.3 million vehicles and
European automotive industry production increases slightly. The projected
segment results reflect new automotive interiors programs in North America and
Europe, continued growth in automotive battery sales and the Company's
acquisition of the automotive battery business of Varta AG in Europe (see Note
16 to the Consolidated Financial Statements). At September 30, 2002, the
Automotive Systems Group had an incremental backlog of new orders for its
interior systems to be executed within the
JOHNSON CONTROLS, INC.
<PAGE>
next fiscal year of approximately $1.0 billion. The automotive backlog is
generally subject to a number of risks and uncertainties, such as related
vehicle production volumes and the timing of related production launches.
Fiscal 2003 sales for the Controls Group segment are expected to increase
approximately five percent compared to fiscal 2002. Higher sales of integrated
control systems and continued growth in systems installation and technical
service activity will be partially offset by lower facility management service
revenues. At September 30, 2002, the unearned backlog of installed control
systems contracts (excluding service contracts) was $1.65 billion, the majority
of which will be executed within the next fiscal year. The increase from the
prior year's $1.49 billion was primarily due to increased orders in the North
American new construction and existing buildings markets.
OPERATING INCOME Consolidated operating income of $1.1 billion for fiscal 2002
was nine percent above the prior year's $1.0 billion. Both of the Company's
segments contributed to the higher earnings, with the majority of the increase
attributable to the Automotive Systems Group.
The Automotive Systems Group's operating income rose to $863 million, 11 percent
above the prior year's $780 million. The majority of the segment's increase was
due to a higher gross profit percentage in North America, resulting from
operational efficiencies associated with quality improvements and cost
reductions including the benefits of the Company's continued Six Sigma projects.
In Europe, the increase in operating income associated with the current year's
automotive electronics business acquisition was more than offset by higher cost
of sales due to new program launches and higher selling, general and
administrative (SG&A) expenses resulting from additional engineering in the
current year. South American automotive operations incurred a small loss due to
reduced customer production schedules. Operating income in Asia was above the
prior year as a result of significant cost reduction initiatives in Japan.
Operating income for the Controls Group of $259 million was three percent above
the prior year amount of $252 million. The increase in operating income
resulting from higher sales in the current year was partially offset by the
resolution of scope issues on certain facility management contracts and
increased SG&A expenses involving higher systems integration and marketing
costs.
For 2003, the Automotive Systems Group's operating income as a percentage of
sales is expected to approximate the 2002 level. Improvements in operational
efficiencies are expected to be offset by increased healthcare, pension and
insurance costs. In addition, the Company anticipates higher launch costs and
expenses related to manufacturing facility changes. The Automotive Systems Group
has supply agreements with certain of its customers that provide for annual
productivity price reductions and, in some instances, for the recovery of
material and labor cost increases. The segment has historically been able to
significantly offset any sales price changes with cost reductions from design
changes, productivity improvements and similar programs with its own suppliers.
[NET SALES BARCHART]
Management anticipates Controls Group operating income as a percentage of sales
will increase slightly in fiscal 2003. This expectation is based on growth in
higher margin controls offerings which will more than offset increased
healthcare, pension and insurance costs.
OTHER INCOME/EXPENSE Interest expense less interest income of $110 million was
level with the prior year as the impact of slightly higher debt levels was
offset by the current year's lower rates. Equity income of $38 million was $6
million above the prior year. Higher earnings from automotive interior systems
joint ventures in Europe and Asia were partially offset by lower results at
certain North American interior systems joint ventures and Controls Group joint
ventures in Asia. Miscellaneous - net expense of $44 million increased from $16
million in the prior year. The additional expense in 2002 reflects the current
year's foreign currency related charges and a net loss on asset disposals.
PROVISION FOR INCOME TAXES The effective income tax rate for the year ended
September 30, 2002 was 34.6 percent compared with last year's 36.6 percent. The
effective rate for the fiscal year approximated the combined domestic federal
and state statutory rate reduced by lower foreign effective rates resulting from
the benefits of global tax planning initiatives. The Company expects the
effective tax rate in fiscal 2003 to decline to 31.0 percent as the Company
continues to benefit from global tax planning initiatives.
JOHNSON CONTROLS, INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONTINUED
MINORITY INTERESTS IN NET EARNINGS OF SUBSIDIARIES Minority interests in net
earnings of subsidiaries were $58 million compared with the prior year's $53
million. Higher earnings from Automotive Systems Group subsidiaries in North
America and Europe were partially offset by the effects of the deconsolidation
of a Controls Group joint venture in Japan during the fourth quarter of fiscal
2001 and the acquisition of the remaining interest in Yokogawa Johnson Controls
Corporation (See Note 1 to the Consolidated Financial Statements) in the third
quarter of fiscal 2002.
NET INCOME Net income rose 11 percent in 2002 to $601 million as a result of
increased operating income and the reduced effective income tax rate, partially
offset by higher miscellaneous - net expense. Diluted earnings per share for
fiscal 2002 were $6.35, 10 percent above the prior year's $5.79.
Fiscal 2001 Compared to Fiscal 2000
SALES Consolidated net sales for fiscal 2001 rose to $18.4 billion, an increase
of seven percent compared with the prior year's $17.2 billion. The effect of
currency translation, primarily associated with the euro, reduced consolidated
net sales by four percent, or approximately $600 million.
Automotive Systems Group sales for the year ended September 30, 2001 were $13.6
billion, seven percent higher than the prior year's sales of $12.7 billion.
Automotive interior systems sales in North America declined by one percent, the
result of significantly lower vehicle production schedules in 2001. New
automotive interiors programs and customer diversification helped mitigate the
Company's exposure to the 11 percent decline in the North American industry's
light vehicle production. Sales of automotive batteries rose nine percent, with
growth generated by contracts with new aftermarket customers and increased
demand from existing customers in the battery replacement market. Automotive
interior systems sales in Europe were seven percent lower than the prior year
due to the negative effect of currency translation. In local currency terms,
European sales increased approximately five percent, reflecting new programs and
increased volume. The segment benefited from the acquisition of a seating
subsidiary in Japan in September 2000 (see Note 1 to the Consolidated Financial
Statements), which contributed sales of approximately $1.1 billion, and from
modestly higher seating sales in other geographic markets.
Controls Group sales of $4.8 billion for 2001 were nine percent higher than the
prior year's $4.4 billion. Before the negative effect of currency translation,
segment sales were 12 percent above the prior year. Segment sales in North
America increased approximately eight percent, attributable to additional demand
for installed control systems and facility management services. European sales
were approximately 23 percent higher, reflecting both the addition of a systems
and services business in Europe (see Note 1 to the Consolidated Financial
Statements) and new contracts for facility management services. Segment sales in
other geographic markets declined eight percent, the result of the
deconsolidation of a Japanese facility management services joint venture in the
fourth quarter of 2001. Installed control systems orders for the period ended
September 30, 2001 exceeded the prior year, attributable to growth in the North
American and Asian markets.
OPERATING INCOME Consolidated operating income of $1.0 billion for fiscal 2001
was level with the prior year as a decline in automotive results was offset by
an increase in Controls Group operating income.
Automotive Systems Group operating income was $780 million, declining five
percent from the prior year's $822 million. The segment decrease was
attributable to a reduced gross profit percentage in the North American market
for automotive interior systems. The decline was due to fiscal 2001's lower
light vehicle production level, which affected many of the Company's more mature
programs, and associated customer-dictated irregular production schedules. The
effect of the production cutback was partly alleviated by the Company's
aggressive cost control efforts. Initiatives such as plant closures and
consolidations, the expanded deployment of shared service centers and
implementation of Six Sigma processes, combined to significantly reduce SG&A
expenses. European operating income declined due to the negative effect of
currency translation and a slightly lower gross profit percentage attributable
to costs associated with new programs. These factors were partially offset by
increases in operating income associated with automotive battery sales in North
America, the addition of the Japanese seating manufacturer and the elimination
of losses associated with automotive interiors operations in South America.
JOHNSON CONTROLS, INC.
<PAGE>
Operating income for the Controls Group reached $252 million, rising 20 percent
over the prior year's $209 million. This significant increase, and the improved
operating income percentage, reflects higher volume and ongoing cost control
efforts, which resulted in decreased SG&A expenses as a percentage of sales. The
majority of the year's increase was attributable to the segment's installed
control systems operations in North America.
OTHER INCOME/EXPENSE Net interest expense of $110 million was slightly lower
than the prior year, as the current year's lower interest rates offset the
effect of moderately higher debt levels. Equity income of $32 million exceeded
the prior year total by $5 million due, in part, to increased earnings from
Automotive Systems Group joint ventures, particularly those in the Asian
markets. Miscellaneous - net expense decreased $9 million in fiscal 2001
compared to the prior year, as the current period's miscellaneous expenses were
partially offset by a net gain on asset disposals.
PROVISION FOR INCOME TAXES The effective income tax rate was 36.6 percent for
the year ended September 30, 2001 compared with last year's 37.6 percent. The
effective rate for the fiscal year approximated the combined domestic federal
and state statutory rate, with the effects of higher foreign effective rates
largely offset by the benefits of global tax reduction initiatives.
MINORITY INTERESTS IN NET EARNINGS OF SUBSIDIARIES Minority interests in net
earnings of subsidiaries were $53 million compared with the prior year's $44
million. Approximately three-quarters of the increase was attributable to
improved results from Automotive Systems Group subsidiaries, including those in
Asia and Europe.
NET INCOME The Company's net income of $542 million for fiscal 2001 exceeded the
prior year's $531 million. Fiscal 2001's higher deduction for minority interests
in net earnings of subsidiaries was offset by increased equity earnings and the
reduced effective income tax rate. Diluted earnings per share increased to $5.79
compared with the prior year's $5.73. Fiscal 2001 results were reduced by $.12
per diluted share associated with unfavorable currency translation.
CAPITAL EXPENDITURES AND OTHER INVESTMENTS
Capital expenditures were $496 million in fiscal 2002, down from $621 million
and $547 million in 2001 and 2000, respectively. Consistent with the prior
years, the majority of the 2002 expenditures were associated with the Automotive
Systems Group. In fiscal 2002, capital expenditures associated with the
Automotive Systems Group related to new customer programs and cost reduction
projects. Controls Group spending was primarily focused on information and
building systems technology. The lower spending in 2002 was mainly due to the
timing of expenditures and spending efficiencies within the Automotive Systems
Group in North America and Europe. Management has projected capital expenditures
to approximate $550-$600 million in fiscal 2003. The majority of the spending is
again expected to be focused on the Automotive Systems Group.
[OPERATING INCOME BAR CHART]
Goodwill was $2.8 billion at September 30, 2002, $507 million higher than the
prior year. The increase was primarily associated with the acquisitions of the
automotive electronics business of Sagem, Hoppecke and the remaining interest in
Yokogawa Johnson Controls Corporation (see Note 1 to the Consolidated Financial
Statements).
Investments in partially-owned affiliates of $347 million were approximately $47
million greater than the prior year. The majority of the increase is
attributable to equity income earned by Automotive System Group joint ventures
and an additional automotive interiors investment in North America, partially
offset by dividend distributions.
JOHNSON CONTROLS, INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW The Company's working capital was $140 million at
September 30, 2002, compared with a negative $36 million one year ago. The
increase in working capital primarily reflects the net impact of the Company's
lower short-term debt levels at September 30, 2002 and a reduction in cash and
cash equivalents from the prior year. Working capital, excluding cash and debt,
of $23 million was approximately level with the prior year amount of $15
million. The Company continued to generate strong operating cash flows, with
operations providing cash of $989 million and $973 million in 2002 and 2001,
respectively.
CAPITALIZATION Total capitalization of $5.5 billion at September 30, 2002
included short-term debt of $0.1 billion, long-term debt (including the current
portion) of $1.9 billion and shareholders' equity of $3.5 billion. The Company's
total capitalization was $4.8 billion at September 30, 2001. Despite the
additional debt associated with the European acquisitions in fiscal 2002,
continued strong operating cash flows and lower capital spending allowed the
Company to reduce total debt as a percentage of total capitalization at the end
of fiscal 2002 to 36 percent from 38 percent one year ago. By the end of fiscal
2003, the Company expects total debt as a percentage of total capitalization to
further decline to approximately 31 percent.
In November 2001, the Company refinanced its commercial paper borrowings
attributable to the acquisitions of an automotive electronics business and a
battery business (See Note 1 to the Consolidated Financial Statements) by
issuing a total of $600 million of variable and five percent fixed rate notes
under the Company's shelf registration statement on file with the Securities and
Exchange Commission. Variable rate notes in the amount of $250 million, with
interest equal to the three-month LIBOR rate plus 60 basis points, mature in
November 2003. The five percent fixed rate notes in the amount of $350 million
are due in November 2006.
Due to the strong operating cash flows, the Company prepaid long-term
euro-denominated bank debt totaling $184 million during the third and fourth
quarters of fiscal 2002. The euro-denominated bank debt was retired at book
value and without penalty.
In March 2002, the Company renewed its existing one-year $500 million revolving
credit facility for an additional year. The Company also has a five-year $500
million revolving credit facility which expires in March 2006.
At September 30, 2002, the Company had approximately $575 million available
under its shelf registration statement on file with the Securities and Exchange
Commission through which a variety of debt and equity instruments may be issued.
The Company is party to certain synthetic leases which qualify as operating
leases for accounting purposes. The lease contracts, totaling approximately $80
million, are associated with the financing of the Company's aircraft. The
Company believes the estimated fair market value is in excess of the remaining
lease obligations. The earliest maturity is September 2006, and each lease is
renewable at the Company's option.
The Company believes its capital resources and liquidity position at September
30, 2002 were adequate to meet projected needs. Requirements for working
capital, capital expenditures, dividends, pension fund contributions, debt
maturities and acquisitions in fiscal 2003 will continue to be funded from
operations, supplemented by short- and long-term borrowings, if required.
Financing for the acquisition of Varta (see Note 16 to the Consolidated
Financial Statements) will be with short-term debt.
The Company is in compliance with all covenants and other requirements set forth
in its credit agreements and indentures. None of the Company's debt agreements
require accelerated repayment in the event of a decrease in credit ratings.
Currently, the Company has ample liquidity and full access to the capital
markets. Given the Company's credit ratings from Moody's (A2), Fitch (A), and
Standard & Poors (A-), the Company believes multiple downgrades, or a single
downgrade over multiple levels, would be necessary before its access to the
commercial paper markets would be limited. The Company has a combined
availability of $1.0 billion under its revolving credit facilities to meet
commercial paper maturities and operating needs.
JOHNSON CONTROLS, INC.
<PAGE>
A summary of the Company's significant contractual obligations and other
commercial commitments as of September 30, 2002 are as follows:
<TABLE>
<CAPTION>
2004 2006 After
In millions Total 2003 -2005 -2007 2007
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONTRACTUAL OBLIGATIONS
Long-term debt (including
capital lease obligations)* $1,867 $ 40 $561 $496 $770
Operating leases 486 116 165 156 49
Unconditional purchase
obligations** -- -- -- -- --
- ------------------------------------------------------------------------------
Total contractual
cash obligations $2,353 $156 $726 $652 $819
- ------------------------------------------------------------------------------
</TABLE>
* See "Capitalization" for additional information related to the Company's
long-term debt.
** There were no unconditional purchase obligations other than those related
to inventory and property, plant and equipment purchases in the ordinary
course of business which management believes are immaterial.
<TABLE>
<CAPTION>
2004 2006 After
In millions Total 2003 -2005 -2007 2007
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER COMMERCIAL COMMITMENTS
Lines of credit* $ -- $ -- $ -- $ -- $ --
Standby letters of credit 66 56 10 -- --
Guarantees** 52 19 6 -- 27
- ------------------------------------------------------------------------------
Total commercial
commitments $ 118 $ 75 $ 16 $ -- $ 27
- ------------------------------------------------------------------------------
</TABLE>
* At September 30, 2002, the Company had $1.0 billion of committed lines of
credit available for support of outstanding commercial paper. There were no
draws on the lines as of September 30, 2002.
** Guarantees primarily represent the Company's portion of guaranteed debt of
certain unconsolidated affiliates.
CRITICAL ACCOUNTING POLICIES
The Company prepares its Consolidated Financial Statements in conformity with
accounting principles generally accepted in the United States of America (U.S.
GAAP). This requires management to make estimates and assumptions that affect
reported amounts and related disclosures. Actual results could differ from those
estimates. The following policies are considered by management to be the most
critical in understanding the judgments that are involved in the preparation of
the Company's Consolidated Financial Statements and the uncertainties that could
impact the Company's results of operations, financial condition and cash flows.
REVENUE RECOGNITION The Company recognizes revenue from long-term systems
installation contracts of the Controls Group over the contractual period under
the percentage-of-completion (POC) method of accounting. Under this method,
sales and gross profit are recognized as work is performed based on the
relationship between actual costs incurred and total estimated costs at the
completion of the contract. Recognized revenues that will not be billed under
the terms of the contract until a later date are recorded as an asset captioned
"Cost and earnings in excess of billings on uncompleted contracts." Likewise,
contracts where billings to date have exceeded recognized revenues are recorded
as a liability captioned "Billings in excess of costs and earnings on
uncompleted contracts." Changes to the original estimates may be required during
the life of the contract. Estimates are reviewed monthly and the effect of any
change in the estimated gross margin percentage for a contract is reflected in
cost of sales in the period the change becomes known. The use of the POC method
of accounting involves considerable use of estimates in determining revenues,
costs and profits and in assigning the amounts to accounting periods. The
Company continually evaluates all of the issues related to the assumptions,
risks and uncertainties inherent with the application of the POC method of
accounting. In all other cases, the Company recognizes revenue at the time
products are shipped and title passes to the customer or as services are
performed.
[CASH FLOW FORM CONTINUING OPERATIONS BAR CHART]
GOODWILL AND OTHER INTANGIBLE ASSETS The Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets," effective October 1, 2001. Under SFAS No. 142,
goodwill is no longer amortized; however, it must be tested for impairment at
least annually. Amortization continues to be recorded for other intangible
assets with definite lives. The Company is subject to financial statement risk
to the extent that goodwill and indefinite-lived intangible assets become
impaired.
EMPLOYEE BENEFIT PLANS The Company provides a range of benefits to its employees
and retired employees, including pensions and postretirement healthcare. The
Company records annual amounts relating to these plans based on calculations
specified by U.S. GAAP, which include various actuarial assumptions such as
discount rates, assumed rates of return, compensation increases, turnover rates
and healthcare cost trend rates. The expected return on plan assets is based on
the Company's expectation of the long-term average rate of return on assets in
the pension funds, which is reflective of the current and projected asset mix of
the funds and considers the historical returns earned on the funds. The Company
reviews its actuarial assumptions on an annual basis and makes modifications to
the
JOHNSON CONTROLS, INC.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONTINUED
assumptions based on current rates and trends when appropriate. As required by
U.S. GAAP, the effects of the modifications are recorded currently or amortized
over future periods. Based on information provided by its independent actuaries
and other relevant sources, the Company believes that the assumptions used are
reasonable.
INCOME TAXES The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company records a
valuation allowance that represents foreign operating loss carryforwards for
which utilization is uncertain. Management judgment is required in determining
the Company's provision for income taxes, deferred tax assets and liabilities
and the valuation allowance recorded against the Company's net deferred tax
assets. The valuation allowance would need to be adjusted in the event future
taxable income is materially different than amounts estimated. The Company does
not provide taxes on undistributed earnings of foreign subsidiaries which are
considered to be permanently invested. If undistributed earnings were remitted,
foreign tax credits would substantially offset any resulting domestic tax
liability.
RISK MANAGEMENT
The Company selectively uses financial instruments to reduce market risk
associated with changes in foreign exchange and interest rates. All hedging
transactions are authorized and executed pursuant to clearly defined policies
and procedures, which strictly prohibit the use of financial instruments for
trading purposes. Analytical techniques used to manage and monitor foreign
exchange and interest rate risk include market valuation and sensitivity
analysis.
A discussion of the Company's accounting policies for derivative financial
instruments is included in the Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements, and further disclosure relating to
financial instruments is included in Note 8 - Financial Instruments.
FOREIGN EXCHANGE The Company has manufacturing, sales and distribution
facilities around the world and thus makes investments and enters into
transactions denominated in various foreign currencies. In order to maintain
strict control and achieve the benefits of the Company's global diversification,
foreign exchange exposures for each currency are netted internally so that only
its net foreign exchange exposures are, as appropriate, hedged with financial
instruments.
The Company hedges 70 to 90 percent of its known foreign exchange transactional
exposures. The Company primarily enters into foreign currency exchange contracts
to reduce the earnings and cash flow impact of non-functional currency
denominated receivables and payables. Gains and losses resulting from hedging
instruments offset the foreign exchange gains or losses on the underlying assets
and liabilities being hedged. The maturities of the forward exchange contracts
generally coincide with the settlement dates of the related transactions.
Realized and unrealized gains and losses on these contracts are recognized in
the same period as gains and losses on the hedged items. The Company also
selectively hedges anticipated transactions that are subject to foreign exchange
exposure, primarily with foreign currency exchange contracts, which are
designated as cash flow hedges in accordance with SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities."
The Company generally finances its foreign operations with local, non-U.S.
dollar debt. The foreign currency-denominated debt serves as a natural hedge of
the foreign operations' net asset positions. The Company has also entered into
several foreign currency-denominated debt obligations and cross-currency
interest rate swaps to hedge portions of its net investments in Europe and
Japan. The currency effects of the debt obligations are reflected in the
accumulated other comprehensive income (loss) account within shareholders'
equity where they offset gains and losses recorded on the net investments in
Europe and Japan.
SENSITIVITY ANALYSIS The following table indicates the total U.S. dollar
equivalents of net foreign exchange contracts (hedging transactional exposure)
and non-functional currency denominated debt and cross-currency interest rate
swaps (hedging translation exposure) outstanding by currency and the
corresponding impact on the value of these instruments assuming a 10 percent
appreciation/depreciation of the respective currencies. The resulting functional
currency gains and losses are translated at the U.S. dollar spot rate on
September 30, 2002.
JOHNSON CONTROLS, INC.
<PAGE>
As previously noted, the Company's policy prohibits the trading of financial
instruments for profit. It is important to note that gains and losses indicated
in the sensitivity analysis would be offset by gains and losses on the
underlying receivables, payables and net investments in foreign subsidiaries
described above.
<TABLE>
<CAPTION>
In millions September 30, 2002
- ------------------------------------------------------------------------------------------------
Financial Instruments Foreign Exchange
Designated as Hedges of: Gain/(Loss) from:
-------------------------- ---------------------------
Transactional Translation Net 10% 10%
Foreign Foreign Amount of Appreciation Depreciation
Exposure Exposure Instruments of the of the
Long/ Long/ Long/ Functional Functional
CURRENCY (Short) (Short) (Short) Currency Currency
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(U.S. DOLLAR EQUIVALENTS)
euro $(538) $(660) $(1,198) $(120) $120
Japanese yen 4 (192) (188) (19) 19
Mexican peso 143 -- 143 14 (14)
Czech Republican
koruna 51 -- 51 5 (5)
Swiss franc 23 -- 23 2 (2)
Swedish krona (17) -- (17) (2) 2
British pound (13) -- (13) (1) 1
Other (23) -- (23) (2) 2
- ------------------------------------------------------------------------------------------------
Total $(370) $(852) $(1,222) $(123) $123
- ------------------------------------------------------------------------------------------------
</TABLE>
INTEREST RATES The Company's earnings exposure related to adverse movements in
interest rates is primarily derived from outstanding floating rate debt
instruments that are indexed to short-term money market rates. The Company, as
needed, uses interest rate swaps to modify its exposure to interest rate
movements. In accordance with SFAS No. 133, the swaps qualify and are designated
as cash flow hedges or fair value hedges. A 10 percent increase or decrease in
the average cost of the Company's variable rate debt, including outstanding
swaps, would result in a change in pre-tax interest expense of approximately $3
million.
FUTURE ACCOUNTING CHANGES
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, "Accounting for Asset Retirement Obligations" and No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 143 establishes
accounting standards for the recognition and measurement of an asset retirement
obligation. SFAS No. 144 addresses accounting and reporting for the impairment
or disposal of long-lived assets, superseding SFAS No. 121. The statements are
effective for the Company on October 1, 2002. The impact of these statements
upon adoption is not expected to have a material effect on the Company's
financial position, results of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." Under SFAS No. 146, costs associated with an
exit or disposal activity should be recognized and measured at their fair value
in the period in which the liability is incurred rather than at the date of a
commitment to an exit or disposal plan. The provisions of the statement will be
effective for exit or disposal activities that are initiated after December 31,
2002. The Company is currently evaluating the impact of this statement.
[TOTAL DEBT TO TOTAL CAPITALIZATION BARCHART]
In fiscal 2003, the Company will voluntarily adopt the expense recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." As
required by the statement, expensing of options will be prospective, with
expense in 2003 relating only to options granted during the period. The adoption
is expected to reduce diluted earnings per share for fiscal 2003 by
approximately $.05, which represents the pro rata portion of the 2003 grant
earned during the three-year vesting period.
ENVIRONMENTAL, HEALTH AND SAFETY AND OTHER MATTERS
The Company's global operations are governed by laws addressing protection of
the environment ("Environmental Laws") and worker safety and health ("Worker
Safety Laws"). Under various circumstances, these laws impose civil and criminal
penalties and fines, as well as injunctive and remedial relief, for
noncompliance and require remediation at sites where Company-related substances
have been released into the environment.
The Company has expended substantial resources globally, both financial and
managerial, to comply with applicable Environmental Laws and Worker Safety Laws,
and to protect the environment and workers. The Company believes it is in
substantial compliance with such laws and maintains procedures designed to
foster and ensure compliance. However, the Company has been, and in the future
may become, the subject of formal or informal enforcement actions or proceedings
regarding noncompliance with such laws or the remediation of Company-related
substances released into the environment. Such matters typically are resolved by
negotiation with regulatory authorities resulting in commitments to compliance,
abatement or remediation programs and in some cases payment of penalties.
Historically, neither such commitments nor penalties imposed on the Company have
been material.
JOHNSON CONTROLS, INC.
<PAGE>
MANAGEMENT 'S DISCUSSION AND ANALYSIS
CONTINUED
Environmental considerations are a part of all significant capital expenditure
decisions; however, expenditures in 2002 related solely to environmental
compliance were not material. Environmental remediation, compliance and
management expenses incurred by the Company were approximately $11 million and
$10 million in 2002 and 2001, respectively. The accrued liability of
approximately $32 million at September 30, 2002 relating to environmental
matters increased from $28 million one year ago. A charge to income is recorded
when it is probable that a liability has been incurred and the cost can be
reasonably estimated. The Company's environmental liabilities do not take into
consideration any possible recoveries of future insurance proceeds. Because of
the uncertainties associated with environmental remediation activities at sites
where the Company may be potentially liable, future expenses to remediate
identified sites could be considerably higher than the accrued liability.
However, while neither the timing nor the amount of ultimate costs associated
with known environmental remediation matters can be determined at this time, the
Company does not expect that these matters will have a material adverse effect
on its financial position, results of operations or cash flows.
In March 2002, an unfavorable verdict was rendered in a lawsuit involving a
Mexican lead supplier. After a jury trial, a Texas trial court entered judgment
against the Company in this matter and awarded damages to the plaintiff in the
amount of approximately $22 million, plus interest and attorney fees. The
Company and its legal counsel believe that the verdict against the Company in
the trial court was incorrect and that it will be reversed on appeal. While it
is not possible to ascertain the ultimate legal and financial liability with
respect to this lawsuit, the Company believes that the amount of such liability,
if any, in excess of amounts provided, will not have a material impact on the
Company's financial position, results of operations or cash flows.
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 in the "Risk Management"
section of this document and those preceded by, following or that include the
words "believes," "expects," "anticipates," "projects" or similar expressions.
For those statements, the Company cautions that the numerous important factors
discussed elsewhere in this document and in the Company's Form 8-K filing (dated
November 12, 2002), 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.
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
In millions, except per share data; unaudited First Second Third Fourth Full
YEAR ENDED SEPTEMBER 30, Quarter Quarter Quarter Quarter Year
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2002
Net sales $ 4,817.7 $ 4,810.5 $ 5,257.0 $ 5,218.2 $ 20,103.4
Gross profit 676.3 644.1 748.0 778.5 2,846.9
Net income 119.9 114.8 175.3 190.5 600.5
Earnings per share
Basic 1.35 1.27 1.96 2.13 6.71
Diluted 1.27 1.21 1.85 2.02 6.35
- ---------------------------------------------------------------------------------------------------------------------------------
2001
Net sales $ 4,454.4 $ 4,601.6 $ 4,722.1 $ 4,649.1 $ 18,427.2
Gross profit 640.0 621.2 676.1 666.7 2,604.0
Net income (As Reported) 102.5 83.0 136.5 156.3 478.3
Net income (Adjusted)* 118.2 99.0 152.6 171.9 541.7
Earnings per share (As Reported)
Basic 1.16 0.94 1.54 1.77 5.41
Diluted 1.10 0.89 1.45 1.67 5.11
Earnings per share (Adjusted)*
Basic 1.35 1.12 1.73 1.94 6.14
Diluted 1.27 1.06 1.62 1.84 5.79
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The adjusted information is presented as if SFAS No. 142, "Goodwill and
Other Intangible Assets," had been adopted October 1, 2000. Results have
been adjusted to exclude goodwill amortization expense and the related
income tax effect.
JOHNSON CONTROLS, INC.
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
In millions, except per share data
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2001 2000
----------------------------------------------------------
2002 Adjusted* As Reported Adjusted* As Reported
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 20,103.4 $ 18,427.2 $ 18,427.2 $ 17,154.6 $ 17,154.6
Cost of sales 17,256.5 15,823.2 15,823.2 14,560.1 14,560.1
-----------------------------------------------------------------------
Gross profit 2,846.9 2,604.0 2,604.0 2,594.5 2,594.5
Selling, general and administrative expenses 1,724.9 1,572.1 1,642.9 1,563.0 1,629.5
-----------------------------------------------------------------------
Operating income 1,122.0 1,031.9 961.1 1,031.5 965.0
-----------------------------------------------------------------------
Interest income 11.9 19.4 19.4 16.1 16.1
Interest expense (122.3) (129.4) (129.4) (127.6) (127.6)
Equity income 37.9 31.8 31.8 26.6 26.6
Miscellaneous - net (43.5) (15.8) (15.8) (24.4) (24.4)
-----------------------------------------------------------------------
Other income (expense) (116.0) (94.0) (94.0) (109.3) (109.3)
-----------------------------------------------------------------------
Income before income taxes and minority interests 1,006.0 937.9 867.1 922.2 855.7
Provision for income taxes 347.6 342.9 335.5 346.5 338.9
Minority interests in net earnings of subsidiaries 57.9 53.3 53.3 44.4 44.4
-----------------------------------------------------------------------
Net income $ 600.5 $ 541.7 $ 478.3 $ 531.3 $ 472.4
-----------------------------------------------------------------------
Earnings available for common shareholders $ 592.8 $ 532.9 $ 469.5 $ 521.5 $ 462.6
-----------------------------------------------------------------------
Earnings per share
Basic $ 6.71 $ 6.14 $ 5.41 $ 6.09 $ 5.40
Diluted $ 6.35 $ 5.79 $ 5.11 $ 5.73 $ 5.09
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The adjusted information is presented as if SFAS No. 142, "Goodwill and
Other Intangible Assets," had been adopted October 1, 1999. Results have
been adjusted to exclude goodwill amortization expense ($70.8 million and
$66.5 million in fiscal years 2001 and 2000, respectively) and the related
income tax effect.
The accompanying notes are an integral part of the financial statements.
JOHNSON CONTROLS, INC.
<PAGE>
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
In millions, except par value and share data
SEPTEMBER 30, 2002 2001
------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 262.0 $ 374.6
Accounts receivable, less allowance for doubtful accounts
of $44.8 and $28.1, respectively 3,064.3 2,673.4
Costs and earnings in excess of billings on uncompleted contracts 333.4 254.9
Inventories 653.6 577.6
Other current assets 632.9 663.5
------------------------
Current assets 4,946.2 4,544.0
------------------------
Property, plant and equipment - net 2,445.5 2,379.8
Goodwill - net 2,754.6 2,247.3
Other intangible assets - net 243.5 135.9
Investments in partially-owned affiliates 347.4 300.5
Other noncurrent assets 428.1 304.0
------------------------
Total assets $11,165.3 $ 9,911.5
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ 105.3 $ 379.9
Current portion of long-term debt 39.9 45.3
Accounts payable 2,789.1 2,437.3
Accrued compensation and benefits 506.6 436.3
Accrued income taxes 182.7 137.8
Billings in excess of costs and earnings on uncompleted contracts 190.8 163.0
Other current liabilities 991.8 980.1
------------------------
Current liabilities 4,806.2 4,579.7
------------------------
Long-term debt 1,826.6 1,394.8
Postretirement health and other benefits 170.5 162.5
Minority interests in equity of subsidiaries 189.0 207.3
Other noncurrent liabilities 673.3 581.8
------------------------
Long-term liabilities 2,859.4 2,346.4
------------------------
Preferred stock, $1.00 par value
shares authorized: 2,000,000
shares issued and outstanding: 2002 - 202.646; 2001 - 240.716 103.8 123.2
Common stock, $.16 2/3 par value
shares authorized: 300,000,000
shares issued: 2002 - 89,594,686; 2001 - 89,078,471 14.9 14.8
Capital in excess of par value 690.0 646.1
Retained earnings 2,994.0 2,517.9
Treasury stock, at cost (2002 - 714,637 shares; 2001 - 1,579,636 shares) (12.0) (25.6)
Employee stock ownership plan - unearned compensation (44.6) (63.3)
Accumulated other comprehensive loss (246.4) (227.7)
------------------------
Shareholders' equity 3,499.7 2,985.4
------------------------
Total liabilities and shareholders' equity $11,165.3 $ 9,911.5
------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
JOHNSON CONTROLS, INC.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
In millions
SEPTEMBER 30, 2002 2001 2000
---------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 600.5 $ 478.3 $ 472.4
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 499.4 433.7 385.3
Amortization of intangibles* 17.4 82.2 76.5
Equity in earnings of partially-owned affiliates, net of dividends received (17.1) (6.9) (12.8)
Deferred income taxes (7.4) 66.6 56.3
Minority interests in net earnings of subsidiaries 57.9 53.3 44.4
Other (39.1) (40.6) (11.7)
Changes in working capital, excluding acquisition and divestiture of businesses
Receivables (272.6) (298.6) (199.9)
Inventories 10.5 0.9 (39.3)
Other current assets 24.6 137.2 (69.3)
Accounts payable and accrued liabilities 56.3 73.5 173.9
Accrued income taxes 34.4 (1.1) (98.7)
Billings in excess of costs and earnings on uncompleted contracts 24.2 (5.5) 13.2
----------------------------------
Cash provided by operating activities 989.0 973.0 790.3
----------------------------------
INVESTING ACTIVITIES
Capital expenditures (496.2) (621.5) (546.7)
Sale of property, plant and equipment 54.1 141.0 42.5
Acquisition of businesses, net of cash acquired (644.7) (231.1) (80.9)
Divestiture of business -- -- 75.0
Changes in long-term investments - net 5.2 (48.8) (72.3)
----------------------------------
Cash used by investing activities (1,081.6) (760.4) (582.4)
----------------------------------
FINANCING ACTIVITIES
Decrease in short-term debt - net (304.9) (85.2) (39.6)
Increase in long-term debt 638.8 241.9 125.9
Repayment of long-term debt (249.0) (157.0) (168.0)
Payment of cash dividends (125.3) (117.6) (106.2)
Other 28.4 20.7 (4.5)
----------------------------------
Cash used by financing activities (12.0) (97.2) (192.4)
----------------------------------
Effect of exchange rate changes on cash and cash equivalents (8.0) (16.4) (16.1)
----------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (112.6) $ 99.0 $ (0.6)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets,"
effective October 1, 2001 and accordingly no longer amortizes goodwill.
Goodwill amortization included in 2001 and 2000 was $70.8 million and $66.5
million, respectively.
The accompanying notes are an integral part of the financial statements.
JOHNSON CONTROLS, INC.
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Employee
Stock
Ownership Capital Accumulated
Plan - in Treasury Other
Preferred Unearned Common Excess of Retained Stock, Comprehensive
In millions, except per share data Total Stock Compensation Stock Par Value Earnings at Cost Income (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AT SEPTEMBER 30, 1999 $2,270.0 $ 134.7 $(94.8) $ 14.6 $576.1 $1,793.1 $(38.5) $(115.2)
Comprehensive income:
Net income 472.4 -- -- -- -- 472.4 -- --
Foreign currency translation adjustments (89.8) -- -- -- -- -- -- (89.8)
Minimum pension liability adjustment (2.0) -- -- -- -- -- -- (2.0)
--------
Other comprehensive loss (91.8)
--------
Comprehensive income 380.6
Reduction of guaranteed ESOP debt 14.8 -- 14.8 -- -- -- -- --
Cash dividends
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $0.4 million tax benefit (9.8) -- -- -- -- (9.8) -- --
Common ($1.12 per share) (96.0) -- -- -- -- (96.0) -- --
Other, including options exercised 16.5 (5.7) -- 0.1 17.0 (0.2) 5.3 --
- ------------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 2000 2,576.1 129.0 (80.0) 14.7 593.1 2,159.5 (33.2) (207.0)
Comprehensive income:
Net income 478.3 -- -- -- -- 478.3 -- --
Foreign currency translation adjustments (12.9) -- -- -- -- -- -- (12.9)
Realized and unrealized gains/losses
on derivatives (2.0) -- -- -- -- -- -- (2.0)
Minimum pension liability adjustment (5.8) -- -- -- -- -- -- (5.8)
--------
Other comprehensive loss (20.7)
--------
Comprehensive income 457.6
Reduction of guaranteed ESOP debt 16.7 -- 16.7 -- -- -- -- --
Cash dividends
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $1.0 million tax benefit (8.8) -- -- -- -- (8.8) -- --
Common ($1.24 per share) (107.8) -- -- -- -- (107.8) -- --
Other, including options exercised 51.6 (5.8) -- 0.1 53.0 (3.3) 7.6 --
- ------------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 2001 2,985.4 123.2 (63.3) 14.8 646.1 2,517.9 (25.6) (227.7)
Comprehensive income:
Net income 600.5 -- -- -- -- 600.5 -- --
Foreign currency translation adjustments (1.6) -- -- -- -- -- -- (1.6)
Unrealized gains/losses on
marketable securities 11.1 -- -- -- -- -- -- 11.1
Realized and unrealized gains/losses
on derivatives (10.9) -- -- -- -- -- -- (10.9)
Minimum pension liability adjustment (17.3) -- -- -- -- -- -- (17.3)
--------
Other comprehensive loss (18.7)
--------
Comprehensive income 581.8
Reduction of guaranteed ESOP debt 18.7 -- 18.7 -- -- -- -- --
Cash dividends
Series D preferred ($3.97 per
one ten-thousandth of a share),
net of $0.9 million tax benefit (7.7) -- -- -- -- (7.7) -- --
Common ($1.32 per share) (116.7) -- -- -- -- (116.7) -- --
Other, including options exercised 38.2 (19.4) -- 0.1 43.9 -- 13.6 --
- ------------------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 2002 $3,499.7 $ 103.8 $(44.6) $ 14.9 $690.0 $2,994.0 $(12.0) $(246.4)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
JOHNSON CONTROLS, INC.
<PAGE>
NOTES TO CONSOLIDATED STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Johnson Controls, Inc. and its majority-owned domestic and foreign
subsidiaries. All significant intercompany transactions have been eliminated.
Investments in partially-owned affiliates are accounted for by the equity method
when the Company's interest exceeds 20 percent. Gains and losses from the
translation of substantially all foreign currency financial statements are
recorded in the accumulated other comprehensive income (loss) account within
shareholders' equity. Certain prior year amounts have been reclassified to
conform to the current year's presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect reported
amounts and related disclosures. Actual results could differ from those
estimates.
REVENUE RECOGNITION The Company recognizes revenue from long-term systems
installation contracts of the Controls Group over the contractual period under
the percentage-of-completion method of accounting (see "Long-Term Contracts").
In all other cases, the Company recognizes revenue at the time products are
shipped and title passes to the customer or as services are performed.
LONG-TERM CONTRACTS Under the percentage-of-completion method of accounting used
for long-term contracts, sales and gross profit are recognized as work is
performed based on the relationship between actual costs incurred and total
estimated costs at completion. Sales and gross profit are adjusted prospectively
for revisions in estimated total contract costs and contract values. Estimated
losses are recorded when identified. Claims against customers are recognized as
revenue upon settlement. The amount of accounts receivable due after one year is
not significant.
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. 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.
PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY ARRANGEMENTS The Company's
policy for engineering, research and development, and other design and
development costs related to products that will be sold under long-term supply
arrangements requires such costs to be expensed as incurred. Customer
reimbursements are recorded as a reduction of expense when reimbursement from
the customer is contractually guaranteed. Costs for molds, dies, and other tools
used to make products that will be sold under long-term supply arrangements are
capitalized if the Company has title to the assets or has the non-cancelable
right to use the assets during the term of the supply arrangement. Capitalized
items, if specifically designed for a supply arrangement, are amortized over the
term of the arrangement; otherwise, amounts are amortized over the estimated
useful lives of the assets. The carrying values of assets capitalized in
accordance with the foregoing policy are periodically reviewed for evidence of
impairment. At September 30, 2002, approximately $66 million of costs for molds,
dies and other tools were capitalized, which represented assets to which the
Company had title. In addition, at September 30, 2002, the Company recorded as a
current asset approximately $162 million of costs for molds, dies and other
tools for which customer reimbursement is assured.
PROPERTY, PLANT AND EQUIPMENT The Company uses the straight-line method of
depreciation for financial reporting purposes and accelerated methods for income
tax purposes. The general range of useful lives for financial reporting is 10 to
50 years for buildings and improvements and 3 to 20 years for machinery and
equipment.
GOODWILL AND OTHER INTANGIBLE ASSETS The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets,"
effective October 1, 2001. Under SFAS No.142, goodwill is no longer amortized;
however, it must be tested for impairment at least annually. Amortization
continues to be recorded for other intangible assets with definite lives. The
Company is subject to financial statement risk in the event that goodwill and
indefinite lived intangible assets become impaired.
DERIVATIVE FINANCIAL INSTRUMENTS The Company has written policies and procedures
that place all financial instruments under the direction of corporate treasury
and restrict all derivative transactions to those intended for hedging purposes.
The use of financial instruments for trading purposes is strictly prohibited.
The Company uses financial instruments to manage the market risk from changes in
foreign exchange rates and interest rates.
In the first quarter of fiscal 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137 and No. 138. The fair values of all derivatives are recorded in the
statement of financial position. The change in a derivative's fair value is
recorded each period in current earnings or accumulated other comprehensive
income (OCI), depending on whether the derivative is designated as part of a
hedge transaction and if so, the type of hedge transaction.
JOHNSON CONTROLS, INC.
<PAGE>
NOTES TO CONSOLIDATED STATEMENTS
CONTINUED
The Company hedges 70 to 90 percent of its known foreign exchange transactional
exposures. The Company primarily enters into forward exchange contracts to
reduce the earnings and cash flow impact of non-functional currency denominated
receivables and payables, predominately intercompany transactions. Gains and
losses resulting from these contracts offset the foreign exchange gains or
losses on the underlying assets and liabilities being hedged. The maturities of
the forward exchange contracts generally coincide with the settlement dates of
the related transactions. Gains and losses on these contracts are recorded in
miscellaneous - net in the Consolidated Statement of Income as the changes in
the fair value of the contracts are recognized and generally offset the gains
and losses on the hedged items in the same period.
CASH FLOW HEDGES The Company selectively hedges anticipated transactions that
are subject to foreign exchange exposure, primarily using foreign currency
exchange contracts. These instruments are designated as cash flow hedges in
accordance with SFAS No. 133 and are recorded in the Consolidated Statement of
Financial Position at fair value. The effective portion of the contracts' gains
or losses due to changes in fair value are initially recorded as a component of
accumulated OCI and are subsequently reclassified into earnings when the hedged
transactions, typically sales and costs related to sales, occur and affect
earnings. These contracts are highly effective in hedging the variability in
future cash flows attributable to changes in currency exchange rates. The
Company also selectively uses interest rate swaps to modify its exposure to
interest rate movements and reduce borrowing costs. These swaps also qualify as
cash flow hedges, with changes in fair value recorded as a component of
accumulated OCI. Interest expense is recorded in earnings at the fixed rate set
forth in the swap agreement.
For the years ended September 30, 2002 and 2001, the net amounts recognized in
earnings due to ineffectiveness and amounts excluded from the assessment of
hedge effectiveness were not material. The amount reported as realized and
unrealized gains/losses on derivatives in the accumulated OCI account within
shareholders' equity represents the net gain/loss on derivatives designated as
cash flow hedges. The majority of the balance at September 30, 2002 will be
recognized within the subsequent 12 months as the anticipated transactions
occur.
FAIR VALUE HEDGES The Company had one interest rate swap outstanding at
September 30, 2002 designated as a hedge of the fair value of a portion of a
fixed-rate bond issued in connection with an October 2001 acquisition. Both the
swap and the hedged portion of the debt are recorded in the Consolidated
Statement of Financial Position. The change in fair value of the swap exactly
offsets the change in fair value of the hedged debt, with no net impact on
earnings.
NET INVESTMENT HEDGES The Company has cross-currency interest rate swaps and
foreign currency-denominated debt obligations that are designated as hedges of
the foreign currency exposure associated with its net investments in foreign
operations. The currency effects of the debt obligations are reflected in the
accumulated OCI account where they offset translation gains and losses recorded
on the Company's net investments in Europe and Japan. The cross-currency
interest rate swaps are recorded in the Consolidated Statement of Financial
Position at fair value, with changes in value attributable to changes in foreign
exchange rates recorded in the foreign currency translation adjustments
component of accumulated OCI. Net interest payments or receipts from the
interest rate swaps are recorded as adjustments to interest expense in earnings
on a current basis. Net losses of approximately $25 million and $8 million
associated with hedges of net investments in foreign operations were recorded in
the accumulated OCI account for the periods ended September 30, 2002 and 2001,
respectively.
EARNINGS PER SHARE Basic earnings per share are computed by dividing net income,
after deducting dividend requirements on the Series D Convertible Preferred
Stock, by the weighted average number of common shares outstanding. Diluted
earnings per share are computed by dividing net income, after deducting the
after-tax compensation expense that would arise from the assumed conversion of
the Series D Convertible Preferred Stock, by diluted weighted average shares
outstanding. Diluted weighted average shares assume the conversion of the Series
D Convertible Preferred Stock, if dilutive, plus the dilutive effect of common
stock equivalents which would arise from the exercise of stock options.
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.
FOREIGN CURRENCY TRANSLATION Substantially all of the Company's international
operations use the respective local currency as the functional currency. Assets
and liabilities of international entities have been translated at period-end
exchange rates, and income and expenses have been translated using average
exchange rates for the period.
COMPREHENSIVE INCOME Comprehensive income is defined as the sum of net income
and all other non-owner changes in equity. The components of the non-owner
changes in equity (or accumulated other comprehensive loss) were as follows (net
of tax):
<TABLE>
<CAPTION>
In millions September 30, 2002 2001
- --------------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation adjustments $(216.1) $(214.5)
Unrealized gains/losses on marketable securities 11.1 --
Realized and unrealized gains/losses on derivatives (12.9) (2.0)
Minimum pension liability adjustments (28.5) (11.2)
- --------------------------------------------------------------------------
Accumulated other comprehensive loss $(246.4) $(227.7)
==========================================================================
</TABLE>
JOHNSON CONTROLS, INC.
<PAGE>
1 ACQUISITIONS
In fiscal 2002, the Company acquired several new businesses and purchased the
remaining interests in certain businesses in which the Company previously held a
majority ownership. These acquisitions, with an initial combined purchase price
of approximately $645 million, were primarily financed with long-term debt (see
Note 7). The more significant of these acquisitions were as follows:
- - Effective October 1, 2001, the Company completed the acquisition of the
automotive electronics business of France-based Sagem SA (Sagem). The Sagem
acquisition augments the Company's capabilities in vehicle electronics.
- - Effective October 1, 2001, the Company completed the acquisition of the
German automotive battery manufacturer Hoppecke Automotive GmbH & Co. KG
(Hoppecke). Management believes Hoppecke provides new battery technologies
that give the Company a leadership position in the development of the
evolving 42-volt automotive electrical systems.
- - In April 2002, the Company acquired the remaining 45% interest in Yokogawa
Johnson Controls Corporation, a controls systems and services business in
Japan. This acquisition supports the Company's strategy to expand the
Controls Group business globally.
The following table summarizes the fair values of the assets acquired and
liabilities assumed at the dates of acquisition.
<TABLE>
<CAPTION>
In millions
- ------------------------------------------------------------------
<S> <C>
Current assets $271.9
Property, plant and equipment - net 107.8
Goodwill - net 444.3
Other intangible assets - net 117.9
Other noncurrent assets 35.2
- ------------------------------------------------------------------
Total assets 977.1
- ------------------------------------------------------------------
Current liabilities 318.9
Long-term liabilities 13.5
- ------------------------------------------------------------------
Total liabilities 332.4
- ------------------------------------------------------------------
Net assets acquired $644.7
==================================================================
</TABLE>
Pro forma information to reflect these acquisitions has not been disclosed as
the impact on consolidated net income is not material.
Goodwill of $381 million and $63 million was assigned to the Automotive Systems
Group and the Controls Group segments, respectively. Approximately $235 million
of the total goodwill acquired is expected to be deductible for tax purposes.
Intangible assets of approximately $118 million having a weighted average useful
life of 25 years were recorded in fiscal 2002. Intangible assets of $87 million
and $31 million have been assigned to technology and customer relationships,
respectively, having weighted average useful lives of approximately 17 and 36
years, respectively. The purchase price allocation may be adjusted in certain
situations to reflect final appraisals and other studies.
The Company began formulating restructuring plans for Sagem and Hoppecke as of
the acquisition dates. Accordingly, restructuring reserves of approximately $20
million have been established, primarily for expected employee severance. Three
plants and facilities have been or will be closed or sold with expected
workforce reductions of approximately 430 employees. Through September 30, 2002,
approximately $3 million of employee severance costs associated with the
restructuring plans were incurred or paid, and approximately 170 employees have
been separated from the Company. The reserve balance at September 30, 2002 was
approximately $17 million, and the remaining restructuring activities are
expected to be completed within the next year.
In fiscal 2001, the Company acquired Gylling Optima Batteries AB, a manufacturer
of spiral-wound lead-acid batteries, and MC International, a leader in
refrigeration and air conditioning systems and services in Europe. These
acquisitions had a combined purchase price of approximately $200 million.
Effective September 1, 2000, the Company acquired approximately 90% of the
outstanding shares of Ikeda Bussan Co. Ltd. (Ikeda), a Japanese supplier of
automotive seating systems and the primary supplier of seating systems to Nissan
Motor Company. A share exchange to acquire the remaining shares of Ikeda was
completed in the first quarter of fiscal 2002. As part of the initial
acquisition, the Company paid approximately $70 million, plus the assumption of
$115 million of debt. The acquisition was accounted for as a purchase. 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. The operating results of Ikeda have been included in the
Consolidated Statement of Income since October 1, 2000. As part of this
acquisition, a restructuring reserve of approximately $54 million was recorded.
The reserve was established for expected employee severance costs as the
JOHNSON CONTROLS, INC.
<PAGE>
NOTES TO CONSOLIDATED STATEMENTS
CONTINUED
Company eliminates certain non-core activities to focus on Ikeda's principal
seating systems businesses. Seven plants and facilities have been or will be
closed as part of the restructuring plan, with resulting workforce reductions of
approximately 1,000 employees. Approximately $12 million and $10 million of
employee severance costs associated with the restructuring plan were paid or
incurred in fiscal 2001 and 2002, respectively. Through September 30, 2002,
approximately 510 employees were separated from the Company. In fiscal 2002, the
Company recorded an adjustment to the restructuring reserve of approximately $10
million, which resulted in a decrease to the goodwill assigned to the Automotive
Systems Group of approximately $6 million. The reserve balance at September 30,
2002 totaled approximately $22 million, and the remaining restructuring
activities are expected to be completed within the next year.
2 INVENTORIES
In millions SEPTEMBER 30, 2002 2001
- -------------------------------------------------------------------
Raw materials and supplies $361.2 $331.3
Work-in-process 80.4 77.2
Finished goods 242.5 203.8
- -------------------------------------------------------------------
FIFO inventories 684.1 612.3
LIFO reserve (30.5) (34.7)
- -------------------------------------------------------------------
Inventories $653.6 $577.6
===================================================================
Inventories valued by the LIFO method of accounting were approximately 39% and
42% of total inventories at September 30, 2002 and 2001, respectively.
3 PROPERTY, PLANT AND EQUIPMENT
In millions SEPTEMBER 30, 2002 2001
- -------------------------------------------------------------------
Buildings and improvements $1,349.2 $ 1,242.9
Machinery and equipment 3,508.2 3,191.1
Construction in progress 267.9 310.7
- -------------------------------------------------------------------
5,125.3 4,744.7
Land 231.3 223.8
- -------------------------------------------------------------------
5,356.6 4,968.5
Less accumulated depreciation (2,911.1) (2,588.7)
- -------------------------------------------------------------------
Property, plant and equipment - net $2,445.5 $ 2,379.8
===================================================================
Interest costs capitalized during 2002, 2001 and 2000 were $10.0 million, $10.5
million and $10.0 million, respectively.
4 GOODWILL AND OTHER INTANGIBLE ASSETS
Effective October 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." Under SFAS No. 142, goodwill will no longer be amortized;
however, it must be tested for impairment at least annually. Amortization will
continue to be recorded for other intangible assets with determinable lives. The
Company's financial statements include comparative adjusted information which
assumes SFAS No. 142 had been adopted October 1, 1999.
The changes in the carrying amount of goodwill for the years ended September 30,
2001 and 2002 were as follows:
Automotive Controls
In millions Systems Group Group Total
- --------------------------------------------------------------------------------
Balance as of September 30, 2000 $ 1,934.8 $ 198.5 $ 2,133.3
Goodwill from business acquisitions 42.4 152.7 195.1
Amortization (59.5) (11.3) (70.8)
Currency translation (7.6) (2.7) (10.3)
- --------------------------------------------------------------------------------
Balance as of September 30, 2001 $ 1,910.1 $ 337.2 $ 2,247.3
Goodwill from business acquisitions 381.0 63.3 444.3
Currency translation 65.7 13.6 79.3
Other (16.3) -- (16.3)
- --------------------------------------------------------------------------------
Balance as of September 30, 2002 $ 2,340.5 $ 414.1 $ 2,754.6
================================================================================
See Note 1 for discussion of goodwill from business acquisitions during fiscal
2002.
The Company's other intangible assets, primarily from acquisitions, consisted
of:
<TABLE>
<CAPTION>
In millions SEPTEMBER 30, 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amortized
intangible assets
Patented
technology $ 211.5 $ (58.4) $ 153.1 $ 164.7 $ (45.8) $ 118.9
Unpatented
technology 51.0 (4.0) 47.0 3.2 (1.0) 2.2
Customer
relationships 34.3 (1.3) 33.0 -- -- --
Miscellaneous 9.7 (5.4) 4.3 9.9 (3.4) 6.5
- ---------------------------------------------------------------------------------------------------------------
Total amortized
intangible assets 306.5 (69.1) 237.4 177.8 (50.2) 127.6
Unamortized
intangible assets
Pension asset 6.1 -- 6.1 8.3 -- 8.3
- ---------------------------------------------------------------------------------------------------------------
Total unamortized
intangible assets 6.1 -- 6.1 8.3 -- 8.3
- ---------------------------------------------------------------------------------------------------------------
Total intangible
assets $ 312.6 $ (69.1) $ 243.5 $ 186.1 $(50.2) $135.9
===============================================================================================================
</TABLE>
See Note 1 for discussion of intangible assets acquired during fiscal 2002.
Amortization of other intangible assets was approximately $17 million and $13
million for the years ended September 30, 2002 and 2001, respectively. Excluding
the impact of any future acquisitions, the Company anticipates that annual
amortization of other intangible assets will approximate $20 million for each of
the next five years.
JOHNSON CONTROLS, INC.
<PAGE>
5 LEASES
Certain administrative and production facilities and equipment are leased under
long-term agreements. Most leases contain renewal options for varying periods,
and certain leases include options to purchase the leased property during or at
the end of the lease term. Leases generally require the Company to pay for
insurance, taxes and maintenance of the property. Leased capital assets included
in net property, plant and equipment, primarily buildings and improvements, were
$83 million and $59 million at September 30, 2002 and 2001, respectively.
Other facilities and equipment are leased under arrangements that are accounted
for as operating leases. Total rental expense was $197 million in 2002, $186
million in 2001 and $167 million in 2000.
Future minimum capital and operating lease payments and the related present
value of capital lease payments at September 30, 2002 were as follows:
<TABLE>
<CAPTION>
Capital Operating
In millions Leases Leases
- --------------------------------------------------------------------
<S> <C> <C>
2003 $17.4 $115.8
2004 16.4 94.2
2005 15.7 70.3
2006 12.2 123.7
2007 7.0 32.1
After 2007 52.0 49.5
- --------------------------------------------------------------------
Total minimum lease payments 120.7 $485.6
====================================================================
Interest 26.1
- --------------------------------------------------------
Present value of net minimum lease payments $94.6
========================================================
</TABLE>
6 SHORT-TERM DEBT AND CREDIT AGREEMENTS
<TABLE>
<CAPTION>
In millions SEPTEMBER 30, 2002 2001
- --------------------------------------------------------------------
<S> <C> <C>
Commercial paper $ -- $320.0
Bank borrowings 105.3 59.9
- --------------------------------------------------------------------
Short-term debt $105.3 $379.9
====================================================================
Weighted average interest rate on
short-term debt outstanding 3.98% 3.50%
====================================================================
</TABLE>
At September 30, 2002, the Company had unsecured lines of credit available from
banks totaling $1.7 billion. The lines of credit are subject to the usual terms
and conditions applied by banks. Domestic lines of credit available for support
of outstanding commercial paper averaged $1.1 billion during the year and were
$1.0 billion at September 30, 2002.
7 LONG-TERM DEBT
<TABLE>
<CAPTION>
In millions SEPTEMBER 30, 2002 2001
- --------------------------------------------------------------------------------
<S> <C> <C>
Unsecured notes
6.06% due in 2003 $ 5.8 $ 11.5
Floating rate note due in 2004 250.0 --
5% due in 2007 ($350 million par value) 371.8 --
6.3% due in 2008 175.0 175.0
7.7% due in 2015 124.8 124.8
7.125% due in 2017 149.1 149.1
8.2% due in 2024 125.0 125.0
6.95% due in 2046 125.0 125.0
Industrial revenue bonds due through 2015,
net of unamortized discount of $0.6 million
in 2002 and $0.9 million in 2001 36.5 50.2
Guaranteed ESOP debt due in increasing annual
installments through 2004 at an average
interest rate of 7.06% (tied in part to LIBOR) 44.6 63.3
Capital lease obligations 94.6 60.5
Foreign-denominated debt:
euro 214.1 368.1
yen 139.5 172.9
Other 10.7 14.7
- --------------------------------------------------------------------------------
Gross long-term debt 1,866.5 1,440.1
Less current portion 39.9 45.3
- --------------------------------------------------------------------------------
Net long-term debt $ 1,826.6 $ 1,394.8
================================================================================
</TABLE>
At September 30, 2002, the Company's euro-denominated long-term debt was
comprised of $110 million of fixed rate debt and $104 million of variable rate
debt. The weighted average interest rate of the fixed and variable portions was
3.95 percent and 3.70 percent, respectively.
During the third and fourth quarters of fiscal 2002, the Company prepaid
long-term euro-denominated bank debt totaling $184 million. The euro-denominated
loans were retired at book value and without penalty.
The Company had yen-denominated long-term debt totaling $140 million at
September 30, 2002. Fixed rate yen debt was equivalent to $85 million with a
weighted average interest rate of 1.74 percent at September 30, 2002. Variable
rate debt was equivalent to $55 million with a weighted average interest rate of
0.45 percent at September 30, 2002.
In November 2001, the Company refinanced a portion of its commercial paper
borrowings attributable to the Sagem and Hoppecke acquisitions by issuing a
total of $600 million of variable and five percent fixed rate notes under the
Company's shelf registration statement on file with the Securities and Exchange
Commission. Variable rate notes in the amount of $250 million, with interest
equal to the three-month LIBOR rate
JOHNSON CONTROLS, INC.
<PAGE>
NOTES TO CONSOLIDATED STATEMENTS
CONTINUED
plus 60 basis points, mature in November 2003. The five percent fixed rate notes
in the amount of $350 million are due in November 2006.
The Company's employee stock ownership plan (ESOP) was financed with debt issued
by the ESOP. The ESOP debt is guaranteed by the Company and, therefore, the
unpaid balance has been recorded as long-term debt. The dividends on the Series
D Preferred Stock held by the ESOP plus Company contributions to the ESOP are
used by the ESOP to service the debt. Therefore, interest incurred on the ESOP
debt of $4 million in 2002, $5 million in 2001, and $6 million in 2000 has not
been reflected as interest expense in the Company's Consolidated Statement of
Income.
The installments of long-term debt maturing in subsequent years (including the
guaranteed ESOP debt) are: 2003 - $40 million, 2004 - $540 million, 2005 - $21
million, 2006 - $119 million, 2007 - $377 million, 2008 and beyond - $770
million. The indentures for the unsecured notes, the foreign-denominated debt
and the guaranteed ESOP debt include various financial covenants, none of which
are expected to restrict future operations.
Total interest paid on both short- and long-term debt was $127 million in 2002
and $137 million in both 2001 and 2000. The Company uses financial instruments
(see Note 8) to manage its interest rate exposure. These instruments affect the
weighted average interest rate of the Company's debt and interest expense.
8 FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, accounts receivable, short-term
debt and accounts payable approximate their carrying values. The fair value of
long-term debt, which was $1,958 million and $1,473 million at September 30,
2002 and 2001, respectively, was determined using market interest rates and
discounted future cash flows.
The Company selectively uses derivative instruments to reduce market risk
associated with changes in foreign currency and interest rates. The use of
derivatives is restricted to those intended for hedging purposes; the use of any
derivative instrument for trading purposes is strictly prohibited. See the
Summary of Significant Accounting Policies for additional information regarding
the Company's objectives for holding certain derivative instruments, its
strategies for achieving those objectives, and its risk management and
accounting policies applicable to these instruments.
The Company has global operations and participates in the foreign exchange
markets to minimize its risk of loss from fluctuations in currency exchange
rates. The Company primarily uses foreign currency exchange contracts to hedge
certain of its foreign currency exposure.
The Company selectively uses interest rate swaps to reduce market risk
associated with changes in interest rates (cash flow or fair value hedges). At
September 30, 2002, the Company had several interest rate swaps outstanding that
hedge against movements in interest rates or the fair value associated with
portions of its long-term debt.
The Company also selectively uses cross-currency interest rate swaps to hedge
the foreign currency exposure associated with its net investment in certain
foreign operations (net investment hedges). Under the swaps, the Company
receives interest based on a variable U.S. dollar rate and pays interest based
on variable yen and euro rates on the outstanding notional principal amounts in
dollars, yen and euro, respectively.
The Company's derivative instruments are recorded at fair value in the
Consolidated Statement of Financial Position as follows:
<TABLE>
<CAPTION>
In millions SEPTEMBER 30, 2002 2001
- ------------------------------------------------------------------------------
Fair Value Fair Value
Notional Asset Notional Asset
(U.S. dollar equivalents) Amount (Liability) Amount (Liability)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTHER NONCURRENT ASSETS
Interest rate swaps $ 250 $ 22 n/a n/a
OTHER CURRENT LIABILITIES
Foreign currency
exchange contracts 1,421 (2) 789 (3)
OTHER NONCURRENT LIABILITIES
Interest rate swaps 303 (8) n/a n/a
Cross-currency interest
rate swaps 509 (30) 32 (2)
- ------------------------------------------------------------------------------
</TABLE>
Fair values noted as not applicable ("n/a") in the table above indicate the
Company had no derivative instruments of that type outstanding at September 30,
2001.
It is important to note that the Company's derivative instruments are hedges
protecting against underlying changes in foreign currency and interest rates.
Accordingly, the implied gains/losses associated with the fair values of foreign
currency exchange contracts and cross-currency interest rate swaps would be
offset by gains/losses on underlying payables, receivables and net investments
in foreign subsidiaries. Similarly, implied gains/losses associated with
interest rate swaps offset changes in interest rates and the fair value of
long-term debt.
The fair values of interest rate and cross-currency interest rate swaps were
determined using dealer quotes and market interest rates. The fair values of
foreign currency exchange contracts were determined using market exchange rates.
JOHNSON CONTROLS, INC.
<PAGE>
The Company had an investment in a marketable security with a fair value of $40
million and $22 million at September 30, 2002 and 2001, respectively. The
investment, classified as an available-for-sale security, is included in the
Consolidated Statement of Financial Position at fair value. Based on the quoted
market price, the unrealized gain on the investment, recorded in the accumulated
OCI account within shareholders' equity, was approximately $18 million at
September 30, 2002, or $11 million net of tax. The unrealized gain will be
recognized in the Consolidated Statement of Income in the first quarter of
fiscal 2003.
9 SHAREHOLDERS' EQUITY
The Company originally issued 341.7969 shares of its 7.75 percent Series D
Convertible Preferred Stock to its ESOP. The Preferred Stock was issued in
fractional amounts representing one ten-thousandth of a share each or 3.4
million Preferred Stock units in total. Each Preferred Stock unit has a
liquidation value of $51.20. The ESOP financed its purchase of the Preferred
Stock units by issuing debt. An amount representing unearned employee
compensation, equivalent in value to the unpaid balance of the ESOP debt, has
been recorded as a deduction from shareholders' equity. The net increase in
shareholders' equity at September 30, 2002 and 2001 resulting from the above
transactions was $59 million and $60 million, respectively.
Preferred Stock units are allocated to participating employees over the term of
the ESOP debt based on the annual ESOP debt service payments and are held in
trust for the employees until their retirement, death or vested termination.
Each allocated unit may be converted into two shares of common stock or redeemed
for $51.20 in cash, at the election of the employee or beneficiary, upon
retirement, death or vested termination. As of September 30, 2002, approximately
2.9 million Preferred Stock units had been allocated to employees. The Company,
at its option, may issue shares of its common stock or distribute cash to the
ESOP to redeem the Preferred Stock units. Employees may vote allocated units,
and the plan trustee is to vote unallocated units in the same proportion as the
allocated units are voted.
Dividends on the Preferred Stock are deductible for income tax purposes and
enter into the determination of earnings available for common shareholders, net
of their tax benefit.
Options to purchase common stock of the Company, at prices equal to or higher
than market values on dates of grant, are granted to key employees under stock
option plans. Stock appreciation rights (SARs) may be granted in conjunction
with the stock option grants under one plan. Options or SARs are exercisable
between two and ten years after date of grant for current employees. Shares
available for future grant under stock option plans were 7.1 million at
September 30, 2002.
Following is a summary of activity in the stock option plans for the three-year
period ending September 30, 2002:
<TABLE>
<CAPTION>
Weighted Shares
Average Subject to
Option Price Option SARs
- --------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding,
September 30, 1999 $ 40.35 4,430,114 1,755,943
Granted 58.41 1,228,800 83,315
Exercised 35.91 (344,908) (88,288)
Cancelled 53.81 (294,974) (122,020)
- --------------------------------------------------------------------
Outstanding,
September 30, 2000 $ 44.28 5,019,032 1,628,950
Granted 56.84 1,508,500 84,020
Exercised 34.64 (1,509,057) (578,885)
Cancelled 57.94 (164,261) (210,300)
- --------------------------------------------------------------------
Outstanding,
September 30, 2001 $ 50.72 4,854,214 923,785
Granted 80.23 1,384,140 164,250
Exercised 42.09 (796,967) (342,090)
Cancelled 63.77 (166,450) (20,800)
- --------------------------------------------------------------------
Outstanding,
September 30, 2002 $ 59.36 5,274,937 725,145
====================================================================
</TABLE>
Options outstanding at September 30, 2002:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Outstanding at Remaining Exercise
September 30, Contractual Price
Range of Exercise Prices 2002 Life (years) per Share
- -------------------------------------------------------------------------
<S> <C> <C> <C>
$22.00 - $33.99 324,738 2.6 $28.87
$34.00 - $45.99 703,514 4.7 $41.40
$46.00 - $57.99 1,977,575 7.5 $57.13
$58.00 - $69.99 936,070 7.0 $58.41
$70.00 - $81.99 1,333,040 9.1 $80.23
=========================================================================
</TABLE>
Options exercisable:
<TABLE>
<CAPTION>
Weighted
Exercisable Average Exercise
Range of Exercise Prices Shares Price per Share
- ------------------------------------------------------------------
<S> <C> <C>
AT SEPTEMBER 30, 2002
$22.00 - $33.99 324,738 $ 28.87
$34.00 - $45.99 703,514 $ 41.40
$46.00 - $57.99 614,720 $ 57.78
$58.00 - $69.99 440,320 $ 58.41
$70.00 - $81.99 8,200 $ 80.23
==================================================================
At September 30, 2001 1,949,618 $ 40.58
- ------------------------------------------------------------------
At September 30, 2000 2,593,516 $ 33.64
==================================================================
</TABLE>
JOHNSON CONTROLS, INC.
<PAGE>
NOTES TO CONSOLIDATED STATEMENTS
CONTINUED
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," to account for employee stock options. Accordingly,
no compensation expense has been recognized for stock option plans.
In fiscal 2003, the Company will voluntarily adopt the expense recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." As
required by the statement, expensing of options will be prospective, and the
expense in 2003 will represent the pro rata portion of the 2003 grant earned
during the three-year vesting period.
Pro forma net income and earnings per share information, as required by SFAS No.
123, "Accounting for Stock-Based Compensation," has been determined as if the
Company had accounted for employee stock options under the fair value method
described by SFAS No. 123.
The fair values of each option and the assumptions used to estimate these values
using the Black-Scholes option pricing model were as follows:
<TABLE>
<CAPTION>
GRANTS ISSUED IN YEAR ENDED SEPTEMBER 30, 2002 2001 2000
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life of option (years) 6 5 6
Risk-free interest rate 3.97% 5.69% 6.18%
Expected volatility of the
Company's stock 22.89% 21.40% 19.94%
Expected dividend yield on the
Company's stock 1.84% 1.87% 2.11%
Fair value of each option $ 19 $ 14 $ 15
================================================================================
</TABLE>
For the purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the three-year vesting period of the
options. The Company's pro forma information follows:
<TABLE>
<CAPTION>
In millions, except per share data
- ----------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2002 2001 2000
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 588.2 $ 469.8 $ 466.4
Earnings per share
Basic $ 6.57 $ 5.31 $ 5.33
Diluted $ 6.22 $ 5.02 $ 5.03
======================================================================
</TABLE>
Net income, basic and diluted earnings per share adjusted as if SFAS No. 142,
"Goodwill and Other Intangible Assets," had been adopted October 1, 1999 were
$533.0, $6.04 and $5.70 in 2001 and $525.2, $6.01 and $5.66 in 2000.
In 2002, the Company adopted a restricted stock plan which provides for the
award of restricted shares of common stock or restricted share units to certain
key employees. Awards under the plan are subject to certain vesting
requirements. There were 158,000 restricted shares or restricted share units
awarded in 2002 with an average fair market value of $80.99 per share.
Compensation expense related to restricted stock awards is based upon market
prices at dates of award and is charged to earnings over the vesting period.
Compensation expense related to the restricted stock plan was $2 million in
2002.
Under the terms of a Rights Agreement, as amended effective November 16, 1994,
each share of the Company's common stock entitles its holder to one Right. The
Rights Agreement provides that if 20 percent or more of the Company's common
stock is acquired, the Rights become exercisable. Further, upon the occurrence
of certain defined events, the Rights entitle the holder to purchase common
stock of the Company or common stock of an "acquiring company" having a market
value equivalent to two times the Right's exercise price of $87.50. In addition,
the Rights Agreement permits the Company's board of directors, in certain
circumstances, to exchange the Rights for shares of common stock. The Rights are
subject to redemption by the board of directors for $.005 per Right. The Rights
have no voting power and expire November 30, 2004.
Approximately $116 million of consolidated retained earnings at September 30,
2002 represents undistributed earnings of the Company's partially-owned
affiliates accounted for by the equity method.
10 EARNINGS PER SHARE
The following table reconciles the numerators and denominators used to calculate
basic and diluted earnings per share for the years ended September 30, 2002,
2001 and 2000:
<TABLE>
<CAPTION>
In millions
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2002 2001 2000
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME AVAILABLE TO
COMMON SHAREHOLDERS
Net income $ 600.5 $ 478.3 $ 472.4
Preferred stock dividends,
net of tax benefit (7.7) (8.8) (9.8)
- --------------------------------------------------------------------------------
Basic income available to
common shareholders $ 592.8 $ 469.5 $ 462.6
================================================================================
Net income $ 600.5 $ 478.3 $ 472.4
Effect of dilutive securities:
Compensation expense, net of tax,
arising from assumed conversion
of preferred stock (2.8) (3.4) (4.4)
- --------------------------------------------------------------------------------
Diluted income available to
common shareholders $ 597.7 $ 474.9 $ 468.0
================================================================================
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic weighted average
shares outstanding 88.4 86.8 85.7
Effect of dilutive securities:
Stock options 1.6 1.4 1.2
Convertible preferred stock 4.1 4.8 5.0
- --------------------------------------------------------------------------------
Diluted weighted average
shares outstanding 94.1 93.0 91.9
================================================================================
</TABLE>
Basic income available to common shareholders adjusted as if SFAS No. 142,
"Goodwill and Other Intangible Assets," had been adopted October 1, 1999 was
$532.9 and $521.5 for 2001 and 2000, respectively. Diluted income available to
common shareholders adjusted for SFAS No. 142 was $538.3 and $526.9,
respectively.
JOHNSON CONTROLS, INC.
<PAGE>
11 RETIREMENT PLANS
PENSION BENEFITS The Company has noncontributory defined benefit pension plans
covering most domestic and certain foreign employees. The benefits provided are
based primarily on years of service and average compensation or a monthly
retirement benefit amount. Funding for domestic pension plans equals or exceeds
the minimum requirements of the Employee Retirement Income Security Act of 1974
(ERISA). Generally, non-U.S. plans are not subject to these or similar
requirements. Also, the Company makes contributions to union-trusteed pension
funds for construction and service personnel.
The majority of plan assets are comprised of equity securities, with the
remainder primarily in fixed income investments. At the measurement dates of
June 30, 2002 and 2001, plan assets included approximately 923,000 and 908,000
shares, respectively, of Johnson Controls, Inc. common stock with total market
values of $75 million and $66 million at the respective dates.
For pension plans with accumulated benefit obligations (ABO) that exceed plan
assets, the projected benefit obligation, ABO and fair value of plan assets of
those plans were $1,567 million, $1,334 million and $1,003 million,
respectively, as of September 30, 2002 and $526 million, $474 million and $211
million, respectively, as of September 30, 2001. The increase in amounts
compared to the prior year primarily reflects the inclusion this year of the
Company's largest U.S. pension plan as its plan assets were less than ABO. In
2001, this plan's assets were more than ABO.
Acquisition-related changes in the non-U.S. plans for 2001 presented in the
table on page 42 relate primarily to the assumption of a defined benefit pension
plan obligation associated with a facility management contract.
SAVINGS AND INVESTMENT PLANS The Company sponsors various defined contribution
savings plans primarily in the U.S. that allow employees to contribute a portion
of their pre-tax and/or after-tax income in accordance with plan specified
guidelines. Under specified conditions, the Company will match a percentage of
the employee contributions up to certain limits. Excluding the ESOP, matching
contributions charged to expense amounted to $26 million, $23 million and $22
million for the years ended 2002, 2001 and 2000, respectively.
The Company established an ESOP (see Note 9) as part of its existing savings and
investment (401(k)) plan, which is available to eligible domestic employees. The
Company's annual contributions to the ESOP, when combined with the Preferred
Stock dividends, are of an amount which will allow the ESOP to meet its debt
service requirements. This contribution amount was $14 million in 2002 and $13
million in 2001 and 2000. Total compensation expense recorded by the Company was
$12 million in 2002, $24 million in 2001 and $30 million in 2000.
POSTRETIREMENT HEALTH AND OTHER BENEFITS The Company provides certain healthcare
and life insurance benefits for eligible retirees and their dependents primarily
in the U.S. Most non-U.S. employees are covered by government sponsored
programs, and the cost to the Company is not significant. The U.S. benefits are
paid as incurred. No change in the Company's practice of funding these benefits
on a pay-as-you-go basis is anticipated.
Eligibility for coverage is based on meeting certain years of service and
retirement age qualifications. These benefits may be subject to deductibles,
co-payment provisions and other limitations, and the Company has reserved the
right to modify these benefits. Effective January 31, 1994, the Company modified
certain salaried plans to place a limit on the Company's cost of future annual
retiree medical benefits at no more than 150 percent of the 1993 cost.
The September 30, 2002 accumulated postretirement benefit obligation was
determined using assumed healthcare cost trend rates of 10 percent for both
pre-65 and post-65 years of age employees. The September 30, 2001 accumulated
postretirement benefit obligation was determined using assumed healthcare cost
trend rates of six percent for both pre-65 and post-65 years of age employees,
respectively. The healthcare cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, a one percentage point change in the
assumed healthcare cost trend rate would have changed the accumulated benefit
obligation by $6 million at September 30, 2002 and the sum of the service and
interest costs in 2002 by $0.5 million.
The table that follows contains a reconciliation of the changes in the benefit
obligation, the changes in plan assets and the funded status.
JOHNSON CONTROLS, INC.
<PAGE>
NOTES TO CONSOLIDATED STATEMENTS
CONTINUED
<TABLE>
<CAPTION>
PENSION
- ------------------------------------------------------------------------------------------------------------------------------------
POSTRETIREMENT
In millions U.S. Plans Non-U.S. Plans HEALTH AND OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2002 2001 2002 2001 2002 2001
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 972.4 $ 869.8 $ 701.7 $ 577.0 $ 160.9 $ 150.7
Service cost 46.4 39.9 23.9 17.0 4.1 4.4
Interest cost 70.2 65.7 28.4 18.9 10.6 10.9
Amendments made during the year 1.4 0.9 -- -- -- (0.3)
Acquisitions 4.2 6.5 7.5 191.1 -- --
Actuarial loss (gain) 34.7 27.8 (25.8) (48.1) 1.4 7.7
Benefits paid (39.8) (38.2) (29.6) (25.7) (13.4) (12.2)
Currency translation adjustment -- -- 19.2 (28.5) (0.3) (0.3)
---------------------------------------------------------------------------
Benefit obligation at end of year $ 1,089.5 $ 972.4 $ 725.3 $ 701.7 $ 163.3 $ 160.9
===========================================================================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 952.7 $ 991.0 $ 417.8 $ 289.2 $ -- $ --
Actual return on plan assets (78.7) (9.6) (34.0) (34.6) -- --
Acquisitions 4.0 5.0 -- 166.6 -- --
Employer and employee contributions 1.9 4.5 36.4 27.6 13.4 12.2
Benefits paid (39.8) (38.2) (29.6) (25.7) (13.4) (12.2)
Currency translation adjustment -- -- 14.0 (5.3) -- --
---------------------------------------------------------------------------
Fair value of plan assets at end of year $ 840.1 $ 952.7 $ 404.6 $ 417.8 $ -- $ --
===========================================================================
Funded status $ (249.4) $ (19.7) $ (320.7) $ (283.9) $ (163.3) $ (160.9)
Unrecognized net transition (asset) obligation (11.2) (13.9) 0.5 1.7 -- --
Unrecognized net actuarial loss (gain) 223.2 8.4 64.8 66.8 3.1 (4.0)
Unrecognized prior service cost 10.9 11.5 1.0 3.9 (21.3) (23.8)
Employer contributions paid between
July 1 and September 30 0.7 0.6 0.8 0.9 -- --
---------------------------------------------------------------------------
Net accrued benefit cost recognized at end of year $ (25.8) $ (13.1) $ (253.6) $ (210.6) $ (181.5) $ (188.7)
===========================================================================
Amounts recognized in the
Statement of Financial Position consist of:
Prepaid benefit cost $ 44.4 $ 38.7 $ 8.3 $ 27.7 $ -- $ --
Accrued benefit liability (86.2) (68.1) (290.4) (248.6) (181.5) (188.7)
Intangible asset 5.0 7.3 1.1 1.0 -- --
Accumulated other comprehensive income 11.0 9.0 27.4 9.3 -- --
---------------------------------------------------------------------------
Net amount recognized $ (25.8) $ (13.1) $ (253.6) $ (210.6) $ (181.5) $ (188.7)
===========================================================================
WEIGHTED AVERAGE ASSUMPTIONS AS OF JUNE 30 (1)
Discount rate 7.00% 7.25% 4.00% 4.00% 7.00% 7.25%
Expected return on plan assets(2) 9.50% 9.75% 4.75% 5.25% N/A N/A
Rate of compensation increase 5.00% 5.00% 3.25% 3.50% N/A N/A
====================================================================================================================================
</TABLE>
(1) Plan assets and obligations are determined based on a June 30 measurement
date utilizing assumptions as of that date. Measurements of net periodic
pension cost are based on the assumptions used for the previous year-end
measurements of assets and obligations.
(2) The expected return on plan assets is based on the Company's expectation of
the long-term average rate of return on assets in the pension funds, which
is reflective of the current and projected asset mix of the funds and
considers the historical returns earned on the funds.
JOHNSON CONTROLS, INC.
<PAGE>
The table that follows contains the components of net periodic benefit cost.
<TABLE>
<CAPTION>
PENSION
- ------------------------------------------------------------------------------------------------------------------------------------
POSTRETIREMENT
In millions U.S. Plans Non-U.S. Plans HEALTH AND OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2002 2001 2000 2002 2001 2000 2002 2001 2000
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 46.4 $ 39.9 $ 37.1 $ 23.9 $ 17.0 $ 4.8 $ 4.1 $ 4.4 $ 4.4
Interest cost 70.2 65.7 59.5 28.4 18.9 10.9 10.6 10.9 10.8
Employee contributions -- -- -- (2.9) (0.6) -- -- -- --
Expected return on plan assets (100.2) (96.7) (87.0) (21.6) (13.4) (8.5) -- -- --
Amortization of transitional asset (2.7) (2.6) (2.6) (0.1) -- (0.1) -- -- --
Amortization of net actuarial loss (gain) 0.4 (2.9) (0.1) 1.5 -- 0.6 0.1 (0.2) 0.2
Amortization of prior service cost 1.8 1.7 1.5 0.2 0.4 0.2 (2.5) (2.5) (2.5)
Curtailment gain (0.8) -- -- -- -- -- (5.0) -- --
--------------------------------------------------------------------------------------
Net periodic benefit cost $ 15.1 $ 5.1 $ 8.4 $ 29.4 $ 22.3 $ 7.9 $ 7.3 $ 12.6 $ 12.9
====================================================================================================================================
</TABLE>
12 RESEARCH AND DEVELOPMENT
Expenditures for research activities relating to product development and
improvement are charged against income as incurred. Such expenditures amounted
to $895 million in 2002, $644 million in 2001 and $611 million in 2000.
A portion of the costs associated with these activities is sponsored by
customers, and totaled $456 million in 2002, $303 million in 2001 and $207
million in 2000.
13 INCOME TAXES
An analysis of effective income tax rates is shown below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 2002 2001 2000
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 2.4 2.7 3.5
Foreign tax expense at different
rates and foreign losses
without tax benefits (1.6) 1.4 2.0
Goodwill -- 2.1 2.0
Other (1.2) (2.5) (2.9)
- --------------------------------------------------------------------------------
Effective income tax rate 34.6% 38.7% 39.6%
================================================================================
</TABLE>
The effective income tax rate, adjusted as if SFAS No. 142, "Goodwill and Other
Intangible Assets," had been adopted October 1, 1999, was 36.6% and 37.6% for
2001 and 2000, respectively. The rates are lower than those shown above due to
the elimination of non-deductible goodwill.
Deferred taxes were classified in the Consolidated Statement of Financial
Position as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions SEPTEMBER 30, 2002 2001
- --------------------------------------------------------------------------------
<S> <C> <C>
Other current assets $173.9 $182.4
Other noncurrent assets 241.4 155.9
Accrued income taxes (4.6) (2.7)
Other noncurrent liabilities (110.1) (35.4)
- --------------------------------------------------------------------------------
Net deferred tax asset $300.6 $300.2
================================================================================
</TABLE>
Temporary differences and carryforwards which gave rise to deferred tax assets
and liabilities included:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions SEPTEMBER 30, 2002 2001
- --------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Accrued expenses and reserves $357.8 $321.5
Employee benefits 114.9 135.2
Net operating loss carryforwards 202.1 90.6
Other 17.7 19.0
- --------------------------------------------------------------------------------
692.5 566.3
Valuation allowance (133.3) (88.7)
- --------------------------------------------------------------------------------
559.2 477.6
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Property, plant and equipment 47.8 45.8
Long-term contracts 10.9 9.5
Joint ventures 11.8 11.0
Intangible assets 83.4 65.9
Other 104.7 45.2
- --------------------------------------------------------------------------------
258.6 177.4
- --------------------------------------------------------------------------------
Net deferred tax asset $300.6 $300.2
================================================================================
</TABLE>
JOHNSON CONTROLS, INC.
<PAGE>
NOTES TO CONSOLIDATED STATEMENTS
CONTINUED
At September 30, 2002, the Company had available foreign net operating loss
carryforwards of approximately $616 million, of which $411 million will expire
at various dates between 2003 and 2012, and the remainder will have an
indefinite carryforward period. The valuation allowance represents loss
carryforwards for which utilization is uncertain because it is unlikely that the
losses will be utilized given the lack of sustained profitability and limited
carryforward periods in certain countries.
Components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
In millions
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2002 2001 2000
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 239.9 $ 149.9 $ 166.0
State 28.7 24.3 33.5
Foreign 86.4 94.7 83.1
- --------------------------------------------------------------------------------
355.0 268.9 282.6
- --------------------------------------------------------------------------------
Deferred
Federal 39.5 45.6 49.6
State 4.9 6.5 6.4
Foreign (51.8) 14.5 0.3
- --------------------------------------------------------------------------------
(7.4) 66.6 56.3
- --------------------------------------------------------------------------------
Provision for income taxes $ 347.6 $ 335.5 $ 338.9
================================================================================
</TABLE>
The provision for income taxes, adjusted as if SFAS No. 142, "Goodwill and Other
Intangible Assets," had been adopted October 1, 1999, was $342.9 and $346.5 for
2001 and 2000, respectively.
Consolidated domestic income before income taxes and minority interests was $862
million in 2002, $608 million in 2001 and $680 million in 2000. The
corresponding amounts for foreign operations were $144 million in 2002, $259
million in 2001 and $176 million in 2000.
Income taxes paid during 2002, 2001 and 2000 were $292 million, $205 million and
$328 million, respectively.
Domestic income taxes have not been provided on undistributed cumulative
earnings of foreign subsidiaries of $612 million which are considered to be
permanently invested. If undistributed earnings were remitted, foreign tax
credits would substantially offset any resulting domestic tax liability.
14 CONTINGENCIES
The Company is involved in a number of proceedings relating to environmental
matters. At September 30, 2002, the Company had an accrued liability of
approximately $32 million relating to environmental matters compared with $28
million one year ago. The Company's environmental liabilities do not take into
consideration any possible recoveries of future insurance proceeds. Because of
the uncertainties associated with environmental remediation activities, the
Company's future expenses to remediate the currently identified sites could be
considerably higher than the accrued liability. 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.
In March 2002, an unfavorable verdict was rendered in a lawsuit involving a
Mexican lead supplier. After a jury trial, a Texas trial court entered judgment
against the Company in this matter and awarded damages to the plaintiff in the
amount of approximately $22 million, plus interest and attorney fees. The
Company and its legal counsel believe that the verdict against the Company in
the trial court was incorrect and that it will be reversed on appeal. While it
is not possible to ascertain the ultimate legal and financial liability with
respect to this lawsuit, the Company believes that the amount of such liability,
if any, in excess of amounts provided, will not have a material impact on the
Company's financial position, results of operations or cash flows.
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.
15 SEGMENT INFORMATION
BUSINESS SEGMENTS The Company has two operating segments, the Automotive Systems
Group and the Controls Group, which also constitute its reportable segments. The
Automotive Systems Group designs and manufactures products for motorized
vehicles. The segment supplies interior systems and batteries for cars, light
trucks and vans. The Controls Group provides control systems and facility
services including comfort, energy and security management for the
non-residential buildings market.
The accounting policies applicable to the reportable segments are the same as
those described in the Summary of Significant Accounting Policies. Management
evaluates the performance of the segments based primarily on operating income.
JOHNSON CONTROLS, INC.
<PAGE>
Operating revenues and expenses are allocated to business segments in
determining segment operating income. Items excluded from the determination of
segment operating income include interest income and expense, equity in earnings
of partially-owned affiliates, gains and losses from sales of businesses and
long-term assets, foreign currency gains and losses, and other miscellaneous
income and expense. Unallocated assets are corporate cash and cash equivalents,
investments in partially-owned affiliates and other non-operating assets.
Financial information relating to the Company's reportable segments is as
follows:
<TABLE>
<CAPTION>
In millions
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2002 2001 2000
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Automotive Systems Group $ 15,014.6 $ 13,620.5 $ 12,738.5
Controls Group 5,088.8 4,806.7 4,416.1
- --------------------------------------------------------------------------------
Total $ 20,103.4 $ 18,427.2 $ 17,154.6
================================================================================
OPERATING INCOME (AS REPORTED)
Automotive Systems Group $ 862.8 $ 720.5 $ 765.2
Controls Group 259.2 240.6 199.8
- --------------------------------------------------------------------------------
Total $ 1,122.0 $ 961.1 $ 965.0
================================================================================
OPERATING INCOME (ADJUSTED)*
Automotive Systems Group $ 862.8 $ 780.0 $ 822.3
Controls Group 259.2 251.9 209.2
- --------------------------------------------------------------------------------
Total $ 1,122.0 $ 1,031.9 $ 1,031.5
================================================================================
ASSETS (YEAR-END)
Automotive Systems Group $ 8,470.6 $ 7,429.1 $ 7,309.9
Controls Group 1,954.8 1,880.0 1,621.0
Unallocated 739.9 602.4 497.1
- --------------------------------------------------------------------------------
Total $ 11,165.3 $ 9,911.5 $ 9,428.0
================================================================================
DEPRECIATION/AMORTIZATION
(AS REPORTED)
Automotive Systems Group $ 457.6 $ 450.0 $ 400.1
Controls Group 59.2 65.9 61.7
- --------------------------------------------------------------------------------
Total $ 516.8 $ 515.9 $ 461.8
================================================================================
DEPRECIATION/AMORTIZATION
(ADJUSTED)*
Automotive Systems Group $ 457.6 $ 390.5 $ 343.0
Controls Group 59.2 54.6 52.3
- --------------------------------------------------------------------------------
Total $ 516.8 $ 445.1 $ 395.3
================================================================================
CAPITAL EXPENDITURES
Automotive Systems Group $ 451.6 $ 549.6 $ 468.8
Controls Group 44.6 71.9 77.9
- --------------------------------------------------------------------------------
Total $ 496.2 $ 621.5 $ 546.7
================================================================================
</TABLE>
*The adjusted information is presented as if SFAS No. 142, "Goodwill and Other
Intangible Assets," had been adopted October 1, 1999. Results have been adjusted
to exclude goodwill amortization expense ($70.8 million and $66.5 million in
fiscal years 2001 and 2000, respectively).
The Company has significant sales to the automotive industry. DaimlerChrysler AG
accounted for 14 percent of the Company's net sales in 2002 and 2001 and 16
percent in 2000; Ford Motor Company accounted for 10 percent in 2002, 11 percent
in 2001 and 13 percent in 2000; and General Motors Corporation accounted for 15
percent in 2002 and 14 percent in 2001 and 2000. Approximately 71 percent of the
Company's 2002 net sales to these customers were in North America, 27 percent
were European sales and 2 percent were attributable to sales in other foreign
markets. As of September 30, 2002, the Company had accounts receivable totaling
approximately $1.0 billion from these customers.
GEOGRAPHIC SEGMENTS Financial information relating to the Company's operations
by geographic area is as follows:
<TABLE>
<CAPTION>
In millions
- ------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2002 2001 2000
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
North America $12,236.9 $11,584.1 $11,325.1
Europe 6,098.3 4,913.4 4,799.7
Other foreign 1,768.2 1,929.7 1,029.8
- ------------------------------------------------------------------------------
Total $20,103.4 $18,427.2 $17,154.6
==============================================================================
LONG-LIVED ASSETS (YEAR-END)
North America $ 1,378.5 $ 1,510.3 $ 1,389.1
Europe 826.7 633.6 565.5
Other foreign 240.3 235.9 350.4
- ------------------------------------------------------------------------------
Total $ 2,445.5 $ 2,379.8 $ 2,305.0
==============================================================================
</TABLE>
Net sales attributed to geographic locations are based on the location of the
assets producing the sales. Long-lived assets by geographic location consist of
net property, plant and equipment.
16 SUBSEQUENT EVENT
On October 31, 2002, the Company acquired Varta AG's Automotive Battery
Division, a major European automotive battery manufacturer headquartered in
Germany. The Varta Automotive Battery Division (Varta) consists of VARTA
Automotive GmbH and the 80% majority ownership in VB Autobatterie GmbH. The
purchase price, which includes the assumption of debt, was approximately $310
million, subject to closing adjustments, and will be financed with short-term
debt. Management believes the acquisition of Varta gives the Company a leading
market position in Europe.
JOHNSON CONTROLS, INC.
<PAGE>
REPORT OF MANAGEMENT
Johnson Controls management has primary responsibility for the Consolidated
Financial Statements and other information included in this annual report and
for ascertaining that the data fairly reflect the Company's financial position
and results of operations. The Company prepared the Consolidated Financial
Statements in accordance with generally accepted accounting principles
appropriate in the circumstances, and such statements necessarily include
amounts that are based on best estimates and judgments with appropriate
consideration given to materiality.
The Company's system of internal control is designated to provide reasonable
assurance that Company assets are safeguarded from loss or unauthorized use or
disposition and that transactions are executed in accordance with management's
authorization and are properly recorded to permit the preparation of financial
statements in accordance with generally accepted accounting principles. This
system is augmented by a careful selection and training of qualified personnel,
a proper division of responsibilities, and dissemination of written policies and
procedures. An internal audit program monitors the effectiveness of this control
system.
The Audit Committee of the Board of Directors consists entirely of directors who
are not employees of the Company. The Audit Committee reviews audit plans,
internal controls, financial reports and related matters and meets regularly
with the internal auditors and independent accountants, both of whom have open
access to the Committee.
PricewaterhouseCoopers LLP, independent accountants, audited the Company's
Consolidated Financial Statements and issued the opinion below.
/s/ John M. Barth
John M. Barth
President and Chief Executive Officer
/s/ Stephen A. Roell
Stephen A. Roell
Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Johnson Controls, Inc.
In our opinion, the statements appearing on pages 29 through 45 of this report
present fairly, in all material respects, the financial position of Johnson
Controls, Inc. and its subsidiaries at September 30, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2002, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 4 to the Consolidated Financial Statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," effective October 1, 2001.
/s/ PriceWaterhouseCoopers LLP
Milwaukee, Wisconsin
October 21, 2002
JOHNSON CONTROLS, INC.
<PAGE>
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
In millions, except per share data
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2002 2001 2000(1) 1999(2) 1998(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 20,103.4 $ 18,427.2 $ 17,154.6 $ 16,139.4 $ 12,586.8
Operating income (As Reported) $ 1,122.0 $ 961.1 $ 965.0 $ 854.9 $ 664.0
Operating income (Adjusted)* $ 1,122.0 $ 1,031.9 $ 1,031.5 $ 923.3 $ 715.8
Net income (As Reported) $ 600.5 $ 478.3 $ 472.4 $ 419.6 $ 337.7
Net income (Adjusted)* $ 600.5 $ 541.7 $ 531.3 $ 479.6 $ 386.0
Earnings per share (As Reported)
Basic $ 6.71 $ 5.41 $ 5.40 $ 4.78 $ 3.88
Diluted $ 6.35 $ 5.11 $ 5.09 $ 4.48 $ 3.63
Earnings per share (Adjusted)*
Basic $ 6.71 $ 6.14 $ 6.09 $ 5.48 $ 4.46
Diluted $ 6.35 $ 5.79 $ 5.73 $ 5.13 $ 4.16
Return on average shareholders' equity(4) 19% 17% 20% 18% 17%
Capital expenditures $ 496.2 $ 621.5 $ 546.7 $ 514.0 $ 468.3
Depreciation $ 499.4 $ 433.7 $ 385.3 $ 363.2 $ 311.2
Number of employees 111,000 112,000 105,000 95,000 89,000
FINANCIAL POSITION
Working capital $ 140.0 $ (35.7) $ (232.8) $ (418.1) $ (884.2)
Total assets $ 11,165.3 $ 9,911.5 $ 9,428.0 $ 8,614.2 $ 7,942.1
Long-term debt $ 1,826.6 $ 1,394.8 $ 1,315.3 $ 1,283.3 $ 997.5
Total debt $ 1,971.8 $ 1,820.0 $ 1,822.8 $ 1,855.1 $ 2,326.4
Shareholders' equity $ 3,499.7 $ 2,985.4 $ 2,576.1 $ 2,270.0 $ 1,941.4
Total debt to total capitalization 36% 38% 41% 45% 55%
Book value per share $ 38.71 $ 33.43 $ 29.39 $ 26.12 $ 22.53
COMMON SHARE INFORMATION
Dividends per share $ 1.32 $ 1.24 $ 1.12 $ 1.00 $ .92
Market prices
High $ 93.20 $ 81.70 $ 70.81 $ 76.69 $ 61.88
Low $ 64.05 $ 46.44 $ 45.81 $ 40.50 $ 42.19
Weighted average shares (in millions)
Basic 88.4 86.8 85.7 85.1 84.5
Diluted 94.1 93.0 91.9 92.1 91.6
Number of shareholders 57,551 59,701 63,863 64,228 62,828
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The adjusted information is presented as if SFAS No. 142, "Goodwill and
Other Intangible Assets," had been adopted October 1, 1997. Results have
been adjusted to exclude goodwill amortization expense ($70.8 million,
$66.5 million, $68.4 million and $51.8 million in fiscal years 2001, 2000,
1999 and 1998, respectively) and the related income tax effect, if
applicable.
(1) Amounts presented in the "Financial Position" section include the effect of
the September 1, 2000 acquisition of Ikeda Bussan Co. Ltd. (Ikeda).
Operating results of Ikeda for September 2000, which were not material,
have not been included in the Consolidated Statement of Income or in the
amounts presented in the "Operating Results" section.
(2) Results include a gain on the sale of the Automotive Systems Group's
Industrial Battery Division, net of a loss related to the disposal of a
small Controls Group operation in the United Kingdom, of $54.6 million
($32.5 million or $.38 per basic share and $.35 per diluted share,
after-tax).
(3) Results include a gain on the sale of the Plastics Machinery Division of
$59.9 million ($35.0 million or $.41 per basic share and $.38 per diluted
share, after-tax).
(4) Return on average shareholders' equity (ROE) represents income from
continuing operations divided by average equity. In calculating ROE, income
from continuing operations for 1999 and 1998 exclude the gains on sales of
businesses.
JOHNSON CONTROLS, INC.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>c73453exv21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE>
EXHIBIT 21
JOHNSON CONTROLS, INC.
Following is a list of significant subsidiaries of the Company, as defined by
section 1.02(w) of Regulation S-X.
<TABLE>
<CAPTION>
JURISDICTION
WHERE
SUBSIDIARY IS
NAME INCORPORATED
- -------------------------------------------------------------------------------------------- -------------
<S> <C>
Beijing Johnson Controls Co. Ltd. China
Brookfield LePage Johnson Controls Facility Management Services, Ltd. Canada
Building Services S.r.l. Italy
Cointer S.r.l. Italy
Comerit S.r.l. Italy
Commerl S.r.l. Italy
Controles Reynosa SA de CV Mexico
Cybertron Systems Pty. Ltd. South Africa
Ensamble de Interiores Automotrices, S. de R.L. de C.V. Mexico
Hoover Universal, Inc. Michigan
Hyperion Corp. Michigan
Ikeda IOM Holdings Malaysia
Intertec Systems, LLC Michigan
JCI Regelungstechnik GmbH Germany
Johnson Control SpA Italy
Johnson Controls & Summit Interiors Ltd. Thailand
Johnson Controls (India) Private Limited India
Johnson Controls (M) Sdn Bhd Malaysia
Johnson Controls (S) Pte. Ltd. Singapore
</TABLE>
<PAGE>
EXHIBIT 21
<TABLE>
<S><C>
Johnson Controls (UK) Ltd. U.K.
Johnson Controls Alagon, S.A. Spain
Johnson Controls Australia Pty. Ltd. Australia
Johnson Controls Austria GmbH Austria
Johnson Controls Automation Systems BV Netherlands
Johnson Controls Automobilove Soucastky s.r.o. Czech Republic
Johnson Controls Automotive (Belgium) NV Belgium
Johnson Controls Automotive (Pty) Ltd. South Africa
Johnson Controls Automotive (UK) Ltd. U.K.
Johnson Controls Automotive Electronics SA France
Johnson Controls Automotive France S.A.S. France
Johnson Controls Automotive Mexico SA de CV Mexico
Johnson Controls Automotive NV Belgium
Johnson Controls Automotive S.r.l. Italy
Johnson Controls Automotive SA France
Johnson Controls Automotive Spain S.A. Spain
Johnson Controls Automotive Systems KK Japan
Johnson Controls Automotive Systems SRL Argentina
Johnson Controls Batterien GmbH & Co. KG Germany
Johnson Controls Batterien Verwaltungsgesellschaft mbH Germany
Johnson Controls Batteries (UK) Ltd. U.K.
Johnson Controls Batteries France SAS France
Johnson Controls Battery Group, Inc. Wisconsin
Johnson Controls Battery Sweden Kommanditbolag Sweden
Johnson Controls de Mexico SA de CV Mexico
</TABLE>
<PAGE>
EXHIBIT 21
<TABLE>
<S><C>
Johnson Controls do Brasil Automotive Ltda. Brazil
Johnson Controls Espana S.L. Spain
Johnson Controls Eurosit SL Spain
Johnson Controls France S.A. France
Johnson Controls GmbH Germany
Johnson Controls GmbH & Co. KG Germany
Johnson Controls Headliner GmbH Germany
Johnson Controls Holding Company, Inc. Delaware
Johnson Controls Holding SAS France
Johnson Controls Hong Kong Ltd. Hong Kong
Johnson Controls IFM Phils Corp Philippines
Johnson Controls II Assentos de Espuma, S.A. Portugal
Johnson Controls Integrated Facility Management BV Netherlands
Johnson Controls Interiors GmbH & Co. KG Germany
Johnson Controls Interiors LLC Michigan
Johnson Controls International spol s.r.o. Czech Republic
Johnson Controls International spol s.r.o. Slovakia
Johnson Controls Investment Company, Inc. Delaware
Johnson Controls Investments (U.K.) Ltd. U.K.
Johnson Controls KK Japan
Johnson Controls Ltd. Canada
Johnson Controls Martorell, S.A. Spain
Johnson Controls Nederland BV Netherlands
Johnson Controls Norden AS Norway
Johnson Controls Objekt Bochum GmbH & Co. KG Germany
</TABLE>
<PAGE>
EXHIBIT 21
<TABLE>
<S><C>
Johnson Controls Objekt Zwickau GmbH & Co. KG Germany
Johnson Controls PanAmerica LLC Pennsylvania
Johnson Controls Roth Freres Insitu Technologie GmbH & Co. KG Germany
Johnson Controls Roth SAS France
Johnson Controls SA/NV Belgium
Johnson Controls Sachsen-Batterien Beteiligungs GmbH Germany
Johnson Controls Sachsen-Batterien GmbH & Co. KG Germany
Johnson Controls SRL Italy
Johnson Controls Sweden AB Sweden
Johnson Controls Systems A.G. Switzerland
Johnson Controls Technology Company Michigan
Johnson Controls Valladolid SAU Spain
Johnson Controls World Services Inc. Florida
MC International SA France
Optima Batteries AB Sweden
Optima Batteries, Inc. Colorado
Sicar BV Netherlands
Sistemas Automotrice Summa SA de CV Mexico
TechnoTrim, Inc. Michigan
Trim Masters Inc. Kentucky
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>7
<FILENAME>c73453exv23.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 and Form S-8 listed below of Johnson Controls, Inc. of
our report dated October 21, 2002 relating to the financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated October 21, 2002 relating to the Financial Statement Schedule,
which appears in this Form 10-K.
1. Post-Effective Amendment No. 6 to Form S-16 on Form S-3 (Registration No.
2-64288)
2. Registration Statement on Form S-8 (Registration No. 33-30309)
3. Registration Statement on Form S-8 (Registration No. 33-31271)
4. Registration Statement on Form S-3 (Registration No. 33-50110)
5. Registration Statement on Form S-8 (Registration No. 33-58092)
6. Registration Statement on Form S-8 (Registration No. 33-58094)
7. Registration Statement on Form S-8 (Registration No. 33-49862)
8. Post-Effective Amendment No. 1 to Form S-8 (Registration No. 33-49862)
9. Registration Statement on Form S-3 (Registration No. 33-57685)
10. Registration Statement on Form S-3 (Registration No. 33-64703)
11. Registration Statement on Form S-8 (Registration No. 333-10707)
12. Registration Statement on Form S-3 (Registration No. 333-13525)
13. Registration Statement on Form S-8 (Registration No. 333-36311)
14. Registration Statement on Form S-8 (Registration No. 333-66073)
15. Registration Statement on Form S-8 (Registration No. 333-41564)
16. Registration Statement on Form S-3 (Registration No. 333-59594)
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
December 16, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>8
<FILENAME>c73453exv99w1.txt
<DESCRIPTION>CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>
EXHIBIT 99.1
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
I, John M. Barth, President and Chief Executive Officer of Johnson Controls,
Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Annual Report on Form 10-K for the year ended September 30,
2002 (the "Periodic Report") which this statement accompanies fully
complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and
(2) information contained in the Periodic Report fairly presents, in
all material respects, the financial condition and results of
operations of Johnson Controls, Inc.
Dated: December 16, 2002
/s/ John M. Barth
------------------
John M. Barth
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>9
<FILENAME>c73453exv99w2.txt
<DESCRIPTION>CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>
EXHIBIT 99.2
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
I, Stephen A. Roell, Senior Vice President and Chief Financial Officer of
Johnson Controls, Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) the Annual Report on Form 10-K for the fiscal year ended September
30, 2002 (the "Periodic Report") which this statement accompanies fully
complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and
(2) information contained in the Periodic Report fairly presents, in
all material respects, the financial condition and results of
operations of Johnson Controls, Inc.
Dated: December 16, 2002
/s/ Stephen A. Roell
--------------------
Stephen A. Roell
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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